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 | 811-04813 |
Dreyfus Investment Funds
(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: | 9/30 | |
Date of reporting period: | 3/31/2010 |
The following N-CSR relates only to the Registrant’s series listed below and does not affect the other series of the Registrant, which have a different fiscal year end and, therefore, different N-CSR reporting requirements. Separate N-CSR Forms will be filed for those series, as appropriate.
-Dreyfus/The Boston Company Emerging Markets Core Equity Fund |
-Dreyfus/The Boston Company International Core Equity Fund |
-Dreyfus/The Boston Company Large Cap Core Fund |
-Dreyfus/The Boston Company Small Cap Growth Fund |
-Dreyfus/The Boston Company Small Cap Tax-Sensitive Equity Fund |
-Dreyfus/The Boston Company small Cap Value Fund |
-Dreyfus/The Boston Company Small/Mid Growth Fund |
-Dreyfus/Standish Intermediate Tax Exempt Bond Fund |
-Dreyfus/Newton International Equity Fund |
1
FORM N-CSR
Item 1. | Reports to Stockholders. |
2
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
13 | Statement of Assets and Liabilities |
14 | Statement of Operations |
15 | Statement of Changes in Net Assets |
17 | Financial Highlights |
20 | Notes to Financial Statements |
34 | Information About the Review and Approval of the Fund’s Investment Advisory Agreement |
FOR MORE INFORMATION | |
Back Cover |
Dreyfus/The Boston
Company Emerging
Markets Core Equity Fund
The Fund
A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus/The Boston Company Emerging Markets Core Equity Fund, covering the six-month period from October 1, 2009, through March 31, 2010.
The equity markets continued to produce some of the most dramatic performance returns in recent years off of the March 2009 lows, as efforts to support the global economic recovery appeared to gain traction.The “risk trade,” in which assets are shifted from conservative to more aggressive investments to take advantage of improving market conditions, continued to benefit investors in both U.S. and international markets. However, since the beginning of 2010, recent overseas credit concerns have dampened international markets to an extent, which might be an implication that this trend is moderating.
We believe that sustained global and U.S. economic expansions should proceed at an above-trend pace in 2010, the result of macroeconomic stimulation adopted by nearly every country in the world over the last year. As for the worldwide stock markets, positive returns over the foreseeable future are likely to be delivered through in-depth research and a selective security evaluation process. If you have questions about equities, your financial advisor is best suited to provide current market perspectives relative to your portfolio and to discuss potential opportunities which may match your current expectations and your long-term investment targets.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
Jonathan R. Baum
Chairman & Chief Executive Officer
The Dreyfus Corporation
April 15, 2010
2
DISCUSSION OF FUND PERFORMANCE
For the period of October 1, 2009, through March 31, 2010, as provided by Sean P. Fitzgibbon, CFA, and Jay Malikowski, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended March 31, 2010, Dreyfus/The Boston Company Emerging Markets Core Equity Fund’s Class A shares produced a total return of 9.47%, Class C shares returned 8.95% and Class I shares returned 9.76%.1 In comparison, the fund’s benchmark, the Morgan Stanley Capital International Emerging Markets Index (the “MSCI EM Index”), produced a total return of 11.24% for the same period.2 Stocks in the world’s emerging markets encountered heightened volatility over the reporting period, as the global economy recovered from a recession even while Europe’s Mediterranean markets suffered through a sovereign debt crisis.The fund produced lower returns than its benchmark, which we primarily attribute to security selection shortfalls in Mexico, South Africa and Russia.
Effective January 8, 2010, Sean P. Fitzgibbon and Jay Malikowski became the fund’s co-primary portfolio managers.
The Fund’s Investment Approach
The fund seeks long-term growth of capital. To pursue this goal, the fund normally invests at least 80% of its assets in equity securities of companies that are located in foreign countries represented in the MSCI EM Index. The fund may invest up to 20% of its net assets in fixed income securities and may invest in preferred stocks of any credit quality if common stocks of the relevant company are not available.The fund employs a “bottom-up” investment approach, which emphasizes individual stock selection.
Economic Recovery, Debt Crisis Sparked Volatility
The reporting period witnessed the continuation of a global economic recovery that began early in 2009. Although unemployment remained stubbornly high in many regions of the world, improved manufacturing activity and robust demand for energy and industrial commodities from the emerging markets helped boost confidence among investors, consumers and businesses worldwide. However, market conditions differed significantly from one region to another.
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
While emerging markets in Asia and Latin America seemed to thrive, Europe was mired in a sovereign debt crisis emanating mainly from Greece, Spain and other peripheral economies.
After rallying strongly stocks in the emerging markets began to lose momentum during the final months of the year. In the fourth quarter of 2009 and first several weeks of 2010, investors appeared to shift their focus from bargain-hunting among stocks that had been severely punished in the downturn to higher-quality companies with sustainable earnings growth. Equities pulled back sharply in January 2010 when Greece’s debt crisis dominated the headlines, but most markets subsequently bounced back, largely erasing previous losses amid evidence of further global economic improvement.
Security Selections Produced Mixed Performance
Although the fund participated in the market rally to a significant degree, its results were undermined by lagging results in some regions. An overweighted position in Russia hindered relative performance, as did lack of exposure to financial giant Sberbank. In addition, Russian energy producers Gazprom and Lukoil trailed market averages. In South Africa, the fund did not own media company Naspers and held an underweighted position in miner Impala Platinum, both of which fared relatively well. South African gold stocks did not keep pace with rising gold prices due to a strengthening U.S. dollar, dampening the fund’s relative performance during the reporting period but suggesting that stocks focused on the precious metal gold have become more attractively valued. In Mexico, the fund did not ownWal-Mart de Mexico due to its rich valuation, but the retailer posted above-average gains.
The fund achieved better results in China, Indonesia andTurkey. Chinese agricultural producers fared particularly well, as intensifying domestic demand boosted the stocks of Chaoda Modern Agriculture Holdings and
China Agri Industries Holdings. Also in China, automobile manufacturer Great Wall Motor Company gained market share when Japanese rival Toyota encountered safety issues.These strong performers more than offset weakness among Chinese banks,including Industrial and Commercial Bank of China, Bank of China and China Construction Bank.
Indonesian tobacco producer Gudang Garam rebounded from depressed levels as local consumer spending improved and a more efficient distribution network bolstered profits. Heavy equipment maker PT Astra International rose along with the Asian economy. In Turkey, industrial conglomerate Koc Holding bounced back after lagging earlier in 2009, and Asya Katilim Bankasi benefited from increased loan volumes in the
4
recovering economy. Other winners during the reporting period included Charoen Pokphand Foods in Thailand and apparel company Youngone Holdings in South Korea.
From a market sector perspective, the fund produced above-average results in the consumer staples and consumer discretionary sectors. Conversely, the fund’s investments in the technology and financials sectors fared less well.
Focusing on Fundamentals
As the economic recovery progresses, we believe that investors are likely to become more selective, turning away from bargain hunting in favor of conducting research to find companies with sound business fundamentals. Indeed, a return to a more selective, fundamentals-focused market environment may be particularly well suited to our investment approach. Our research has found a number of opportunities among attractively valued, fundamentally sound companies in the technology, materials and industrials sectors.We have identified fewer stocks meeting our criteria in the traditionally defensive utilities and health care sectors.
