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 811-4764 |
Dreyfus Municipal Bond Opportunity Fund (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: | 4/30 | |||
Date of reporting period: | 10/31/08 |
FORM N-CSR |
Item 1. Reports to Stockholders.
Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.dreyfus.com and sign up for Dreyfus eCommunications. It’s simple and only takes a few minutes.
The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured Not Bank-Guaranteed May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the 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 |
23 | Statement of Assets and Liabilities |
24 | Statement of Operations |
25 | Statement of Changes in Net Assets |
27 | Financial Highlights |
31 | Notes to Financial Statements |
40 | Information About the Review and Approval of the Fund’s Management Agreement |
FOR MORE INFORMATION | |
Back Cover | |
The Fund |
Dreyfus Municipal Bond Opportunity Fund |
A LETTER FROM THE CEO Dear Shareholder: |
We present to you this semiannual report for Dreyfus Municipal Bond Opportunity Fund, covering the six-month period from May 1, 2008, through October 31, 2008.
These are difficult times for fixed-income investors.A credit crunch that began in 2007 has developed into a full-blown global financial crisis, recently resulting in the failure of several major financial institutions and prompting a massive government rescue effort.The U.S. economic slowdown also has gathered momentum, depressing investor sentiment and consumer confidence. These factors undermined returns in most bond market sectors, including municipal bonds. Even the traditional safe haven of U.S. government securities has encountered heightened volatility.
The depth and duration of the economic downturn will depend on how quickly the financial system can be stabilized.We believe that the Temporary Guarantee Program for Money Market Funds and the $700 billion rescue package intended to promote greater liquidity in the general financial markets meet several critical requirements for addressing today’s financial stresses, and we expect these measures to contribute to a more orderly deleveraging process. However, recuperation from the financial crisis is likely to take time. In the meantime, we encourage you to keep in touch with your financial advisor and maintain a long-term and disciplined perspective to investing. Indeed, we already are seeing some positive signs, including a likely peak in global inflationary pressures, a bottoming of the U.S. dollar, attractive valuations among municipal securities and a large pool of worldwide financial liquidity that could be deployed gradually as the economic cycle turns.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund’s Portfolio Managers.
Thank you for your continued confidence and support.
Jonathan R. Baum Chief Executive Officer The Dreyfus Corporation |
November 17, 2008 2 |
DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2008, through October 31, 2008, as provided by James Welch and W. Michael Petty, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended October 31, 2008, Dreyfus Municipal Bond Opportunity Fund’s Class A shares produced a total return of –7.47%, Class B shares returned –7.80%, Class C shares returned –7.88% and Class Z shares returned –7.44% .1 The Barclays Capital Municipal Bond Index (the “Index”), the fund’s benchmark, achieved a total return of – 4.70% for the same period.2
Municipal bonds suffered from bouts of poor liquidity and lack of investor confidence in the midst of a financial crisis and economic downturn.The fund produced lower returns than its benchmark, primarily due to its relatively long average maturity and weakness among lower-rated credits.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax to the extent consistent with the preservation of capital.To pursue its goal, the fund normally invests substantially all of its assets in municipal bonds that provide income exempt from federal income tax. The fund invests at least 70% of its assets in investment-grade municipal bonds or the unrated equivalent as determined by Dreyfus. The fund may invest up to 30% of its assets in municipal bonds rated below investment grade or the unrated equivalent as determined by Dreyfus. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
We may buy and sell bonds based on credit quality, market outlook and yield potential. In selecting municipal bonds for investment, we may assess the current interest-rate environment and a municipal bond’s potential volatility in different rate environments. We focus on bonds with the potential to offer attractive current income, typically looking for bonds that can provide consistently attractive current yields or that
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
are trading at competitive market prices. A portion of the fund’s assets may be allocated to“discount”bonds,which are bonds that sell at a price below their face value, or to “premium” bonds, which are bonds that sell at a price above their face value.The fund’s allocation either to discount bonds or to premium bonds will change along with our changing views of the current interest-rate and market environments.We may also look to select bonds that are most likely to obtain attractive prices when sold.
Municipal Bonds Declined in the Financial Crisis
Like other asset classes, municipal bonds encountered heightened volatility during a U.S. economic downturn. Led by slumping home prices, the U.S. economy encountered rising unemployment, a surge in mortgage foreclosures and plummeting consumer confidence. Meanwhile, a credit crunch that began in 2007 mushroomed into a severe global financial crisis, resulting in the failure of several major U.S. financial institutions. Highly leveraged institutional investors were forced to sell creditworthy investments, including municipal bonds, to meet margin calls and redemptions, putting downward pressure on prices. In addition, several major bond insurers suffered massive sub-prime related losses, causing investors to question the value of insurance on municipal bonds.The financial crisis led to severely curtailed liquidity conditions, especially in the shorter-term segments of the municipal bond market.
These developments boosted the supply of longer-term municipal bonds, causing prices to fall and yields to rise. Indeed, February, September and October 2008 represented three of the worst months in the municipal bond market’s history, and for much of the reporting period, tax-exempt yields were significantly higher than those of comparable taxable U.S.Treasury securities.
Lower-Rated, Longer-Term Securities Suffered
The market downturn proved to be particularly damaging to municipal bonds with credit ratings below the AAA range, as risk-averse investors flocked toward the traditional safe havens of U.S. government securities. Because the fund’s strategy for maximizing tax-free income relies on
4
such securities, including an allocation to bonds rated below investment grade, this development detracted from relative performance. In response, we intensified our credit research, and our analysts confirmed the sound underlying credit fundamentals of the fund’s holdings, which we believe were punished too severely in the market downturn.
The fund also was hurt by its relatively long average duration, as market weakness was pronounced among the fund’s holdings with longer-term maturities. Finally, holdings carrying insurance began to trade at lower levels commensurate with their underlying credit quality when investors effectively disregarded third-party credit enhancements.
Whenever market conditions allowed, we attempted to take advantage of historically attractive valuations to upgrade the fund’s income stream. However, these opportunities proved scarce due to limited liquidity.
Maintaining a Cautious Investment Posture
As of the reporting period’s end, the U.S. economy has remained weak, and the financial crisis has persisted. Therefore, over the near term, we intend to maintain a relatively defensive posture. Over the longer term, however, we believe that low valuations, high yields relative to taxable U.S. government securities and the likelihood of rising federal and state taxes make municipal bonds an attractive asset class.
November 17, 2008
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 charges imposed on redemptions in the case of Class B and Class C | ||
shares. Class Z is not subject to any initial or deferred sales charge. Had these charges been | ||