April 15, 2010
Please note: the position in any security highlighted with italicized typeface was sold during the | |
reporting period. | |
Equity funds are subject generally to market, market sector, market liquidity, issuer, and investment | |
style risks, among other factors, to varying degrees, all of which are more fully described in the | |
fund’s prospectus. | |
The fund’s performance will be influenced by political, social and economic factors affecting | |
investments in foreign companies.These special risks include exposure to currency fluctuations, less | |
liquidity, less developed or less efficient trading markets, lack of comprehensive company information, | |
political instability and differing auditing and legal standards. Investments in foreign currencies are | |
subject to the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case | |
of hedged positions, that the U.S. dollar will decline relative to the currency being hedged. | |
Emerging markets tend to be more volatile than the markets of more mature economies, and | |
generally have less diverse and less mature economic structures and less stable political systems | |
than those of developed countries. | |
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 C shares. Had these | |
charges been reflected, returns would have been lower. Past performance is no guarantee of future | |
results. Share price and investment return fluctuate such that upon redemption, fund shares may be | |
worth more or less than their original cost.The fund’s returns reflect the absorption of certain fund | |
expenses by The Dreyfus Corporation pursuant to an agreement in effect through February 1, | |
2011, at which time it may be extended, terminated or modified. Had these expenses not been | |
absorbed, the fund’s returns would have been lower. | |
2 | SOURCE: LIPPER INC. – Reflects reinvestment of net dividends and, where applicable, |
capital gain distributions.The Morgan Stanley Capital International Emerging Markets Index is | |
a free float-adjusted market capitalization weighted index that is designed to measure the equity | |
performance in global emerging markets.The index consists of 26 MSCI emerging market | |
national indices. MSCI Indices reflect investable opportunities for global investors by taking into | |
account local market restrictions on share ownership by foreigners. |
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/The Boston Company Emerging Markets Core Equity Fund from October 1, 2009 to March 31, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment | |||
assuming actual returns for the six months ended March 31, 2010 | |||
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 8.20 | $ 15.63 | $ 7.84 |
Ending value (after expenses) | $1,094.70 | $1,089.50 | $1,097.60 |
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 March 31, 2010 | |||
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 7.90 | $ 15.03 | $ 7.54 |
Ending value (after expenses) | $1,017.10 | $1,009.97 | $1,017.45 |
† Expenses are equal to the fund’s annualized expense ratio of 1.57% for Class A, 3.00% for Class C and 1.50% for Class I, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
March 31, 2010 (Unaudited) |
Common Stocks—83.8% | Shares | Value ($) |
Brazil—2.7% | ||
Fleury | 8,900 a | 95,088 |
Gafisa | 17,600 | 121,632 |
Obrascon Huarte Lain Brasil | 2,400 | 55,332 |
Rossi Residencial | 17,600 | 122,622 |
Totvs | 1,000 | 62,974 |
457,648 | ||
Czech Republic—.3% | ||
Central European Media Enterprises, Cl. A | 1,720 a | 50,413 |
Chile—.8% | ||
Lan Airlines, ADR | 7,270 | 128,316 |
China—10.6% | ||
Bank of China, Cl. H | 311,000 | 165,829 |
China Construction Bank, Cl. H | 310,000 | 253,933 |
China Life Insurance, Cl. H | 41,000 | 196,439 |
China Petroleum & Chemical, Cl. H | 230,000 | 188,402 |
E-House China Holdings, ADR | 4,900 a,b | 93,247 |
Great Wall Motor, Cl. H | 70,500 | 146,552 |
Industrial & Commercial Bank of China, Cl. H | 272,000 | 207,392 |
Shandong Chenming Paper, Cl. H | 111,500 | 89,754 |
Weichai Power, Cl. H | 19,000 | 159,062 |
Yanzhou Coal Mining, Cl. H | 88,000 | 211,719 |
Zhejiang Expressway, Cl. H | 72,000 | 65,006 |
1,777,335 | ||
Egypt—.5% | ||
Telecom Egypt | 28,070 | 86,820 |
Hong Kong—4.4% | ||
China Agri-Industries Holdings | 105,481 | 145,636 |
China Mobile | 13,500 | 129,884 |
CNOOC | 103,000 | 169,539 |
Hutchison Whampoa | 13,000 | 95,103 |
Shanghai Industrial Holdings | 24,000 | 110,043 |
Tianjin Development Holdings | 136,000 | 80,750 |
730,955 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
India—9.4% | ||
Apollo Tyres | 19,010 | 30,043 |
Balrampur Chini Mills | 33,780 | 69,411 |
Bank of Baroda | 8,460 | 120,460 |
Bank of India | 13,660 | 103,678 |
Canara Bank | 10,200 | 93,230 |
Chambal Fertilizers & Chemicals | 76,460 | 104,655 |
Grasim Industries | 1,265 | 79,283 |
Hindalco Industries | 26,310 | 106,482 |
Oil & Natural Gas | 4,760 | 116,469 |
Oriental Bank of Commerce | 12,504 | 89,404 |
Patni Computer Systems, ADR | 4,160 | 98,925 |
Tata Consultancy Services | 14,170 | 246,440 |
Tata Motors | 9,670 | 162,771 |
Tata Steel | 6,920 | 97,515 |
Union Bank of India | 8,121 | 52,991 |
1,571,757 | ||
Indonesia—3.0% | ||
Astra International | 31,000 | 142,744 |
Bank Mandiri | 139,000 | 81,724 |
Gudang Garam | 25,500 | 69,358 |
Indofood Sukses Makmur | 313,500 | 130,058 |
United Tractors | 41,000 | 82,680 |
506,564 | ||
Israel—2.7% | ||
Bank Leumi Le-Israel | 26,420 a | 123,959 |
Teva Pharmaceutical Industries, ADR | 5,200 | 328,016 |
451,975 | ||
Malaysia—.8% | ||
Hong Leong Bank | 21,700 | 57,476 |
Kulim Malaysia | 34,900 | 76,070 |
133,546 |
8
Common Stocks (continued) | Shares | Value ($) |
Mexico—1.9% | ||
America Movil, ADR, Ser. L | 4,910 | 247,169 |
Fomento Economico Mexicano, ADR | 1,430 | 67,968 |
315,137 | ||
Poland—1.2% | ||
Getin Holding | 20,220 a,c | 76,092 |
KGHM Polska Miedz | 3,480 | 130,716 |
206,808 | ||
Russia—7.9% | ||
Gazprom, ADR | 17,020 | 397,077 |
LUKOIL, ADR | 6,310 | 357,777 |
Magnitogorsk Iron & Steel Works, GDR | 10,530 a,d,e | 127,624 |
MMC Norilsk Nickel, ADR | 12,122 a | 223,166 |
Vimpel-Communications, ADR | 12,010 | 221,104 |
1,326,748 | ||
South Africa—6.3% | ||
ABSA Group | 4,498 | 87,876 |
African Rainbow Minerals | 4,400 | 115,797 |
Aveng | 27,270 | 140,773 |
Bidvest Group | 6,860 | 128,323 |
Gold Fields | 7,060 | 89,368 |
Metropolitan Holdings | 80,108 | 185,649 |
MTN Group | 20,224 | 310,978 |
1,058,764 | ||
South Korea—14.0% | ||
Busan Bank | 12,200 | 131,009 |
Chong Kun Dang Pharmaceutical | 2,680 | 43,583 |
Daegu Bank | 9,140 | 122,384 |
Daehan Steel | 5,270 | 57,989 |
Honam Petrochemical | 603 | 60,489 |
Hyosung | 1,538 | 110,377 |
Hyundai Mobis | 1,862 | 246,851 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
South Korea (continued) | ||
Korea Electric Power | 4,190 a | 135,352 |
Korea Investment Holdings | 3,210 | 88,233 |
KT | 3,390 | 140,070 |
Kukdo Chemical | 1,600 | 39,595 |
POSCO | 437 | 203,930 |
Samsung Electronics | 770 | 556,684 |
Shinhan Financial Group | 5,650 | 221,965 |
Youngone | 9,616 | 76,319 |
Youngone Holdings | 3,584 | 96,612 |
2,331,442 | ||
Taiwan—9.5% | ||
Advanced Semiconductor | ||
Engineering | 114,000 | 104,100 |
Asia Cement | 56,620 | 55,269 |
Cathay Financial Holding | 40,000 a | 66,755 |
CTCI | 72,000 | 75,156 |
Fubon Financial Holding | 50,000 a | 60,772 |
HON HAI Precision Industry | 59,000 | 255,447 |
Lite-On Technology | 122,142 | 162,110 |
Powertech Technology | 41,500 | 148,317 |
Quanta Computer | 40,596 | 78,743 |
Taishin Financial Holdings | 324,634 a | 131,865 |
Taiwan Semiconductor | ||
Manufacturing, ADR | 17,029 | 178,634 |
Tripod Technology | 47,000 | 159,094 |
Unimicron Technology | 52,000 | 66,723 |
Yuanta Financial Holding | 79,000 | 47,388 |
1,590,373 | ||
Thailand—2.5% | ||
Asian Property Development | 373,900 | 58,036 |
Bangchak Petroleum | 171,600 | 76,860 |
Bangkok Bank | 24,700 | 99,412 |
Banpu | 5,600 | 98,053 |
10
Common Stocks (continued) | Shares | Value ($) |
Thailand (continued) | ||
Charoen Pokphand Foods | 191,500 | 82,224 |
414,585 | ||
Turkey—3.3% | ||
Arcelik | 16,010 | 64,873 |
Asya Katilim Bankasi | 47,230 a | 126,341 |
Haci Omer Sabanci Holding | 23,637 | 101,229 |
KOC Holding | 28,220 a | 96,685 |
Turkiye Halk Bankasi | 8,120 | 58,850 |
Turkiye Is Bankasi | 10,204 a | 32,002 |
Turkiye Is Bankasi, Cl. C | 21,387 | 69,611 |
549,591 | ||
United States—2.0% | ||
iShares MSCI Emerging Markets Index Fund | 7,850 b | 330,642 |
Total Common Stocks | ||
(cost $10,903,866) | 14,019,419 | |
Preferred Stocks—15.2% | ||
Brazil | ||
Banco Bradesco | 6,950 | 128,186 |
Bradespar | 6,000 | 148,284 |
Braskem, Cl. A | 7,500 a | 55,206 |
Cia de Bebidas das Americas | 1,500 | 137,487 |
Cia Paranaense de Energia, Cl. B | 10,500 | 214,977 |
Itau Unibanco Holding | 10,324 | 226,410 |
Marfrig Alimentos | 7,000 a | 80,063 |
Petroleo Brasileiro | 35,500 | 706,467 |
Tele Norte Leste Participacoes | 7,100 | 125,803 |
Usinas Siderurgicas de Minas Gerais, Cl. A | 4,075 | 139,595 |
Vale, Cl. A | 15,400 | 429,089 |
Vivo Participacoes | 5,500 | 149,380 |
Total Preferred Stocks | ||
(cost $1,663,665) | 2,540,947 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Investment of Cash Collateral | ||
for Securities Loaned—4.4% | Shares | Value ($) |
Registered Investment Company; | ||
Dreyfus Institutional Cash Advantage Fund | ||
(cost $738,319) | 738,319 f | 738,319 |
Total Investments (cost $13,305,850) | 103.4% | 17,298,685 |
Liabilities, Less Cash and Receivables | (3.4%) | (574,083) |
Net Assets | 100.0% | 16,724,602 |
ADR—American Depository Receipts |
GDR—Global Depository Receipts |
a Non-income producing security. |
b Security, or portion thereof, on loan. At March 31, 2010, the total market value of the fund’s securities on loan is |
$721,256 and the total market value of the collateral held by the fund is $738,319. |
c Partially purchased on a delayed delivery basis. |
d Fair valued by management. At the period end, the value of this security amounted to $127,624 or 0.8% of net |
assets.The valuation of this security has been determined in good faith under the direction of the Board of Trustees. |
e Security exempt from registration under Rule 144A of the Securities Act of 1933.This security may be resold in |
transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2010, this security had |
a total market value of $127,624 or 0.8% of net assets. |
f Investment in affiliated money market mutual fund. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Financial | 22.4 | Consumer Staples | 5.1 |
Materials | 14.7 | Money Markets Investment | 4.4 |
Energy | 13.9 | Health Care | 2.8 |
Information Technology | 12.7 | Utilities | 2.1 |
Telecommunication Services | 8.4 | Exchange Traded Funds | 2.0 |
Industrial | 8.3 | ||
Consumer Discretionary | 6.6 | 103.4 | |
† Based on net assets. | |||
See notes to financial statements. |
12
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2010 (Unaudited)
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments (including | |||
securities on loan, valued at $721,256)—Note 1(c): | |||
Unaffiliated issuers | 12,567,531 | 16,560,366 | |
Affiliated issuers | 738,319 | 738,319 | |
Cash denominated in foreign currencies | 210,926 | 211,665 | |
Receivable for investment securities sold | 493,549 | ||
Dividends and interest receivable | 13,767 | ||
Unrealized appreciation on forward foreign | |||
currency exchange contracts—Note 4 | 782 | ||
Prepaid expenses | 31,449 | ||
18,049,897 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 47,741 | ||
Cash overdraft due to Custodian | 206,530 | ||
Liability for securities on loan—Note 1(c) | 738,319 | ||
Payable for investment securities purchased | 312,249 | ||
Unrealized depreciation on forward foreign | |||
currency exchange contracts—Note 4 | 37 | ||
Accrued expenses | 20,419 | ||
1,325,295 | |||
Net Assets ($) | 16,724,602 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 17,072,964 | ||
Accumulated distributions in excess of investment income—net | (128,392) | ||
Accumulated net realized gain (loss) on investments | (4,212,878) | ||
Accumulated net unrealized appreciation (depreciation) | |||
on investments and foreign currency transactions | 3,992,908 | ||
Net Assets ($) | 16,724,602 | ||
Net Asset Value Per Share | |||
Class A | Class C | Class I | |
Net Assets ($) | 111,808 | 212,813 | 16,399,981 |
Shares Outstanding | 4,497 | 8,742 | 667,656 |
Net Asset Value Per Share ($) | 24.86 | 24.34 | 24.56 |
See notes to financial statements. |
The Fund 13
STATEMENT OF OPERATIONS |
Six Months Ended March 31, 2010 (Unaudited) |
Investment Income ($): | |
Income: | |
Cash dividends (net of $11,567 foreign taxes withheld at source): | |
Unaffiliated issuers | 85,936 |
Affiliated issuers | 53 |
Income from securities lending—Note 1(c) | 312 |
Total Income | 86,301 |
Expenses: | |
Investment advisory fee—Note 3(a) | 92,501 |
Custodian fees—Note 3(c) | 64,200 |
Registration fees | 31,222 |
Accounting and administrative fees—Note 3(a) | 20,500 |
Prospectus and shareholders’ reports | 4,042 |
Professional fees | 3,956 |
Shareholder servicing costs—Note 3(c) | 1,705 |
Trustees’ fees and expenses—Note 3(d) | 769 |
Distribution fees—Note 3(b) | 709 |
Loan commitment fees—Note 2 | 86 |
Interest expense—Note 2 | 56 |
Miscellaneous | 4,777 |
Total Expenses | 224,523 |
Less—expense reimbursement from The Dreyfus | |
Corporation due to undertaking—Note 3(a) | (96,951) |
Net Expenses | 127,572 |
Investment (Loss)—Net | (41,271) |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments and foreign currency transactions | 1,463,316 |
Net realized gain (loss) on forward foreign currency exchange contracts | (17,636) |
Net Realized Gain (Loss) | 1,445,680 |
Net unrealized appreciation (depreciation) on | |
investments and foreign currency transactions | 160,745 |
Net unrealized appreciation (depreciation) on | |
forward foreign currency exchange contracts | 1,042 |
Net Unrealized Appreciation (Depreciation) | 161,787 |
Net Realized and Unrealized Gain (Loss) on Investments | 1,607,467 |
Net Increase in Net Assets Resulting from Operations | 1,566,196 |
See notes to financial statements. |
14
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2010 | Year Ended | |
(Unaudited) | September 30, 2009a | |
Operations ($): | ||
Investment income (loss)—net | (41,271) | 175,825 |
Net realized gain (loss) on investments | 1,445,680 | (5,429,445) |
Net unrealized appreciation | ||
(depreciation) on investments | 161,787 | 6,970,600 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 1,566,196 | 1,716,980 |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class C Shares | (2,360) | — |
Class I Shares | (218,041) | (189,770) |
Net realized gain on investments: | ||
Class I Shares | — | (620,343) |
Total Dividends | (220,401) | (810,113) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 84,633 | 17,539 |
Class C Shares | 26,778 | 159,324 |
Class I Shares | 616,035 | 21,038,573 |
Dividends reinvested: | ||
Class C Shares | 2,139 | — |
Class I Shares | 137,481 | 613,697 |
Cost of shares redeemed: | ||
Class A Shares | (945) | — |
Class C Shares | (7,876) | — |
Class I Shares | (2,267,553) | (21,275,819) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (1,409,308) | 553,314 |
Total Increase (Decrease) in Net Assets | (63,513) | 1,460,181 |
Net Assets ($): | ||
Beginning of Period | 16,788,115 | 15,327,934 |
End of Period | 16,724,602 | 16,788,115 |
Undistributed (distributions in excess of) | ||
investment income—net | (128,392) | 133,280 |
The Fund 15
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||
March 31, 2010 | Year Ended | |
(Unaudited) | September 30, 2009a | |
Capital Share Transactions: | ||
Class A | ||
Shares sold | 3,441 | 1,095 |
Shares redeemed | (39) | — |
Net Increase (Decrease) in Shares Outstanding | 3,402 | 1,095 |
Class C | ||
Shares sold | 1,129 | 7,867 |
Shares issued for dividends reinvested | 89 | — |
Shares redeemed | (343) | — |
Net Increase (Decrease) in Shares Outstanding | 875 | 7,867 |
Class I | ||
Shares sold | 25,475 | 903,194 |
Shares issued for dividends reinvested | 5,719 | 44,521 |
Shares redeemed | (95,048) | (934,915) |
Net Increase (Decrease) in Shares Outstanding | (63,854) | 12,800 |
a | The fund changed to a multiple class fund on March 31, 2009.The existing shares were redesignated as Class I |
shares and the fund commenced offering Class A and Class C shares. | |
See notes to financial statements. |
16
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 | ||
March 31, 2010 | Year Ended | |
Class A Shares | (Unaudited) | September 30, 2009a |
Per Share Data ($): | ||
Net asset value, beginning of period | 22.70 | 13.55 |
Investment Operations: | ||
Investment income (loss)—netb | (.03) | .14 |
Net realized and unrealized | ||
gain (loss) on investments | 2.19 | 9.01 |
Total from Investment Operations | 2.16 | 9.15 |
Net asset value, end of period | 24.86 | 22.70 |
Total Return (%)c,d | 9.47 | 67.60 |
Ratios/Supplemental Data (%): | ||
Ratio of total expenses to average net assetse | 3.01 | 11.21 |
Ratio of net expenses to average net assetse | 1.57 | 2.00 |
Ratio of net investment income | ||
(loss) to average net assetse | (.33) | 1.56 |
Portfolio Turnover Rate | 57.53d | 157.45f |
Net Assets, end of period ($ x 1,000) | 112 | 25 |
a | From March 31, 2009 (commencement of initial offering) to September 30, 2009. |
b | Based on average shares outstanding at each month end. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
f | Represents portfolio turnover rate for the fund for the year. |
See notes to financial statements. |
The Fund 17
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||
March 31, 2010 | Year Ended | |
Class C Shares | (Unaudited) | September 30, 2009a |
Per Share Data ($): | ||
Net asset value, beginning of period | 22.62 | 13.55 |
Investment Operations: | ||
Investment (loss)—netb | (.23) | (.03) |
Net realized and unrealized | ||
gain (loss) on investments | 2.25 | 9.10 |
Total from Investment Operations | 2.02 | 9.07 |
Distributions: | ||
Dividends from investment income—net | (.30) | — |
Net asset value, end of period | 24.34 | 22.62 |
Total Return (%)c,d | 8.95 | 66.94 |
Ratios/Supplemental Data (%): | ||
Ratio of total expenses to average net assetse | 3.72 | 3.80 |
Ratio of net expenses to average net assetse | 3.00 | 2.75 |
Ratio of net investment (loss) | ||
to average net assetse | (1.95) | (.35) |
Portfolio Turnover Rate | 57.53d | 157.45f |
Net Assets, end of period ($ x 1,000) | 213 | 178 |
a | From March 31, 2009 (commencement of initial offering) to September 30, 2009. |
b | Based on average shares outstanding at each month end. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
f | Represents portfolio turnover rate for the fund for the year. |
See notes to financial statements. |
18
Six Months Ended | |||||
March 31, 2010 | Year Ended September 30, | ||||
Class I Shares | (Unaudited) | 2009a | 2008 | 2007 | 2006b |
Per Share Data ($): | |||||
Net asset value, | |||||
beginning of period | 22.67 | 21.33 | 33.24 | 20.55 | 20.00 |
Investment Operations: | |||||
Investment income (loss)—netc | (.06) | .24 | .35 | .31 | .06 |
Net realized and unrealized | |||||
gain (loss) on investments | 2.27 | 2.21 | (8.86) | 12.62 | .49 |
Total from Investment Operations | 2.21 | 2.45 | (8.51) | 12.93 | .55 |
Distributions: | |||||
Dividends from investment income—net | (.32) | (.26) | (.26) | (.24) | — |
Dividends from net realized | |||||
gain on investments | — | (.85) | (3.14) | — | — |
Total Distributions | (.32) | (1.11) | (3.40) | (.24) | — |
Net asset value, end of period | 24.56 | 22.67 | 21.33 | 33.24 | 20.55 |
Total Return (%) | 9.76d | 14.90 | (28.51) | 63.25 | 2.75d |
Ratios/Supplemental Data (%): | |||||
Ratio of total expenses | |||||
to average net assets | 2.66e | 3.50 | 2.74 | 3.18 | 8.64e |
Ratio of net expenses | |||||
to average net assets | 1.50e | 1.43 | 1.45 | 1.45 | 1.45e |
Ratio of net investment income | |||||
(loss) to average net assets | (.47)e | 1.43 | 1.21 | 1.15 | 1.31e |
Portfolio Turnover Rate | 57.53d 157.45 | 128 | 76 | 31d | |
Net Assets, end of period ($ x 1,000) | 16,400 | 16,585 | 15,328 | 13,671 | 5,693 |
a | The fund commenced offering three classes of shares on March 31, 2009.The existing shares were redesignated as |
Class I shares. | |
b | From July 10, 2006 (commencement of initial offering) to September 30, 2006. |
c | Based on average shares outstanding at each month end. |
d | Not annualized. |
e | Annualized. |
See notes to financial statements. |