reflected, returns would have been lower. Each share class is subject to a different sales charge and | ||
distribution expense structure and will achieve different returns. Past performance is no guarantee | ||
of future results. Share price, yield and investment return fluctuate such that upon redemption, | ||
fund shares may be worth more or less than their original cost. Income may be subject to state and | ||
local taxes, and some income may be subject to the federal alternative minimum tax (AMT) for | ||
certain investors. Capital gains, if any, are taxable. | ||
2 | SOURCE: LIPPER INC. — Reflects reinvestment of dividends and, where applicable, capital | |
gain distributions.The Barclays Capital Municipal Bond Index is a widely accepted, unmanaged | ||
total return performance benchmark for the long-term, investment-grade, tax-exempt bond market. | ||
Index returns do not reflect fees and expenses associated with operating a mutual fund. |
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 Municipal Bond Opportunity Fund from May 1, 2008 to October 31, 2008. 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 October 31, 2008
Class A | Class B | Class C | Class Z | |||||
Expenses paid per $1,000† | $ 5.00 | $ 7.65 | $ 8.62 | $ 4.76 | ||||
Ending value (after expenses) | $925.30 | $922.00 | $921.20 | $925.60 |
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 October 31, 2008
Class A | Class B | Class C | Class Z | |||||
Expenses paid per $1,000† | $ 5.24 | $ 8.03 | $ 9.05 | $ 4.99 | ||||
Ending value (after expenses) | $1,020.01 | $1,017.24 | $1,016.23 | $1,020.27 |
† Expenses are equal to the fund’s annualized expense ratio of 1.03% for Class A, 1.58% for Class B, 1.78% for |
Class C and .98% for Class Z Shares; multiplied by the average account value over the period, multiplied by 184/365 |
(to reflect the one-half year period). |
6
STATEMENT OF INVESTMENTS | ||||||||
October 31, 2008 (Unaudited) | ||||||||
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments—97.7% | Rate (%) | Date | Amount ($) | Value ($) | ||||
Alabama—.6% | ||||||||
University of Alabama Board of | ||||||||
Trustees, HR (University of | ||||||||
Alabama at Birmingham) | ||||||||
(Insured; MBIA, Inc.) | 5.75 | 9/1/10 | 3,000,000 a | 3,211,230 | ||||
Arizona—3.3% | ||||||||
Arizona Health Facilities | ||||||||
Authority, Health Care | ||||||||
Facilities Revenue (The | ||||||||
Beatitudes Campus Project) | 5.20 | 10/1/37 | 2,400,000 | 1,471,200 | ||||
City of Phoenix, County of | ||||||||
Maricopa and the County of | ||||||||
Pima Industrial Development | ||||||||
Authorities, SFMR | ||||||||
(Collateralized: FHLMC, FNMA | ||||||||
and GNMA) | 5.80 | 12/1/39 | 7,625,000 | 7,067,536 | ||||
Glendale Western Loop 101 Public | ||||||||
Facilities Corporation, Third | ||||||||
Lien Excise Tax Revenue | 7.00 | 7/1/33 | 5,000,000 | 5,222,150 | ||||
Pima County Industrial Development | ||||||||
Authority, Education Revenue | ||||||||
(American Charter Schools | ||||||||
Foundation Project) | 5.63 | 7/1/38 | 5,000,000 | 3,536,400 | ||||
California—8.2% | ||||||||
California, | ||||||||
GO | 5.63 | 5/1/10 | 2,530,000 a | 2,675,424 | ||||
California, | ||||||||
GO (Insured; MBIA, Inc.) | 4.25 | 8/1/33 | 3,525,000 | 2,675,228 | ||||
California Health Facilities | ||||||||
Financing Authority, Revenue | ||||||||
(Providence Health and | ||||||||
Services) | 6.50 | 10/1/38 | 4,000,000 b | 4,011,280 | ||||
California Pollution Control | ||||||||
Financing Authority, PCR (San | ||||||||
Diego Gas and Electric | ||||||||
Company) (Insured; MBIA, Inc.) | 5.90 | 6/1/14 | 12,710,000 | 13,702,143 | ||||
California Statewide Communities | ||||||||
Development Authority, | ||||||||
Environmental Facilities | ||||||||
Revenue (Microgy Holdings Project) | 9.00 | 12/1/38 | 3,500,000 | 3,062,010 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||||
California (continued) | ||||||||||
California Statewide Communities | ||||||||||
Development Authority, Revenue | ||||||||||
(Daughters of Charity Health System) | 5.25 | 7/1/35 | 6,270,000 | 4,364,547 | ||||||
Golden State Tobacco | ||||||||||
Securitization Corporation, | ||||||||||
Tobacco Settlement | ||||||||||
Asset-Backed Bonds | 7.88 | 6/1/13 | 2,170,000 | a | 2,548,622 | |||||
Golden State Tobacco | ||||||||||
Securitization Corporation, | ||||||||||
Tobacco Settlement | ||||||||||
Asset-Backed Bonds | 7.90 | 6/1/13 | 1,920,000 | a | 2,256,922 | |||||
Golden State Tobacco | ||||||||||
Securitization Corporation, | ||||||||||
Tobacco Settlement | ||||||||||
Asset-Backed Bonds | 5.00 | 6/1/33 | 5,000,000 | 3,117,800 | ||||||
Golden State Tobacco | ||||||||||
Securitization Corporation, | ||||||||||
Tobacco Settlement | ||||||||||
Asset-Backed Bonds | 5.13 | 6/1/47 | 3,750,000 | 2,214,375 | ||||||
Lincoln, Community Facilities | ||||||||||
District Number 2003-1, | ||||||||||
Special Tax Bonds (Lincoln | ||||||||||
Crossing Project) | 6.00 | 9/1/13 | 3,145,000 | a | 3,572,311 | |||||
Colorado—5.0% | ||||||||||
Colorado Educational and Cultural | ||||||||||
Facilities Authority, LR | ||||||||||
(Community Colleges of | ||||||||||
Colorado System Headquarters | ||||||||||
Project) (Insured; AMBAC) | 5.50 | 12/1/21 | 1,100,000 | 1,106,754 | ||||||
Colorado Health Facilities | ||||||||||
Authority, Revenue (Poudre | ||||||||||
Hospital) (Insured; FSA) | 5.25 | 3/1/36 | 3,900,000 | 3,587,376 | ||||||
Colorado Housing Finance Authority | ||||||||||
(Single Family Program) | ||||||||||
(Collateralized; FHA) | 7.15 | 10/1/30 | 45,000 | 45,869 | ||||||
Colorado Housing Finance Authority | ||||||||||
(Single Family Program) | ||||||||||
(Collateralized; FHA) | 6.60 | 8/1/32 | 2,460,000 | 2,500,492 | ||||||
Denver City and County, | ||||||||||
Airport Revenue (Insured; | ||||||||||
AMBAC) | 6.00 | 11/15/17 | 5,000,000 | 4,880,850 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||||
Colorado (continued) | ||||||||||
Northwest Parkway Public Highway | ||||||||||
Authority, Revenue | 7.13 | 6/15/11 | 8,250,000 | a | 8,645,010 | |||||
Northwest Parkway Public Highway | ||||||||||
Authority, Revenue (Insured; | ||||||||||
AMBAC) | 0.00 | 6/15/11 | 6,125,000 | a,c | 2,117,168 | |||||
University of Colorado Hospital | ||||||||||
Authority, Revenue | 5.25 | 11/15/39 | 4,810,000 | 3,473,782 | ||||||
Connecticut—1.9% | ||||||||||
Connecticut Health and Educational | ||||||||||
Facilities Authority, Revenue | ||||||||||
(University of Hartford Issue) | ||||||||||
(Insured; Radian) | 5.63 | 7/1/26 | 1,810,000 | 1,625,597 | ||||||
Mashantucket Western Pequot Tribe, | ||||||||||
Special Revenue | 5.75 | 9/1/27 | 8,000,000 | d | 5,950,400 | |||||
Mashantucket Western Pequot Tribe, | ||||||||||
Special Revenue | 6.50 | 9/1/31 | 3,500,000 | d | 2,763,985 | |||||
Florida—9.2% | ||||||||||
Broward County Housing Finance | ||||||||||
Authority, MFHR (Emerald Palms | ||||||||||
Apartments Project) | 5.60 | 7/1/21 | 1,810,000 | 1,646,648 | ||||||
Broward County Housing Finance | ||||||||||
Authority, MFHR (Pembroke | ||||||||||
Villas Project) (Insured; FSA) | 5.55 | 1/1/23 | 1,000,000 | 897,420 | ||||||
Broward County School Board, | ||||||||||
COP (Master Lease Purchase | ||||||||||
Agreement) (Insured; FSA) | 5.00 | 7/1/21 | 1,250,000 | 1,198,925 | ||||||
Capital Projects Finance | ||||||||||
Authority, Revenue (Capital | ||||||||||
Projects Loan Program-AAAE | ||||||||||
Airport Projects) (Insured; | ||||||||||
MBIA, Inc.) | 5.25 | 6/1/14 | 1,485,000 | 1,526,818 | ||||||
Capital Projects Finance | ||||||||||
Authority, Student Housing | ||||||||||
Revenue (Capital Projects Loan | ||||||||||
Program-Florida Universities) | ||||||||||
(Insured; MBIA, Inc.) | 5.50 | 10/1/17 | 2,520,000 | 2,511,104 | ||||||
Escambia County Housing Finance | ||||||||||
Authority, SFMR (Multi-County | ||||||||||
Program) (Collateralized: FNMA | ||||||||||
and GNMA) | 5.50 | 10/1/21 | 1,770,000 | 1,616,346 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||||
Florida (continued) | ||||||||||
Florida Board of Education, | ||||||||||
Lottery Revenue (Insured; FGIC) | 5.00 | 7/1/20 | 1,480,000 | 1,472,141 | ||||||
Florida Department of Children and | ||||||||||
Family Services, COP (South | ||||||||||
Florida Evaluation Treatment | ||||||||||
Center Project) | 5.00 | 10/1/21 | 1,600,000 | 1,541,248 | ||||||
Florida Housing Finance Agency, | ||||||||||
Housing Revenue (Brittany of | ||||||||||
Rosemont Apartments Project) | ||||||||||
(Insured; AMBAC) | 7.00 | 2/1/35 | 6,000,000 | 5,837,760 | ||||||
Florida Intergovernmental Finance | ||||||||||
Commission, Capital Revenue | ||||||||||
(Insured; AMBAC) | 5.00 | 2/1/18 | 1,000,000 | 1,003,510 | ||||||
Florida Intergovernmental Finance | ||||||||||
Commission, Capital Revenue | ||||||||||
(Insured; AMBAC) | 5.13 | 2/1/31 | 1,500,000 | 1,388,325 | ||||||
Highlands County Health Facilities | ||||||||||
Authority, HR (Adventist | ||||||||||
Health System/Sunbelt | ||||||||||
Obligated Group) | 6.00 | 11/15/11 | 2,500,000 | a | 2,739,475 | |||||
Highlands County Health Facilities | ||||||||||
Authority, HR (Adventist | ||||||||||
Health System/Sunbelt | ||||||||||
Obligated Group) | 5.25 | 11/15/16 | 230,000 | a | 249,396 | |||||
Highlands County Health Facilities | ||||||||||
Authority, HR (Adventist | ||||||||||
Health System/Sunbelt | ||||||||||
Obligated Group) | 5.25 | 11/15/36 | 9,250,000 | 7,217,220 | ||||||
Lee County Housing Finance | ||||||||||
Authority, SFMR | ||||||||||
(Collateralized: FHLMC, FNMA | ||||||||||
and GNMA) | 6.30 | 3/1/29 | 75,000 | 75,737 | ||||||
Manatee County Housing Finance | ||||||||||
Authority, SFMR | ||||||||||
(Collateralized; GNMA) | 5.85 | 11/1/33 | 1,120,000 | 965,429 | ||||||
Miami-Dade County, | ||||||||||
Aviation Revenue, Miami | ||||||||||
International Airport (Hub of | ||||||||||
the Americas) (Insured; FSA) | 5.00 | 10/1/33 | 1,285,000 | 972,886 |
10
Long-Term Municipal | Coupon | Maturity | Principal | |||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||||
Florida (continued) | ||||||||||
Miami-Dade County, | ||||||||||
Solid Waste System Revenue | ||||||||||
(Insured; FSA) | 5.50 | 10/1/17 | 2,595,000 | 2,689,276 | ||||||
Miami-Dade County Housing Finance | ||||||||||
Authority, MFMR (Country Club | ||||||||||
Villas II Project) (Insured; FSA) | 5.70 | 7/1/21 | 400,000 | 372,788 | ||||||
Orange County Housing Finance | ||||||||||
Authority, MFHR (Palm Grove | ||||||||||
Gardens) (Collateralized; FNMA) | 5.15 | 1/1/23 | 1,175,000 | 1,087,886 | ||||||
Orange County Housing Finance | ||||||||||
Authority, MFHR (Seminole | ||||||||||
Pointe Apartments) | 5.75 | 12/1/23 | 2,830,000 | 2,286,131 | ||||||
Osceola County Industrial | ||||||||||
Development Authority, Revenue | ||||||||||
(Community Provider Pooled | ||||||||||
Loan Program) | 7.75 | 7/1/17 | 948,000 | 895,547 | ||||||
Palm Bay, | ||||||||||
Educational Facilities Revenue | ||||||||||
(Patriot Charter School Project) | 7.00 | 7/1/36 | 215,000 | 165,918 | ||||||
Palm Bay, | ||||||||||
Utility System Improvement | ||||||||||
Revenue (Insured; FGIC) | 0.00 | 10/1/20 | 1,845,000 | c | 884,364 | |||||
Port of Palm Beach District, | ||||||||||
Revenue (Insured; XLCA) | 0.00 | 9/1/23 | 1,000,000 | c | 407,180 | |||||
Port Saint Lucie, | ||||||||||
Utility System Revenue | ||||||||||
(Insured; MBIA, Inc.) | 0.00 | 9/1/33 | 4,000,000 | c | 760,840 | |||||
Seminole Water Control District, | ||||||||||
Improvement Bonds (Unit of | ||||||||||
Development Number 2) | 6.75 | 8/1/22 | 1,615,000 | 1,525,125 | ||||||
South Indian River Water Control | ||||||||||
District, Special Assessment | ||||||||||
Revenue Improvement (Unit of | ||||||||||
Development RI-13) (Insured; | ||||||||||
MBIA, Inc.) | 5.00 | 8/1/21 | 1,095,000 | 1,024,887 | ||||||
Village Center Community | ||||||||||
Development District, Utility | ||||||||||
Revenue (Insured; MBIA, Inc.) | 5.25 | 10/1/23 | 1,000,000 | 973,740 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Florida (continued) | ||||||||
Winter Park, | ||||||||
Water and Sewer Revenue | ||||||||
(Insured; AMBAC) | 5.38 | 12/1/18 | 1,730,000 | 1,771,572 | ||||
Winter Springs, | ||||||||
Water and Sewer Revenue | ||||||||
(Insured; MBIA, Inc.) | 5.00 | 4/1/20 | 1,585,000 | 1,545,914 | ||||
Georgia—1.9% | ||||||||
College Park Business and | ||||||||
Industrial Development | ||||||||
Authority, Revenue (Civic | ||||||||
Center Project) (Insured; AMBAC) | 5.75 | 9/1/10 | 4,250,000 a | 4,587,578 | ||||
Georgia | 5.25 | 7/1/10 | 5,000,000 a | 5,240,900 | ||||
Illinois—4.3% | ||||||||
Chicago, | ||||||||
SFMR (Collateralized: FHLMC, | ||||||||
FNMA and GNMA) | 6.45 | 9/1/29 | 1,565,000 | 1,582,121 | ||||
Chicago Board of Education, | ||||||||
Unlimited Tax GO (Dedicated | ||||||||
Revenues) | 5.25 | 12/1/25 | 10,000,000 | 9,977,200 | ||||
Illinois Development Finance | ||||||||
Authority, Revenue (Community | ||||||||
Rehabilitation Providers | ||||||||
Facilities Acquisition Program) | 8.75 | 3/1/10 | 67,000 | 67,048 | ||||
Illinois Development Finance | ||||||||
Authority, Revenue (Community | ||||||||
Rehabilitation Providers | ||||||||
Facilities Acquisition Program) | 8.25 | 8/1/12 | 216,484 | 166,292 | ||||
Illinois Educational Facilities | ||||||||
Authority, Revenue | ||||||||
(Northwestern University) | 5.00 | 12/1/38 | 6,250,000 | 5,818,625 | ||||
Metropolitan Pier and Exposition | ||||||||
Authority, Dedicated State Tax | ||||||||
Revenue (McCormick Place | ||||||||
Expansion Project) (Insured; | ||||||||
MBIA, Inc.) | 5.50 | 6/15/23 | 5,000,000 | 5,060,600 | ||||
Kansas—1.4% | ||||||||
Sedgwick and Shawnee Counties, | ||||||||
SFMR (Mortgage-Backed | ||||||||
Securities Program) | ||||||||
(Collateralized: FNMA and GNMA) | 5.55 | 6/1/38 | 2,500,000 | 2,225,650 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Kansas (continued) | ||||||||
Wichita, | ||||||||
HR (Via Christi Health System, Inc.) | 6.25 | 11/15/19 | 2,000,000 | 2,022,980 | ||||
Wichita, | ||||||||
HR (Via Christi Health System, Inc.) | 6.25 | 11/15/20 | 3,000,000 | 3,016,230 | ||||
Kentucky—2.3% | ||||||||
Mount Sterling, | ||||||||
LR (Kentucky League of Cities | ||||||||
Funding Trust Program) | 6.10 | 3/1/18 | 5,500,000 | 5,855,190 | ||||
Pendleton County, | ||||||||
Multi-County LR (Kentucky | ||||||||
Association of Counties | ||||||||
Leasing Trust Program) | 6.40 | 3/1/19 | 6,000,000 | 6,555,420 | ||||
Louisiana—1.0% | ||||||||
Louisiana Housing Finance Agency, | ||||||||
SFMR (Home Ownership Program) | ||||||||
(Collateralized: FNMA and GNMA) | 6.40 | 12/1/30 | 1,340,000 | 1,368,127 | ||||
Louisiana Local Government | ||||||||
Environmental Facilities and | ||||||||
Community Development | ||||||||
Authority, Revenue (Westlake | ||||||||
Chemical Corporation Projects) | 6.75 | 11/1/32 | 5,000,000 | 3,803,700 | ||||
Maryland—.9% | ||||||||
Maryland Health and Higher | ||||||||
Educational Facilities | ||||||||
Authority, Revenue (The Johns | ||||||||
Hopkins University Issue) | 5.25 | 7/1/38 | 5,000,000 | 4,882,100 | ||||
Massachusetts—2.9% | ||||||||
Massachusetts Health and | ||||||||
Educational Facilities | ||||||||
Authority, Revenue | ||||||||
(Massachusetts Institute of | ||||||||
Technology Issue) | 5.25 | 7/1/30 | 9,485,000 | 9,657,058 | ||||
Massachusetts Industrial Finance | ||||||||
Agency, Water Treatment | ||||||||
Revenue (Massachusetts- | ||||||||
American Hingham Project) | 6.95 | 12/1/35 | 2,450,000 | 2,426,211 | ||||
Route 3 North Transportation | ||||||||
Improvement Association, LR | ||||||||
(Insured; MBIA, Inc.) | 5.75 | 6/15/10 | 3,000,000 a | 3,166,440 |
The Fund 13
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||||
Michigan—5.8% | ||||||||||
Detroit School District, | ||||||||||
School Building and Site | ||||||||||
Improvement Bonds (GO— | ||||||||||
Unlimited Tax) (Insured; FGIC) | 5.00 | 5/1/28 | 5,000,000 | 4,652,350 | ||||||
Michigan Building Authority, | ||||||||||
Revenue (Facilities Program) | ||||||||||
(Insured; FSA) | 5.50 | 10/15/18 | 1,500,000 | 1,566,360 | ||||||
Michigan Building Authority, | ||||||||||
Revenue (Facilities Program) | ||||||||||
(Insured; FSA) | 5.50 | 10/15/19 | 8,500,000 | 8,811,355 | ||||||
Michigan Strategic Fund, | ||||||||||
SWDR (Genesee Power Station | ||||||||||
Project) | 7.50 | 1/1/21 | 7,525,000 | 6,278,935 | ||||||
Pontiac Tax Increment Finance | ||||||||||
Authority, Tax Increment | ||||||||||
Revenue (Development Area | ||||||||||
Number 3) | 6.25 | 6/1/12 | 2,640,000 | a | 2,924,090 | |||||
Pontiac Tax Increment Finance | ||||||||||
Authority, Tax Increment | ||||||||||
Revenue (Development Area | ||||||||||
Number 3) | 6.25 | 6/1/22 | 610,000 | 475,934 | ||||||
Romulus Economic Development | ||||||||||
Corporation, Limited | ||||||||||
Obligation EDR (Romulus HIR | ||||||||||
Limited Partnership Project) | ||||||||||
(Insured; ITT Lyndon Property | ||||||||||
Insurance Company) | 7.00 | 11/1/15 | 5,000,000 | 5,908,300 | ||||||
Minnesota—1.6% | ||||||||||
Chaska, | ||||||||||
Electric Revenue | 6.00 | 10/1/10 | 2,000,000 | a | 2,128,020 | |||||
Minnesota Housing | ||||||||||
Finance Agency, | ||||||||||
SFMR | 5.95 | 1/1/17 | 405,000 | 410,326 | ||||||