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus/The Boston Company Emerging Markets Core Equity Fund (the “fund”) is a separate diversified series of Dreyfus Investment Funds (the “Trust”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company currently offering twelve series, including the fund.The fund’s investment objective is to achieve long-term growth of capital. The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares. 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 C and Class I. Class A shares are subject to a sales charge imposed at the time of purchase. Class C shares are subject to a contingent deferred sales charge (“CDSC”) on Class C shares redeemed within one year of purchase. Class I shares are sold primarily to bank trust departments and other financial service providers (including The Bank of NewYork Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus), acting on behalf of customers having a qualified trust or investment account or relationship at such institution, and bear no distribution or shareholder services fees. Class I shares are offered without a f ront-end sales charge or CDSC. Other differences between the classes include the services offered to,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.
As of March 31, 2010, MBC Investments Corp., an indirect subsidiary of BNY Mellon, held 738 Class A and Class C shares of the fund.
The Trust accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to
20
that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants.The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities are valued at the last sales price on the securities exchange or national securities market on which such securities are primarily traded. Securities listed on the National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price that day, at the last sales price. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Registered investment companies that are not traded on an exchange are valued at their net asset value.When market quotations or officia l closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Trustees. Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant ADRs and futures
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
contracts. For other securities that are fair valued by the Board of Trustees, certain factors may be considered such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers. Financial futures are valued at the last sales price. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. Forward foreign currency exchange contracts (“forward contracts”) are valued at the forward rate.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
22
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 March 31, 2010 in valuing the fund’s investments:
Level 2—Other | Level 3— | ||||
Level 1— | Significant | Significant | |||
Unadjusted | Observable | Unobservable | |||
Quoted Prices | Inputs | Inputs | Total | ||
Assets ($) | |||||
Investments in Securities: | |||||
Equity Securities— | |||||
Foreign† | 16,102,100 | 127,624 | — | 16,229,724 | |
Mutual Funds/ | |||||
Exchange | |||||
Traded Funds | 1,068,961 | — | — | 1,068,961 | |
Other Financial | |||||
Instruments†† | — | 782 | — | 782 | |
Liabilities ($) | |||||
Other Financial | |||||
Instruments†† | — | (37) | — | (37) | |
† | See Statement of Investments for country classification. | ||||
†† | Other financial instruments include derivative instruments, such as futures, forward foreign currency | ||||
exchange contracts, swap contracts and options contracts. Amounts shown represent unrealized | |||||
appreciation (depreciation) or in the case of options, market value at period end. |
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. ASU 2010-06 will require reporting entities to make new disclosures about amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3, and information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. The
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2009 except for the disclosures surrounding purchases,sales,issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact the adoption of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
(b) Foreign currency transactions: The fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized on securities transactions between trade and settlement dates and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments resulting from changes in exchange rates. Foreign currency gains and losses on investments are included with net realized and unrealized gain or loss on investments.
(c) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
The fund has arrangements with the custodian and cash management bank whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset custody and cash management fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
24
Pursuant to a securities lending agreement with The Bank of New York Mellon, the fund may lend securities to qualified institutions. It is the fund’s policy that, at origination, all loans are secured by collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan is maintained at all times. Collateral is either in the form of cash, which can be invested in certain money market mutual funds managed by the Manager, U.S. Government and Agency securities or letters of credit. The fund is entitled to receive all income on securities loaned, in addition to income earned as a result of the lending transaction. Although each security loaned is fully collateralized, the fund bears the risk of delay in recovery of, or loss of rights in, the securities loaned should a borrower fail to return the securities in a timely manner. During the period ended March 31, 2010,The Bank of NewYork Mellon earned $168 from lending portfolio securities, pursuant to the securities lending agreement.
Investing in foreign markets may involve special risks and considerations not typically associated with investing in the U.S. These risks include revaluation of currencies, high rates of inflation, repatriation restrictions on income and capital, and adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls and delayed settlements, and their prices may be more volatile than those of comparable securities in the U.S.
(d) Affiliated issuers: Investments in other investment companies advised by the Manager are defined as “affiliated” in the Act.
(e) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Code of 1986, as amended (the “Code”). Prior to January 1, 2010, the fund paid dividends from investment income-net semi-annually.To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(f) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended March 31, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the three-year period ended September 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $1,300,051 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to September 30, 2009. If not applied, the carryover expires in fiscal 2017.
The tax character of distributions paid to shareholders during the fiscal year ended September 30, 2009 was as follows: ordinary income $200,787 and long-term capital gains $609,326.The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York
26
Mellon (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing.
The average amount of borrowings outstanding under the Facilities during the period ended March 31, 2010 was approximately $8,200, with a related weighted average annualized interest rate of 1.36%.
NOTE 3—Investment Advisory Fee and Other Transactions with Affiliates:
(a) Pursuant to an investment advisory agreement (“Agreement”) with the Manager, the investment advisory fee is computed at the annual rate of 1.10% of the value of the fund’s average daily net assets and is payable monthly. The Manager has agreed, until February 1, 2011, to waive receipt of its fees and/or assume the expenses of the fund so that the direct expenses of Class A, Class C and Class I shares (excluding Rule 12b-1 fees, shareholder services fees, taxes, interest, brokerage commissions, acquired fund fees and extraordinary expenses) do not exceed 2.00%, 2.00% and 1.50%, respectively. The expense reimbursement, pursuant to the undertaking, amounted to $96,951 during the period ended March 31, 2010.
The Trust entered into an agreement with The Bank of New York Mellon pursuant to which The Bank of New York Mellon provides administration and fund accounting services for the fund. For these services, the fund paysThe Bank of NewYork Mellon a fixed fee plus asset and transaction based fees, as well as out-of-pocket expenses. Pursuant to this agreement, the fund was charged $20,500 during the period ended March 31, 2010 for administration and fund accounting services.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of .75% of the value of the aver-
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
age daily net assets of Class C shares. During the period ended March 31, 2010, Class C shares were charged $709 pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at the annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding 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 March 31, 2010, Class A and Class C shares were charged $53 and $236, 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 March 31, 2010, the fund was charged $163 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under cash management agreements for performing cash management services related to fund subscriptions and redemptions. During the period ended March 31, 2010, the fund was charged $86 pursuant to the cash management agreements, which is included in Shareholder servicing costs in the Statement of Operations.
The fund also compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended March 31, 2010, the fund was charged $64,200 pursuant to the custody agreement.
During the period ended March 31, 2010, the fund was charged $2,742 for services performed by the Chief Compliance Officer.
28
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of:investment advisory fees $15,445, Rule 12b-1 distribution plan fees $128, shareholder services plan fees $57, custodian fees $43,670, chief compliance officer fees $2,742 and transfer agency per account fees $71, which are offset against an expense reimbursement currently in effect in the amount of $14,372.