Saint Paul Housing and | ||||||||||
Redevelopment Authority, | ||||||||||
Hospital Facility Revenue | ||||||||||
(HealthEast Project) | 6.00 | 11/15/30 | 3,000,000 | 2,331,930 | ||||||
Saint Paul Housing and | ||||||||||
Redevelopment Authority, | ||||||||||
Hospital Facility Revenue | ||||||||||
(HealthEast Project) | 6.00 | 11/15/35 | 4,855,000 | 3,687,858 |
14
Long-Term Municipal | Coupon | Maturity | Principal | |||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||||
Mississippi—.3% | ||||||||||
Mississippi Home Corporation, | ||||||||||
SFMR (Collateralized; GNMA) | 6.95 | 12/1/31 | 1,570,000 | 1,606,864 | ||||||
Missouri—2.2% | ||||||||||
Missouri Development Finance | ||||||||||
Board, Infrastructure | ||||||||||
Facilities Revenue (Branson | ||||||||||
Landing Project) | 5.38 | 12/1/27 | 2,470,000 | 1,904,469 | ||||||
Missouri Health and Educational | ||||||||||
Facilities Authority, Health | ||||||||||
Facilities Revenue (Saint | ||||||||||
Anthony’s Medical Center) | 6.13 | 12/1/10 | 4,000,000 | a | 4,333,080 | |||||
Missouri Highways and | ||||||||||
Transportation Commission, | ||||||||||
Second Lien State Road Revenue | 5.25 | 5/1/22 | 5,000,000 | 5,161,500 | ||||||
Missouri Housing Development | ||||||||||
Commission, SFMR | ||||||||||
(Homeownership Loan Program) | ||||||||||
(Collateralized: FNMA and GNMA) | 6.30 | 9/1/25 | 95,000 | 95,819 | ||||||
New Jersey—3.7% | ||||||||||
New Jersey Turnpike Authority, | ||||||||||
Turnpike Revenue (Insured; | ||||||||||
MBIA, Inc.) | 5.50 | 1/1/10 | 6,000,000 | a | 6,227,700 | |||||
New Jersey Turnpike Authority, | ||||||||||
Turnpike Revenue (Insured; | ||||||||||
MBIA, Inc.) | 6.00 | 1/1/11 | 6,995,000 | 7,409,034 | ||||||
Tobacco Settlement Financing | ||||||||||
Corporation of New Jersey, | ||||||||||
Tobacco Settlement | ||||||||||
Asset-Backed Bonds | 7.00 | 6/1/13 | 5,135,000 | a | 5,928,563 | |||||
New Mexico—1.2% | ||||||||||
Farmington, | ||||||||||
PCR (Public Service Company of | ||||||||||
New Mexico San Juan Project) | 6.38 | 4/1/22 | 1,430,000 | 1,189,388 | ||||||
Jicarilla Apache Nation, | ||||||||||
Revenue | 5.50 | 9/1/23 | 5,000,000 | 4,924,900 | ||||||
New York—6.9% | ||||||||||
Austin Trust | ||||||||||
(Port Authority of New York | ||||||||||
and New Jersey, Consolidated | ||||||||||
Bonds, 151th Series) | 6.00 | 9/15/28 | 9,690,000 | d,e | 9,689,709 |
The Fund 15
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
New York (continued) | ||||||||
Long Island Power Authority, | ||||||||
Electric System General Revenue | 6.00 | 5/1/33 | 5,000,000 | 5,011,600 | ||||
New York City Industrial | ||||||||
Development Agency, Special | ||||||||
Facility Revenue (American | ||||||||
Airlines, Inc. John F. Kennedy | ||||||||
International Airport Project) | 7.13 | 8/1/11 | 3,555,000 | 3,238,605 | ||||
New York City Industrial | ||||||||
Development Agency, Special | ||||||||
Facility Revenue (American | ||||||||
Airlines, Inc. John F. Kennedy | ||||||||
International Airport Project) | 8.00 | 8/1/28 | 3,000,000 | 2,159,670 | ||||
New York City Municipal Water | ||||||||
Finance Authority, Water and | ||||||||
Sewer System Revenue | 6.00 | 6/15/10 | 3,085,000 a | 3,296,600 | ||||
New York State Dormitory | ||||||||
Authority, Revenue (New York | ||||||||
University) (Insured; MBIA, Inc.) | 6.00 | 7/1/17 | 3,500,000 | 3,907,680 | ||||
New York State Dormitory | ||||||||
Authority, Revenue (Orange | ||||||||
Regional Medical Center | ||||||||
Obligated Group) | 6.25 | 12/1/37 | 5,000,000 | 3,755,500 | ||||
New York State Dormitory | ||||||||
Authority, Revenue (Rochester | ||||||||
Institute of Technology) | ||||||||
(Insured; AMBAC) | 5.25 | 7/1/24 | 3,345,000 | 3,292,149 | ||||
New York State Dormitory | ||||||||
Authority, Revenue (State | ||||||||
University Educational Facilities) | 7.50 | 5/15/13 | 2,500,000 | 2,885,400 | ||||
North Carolina—3.4% | ||||||||
North Carolina Eastern Municipal | ||||||||
Power Agency, Power System | ||||||||
Revenue | 7.00 | 1/1/13 | 3,500,000 | 3,700,095 | ||||
North Carolina Eastern Municipal | ||||||||
Power Agency, Power System | ||||||||
Revenue (Insured; ACA) | 6.75 | 1/1/26 | 5,000,000 | 5,026,300 | ||||
North Carolina Medical Care | ||||||||
Commission, Revenue (North | ||||||||
Carolina Housing Foundation, | ||||||||
Inc.) (Insured; ACA) | 6.45 | 8/15/20 | 1,000,000 | 829,670 |
16
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
North Carolina (continued) | ||||||||
North Carolina Medical Care | ||||||||
Commission, Revenue (North | �� | |||||||
Carolina Housing Foundation, | ||||||||
Inc.) (Insured; ACA) | 6.63 | 8/15/30 | 2,565,000 | 1,996,109 | ||||
University of North Carolina | ||||||||
Board of Governors of the | ||||||||
University of North Carolina | ||||||||
at Chapel Hill, | ||||||||
General Revenue | 5.00 | 12/1/34 | 6,600,000 | 6,241,422 | ||||
Ohio—4.3% | ||||||||
Buckeye Tobacco Settlement | ||||||||
Financing Authority, | ||||||||
Tobacco Settlement | ||||||||
Asset-Backed Bonds | 6.50 | 6/1/47 | 11,000,000 | 7,581,750 | ||||
Cleveland-Cuyahoga County Port | ||||||||
Authority, Senior Special | ||||||||
Assessment/Tax Increment | ||||||||
Revenue (University Heights— | ||||||||
Public Parking Garage Project) | 7.35 | 12/1/31 | 3,000,000 | 2,799,090 | ||||
Cuyahoga County, | ||||||||
Hospital Facilities Revenue | ||||||||
(UHHS/CSAHS-Cuyahoga, Inc. | ||||||||
and CSAHS/UHHS-Canton, Inc. | ||||||||
Project) | 7.50 | 1/1/30 | 7,000,000 | 7,124,390 | ||||
Hamilton County, | ||||||||
Sales Tax Refunding and | ||||||||
Improvement Bonds (Insured; | ||||||||
AMBAC) | 0.00 | 12/1/25 | 14,865,000 c | 5,272,764 | ||||
Oklahoma—2.1% | ||||||||
McGee Creek Authority, | ||||||||
Water Revenue (Insured; MBIA, | ||||||||
Inc.) | 6.00 | 1/1/13 | 6,880,000 | 7,182,926 | ||||
Oklahoma Municipal Power | ||||||||
Authority, Power Supply | ||||||||
System Revenue | 6.00 | 1/1/38 | 4,000,000 | 4,002,400 | ||||
Oregon—.7% | ||||||||
Portland, | ||||||||
Sewer System Revenue | ||||||||
(Insured; FGIC) | 5.75 | 8/1/10 | 3,500,000 a | 3,705,065 |
The Fund 17
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Pennsylvania—3.1% | ||||||||
Butler County Industrial | ||||||||
Development Authority, Health | ||||||||
Care Facilities Revenue (Saint | ||||||||
John Lutheran Care Center | ||||||||
Project) (Collateralized; GNMA) | 5.85 | 4/20/36 | 4,210,000 | 4,119,864 | ||||
Pennsylvania Economic Development | ||||||||
Financing Authority, SWDR (USG | ||||||||
Corporation Project) | 6.00 | 6/1/31 | 5,000,000 | 3,240,800 | ||||
Pennsylvania Turnpike Commission, | ||||||||
Registration Fee Revenue | ||||||||
(Insured; FSA) | 5.25 | 7/15/28 | 9,375,000 | 9,340,031 | ||||
South Carolina—1.1% | ||||||||
South Carolina Public Service | ||||||||
Authority, Revenue Obligations | 5.50 | 1/1/38 | 6,000,000 | 5,755,800 | ||||
Tennessee—2.1% | ||||||||
Johnson City Health and | ||||||||
Educational Facilities Board, | ||||||||
Hospital First Mortgage | ||||||||
Revenue (Mountain States | ||||||||
Health Alliance) | 5.50 | 7/1/31 | 7,455,000 | 5,426,495 | ||||
Memphis Center City Revenue | ||||||||
Finance Corporation, Sports | ||||||||
Facility Revenue (Memphis | ||||||||
Redbirds Baseball Foundation | ||||||||
Project) | 6.50 | 9/1/28 | 8,000,000 | 5,676,080 | ||||
Texas—6.9% | ||||||||
Alliance Airport Authority Inc., | ||||||||
Special Facilities Revenue | ||||||||
(American Airlines, Inc. Project) | 5.75 | 12/1/29 | 3,000,000 | 1,053,480 | ||||
Austin Convention Enterprises | ||||||||
Inc., Convention Center Hotel | ||||||||
First Tier Revenue | 6.70 | 1/1/11 | 5,000,000 a | 5,385,550 | ||||
Brazos River Authority, | ||||||||
PCR (TXU Electric Company | ||||||||
Project) | 8.25 | 5/1/33 | 4,000,000 | 3,169,520 | ||||
Brazos River Authority, | ||||||||
PCR (TXU Energy Company LLC | ||||||||
Project) | 5.00 | 3/1/41 | 3,000,000 | 1,456,380 | ||||
Brazos River Authority, | ||||||||
Revenue (Reliant Energy, Inc. | ||||||||
Project) | 5.38 | 4/1/19 | 3,250,000 | 2,451,247 |
18
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Texas (continued) | ||||||||
Brazos River Harbor Navigation | ||||||||
District, Revenue (The Dow | ||||||||
Chemical Company Project) | 4.95 | 5/15/33 | 2,600,000 | 1,843,140 | ||||
Cities of Dallas and Fort Worth, | ||||||||
Dallas/Fort Worth | ||||||||
International Airport, Joint | ||||||||
Revenue (Insured; FSA) | 5.50 | 11/1/21 | 3,000,000 | 2,685,270 | ||||
North Texas Tollway Authority, | ||||||||
First Tier System Revenue | 5.75 | 1/1/40 | 11,850,000 | 10,467,816 | ||||
North Texas Tollway Authority, | ||||||||