(d) Prior to January 1, 2010, each Trustee received $45,000 per year, plus $6,000 for each joint Board meeting of the Trust, The Dreyfus/Laurel Funds, Inc., The Dreyfus/Laurel Funds Trust, The Dreyfus/Laurel Tax-Free Municipal Funds and Dreyfus Funds, Inc. (collectively, the “Board Group Open-End Funds”) attended, $2,000 for separate in-person committee meetings attended which were not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that were conducted by telephone. Effective January 1, 2010, the Board Group Open-End Funds will pay each Trustee who is not an “interested person” of the Trust (as defined in the Act) $60,000 per annum, plus $7,000 per joint Board Group Open-End Funds Board meeting attended, $2,500 for separate in-person committee meetin gs attended which are not held in conjunction with a regularly scheduled Board meeting and $2,000 for Board meetings and separate committee meetings attended that are conducted by telephone. The Board Group Open-End Funds also reimburse eachTrustee who is not an “interested person” of the Trust (as defined in the Act) for travel and out-of-pocket expenses.With respect to Board meetings, the Chairman of the Board receives an additional 25% of such compensation (with the exception of reimbursable amounts). With respect to compensation committee meetings prior to January 1, 2010, the Chair of the compensation committee received $900 per compensation committee meeting. Effective January 1, 2010, the Chair of each of the Board’s committees, unless the Chair also serves as Chair of the Board, will receive $1,350 per applicable committee meeting. In the event that there is an in-person joint
The Fund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
committee meeting or a joint telephone meeting of the Board Group Open-End Funds and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee (prior to January 1, 2010) or the $2,500 or $2,000 fee (effective January 1, 2010), as applicable, is allocated between the Board Group Open-End Funds and Dreyfus HighYield Strategies Fund.The Trust’s portion of these fees and expenses are charged and allocated to each series based on net assets.
(e) A 2% redemption fee is charged and retained by the fund on certain shares redeemed within sixty days following the date of issuance, subject to exceptions, including redemptions made through the use of the fund’s exchange privilege. During the period ended March 31, 2010, there were no redemption fees charged or retained by the fund.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities and forward contracts, during the period ended March 31, 2010, amounted to $9,461,182 and $11,130,182, respectively.
The fund may invest in shares of certain affiliated investment companies also advised or managed by the adviser. Investments in affiliated investment companies for the period ended March 31, 2010 were as follows:
Affiliated | |||||
Investment | Value | Value | Net | ||
Company | 9/30/2009 ($) | Purchases ($) | Sales ($) | 3/31/2010 ($) | Assets (%) |
Dreyfus | |||||
Institutional | |||||
Preferred | |||||
Money Market | |||||
Fund | 220,220 | 3,495,723 | 3,715,943 | — | — |
Dreyfus | |||||
Institutional | |||||
Cash Advantage | |||||
Fund | — | 3,013,499 | 2,275,180 | 738,319 | 4.4 |
220,220 | 6,509,222 | 5,991,123 | 738,319 | 4.4 |
30
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which 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 disclosure requirements distinguish between derivatives, which are accounted for as “hedges” and those that do not qualify for hedge accounting. Because investment companies value their derivatives at fair value and recognize changes in fair value through the Statement of Operations, they do not qualify for such accounting. Accordingly, even though a fund’s investments in derivatives may represent economic hedges, they are considered to be non-hedge transactions for purposes of this disclosure.
During the period ended March 31, 2010, the average market value of forward contracts was $94,997, which represented .56% of average net assets.
Forward Foreign Currency Exchange Contracts: The fund enters into forward contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to settle foreign currency transactions or as a part of its investment strategy.When executing forward contracts, the fund is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future. With respect to sales of forward contracts, the fund incurs a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed.The fund realizes a gain if the value of the contract decreases between those dates.With respect to purchases of forward contracts, the fund incurs a loss if the value of the contract decreases between the date the forward contract is opened and t he date the forward contract is closed. The fund realizes a gain if the value of the contract increases between those dates.The fund is exposed
The Fund 31
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
to foreign currency risk as a result of changes in value of underlying financial instruments.The fund is also exposed to credit risk associated with counterparty nonperformance on these forward contracts, which is typically limited to the unrealized gain on each open contract.The following summarizes open forward contracts at March 31, 2010:
Foreign | Unrealized | |||
Forward Foreign Currency | Currency | Appreciation | ||
Exchange Contracts | Amounts | Cost ($) | Value ($) | (Depreciation) ($) |
Purchases: | ||||
Polish Zloty, | ||||
Expiring 4/1/2010 | 55,100 | 19,161 | 19,289 | 128 |
South Korean Won, | ||||
Expiring 4/1/2010 | 37,954,548 | 33,558 | 33,545 | (13) |
Turkish Lira, | ||||
Expiring 4/1/2010 | 72,593 | 47,680 | 47,829 | 149 |
Sales: | Proceeds ($) | |||
Hong Kong Dollar, | ||||
Expiring 4/1/2010 | 128,371 | 16,533 | 16,534 | (1) |
Indonesian Rupiah, | ||||
Expiring 4/5/2010 | 139,101,935 | 15,353 | 15,287 | 66 |
Indonesian Rupiah, | ||||
Expiring 4/5/2010 | 147,190,889 | 16,246 | 16,175 | 71 |
Indonesian Rupiah, | ||||
Expiring 4/5/2010 | 146,027,498 | 16,118 | 16,048 | 70 |
Indonesian Rupiah, | ||||
Expiring 4/5/2010 | 78,775,616 | 8,690 | 8,657 | 33 |
Indonesian Rupiah, | ||||
Expiring 4/6/2010 | 50,396,419 | 5,573 | 5,538 | 35 |
Indonesian Rupiah, | ||||
Expiring 4/6/2010 | 109,985,682 | 12,163 | 12,087 | 76 |
Indonesian Rupiah, | ||||
Expiring 4/6/2010 | 177,386,874 | 19,611 | 19,494 | 117 |
Malaysian Ringgit, | ||||
Expiring 4/2/2010 | 2,919 | 897 | 895 | 2 |
Malaysian Ringgit, | ||||
Expiring 4/5/2010 | 2,166 | 669 | 664 | 5 |
32
Foreign | Unrealized | |||
Forward Foreign Currency | Currency | Appreciation | ||
Exchange Contracts | Amounts | Proceeds ($) | Value ($) | (Depreciation) ($) |
Sales (continued): | ||||
South Korean Won, | ||||
Expiring 4/1/2010 | 5,849,387 | 5,170 | 5,170 | 0 |
South Korean Won, | ||||
Expiring 4/1/2010 | 5,851,350 | 5,172 | 5,172 | 0 |
South Korean Won, | ||||
Expiring 4/2/2010 | 7,285,976 | 6,469 | 6,439 | 30 |
Thai Baht, | ||||
Expiring 4/5/2010 | 536,408 | 16,566 | 16,589 | (23) |
Gross Unrealized | ||||
Appreciation | 782 | |||
Gross Unrealized | ||||
Depreciation | (37) |
At March 31, 2010, accumulated net unrealized appreciation on investments was $3,992,835, consisting of $4,235,190 gross unrealized appreciation and $242,355 gross unrealized depreciation.
At March 31, 2010, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
NOTE 5—Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
The Fund 33
INFORMATION ABOUT THE REVIEW AND
APPROVAL OF THE FUND’S INVESTMENT
ADVISORY AGREEMENT (Unaudited)
At a meeting of the fund’s Board of Trustees held on February 9, 2010, the Board considered the re-approval of the fund’s Investment Advisory Agreement (“Management Agreement”), pursuant to which the Manager provides the fund with investment advisory and certain 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 relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund, as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including those of the fund. The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including assistance in meeting legal and regulatory requirements.The Board members also considered the Manager’s extensive compliance infrastructure.The Board also considered the Manager’s brokerage policies and practices, the standards applied in seeking best execution and the Manager’s policies and practices regarding soft dollars.
34
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of institutional emerging markets funds (the “Performance Group”) and to a larger universe of funds, consisting of all retail and institutional emerging markets funds (the “Performance Universe”) selected and provided by Lipper, Inc., an independent provider of investment company data.The Board was provided with a description of the methodology Lipper used to select the Performance Group and Performance Universe, as well as the Expense Group and Expense Universe (discussed below).The Board members discussed the results of the comparisons and noted that the fund’s total return performance was at or above the Performance Group and Performance Universe medians for the on e-, two- and three-year periods ended December 31, 2009. The Manager also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.
The Board members also discussed the fund’s contractual and actual management fee and expense ratio and reviewed the range of management fees and expense ratios of a comparable group of funds (the “Expense Group”) and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper.The Lipper data presenting the fund’s “actual management fees” included fees paid by the fund, as calculated by Lipper, for administrative services provided by The Bank of NewYork Mellon, the Trust’s administrator. Such reporting was necessary, according to Lipper, to allow the Board to compare the fund’s advisory fees to those peers that include administrative fees within a combined managements (investment advisory and administrative) fee. The fund’s actual management fee and expense ratio for the fiscal year ended September 30, 2009 also reflected a waiver by the Manager. A representative of the Manager informed the Board members that the Manager had agreed, until February 1, 2011, to waive receipt of its fees and/or assume the expenses of the fund so that the
The Fund 35
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S |
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
direct expenses of Class A, Class C and Class I shares (excluding Rule 12b-1 fees, shareholder services fees, taxes, interest, brokerage commissions, acquired fund fees and extraordinary expenses) do not exceed 2.00%, 2.00% and 1.50%, respectively, of the value of the fund’s average daily net assets. The Board noted that the fund’s contractual management fee was above the Expense Group median and that, because of the limitation on expenses, the fund did not pay a management fee for the fiscal year ended September 30, 2009.The Board noted that the fund’s actual management fee (which was zero) was below the Expense Group and Expense Universe medians and the fund’s expense ratio, taking into consideration the limitation on expenses, was at the Expense Group median and below the Expense Universe median.
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”), and by another account managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund (the “Similar Account”).The Manager’s representatives explained the nature of the Similar Account and the differences, from the Manager’s perspective, in providing services to such Similar Account as compared to managing and providing services to the fund. The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided. The Board members considered the relevance of the fee information provid ed for the Similar Funds and the Similar Account to evaluate the appropriateness and reasonableness of the fund’s management fee.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the prof-
36
itability of, individual funds and the entire Dreyfus mutual fund com-plex.The Board also was informed that the methodology had also been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable.The consulting firm also analyzed where any economies of scale might emerge in connection with the management of the fund.The Board members evaluated the profitability analysis in light of the relevant circumstances for the fund.The Board members also considered potential benefits to the Manager from acting as investment adviser and noted the Manager’s soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It also was noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.The Board also noted the fee waiver arrangement and its effect on the profitability of the Manager.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
The Board concluded that the nature, extent and quality of the ser- vices provided by the Manager are adequate and appropriate.
The Board was satisfied with the fund’s relative performance.
The Fund 37
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
The Board concluded, taking into account the fee waiver, that the fee paid by the fund to the Manager was reasonable in light of the services provided, comparative performance, expense and manage- ment fee information, costs of the services provided and profits real- ized and benefits derived or to be derived by the Manager from its relationship with the fund.
The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in con- nection with the management fee rate charged to the fund and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
38
NOTES
Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.dreyfus.com and sign up for Dreyfus eCommunications. It’s simple and only takes a few minutes.
The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
12 | Statement of Assets and Liabilities |
13 | Statement of Operations |
14 | Statement of Changes in Net Assets |
15 | Financial Highlights |
16 | Notes to Financial Statements |
29 | Information About the Review and Approval of the Fund’s Investment Advisory Agreement |
FOR MORE INFORMATION | |
Back Cover |
Dreyfus/The Boston
Company International
Core Equity Fund
The Fund
A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus/The Boston Company International Core Equity, covering the six-month period from October 1, 2009, through March 31, 2010.
The equity markets continued to produce some of the most dramatic performance returns in recent years off of the March 2009 lows, as efforts to support the global economic recovery appeared to gain trac-tion.The “risk trade,” in which assets are shifted from conservative to more aggressive investments to take advantage of improving market conditions, continued to benefit investors in both U.S. and international markets. However, since the beginning of 2010, recent overseas credit concerns have dampened international markets to an extent, which might be an implication that this trend is moderating.
We believe that sustained global and U.S. economic expansions should proceed at an above-trend pace in 2010, the result of macroeconomic stimulation adopted by nearly every country in the world over the last year. As for the worldwide stock markets, positive returns over the foreseeable future are likely to be delivered through in-depth research and a selective security evaluation process. If you have questions about equities, your financial advisor is best suited to provide current market perspectives relative to your portfolio and to discuss potential opportunities which may match your current expectations and your long-term investment targets.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
Jonathan R. Baum
Chairman & Chief Executive Officer
The Dreyfus Corporation
April 15, 2010
2
DISCUSSION OF FUND PERFORMANCE
For the period of October 1, 2009, through March 31, 2010, as provided by Sean P. Fitzgibbon, CFA, and Mark A. Bogar, CFA
Fund and Market Performance Overview
For the six-month period ended March 31, 2010, Dreyfus/The Boston Company International Core Equity Fund’s Class I shares produced a total return of 2.55%.1 In comparison, the fund’s benchmark, the Morgan Stanley Capital International Europe,Australasia, Far East Index (“MSCI EAFE Index”), produced a total return of 3.06% for the same period.2
International stocks encountered heightened volatility over the reporting period, as the global economy recovered from a recession even while Europe suffered through a sovereign debt crisis.The fund produced lower returns than its benchmark partially due to lagging performance in Italy and materials.
Effective January 8, 2010, Sean P. Fitzgibbon and Mark A. Bogar became the fund’s primary portfolio managers.
The Fund’s Investment Approach
The objective of the fund is to seek long-term growth of capital.To pursue this goal, the fund normally invests at least 80% of net assets in equity securities of companies that are represented in the MSCI EAFE Index and Canada.The fund intends to invest in a broad range of (and in any case at least five different) countries.The fund may invest up to 25% of its assets in emerging market countries, but no more than 5% of its assets may be invested in issuers located in any one emerging market country.
We employ a “bottom-up” investment approach, which emphasizes individual stock selection, and is designed to produce a diversified portfolio that, relative to the MSCI EAFE Index, frequently has a below-average price/earnings ratio and an above-average earnings growth trend.
Economic Recovery, Debt Crisis Sparked Volatility
The reporting period witnessed the continuation of a global economic recovery that began early in 2009.Although unemployment remained stubbornly high in many regions of the world, improved manufacturing activity and robust demand for energy and industrial commodities from the emerging markets helped boost confidence among investors,
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
consumers and businesses. However, market conditions differed significantly from one region to another.While developing nations in Asia and Latin America seemed to thrive, Europe was mired in a sovereign debt crisis emanating mainly from Greece.The United States showed encouraging signs of economic growth, but Japan continued to struggle with persistent economic weakness.
After rallying strongly earlier in 2009, international stock markets began to lose momentum during the final months of the year. Meanwhile, investors appeared to shift their focus from bargain-hunting among stocks that had been severely punished in the downturn to higher-quality companies with sustainable earnings growth. Equities pulled back sharply early in 2010 when Greece’s debt crisis dominated the headlines, but most markets subsequently bounced back, largely erasing previous losses amid evidence of further economic improvement.
Security Selections Produced Mixed Performance
The fund achieved especially strong relative results in France, Norway and Singapore.The fund’s investments in France, where stocks generally were hurt by a weakening euro, declined less sharply than average due to gains among some of the fund’s more economically sensitive holdings, including industrial supplier Vallourec, construction and engineering company Vinci and oil services provider Technip S.A. In Norway, Petroleum Geo-Services advanced along with oil prices, and telecommunications company Telenor A/S rebounded from depressed levels. Singapore-based port operator Sembcorp Marine fared well in the economic recovery, while stronger intra-Asia trade benefited regional financial institutions such as United Overseas Bank.
From a market sector perspective, industrial stocks such as IMI and Cookson Group in the United Kingdom helped support results as global business conditions stabilized. Consumer discretionary companies Volkswagen, Compass Group and Esprit Holdings also contributed positively to relative results.
Disappointments during the reporting period were found primarily in Italy,Australia and Japan.After rallying earlier in the year, Italian banks Banco Popolare S.C. and UniCredit pulled back due to bouts of economic turbulence in some European markets and potentially stricter capital requirements from regulators. The fund’s results also were dampened by underweighted exposure to the materials sector in Australia.Although the fund participated in the benefits of rising com-
4
modity prices through BHP Billiton, it was underweight Rio Tinto and didn’t own Xstrata in the UK as well as other mining companies that gained substantial value. Finally, in Japan, chemical producers such as Shin-Etsu Chemical reported weaker-than-expected results when renewed pricing power did not materialize. Although specialty packaging company Kaneka Corporation fell sharply during the fourth quarter of 2009 better performance later in the reporting period moderated losses. Also in Japan, drug developer Astellas Pharma encountered difficulty integrating a recent acquisition.
Focusing on Fundamentals
As the economic recovery progresses, we believe that investors are likely to become more selective, turning away from bargain hunting in favor of conducting research to find companies with sound business fundamentals. Our research has uncovered what we believe are a number of opportunities among attractively valued, fundamentally sound companies in a variety of geographic regions and market sectors. Indeed, a return to a more selective, fundamentals-focused market environment may be particularly well suited to our investment approach.