Second Tier System Revenue | 5.75 | 1/1/38 | 5,510,000 | 4,651,762 | ||||
Texas Turnpike Authority, | ||||||||
Central Texas Turnpike System | ||||||||
Revenue (Insured; AMBAC) | 5.75 | 8/15/38 | 3,500,000 | 3,224,655 | ||||
Washington—2.3% | ||||||||
Washington Public Power Supply | ||||||||
System, Revenue (Nuclear | ||||||||
Project Number 3) (Insured; | ||||||||
MBIA, Inc.) | 7.13 | 7/1/16 | 10,425,000 | 12,300,458 | ||||
West Virginia—1.0% | ||||||||
The County Commission of | ||||||||
Pleasants County, PCR | ||||||||
(Allegheny Energy Supply | ||||||||
Company, LLC Pleasants | ||||||||
Station Project) | 5.25 | 10/15/37 | 3,500,000 | 2,551,955 | ||||
West Virginia Hospital Finance | ||||||||
Authority, HR (Charleston Area | ||||||||
Medical Center, Inc.) | 6.00 | 9/1/10 | 2,440,000 a | 2,619,486 | ||||
Wisconsin—4.2% | ||||||||
Badger Tobacco Asset | ||||||||
Securitization Corporation, | ||||||||
Tobacco Settlement | ||||||||
Asset-Backed Bonds | 6.13 | 6/1/27 | 4,140,000 | 3,944,095 | ||||
Badger Tobacco Asset | ||||||||
Securitization Corporation, | ||||||||
Tobacco Settlement | ||||||||
Asset-Backed Bonds | 7.00 | 6/1/28 | 13,350,000 | 13,278,577 | ||||
Wisconsin Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Aurora Health Care, Inc.) | 6.40 | 4/15/33 | 5,500,000 | 4,890,105 |
The Fund 19
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
U.S. Related—1.9% | ||||||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | ||||||||
(Insured; MBIA, Inc.) | 5.25 | 7/1/13 | 6,000,000 | 6,073,740 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | ||||||||
(Insured; MBIA, Inc.) | 5.65 | 7/1/15 | 4,000,000 | 4,090,960 | ||||
Total Long-Term | ||||||||
Municipal Investments | ||||||||
(cost $557,513,806) | 518,490,422 | |||||||
Short-Term Municipal | ||||||||
Investment—1.4% | ||||||||
Colorado; | ||||||||
Denver City and County, | ||||||||
Airport System Revenue, | ||||||||
Refunding (Insured; MBIA, Inc. | ||||||||
and Liquidity Facility; Bank One) | ||||||||
(cost $7,170,000) | 9.00 | 11/7/08 | 7,170,000 f | 7,170,000 | ||||
Total Investments (cost $564,683,806) | 99.1% | 525,660,422 | ||||||
Cash and Receivables (Net) | .9% | 4,981,414 | ||||||
Net Assets | 100.0% | 530,641,836 |
a These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are |
collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on |
the municipal issue and to retire the bonds in full at the earliest refunding date. |
b Purchased on a delayed delivery basis. |
c Security issued with a zero coupon. Income is recognized through the accretion of discount. |
d Securities exempt from registration under Rule 144A of the Securities Act of 1933.These securities may be resold in |
transactions exempt from registration, normally to qualified institutional buyers.At October 31, 2008, these securities |
amounted to $18,404,094 or 3.5% of net assets. |
e Collateral for floating rate borrowings. |
f Variable rate demand note—rate shown is the interest rate in effect at October 31, 2008. Maturity date represents |
the next demand date, or the ultimate maturity date if earlier. |
20
Summary of Abbreviations | ||||||
ABAG | Association of Bay Area Governments | ACA | American Capital Access | |||
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company | |||
AMBAC | American Municipal Bond | |||||
Assurance Corporation | ARRN | Adjustable Rate Receipt Notes | ||||
BAN | Bond Anticipation Notes | BIGI | Bond Investors Guaranty Insurance | |||
BPA | Bond Purchase Agreement | CGIC | Capital Guaranty Insurance Company | |||
CIC | Continental Insurance Company | CIFG | CDC Ixis Financial Guaranty | |||
CMAC | Capital Market Assurance Corporation | COP | Certificate of Participation | |||
CP | Commercial Paper | EDR | Economic Development Revenue | |||
EIR | Environmental Improvement Revenue | FGIC | Financial Guaranty Insurance | |||
Company | ||||||
FHA | Federal Housing Administration | FHLB | Federal Home Loan Bank | |||
FHLMC | Federal Home Loan Mortgage | FNMA | Federal National | |||
Corporation | Mortgage Association | |||||
FSA | Financial Security Assurance | GAN | Grant Anticipation Notes | |||
GIC | Guaranteed Investment Contract | GNMA | Government National | |||
Mortgage Association | ||||||
GO | General Obligation | HR | Hospital Revenue | |||
IDB | Industrial Development Board | IDC | Industrial Development Corporation | |||
IDR | Industrial Development Revenue | LOC | Letter of Credit | |||
LOR | Limited Obligation Revenue | LR | Lease Revenue | |||
MFHR | Multi-Family Housing Revenue | MFMR | Multi-Family Mortgage Revenue | |||
PCR | Pollution Control Revenue | PILOT | Payment in Lieu of Taxes | |||
RAC | Revenue Anticipation Certificates | RAN | Revenue Anticipation Notes | |||
RAW | Revenue Anticipation Warrants | RRR | Resources Recovery Revenue | |||
SAAN | State Aid Anticipation Notes | SBPA | Standby Bond Purchase Agreement | |||
SFHR | Single Family Housing Revenue | SFMR | Single Family Mortgage Revenue | |||
SONYMA | State of New York Mortgage Agency | SWDR | Solid Waste Disposal Revenue | |||
TAN | Tax Anticipation Notes | TAW | Tax Anticipation Warrants | |||
TRAN | Tax and Revenue Anticipation Notes | XLCA | XL Capital Assurance |
The Fund 21
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Combined Ratings (Unaudited) | ||||||||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† | |||||
AAA | Aaa | AAA | 32.8 | |||||||
AA | Aa | AA | 23.1 | |||||||
A | A | A | 13.0 | |||||||
BBB | Baa | BBB | 15.1 | |||||||
BB | Ba | BB | 3.7 | |||||||
B | B | B | 3.3 | |||||||
CCC | Caa | CCC | .5 | |||||||
F1 | MIG1/P1 | SP1/A1 | 1.4 | |||||||
Not Rated g | Not Rated g | Not Rated g | 7.1 | |||||||
100.0 |
† | Based on total investments. | |
g | Securities which, while not rated by Fitch, Moody’s and Standard & Poor’s, have been determined by the Manager to | |
be of comparable quality to those rated securities in which the fund may invest. | ||
See notes to financial statements. |
22
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2008 (Unaudited)
Cost | Value | |||||||
Assets ($): | ||||||||
Investments in securities—See Statement of Investments | 564,683,806 | 525,660,422 | ||||||
Receivable for investment securities sold | 12,571,901 | |||||||
Interest receivable | 10,084,837 | |||||||
Receivable for shares of Beneficial Interest subscribed | 71,144 | |||||||
Prepaid expenses and other assets | 299,377 | |||||||
548,687,681 | ||||||||
Liabilities ($): | ||||||||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 426,117 | |||||||
Cash overdraft due to Custodian | 6,256,530 | |||||||
Payable for investment securities purchased | 5,865,220 | |||||||
Payable for floating rate notes issued—Note 4 | 4,845,000 | |||||||
Payable for shares of Beneficial Interest redeemed | 531,050 | |||||||
Interest and expense payable related | ||||||||
to floating rate notes issued—Note 4 | 30,152 | |||||||
Accrued expenses | 91,776 | |||||||
18,045,845 | ||||||||
Net Assets ($) | 530,641,836 | |||||||
Composition of Net Assets ($): | ||||||||
Paid-in capital | 627,964,447 | |||||||
Accumulated undistributed investment income—net | 17,269 | |||||||
Accumulated net realized gain (loss) on investments | (58,316,496) | |||||||
Accumulated net unrealized appreciation | ||||||||
(depreciation) on investments | (39,023,384) | |||||||
Net Assets ($) | 530,641,836 | |||||||
Net Asset Value Per Share | ||||||||
Class A | Class B | Class C | Class Z | |||||
Net Assets ($) | 268,163,755 | 6,431,389 | 12,321,035 | 243,725,657 | ||||
Shares Outstanding | 23,636,802 | 566,561 | 1,084,392 | 21,482,758 | ||||
Net Asset Value Per Share ($) | 11.35 | 11.35 | 11.36 | 11.35 | ||||
See notes to financial statements. |
The Fund 23
STATEMENT OF OPERATIONS | ||
Six Months Ended October 31, 2008 (Unaudited) | ||
Investment Income ($): | ||
Interest Income | 16,801,928 | |
Expenses: | ||
Management fee—Note 3(a) | 1,619,783 | |
Shareholder servicing costs—Note 3(c) | 865,812 | |
Interest and expense related to | ||
floating rate notes issued—Note 4 | 342,578 | |
Distribution fees—Note 3(b) | 67,569 | |
Professional fees | 36,350 | |
Registration fees | 33,063 | |
Custodian fees—Note 3(c) | 32,379 | |
Prospectus and shareholders’ reports | 14,411 | |
Trustees’ fees and expenses—Note 3(d) | 9,242 | |
Loan commitment fees—Note 2 | 2,651 | |
Interest expense—Note 2 | 203 | |
Miscellaneous | 29,005 | |
Total Expenses | 3,053,046 | |
Less—reduction in fees due | ||
to earnings credits—Note 1(b) | (14,908) | |
Net Expenses | 3,038,138 | |
Investment Income—Net | 13,763,790 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | (8,062,485) | |
Net realized gain (loss) on financial futures | 211,625 | |
Net Realized Gain (Loss) | (7,850,860) | |
Net unrealized appreciation (depreciation) on investments | (49,904,872) | |
Net Realized and Unrealized Gain (Loss) on Investments | (57,755,732) | |
Net (Decrease) in Net Assets Resulting from Operations | (43,991,942) | |
See notes to financial statements. |
24
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2008 | Year Ended | |||
(Unaudited) | April 30, 2008 | |||
Operations ($): | ||||
Investment income—net | 13,763,790 | 26,322,223 | ||
Net realized gain (loss) on investments | (7,850,860) | (5,030,933) | ||
Net unrealized appreciation | ||||
(depreciation) on investments | (49,904,872) | (19,790,039) | ||
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | (43,991,942) | 1,501,251 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (6,893,980) | (12,205,656) | ||
Class B Shares | (161,683) | (389,945) | ||
Class C Shares | (251,082) | (422,610) | ||
Class Z Shares | (6,439,776) | (13,297,453) | ||
Total Dividends | (13,746,521) | (26,315,664) | ||
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 10,741,679 | 19,713,056 | ||
Class B Shares | 680,078 | 1,335,172 | ||
Class C Shares | 2,107,926 | 2,494,973 | ||
Class Z Shares | 4,101,766 | 8,075,856 | ||
Net assets received in connection | ||||
with reorganization—Note 1 | — | 75,827,457 | ||
Dividends reinvested: | ||||
Class A Shares | 4,519,894 | 7,960,418 | ||
Class B Shares | 100,053 | 230,569 | ||
Class C Shares | 154,564 | 254,674 | ||
Class Z Shares | 4,584,056 | 9,202,687 | ||
Cost of shares redeemed: | ||||
Class A Shares | (18,927,085) | (40,609,156) | ||
Class B Shares | (3,366,738) | (6,958,891) | ||
Class C Shares | (1,235,564) | (2,739,225) | ||
Class Z Shares | (22,547,648) | (27,260,622) | ||
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | (19,087,019) | 47,526,968 | ||
Total Increase (Decrease) in Net Assets | (76,825,482) | 22,712,555 | ||
Net Assets ($): | ||||
Beginning of Period | 607,467,318 | 584,754,763 | ||
End of Period | 530,641,836 | 607,467,318 | ||
Undistributed investment income—net | 17,269 | — |
The Fund 25
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||||
October 31, 2008 | Year Ended | |||
(Unaudited) | April 30, 2008 | |||
Capital Share Transactions: | ||||
Class Aa | ||||
Shares sold | 873,071 | 1,538,513 | ||
Shares issued in connection with | ||||
reorganization—Note 1 | — | 5,433,955 | ||
Shares issued for dividends reinvested | 372,591 | 627,299 | ||
Shares redeemed | (1,562,987) | (3,188,279) | ||
Net Increase (Decrease) in Shares Outstanding | (317,325) | 4,411,488 | ||
Class Ba | ||||
Shares sold | 56,413 | 105,095 | ||
Shares issued in connection with | ||||
reorganization—Note 1 | — | 294,375 | ||
Shares issued for dividends reinvested | 8,221 | 18,142 | ||
Shares redeemed | (272,171) | (543,612) | ||
Net Increase (Decrease) in Shares Outstanding | (207,537) | (126,000) | ||
Class C | ||||
Shares sold | 173,512 | 195,473 | ||
Shares issued in connection with | ||||
reorganization—Note 1 | — | 216,723 | ||
Shares issued for dividends reinvested | 12,739 | 20,046 | ||
Shares redeemed | (102,021) | (215,078) | ||
Net Increase (Decrease) in Shares Outstanding | 84,230 | 217,164 | ||
Class Z | ||||
Shares sold | 333,216 | 625,853 | ||
Shares issued for dividends reinvested | 377,847 | 724,521 | ||
Shares redeemed | (1,844,261) | (2,136,912) | ||
Net Increase (Decrease) in Shares Outstanding | (1,133,198) | (786,538) |
a | During the period ended October 31, 2008, 142,297 Class B shares representing $1,765,438 were automatically | |
converted to 142,393 Class A shares and during the period ended April 30, 2008, 280,628 Class B shares | ||
representing $3,590,148 were automatically converted to 280,789 Class A shares. | ||
See notes to financial statements. |
26
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2008 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 12.56 | 13.10 | 12.91 | 13.12 | 12.81 | 13.04 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .29 | .57 | .57 | .59 | .59 | .60 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | (1.21) | (.54) | .18 | (.21) | .31 | (.24) | ||||||
Total from Investment Operations | (.92) | .03 | .75 | .38 | .90 | .36 | ||||||
Distributions: | ||||||||||||
Dividends from investment | ||||||||||||
income—net | (.29) | (.57) | (.56) | (.59) | (.59) | (.59) | ||||||
Net asset value, end of period | 11.35 | 12.56 | 13.10 | 12.91 | 13.12 | 12.81 | ||||||
Total Return (%)b | (7.47)c | .28 | 5.94 | 2.93 | 7.18 | 2.80 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.04d | 1.17 | 1.16 | 1.09 | 1.03 | 1.00 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.03d | 1.17e | 1.16e | 1.09e | 1.02 | 1.00 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 4.67d | 4.49 | 4.33 | 4.51 | 4.54 | 4.57 | ||||||
Portfolio Turnover Rate | 31.27c | 77.20 | 68.06 | 48.31 | 48.30 | 91.43 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 268,164 | 300,982 | 256,047 | 258,504 | 279,612 | 293,083 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
The Fund 27
FINANCIAL HIGHLIGHTS (continued) |
Six Months Ended | ||||||||||||
October 31, 2008 | Year Ended April 30, | |||||||||||
Class B Shares | (Unaudited) | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 12.57 | 13.11 | 12.91 | 13.12 | 12.82 | 13.05 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .25 | .49 | .49 | .52 | .52 | .53 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | (1.22) | (.53) | .21 | (.21) | .31 | (.23) | ||||||
Total from Investment Operations | (.97) | (.04) | .70 | .31 | .83 | .30 | ||||||
Distributions: | ||||||||||||
Dividends from investment | ||||||||||||
income—net | (.25) | (.50) | (.50) | (.52) | (.53) | (.53) | ||||||
Net asset value, end of period | 11.35 | 12.57 | 13.11 | 12.91 | 13.12 | 12.82 | ||||||
Total Return (%)b | 7.80c | (.25) | 5.48 | 2.40 | 6.64 | 2.20 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.59d | 1.67 | 1.67 | 1.61 | 1.54 | 1.51 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.58d | 1.67e | 1.67e | 1.61e | 1.54e | 1.51 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 4.12d | 3.95 | 3.81 | 3.99 | 4.02 | 4.06 | ||||||
Portfolio Turnover Rate | 31.27c | 77.20 | 68.06 | 48.31 | 48.30 | 91.43 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 6,431 | 9,732 | 11,799 | 16,462 | 21,192 | 29,471 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01% | |
See notes to financial statements. |
28
Six Months Ended | ||||||||||||
October 31, 2008 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 12.58 | 13.12 | 12.93 | 13.14 | 12.83 | 13.06 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .24 | .47 | .47 | .49 | .49 | .50 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | (1.22) | (.53) | .19 | (.21) | .32 | (.23) | ||||||
Total from Investment Operations | (.98) | (.06) | .66 | .28 | .81 | .27 | ||||||
Distributions: | ||||||||||||
Dividends from investment | ||||||||||||
income—net | (.24) | (.48) | (.47) | (.49) | (.50) | (.50) | ||||||
Net asset value, end of period | 11.36 | 12.58 | 13.12 | 12.93 | 13.14 | 12.83 | ||||||
Total Return (%)b | (7.88)c | (.46) | 5.16 | 2.18 | 6.40 | 2.06 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.78d | 1.91 | 1.89 | 1.82 | 1.76 | 1.73 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.78d,e | 1.91e | 1.89e | 1.82e | 1.76e | 1.73 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.93d | 3.74 | 3.58 | 3.78 | 3.81 | 3.84 | ||||||
Portfolio Turnover Rate | 31.27c | 77.20 | 68.06 | 48.31 | 48.30 | 91.43 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 12,321 | 12,586 | 10,274 | 9,121 | 9,158 | 11,261 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
The Fund 29
FINANCIAL HIGHLIGHTS (continued) |
Six Months Ended | ||||||||||
October 31, 2008 | Year Ended April 30, | |||||||||
Class Z Shares | (Unaudited) | 2008 | 2007 | 2006 | 2005a | |||||
Per Share Data ($): | ||||||||||
Net asset value, | ||||||||||
beginning of period | 12.56 | 13.10 | 12.91 | 13.12 | 13.09 | |||||
Investment Operations: | ||||||||||
Investment income—netb | .29 | .58 | .57 | .60 | .32 | |||||
Net realized and unrealized | ||||||||||
gain (loss) on investments | (1.21) | (.54) | .19 | (.21) | .03 | |||||
Total from Investment Operations | (.92) | .04 | .76 | .39 | .35 | |||||
Distributions: | ||||||||||
Dividends from investment | ||||||||||
income—net | (.29) | (.58) | (.57) | (.60) | (.32) | |||||