April 15, 2010
Please note: the position in any security highlighted with italicized typeface was sold during the | |
reporting period. | |
Equity funds are subject generally to market, market sector, market liquidity, issuer, and investment | |
style risks, among other factors, to varying degrees, all of which are more fully described in the | |
fund’s prospectus. | |
The fund’s performance will be influenced by political, social and economic factors affecting | |
investments in foreign companies.These special risks include exposure to currency fluctuations, less | |
liquidity, less developed or less efficient trading markets, lack of comprehensive company | |
information, political instability and differing auditing and legal standards.These risks are higher | |
in emerging markets countries. Investments in foreign currencies are subject to the risk that those | |
currencies will decline in value relative to the U.S. dollar, or, in the case of hedged positions, that | |
the U.S. dollar will decline relative to the currency being hedged. | |
1 | Total return includes reinvestment of dividends and any capital gains paid. Past performance is no |
guarantee of future results. Share price and investment return fluctuate such that upon redemption, | |
fund shares may be worth more or less than their original cost.The Dreyfus Corporation has | |
undertaken to absorb certain fund expenses pursuant to an agreement in effect through August 31, | |
2010, at which time it may be extended, terminated or modified. Had these expenses not been | |
absorbed, return would have been lower.This waiver is voluntary and may be terminated or | |
changed at any time. | |
2 | SOURCE: LIPPER INC. — Reflects reinvestment of net dividends and, where applicable, |
capital gain distributions.The Morgan Stanley Capital International Europe, Australasia, Far | |
East (MSCI EAFE) Index is an unmanaged index composed of a sample of companies | |
representative of the market structure of European and Pacific Basin countries. Returns are | |
calculated on a month-end basis. |
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/The Boston Company International Core Equity Fund from October 1, 2009 to March 31, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment | |
assuming actual returns for the six months ended March 31, 2010 | |
Expenses paid per $1,000† | $5.66 |
Ending value (after expenses) | $1,025.50 |
COMPARING YOUR FUND’S EXPENSES |
WITH THOSE OF OTHER FUNDS (Unaudited) |
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment | |
assuming a hypothetical 5% annualized return for the six months ended March 31, 2010 | |
Expenses paid per $1,000† | $5.64 |
Ending value (after expenses) | $1,019.35 |
† Expenses are equal to the fund’s annualized expense ratio of 1.12% for Class I, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS
March 31, 2010 (Unaudited)
Common Stocks—93.1% | Shares | Value ($) |
Australia—7.5% | ||
AGL Energy | 9,940 | 137,095 |
Atlas Iron | 54,960 a | 123,563 |
AWE | 34,930 a | 87,186 |
BHP Billiton | 6,003 | 240,122 |
Commonwealth Bank of Australia | 6,770 | 349,701 |
Macquarie Group | 3,250 | 140,917 |
National Australia Bank | 10,700 | 270,215 |
Qantas Airways | 92,110 a | 240,050 |
Stockland | 56,350 | 206,321 |
Westfield Group | 20,635 | 228,365 |
Westpac Banking | 5,424 | 138,569 |
2,162,104 | ||
Austria—.8% | ||
Erste Group Bank | 5,698 | 239,347 |
Denmark—.9% | ||
Carlsberg, Cl. B | 2,950 | 247,591 |
Finland—.6% | ||
Fortum | 6,590 | 161,194 |
France—10.7% | ||
Atos Origin | 2,750 a | 138,098 |
AXA | 15,317 | 340,732 |
BNP Paribas | 5,790 | 444,663 |
Credit Agricole | 8,400 | 147,038 |
France Telecom | 11,400 | 272,767 |
GDF Suez | 5,123 | 197,895 |
Legrand | 3,070 | 96,987 |
Rhodia | 9,050 | 187,508 |
Sanofi-Aventis | 6,218 | 463,507 |
Technip | 1,610 | 130,908 |
Total | 3,510 | 203,760 |
Vallourec | 810 | 163,339 |
Vinci | 4,600 | 271,105 |
3,058,307 | ||
Germany—7.4% | ||
BASF | 5,440 | 337,401 |
Bayer | 5,860 | 396,376 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Germany (continued) | ||
E.ON | 4,740 | 175,002 |
HeidelbergCement | 3,825 | 213,367 |
Lanxess | 3,200 | 147,449 |
Metro | 5,950 | 352,959 |
Rheinmetall | 1,400 | 100,276 |
RWE | 2,825 | 250,304 |
Salzgitter | 1,740 | 161,525 |
2,134,659 | ||
Greece—.4% | ||
Bank of Cyprus Public | 16,100 | 101,769 |
Hong Kong—2.2% | ||
Esprit Holdings | 29,875 | 235,676 |
Hongkong Land Holdings | 52,000 | 263,640 |
Hutchison Whampoa | 18,000 | 131,680 |
630,996 | ||
Ireland—.7% | ||
CRH | 3,775 | 94,225 |
Dragon Oil | 15,920 a | 116,927 |
211,152 | ||
Italy—3.8% | ||
Enel | 25,930 | 144,993 |
ENI | 15,790 | 370,448 |
Fondiaria-Sai | 8,310 | 125,035 |
Terna Rete Elettrica Nazionale | 23,750 | 102,730 |
UniCredit | 114,080 | 337,057 |
1,080,263 | ||
Japan—19.5% | ||
Asahi Kasei | 30,000 | 161,408 |
Astellas Pharma | 7,500 | 271,553 |
Canon | 8,000 | 370,521 |
Central Japan Railway | 46 | 350,326 |
Daihatsu Motor | 16,000 | 152,829 |
Daito Trust Construction | 2,800 | 135,073 |
Fujitsu | 64,000 | 418,954 |
Hino Motors | 49,000 | 207,027 |
Hitachi | 79,000 a | 294,909 |
Honda Motor | 8,000 | 282,383 |
8
Common Stocks (continued) | Shares | Value ($) |
Japan (continued) | ||
Kaneka | 23,000 | 149,085 |
Keihin | 15,300 | 295,559 |
Lawson | 6,600 | 281,677 |
Makita | 5,500 | 181,196 |
Mitsubishi | 12,700 | 332,816 |
Mitsubishi UFJ Financial Group | 40,500 | 212,269 |
Nomura Holdings | 18,500 | 136,341 |
Sankyo | 5,400 | 267,141 |
SMC | 1,000 | 135,736 |
Softbank | 5,700 | 140,412 |
Sumitomo Mitsui Financial Group | 7,400 | 244,582 |
Sumitomo Trust & Banking | 16,000 | 93,785 |
Tokai Rika | 4,900 | 100,579 |
Tokyo Gas | 35,000 | 154,241 |
Toyo Suisan Kaisha | 4,000 | 103,455 |
Yahoo! Japan | 398 | 144,956 |
5,618,813 | ||
Netherlands—2.4% | ||
ING Groep | 13,770 a | 137,481 |
Koninklijke Vopak | 1,720 | 135,462 |
STMicroelectronics | 11,730 | 116,764 |
TNT | 10,040 | 287,892 |
677,599 | ||
Norway—1.9% | ||
DNB NOR | 10,800 | 123,388 |
Petroleum Geo-Services | 10,200 a | 133,610 |
Telenor | 20,200 | 273,947 |
530,945 | ||
Singapore—.7% | ||
SembCorp Marine | 68,000 | 203,667 |
Spain—2.1% | ||
Banco Bilbao Vizcaya Argentaria | 14,420 | 197,297 |
Banco Santander | 30,780 | 409,081 |
606,378 | ||
Sweden—.8% | ||
Electrolux, Ser. B | 9,690 | 221,429 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Switzerland—9.2% | ||
Adecco | 3,940 | 223,643 |
Credit Suisse Group | 7,500 | 386,594 |
Nestle | 16,660 | 853,225 |
Novartis | 2,446 | 132,113 |
Petroplus Holdings | 11,130 a | 206,787 |
Roche Holding | 3,464 | 561,783 |
Sulzer | 1,711 | 166,329 |
Swiss Life Holding | 750 a | 98,516 |
2,628,990 | ||
United Kingdom—21.5% | ||
Anglo American | 4,867 a | 212,264 |
Aviva | 36,330 | 212,418 |
Barclays | 45,490 | 248,718 |
Berkeley Group Holdings | 18,390 a | 227,161 |
BP | 28,440 | 269,045 |
British American Tobacco | 14,210 | 489,818 |
BT Group | 136,630 | 256,889 |
Compass Group | 28,870 | 230,441 |
Cookson Group | 23,226 a | 192,616 |
GlaxoSmithKline | 26,060 | 500,454 |
HSBC Holdings | 36,370 | 368,678 |
IMI | 25,120 | 251,589 |
Imperial Tobacco Group | 6,210 | 189,415 |
Kingfisher | 41,860 | 136,192 |
Legal & General Group | 123,270 | 164,708 |
Old Mutual | 89,070 | 165,575 |
Rio Tinto | 9,040 | 535,695 |
Rolls-Royce Group | 9,220 | 83,318 |
Royal Dutch Shell, Cl. B | 23,350 | 643,296 |
Thomas Cook Group | 75,850 | 310,546 |
Unilever | 13,380 | 392,884 |
WPP | 10,230 | 106,029 |
6,187,749 | ||
Total Common Stocks | ||
(cost $22,319,361) | 26,702,952 |
10
Preferred Stocks—1.1% | Shares | Value ($) |
Germany—.5% | ||
Volkswagen | 1,500 | 137,564 |
Volkswagen, Rights | 1,500 | 932 |
138,496 | ||
Luxembourg—.6% | ||
Millicom International Cellular, SDR | 1,820 a | 162,829 |
Total Preferred Stocks | ||
(cost $258,738) | 301,325 | |
Total Investments (cost $22,578,099) | 94.2% | 27,004,277 |
Cash and Receivables (Net) | 5.8% | 1,650,713 |
Net Assets | 100.0% | 28,654,990 |
SDR — Swedish Depository Receipts | ||
a Non-income producing security. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Financial | 23.2 | Energy | 7.5 |
Industrial | 12.5 | Information Technology | 5.2 |
Consumer Staples | 10.2 | Utilities | 4.6 |
Consumer Discretionary | 10.1 | Telecommunication Services | 3.9 |
Materials | 8.9 | ||
Health Care | 8.1 | 94.2 | |
† Based on net assets. | |||
See notes to financial statements. |
The Fund 11
STATEMENT OF ASSETS AND LIABILITIES |
March 31, 2010 (Unaudited) |
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments | 22,578,099 | 27,004,277 |
Cash denominated in foreign currencies | 57,903 | 57,264 |
Dividends and interest receivable | 1,515,720 | |
Receivable for investment securities sold | 526,395 | |
Prepaid expenses | 14,034 | |
29,117,690 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(b) | 63,613 | |
Cash overdraft due to Custodian | 72,228 | |
Payable for investment securities purchased | 266,937 | |
Payable for shares of Beneficial Interest redeemed | 4,731 | |
Unrealized depreciation on forward foreign | ||
currency exchange contracts—Note 4 | 556 | |
Interest payable—Note 2 | 479 | |
Accrued expenses | 54,156 | |
462,700 | ||
Net Assets ($) | 28,654,990 | |
Composition of Net Assets ($): | ||
Paid-in capital | 133,835,149 | |
Accumulated distributions in excess of investment income—net | (278,072) | |
Accumulated net realized gain (loss) on investments | (109,487,939) | |
Accumulated net unrealized appreciation (depreciation) | ||
on investments and foreign currency transactions | 4,585,852 | |
Net Assets ($) | 28,654,990 | |
Class I Shares Outstanding | ||
(unlimited number of $.001 par value shares of Beneficial Interest authorized) | 1,769,927 | |
Net Asset Value, offering and redemption price per share—Note 3(d) ($) | 16.19 | |
See notes to financial statements. |
12
STATEMENT OF OPERATIONS |
Six Months Ended March 31, 2010 (Unaudited) |
Investment Income ($): | |
Income: | |
Cash dividends (net of $33,880 foreign taxes withheld at source): | |
Unaffiliated issuers | 446,782 |
Affiliated issuers | 103 |
Total Income | 446,885 |
Expenses: | |
Investment advisory fee—Note 3(a) | 191,461 |
Custodian fees—Note 3(b) | 72,402 |
Shareholder servicing costs—Note 3(b) | 40,627 |
Accounting and administration fees—Note 3(a) | 30,000 |
Professional fees | 20,667 |
Prospectus and shareholders’ reports | 17,586 |