Net asset value, end of period | 11.35 | 12.56 | 13.10 | 12.91 | 13.12 | |||||
Total Return (%) | (7.44)c | .33 | 6.00 | 2.99 | 2.71c | |||||
Ratios/Supplemental Data (%): | ||||||||||
Ratio of total expenses | ||||||||||
to average net assets | .98d | 1.08 | 1.10 | 1.03 | .98d | |||||
Ratio of net expenses | ||||||||||
to average net assets | .98d,e | 1.08e | 1.10e | 1.03e | .96d | |||||
Ratio of net investment income | ||||||||||
to average net assets | 4.72d | 4.53 | 4.38 | 4.57 | 4.49d | |||||
Portfolio Turnover Rate | 31.27c | 77.20 | 68.06 | 48.31 | 48.30 | |||||
Net Assets, end of period ($ x 1,000) | 243,726 | 284,168 | 306,634 | 324,537 | 350,202 |
a | From October 14, 2004 (commencement of initial offering) to April 30, 2005. | |
b | Based on average shares outstanding at each month end. | |
c | Not Annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
30
NOTES TO FINANCIAL STATEMENTS ( U n a u d i t e d )
NOTE 1—Significant Accounting Policies:
Dreyfus Municipal Bond Opportunity Fund (the “fund”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a diversified open-end management investment company.The fund’s investment objective is to maximize current income exempt from federal income tax to the extent consistent with the preservation of cap-ital.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.
At a meeting of the fund’s Board of Trustees held on July 22, 2008, the Board approved, effective December 1, 2008, a proposal to change the name of the fund from “Dreyfus Premier Municipal Bond Fund” to “Dreyfus Municipal Bond Opportunity Fund”.
Effective July 1, 2008, BNY Mellon has reorganized and consolidated a number of its banking and trust company subsidiaries. As a result of the reorganization, any services previously provided to the fund by Mellon Bank, N.A. or Mellon Trust of New England, N.A. are now provided by The Bank of New York, which has changed its name to The Bank of New York Mellon.
As of the close of business on November 27, 2007, pursuant to an Agreement and Plan of Reorganization previously approved by the fund’s Board of Trustees, all of the assets, subject to the liabilities, of Dreyfus Premier State Municipal Bond Fund, Florida Series (“Florida Series”) were transferred to the fund in exchange for corresponding class of shares of Beneficial Interest of the fund of equal value. Shareholders of Class A, Class B and Class C shares of the Florida Series received Class A, Class B and Class C shares of the fund, respectively, in each case in an equal amount to the aggregate net asset value of their investment in the Florida Series at the time of the exchange. The net asset value of the fund’s shares on the close of business on November 27, 2007, after the reorganization, was $12.75 for Class A, $12.76 for Class B and $12.77 for Class C, and a total of 5,433,955 Class A shares, 294,375 Class B shares
The Fund 31
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
and 216,723 Class C shares, representing net assets of $75,827,457 (including $1,541,384 net unrealized appreciation on investments) were issued to the Florida Series shareholders in the exchange.The exchange was a tax-free event to the Florida Series shareholders.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares. The fund is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Class A, Class B, Class C and Class Z. Class A shares are subject to a sales charge imposed at the time of purchase. Class B shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class B share redemptions made within six years of purchase and automatically convert to Class A shares after six years.The fund no longer offers Class B shares, except in connection with dividend reinvestment and permitted exchanges of Class B shares. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Class Z shares are sold at net asset value per share generally only to shareholders who received Class Z shares in exchange for their shares of General Municipal Bond Fund, Inc. as a result of the reorganization of such fund. Class Z shares generally are not available for new accounts. 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’s financial statements are prepared in accordance with U.S. generally accepted accounting principles, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
The fund 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.
32
(a) Portfolio valuation: Investments in securities are valued each business day by an independent pricing service (the “Service”) approved by the Board of Trustees. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market cond itions. Options and financial futures on municipal and U.S.Treasury securities are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market on each business day.
The Financial Accounting Standards Board (“FASB”) released Statement of Financial Accounting Standards No. 157 “Fair Value Measurements” (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. The application of FAS 157 is required for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.
Various inputs are used in determining the value of the fund’s investments relating to FAS 157.
These inputs are summarized in the three broad levels listed below.
Level 1—quoted prices in active markets for identical securities. Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) Level 3—significant unobservable inputs (including fund’s own assumptions in determining the fair value of investments).
The Fund 33
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 October 31, 2008 in valuing the fund’s investments carried at fair value:
Investments in | Other Financial | |||
Valuation Inputs | Securities ($) | Instruments ($)† | ||
Level 1—Quoted Prices | 0 | 0 | ||
Level 2—Other Significant | ||||
Observable Inputs | 525,660,422 | 0 | ||
Level 3—Significant | ||||
Unobservable Inputs | 0 | 0 | ||
Total | 525,660,422 | 0 |
† | Other financial instruments include derivative instruments, such as futures, forward currency | |
exchange contracts and swap contracts, which are valued at the unrealized appreciation | ||
(depreciation) on the instrument. |
(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. Interest income, adjusted for accretion of discount and amortization of premium on investments, is earned from settlement date and recognized on the accrual basis. Securities purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date.
The fund has arrangements with the custodian and cash management banks 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) Dividends to shareholders: It is the policy of the fund to declare dividends daily from investment income-net. Such dividends are paid monthly. Dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”).To the extent that net realized capital gains can be offset by capital loss carry-
34
overs, 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 U.S. generally accepted accounting principles.
(d) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
The fund adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Liability for tax positions not deemed to meet the more likely-than-not threshold would be recorded as a tax expense in the current year.The adoption of FIN 48 had no impact on the operations of the fund for the period ended October 31, 2008
As of and during the period ended October 31, 2008, the fund did not have any liabilities for any unrecognized tax positions. The fund recognizes interest and penalties, if any, related to unrecognized 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 April 30, 2008 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $45,721,132 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to April 30, 2008. If not applied,
The Fund 35
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
$9,553,959 of the carryover expires in fiscal 2009, $17,083,173 expires in fiscal 2010, $10,384,676 expires in fiscal 2011, $7,789,252 expires in fiscal 2012 and $910,072 expires in fiscal 2016.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2008 was as follows: tax exempt income $26,315,664. The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
Prior to October 15, 2008, the fund participated with other Dreyfus-managed funds in a $350 million redemption credit facility. Effective October 15, 2008, the fund participates with other Dreyfus-managed funds in a $145 million redemption credit facility (the “Facility”) to be utilized for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay commitment fees on its pro rata portion of the Facility. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowing.
The average daily amount of borrowings outstanding under the Facilities during the period ended October 31, 2008 was approximately $9,000, with a related weighted average annualized interest rate of 2.25% .
NOTE 3—Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement with the Manager, the management fee is computed at the annual rate of .55% of the value of the fund’s average daily net assets and is payable monthly.
During the period ended October 31, 2008, the Distributor retained $6,372 and $159 from commissions earned on sales of the fund’s Class A and Class Z shares, respectively, and $9,236 and $1,025 from CDSCs on redemptions of the fund’s Class B and Class C shares, respectively.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class B and Class C shares pay the
36
Distributor for distributing their shares at an annual rate of .50% of the value of the average daily net assets of Class B shares and .75% of the value of the average daily net assets of Class C shares. During the period ended October 31, 2008, Class B and Class C shares were charged $19,634 and $47,935, respectively, pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A, Class B, Class C and Class Z shares pay the Distributor at an annual rate of .25% of the value of the average daily net assets of Class A, Class B and Class C shares and .20% of the value of the average daily net assets of Class Z shares, for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund 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 October 31, 2008, Class A, Class B, Class C a nd Class Z shares were charged $369,252, $9,817, $15,978 and $272,974, respectively, pursuant to the Shareholder Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the fund. During the period ended October 31, 2008, the fund was charged $119,274 pursuant to the transfer agency agreement.
The fund compensates The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2008, the fund was charged $9,638 pursuant to the cash management agreement.
The Fund 37
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The fund compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended October 31, 2008, the fund was charged $32,379 pursuant to the custody agreement.
During the period ended October 31, 2008, the fund was charged $2,959 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 $250,171, Rule 12b-1 distribution plan fees $10,514, shareholder services plan fees $103,291, custodian fees $19,368, chief compliance officer fees $1,973 and transfer agency per account fees $40,800.
(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 financial futures, during the period ended October 31, 2008, amounted to $188,790,628 and $184,939,742, respectively.
The fund may invest in financial futures contracts in order to gain exposure to or protect against changes in the market.The fund is exposed to market risk as a result of changes in the value of the underlying financial instruments. Investments in financial futures require the fund to “mark to market” on a daily basis, which reflects the change in the market value of the contract at the close of each day’s trading.Accordingly, variation margin payments are received or made to reflect daily unrealized gains or losses.When the contracts are closed, the fund recognizes a realized gain or loss.These investments require initial margin deposits with a broker, which consist of cash or cash equivalents.The amount of these deposits is determined by the exchange or Board of Trade on which the contract is traded and is subject to change. At October 31, 2008, there were no financial futures contracts outstanding.
38
The fund may participate in secondary inverse floater Structures in which fixed-rate, tax-exempt municipal bonds purchased by the fund are transferred to a trust.The trust subsequently issues two or more variable rate securities that are collateralized by the cash flows of the fixed-rate, tax-exempt municipal bonds. One or more of these variable rate securities pays interest based on a short-term floating rate set by a remar-keting agent at predetermined intervals. A residual interest tax-exempt security is also created by the trust, which is transferred to the fund, and is paid interest based on the remaining cash flow of the trust, after payment of interest on the other securities and various expenses of the trust.
The fund accounts for the transfer of bonds to the trusts as secured borrowings, with the securities transferred remaining in the fund’s investments, and the related floating rate certificate securities reflected as fund liabilities under the caption, “Payable for floating rate notes issued” in the Statement of Assets and Liabilities.
At October 31, 2008, accumulated net unrealized depreciation on investments was $39,023,384, consisting of $10,822,125 gross unrealized appreciation and $49,845,509 gross unrealized depreciation.
At October 31, 2008, 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).
In March 2008, the FASB released Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“FAS 161”). FAS 161 requires 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 application of FAS 161 is required for fiscal years and interim periods beginning after November 15, 2008. At this time, management is evaluating the implications of FAS 161 and its impact on the financial statements and the accompanying notes has not yet been determined.
The Fund 39
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited)
At a meeting of the Board of Trustees held on July 22, 2008, the Board considered the re-approval for an annual period of the fund’s Management Agreement, pursuant to which the Manager provides the fund with investment advisory and administrative services. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager.
Analysis of Nature, Extent and Quality of Services Provided to the Fund. The Board members considered information previously provided to them in a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus fund complex, and representatives of the Manager confirmed that there had been no material changes in this information. The Board also discussed the nature, extent and quality of the services provided to the fund pursuant to its Management Agreement.The Manager’s representatives reviewed the fund’s distribution of accounts and the relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services in each distribution channel, including those of the fund. The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements. The Board members also considered the Manager’s extensive administrative, accounting and compliance infrastructure.
Comparative Analysis of the Fund’s Performance, Management Fee and Expense Ratio. The Board members reviewed reports prepared by Lipper, Inc., an independent provider of investment company data,
40
comparing the fund’s performance to a group of comparable funds (the “Performance Group”) and to a broader group of funds (the “Performance Universe”) selected by Lipper. The Board members had been provided with a description of the methodology Lipper used to select the Performance Group and Performance Universe, as well as the Expense Group and Expense Universe (discussed below). The Board members noted that the fund’s yield performance for the past ten one-year periods ended May 31 (1999-2008) was higher than the Performance Group and the Performance Universe medians for each reported time period, except for the one-year period ended May 31, 1999 when the fund’s yield performance was slightly below the Performance Group median.The Board members then reviewed the fund’s total return performance for various periods ended May 31, 2008, and noted that the fund’s total return performance was above th e Performance Group medians for the three-, four- and five-year periods, and below for the one-, two- and ten-year periods, and that the fund’s total return performance was above the Performance Universe medians for the two-, three-, four- and five-year periods and below the Performance Universe medians for the one- and ten-year periods. The Manager also provided a comparison of the fund’s calendar year total returns to the returns of its Lipper category average for the prior ten calendar years.
The Board members also discussed the fund’s management fee and expense ratio as compared to a comparable group of funds (the “Expense Group”) that was composed of the same funds included in the Performance Group and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper. The Board noted that the fund’s management fee and total expense ratio were higher than the Expense Group and Expense Universe medians.
Representatives of the Manager reviewed with the Board members the fees paid to the Manager or its affiliates by mutual funds managed by the Manager or its affiliates with similar investment objectives, policies and strategies, and included in the same Lipper category, as the fund (the “Similar Funds”).The Manager’s representatives also reviewed the
The Fund 41
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued)
costs associated with distribution through intermediaries. The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided. The Board members considered the relevance of the fee information provided for the Similar Funds to evaluate the appropriateness and reasonableness of the fund’s management fee. Representatives of the Manager informed the Board members that there were no separate accounts or wrap fee accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex. The Board members also had been informed that the methodology also had been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of a fund. The Board members evaluated the profitability analysis in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders.The Board members also considered potential benefits to the Manager and its affiliates from acting as investment adviser to the fund and noted that there were no soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a
42
discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It was also noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
- The Board concluded that the nature, extent and quality of the services provided by the Manager to the fund are adequate and appropriate.
- The Board generally was satisfied with the fund’s performance.
- The Board concluded that the fee paid to the Manager by the fund was reasonable in light of the services provided, comparative perfor- mance and expense and management fee information, costs of the services provided, and profits to be realized and benefits derived or to be derived by the Manager from its relationship with the fund.
- The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the man- agement of the fund had been adequately considered by the Manager in connection with the management fee rate charged to the fund and that, to the extent in the future it were to be determined that mate- rial economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with the information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
The Fund 43
N OT E S
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. |
The Registrant has a Nominating Committee (the "Committee"), which is responsible for selecting and nominating persons for election or appointment by the Registrant's Board as Board members. The Committee has adopted a Nominating Committee Charter (the "Charter"). Pursuant to the Charter, the Committee will consider recommendations for nominees from shareholders submitted to the Secretary of the Registrant, c/o The Dreyfus Corporation Legal Department, 200 Park Avenue, 8th Floor East, New York, New York 10166. A nomination submission must include information regarding the recommended nominee as specified in the Charter. This information includes all information relating to a recommended nominee that is required to be disclosed in solicitations or proxy statements for the election of Board members, as well as information sufficient to evaluate the factors to be considered by the Committee, including character and integrity, business and professional experience, and whether the person has the ability to apply sound and independent business judgment and would act in the interests of the Registrant and its shareholders. Nomination submissions are required to be accompanied by a written consent of the individual to stand for election if nominated by the Board and to serve if elected by the shareholders, and such additional information must be provided regarding the recommended nominee as reasonably requested by the Committee.
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.
Dreyfus Municipal Bond Opportunity Fund | ||
By: | /s/ J. David Officer | |
J. David Officer, | ||
President | ||
Date: | December 18, 2008 |
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/ J. David Officer | |
J. David Officer, | ||
President | ||
Date: | December 18, 2008 | |
By: | /s/ James Windels | |
James Windels, | ||
Treasurer | ||
Date: | December 18, 2008 |
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) |