Registration fees | 13,583 |
Interest expense—Note 2 | 1,852 |
Trustees’ fees and expenses—Note 3(c) | 1,157 |
Loan commitment fees—Note 2 | 200 |
Miscellaneous | 10,220 |
Total Expenses | 399,755 |
Less—reduction in investment advisory fee | |
due to undertakings—Note 3(a) | (131,920) |
Net Expenses | 267,835 |
Investment Income—Net | 179,050 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments and foreign currency transactions | 6,999,649 |
Net realized gain (loss) on financial futures | 376,614 |
Net realized gain (loss) on forward foreign currency exchange contracts | (74,198) |
Net Realized Gain (Loss) | 7,302,065 |
Net unrealized appreciation (depreciation) | |
on investments and foreign currency transactions | (5,969,056) |
Net unrealized appreciation (depreciation) | |
on forward foreign currency exchange contracts | 262 |
Net Unrealized Appreciation (Depreciation) | (5,968,794) |
Net Realized and Unrealized Gain (Loss) on Investments | 1,333,271 |
Net Increase in Net Assets Resulting from Operations | 1,512,321 |
See notes to financial statements. |
The Fund 13
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2010 | Year Ended | |
(Unaudited) | September 30, 2009a | |
Operations ($): | ||
Investment income—net | 179,050 | 1,737,991 |
Net realized gain (loss) on investments | 7,302,065 | (81,102,204) |
Net unrealized appreciation | ||
(depreciation) on investments | (5,968,794) | 48,787,858 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 1,512,321 | (30,576,355) |
Dividends to Shareholders from ($): | ||
Investment income—net | (1,075,025) | (585,331) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold | 2,564,388 | 16,123,438 |
Dividends reinvested | 676,716 | 492,304 |
Cost of shares redeemed | (49,527,205) | (85,828,572) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (46,286,101) | (69,212,830) |
Total Increase (Decrease) in Net Assets | (45,848,805) | (100,374,516) |
Net Assets ($): | ||
Beginning of Period | 74,503,795 | 174,878,311 |
End of Period | 28,654,990 | 74,503,795 |
Undistributed (distributions in excess of) | ||
investment income—net | (278,072) | 617,903 |
Capital Share Transactions (Shares): | ||
Shares sold | 160,180 | 1,199,137 |
Shares issued for dividends reinvested | 42,295 | 36,440 |
Shares redeemed | (3,002,032) | (6,786,945) |
Net Increase (Decrease) in Shares Outstanding | (2,799,557) | (5,551,368) |
a Effective September 1, 2009, the fund’s shares were redesignated as Class I shares. | ||
See notes to financial statements. |
14
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||
March 31, 2010 | Year Ended September 30, | |||||
(Unaudited) | 2009a | 2008 | 2007 | 2006 | 2005 | |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 16.30 | 17.28 | 46.03 | 39.01 | 34.34 | 27.03 |
Investment Operations: | ||||||
Investment income—netb | .06 | .25 | .49 | .78 | .71 | .50 |
Net realized and unrealized | ||||||
gain (loss) on investments | .35 | (1.13) | (10.82) | 7.82 | 5.59 | 7.73 |
Total from | ||||||
Investment Operations | .41 | (.88) | (10.33) | 8.60 | 6.30 | 8.23 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.52) | (.10) | (.44) | (.60) | (.40) | (.39) |
Dividends from net realized | ||||||
gain on investments | — | — | (17.98) | (.98) | (1.23) | (.53) |
Total Distributions | (.52) | (.10) | (18.42) | (1.58) | (1.63) | (.92) |
Net asset value, end of period | 16.19 | 16.30 | 17.28 | 46.03 | 39.01 | 34.34 |
Total Return (%) | 2.55c | (4.97) | (35.03) | 22.37 | 19.01 | 31.06 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.67d | 1.27 | 1.07 | .78e | .88e | 1.01e |
Ratio of net expenses | ||||||
to average net assets | 1.12d | 1.21 | .87 | .77e | .88e | 1.01e |
Ratio of net investment income | ||||||
to average net assets | .75d | 1.88 | 1.70 | 1.78 | 1.91 | 1.59 |
Portfolio Turnover Rate | 40.54c | 163.94 | 98 | 83f | 51f | 58f |
Net Assets, end of period | ||||||
($ x 1,000) | 28,655 | 74,504 | 174,878 | 1,257,378 | 2,015,088 | 287,065 |
a | Effective September 1, 2009, the fund’s shares were redesignated as Class I shares. |
b | Based on average shares outstanding at each month end. |
c | Not annualized. |
d | Annualized. |
e | Includes the fund’s share of the The Boston Company International Core Equity Portfolio’s (the “Portfolio”) |
allocated expenses. | |
f | On September 19, 2007, the fund, which owned 100% of the Portfolio on such date, withdrew entirely from the |
Portfolio and received the Portfolio’s securities and cash in exchange for its interests in the Portfolio. Effective | |
September 20, 2007, the fund began investing directly in the securities in which the Portfolio had invested. Portfolio | |
turnover represents activity of both the fund and the Portfolio for 2007.The amounts shown for 2005-2006 are the | |
turnover rates for the Portfolio. | |
See notes to financial statements. |
The Fund 15
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus/The Boston Company International Core Equity Fund (the “fund”) is a separate diversified series of Dreyfus Investment Funds (the “Trust”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company currently offering twelve series, including the fund.The fund’s investment objective is to achieve long-term growth of capital. The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser. MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares, which are sold without a sales charge.
The Trust accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants.The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities are valued at the last sales price on the securities exchange or national securities market on which such securities are primarily traded. Securities listed on the National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price that day, at the last sales price. Securities not listed on an exchange or
16
the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Registered investment companies that are not traded on an exchange are valued at their net asset value.When market quotations or official closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Trustees. Fair valuing of sec urities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant American Depository Receipts and futures contracts. For other securities that are fair valued by the Board of Trustees, certain factors may be considered such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers. Financial futures are valued at the last sales price. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. Forward foreign currency exchange contracts (“forward contracts”) are valued at the forward rate.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The Fund 17
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of March 31, 2010 in valuing the fund’s investments:
Level 2—Other | Level 3— | ||||
Level 1— | Significant | Significant | |||
Unadjusted | Observable | Unobservable | |||
Quoted Prices | Inputs | Inputs | Total | ||
Assets ($) | |||||
Investments in Securities: | |||||
Equity Securities— | |||||
Foreign† | 27,004,277 | — | — | 27,004,277 | |
Liabilities ($) | |||||
Other Financial | |||||
Instruments†† | — | (556) | — | (556) | |
† | See Statement of Investments for country classification. | ||||
†† | Other financial instruments include derivative instruments, such as futures, forward foreign currency | ||||
exchange contracts, swap contracts and options contracts. Amounts shown represent unrealized | |||||
appreciation (depreciation), or in the case of options, market value at period end. |
18
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about FairValue Measurements”. ASU 2010-06 will require reporting entities to make new disclosures about amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecur-ring fair value measurements that fall in either Level 2 or Level 3, and information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. The new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2009 except for the disclosures surrounding purchases, sales, issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact the adoption of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
(b) Foreign currency transactions: The fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized on securities transactions between trade and settlement date, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments, resulting from changes in exchange rates. Foreign currency gains and losses on investments are included with net realized and unrealized gain or loss on investments.
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(c) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
The fund has arrangements with the custodian and cash management bank whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset custody and cash management fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
Investing in foreign markets may involve special risks and considerations not typically associated with investing in the U.S. These risks include revaluation of currencies, high rates of inflation, repatriation restrictions on income and capital, and adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls and delayed settlements, and their prices may be more volatile than those of comparable securities in the U.S.
(d) Affiliated issuers: Investments in other investment companies advised by the Manager are defined as “affiliated” in the Act.
(e) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”). Prior to January 1, 2010, the fund paid dividends from investment income-net semi-annually.To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
20
(f) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended March 31, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the three-year period ended September 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $49,294,163 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to September 30, 2009. If not applied, the carryover expires in fiscal 2017.
The tax character of distributions paid to shareholders during the fiscal year ended September 30, 2009 was as follows: ordinary income $585,331. The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing.
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The average amount of borrowings outstanding under the Facilities during the period ended March 31, 2010 was approximately $275,300, with a related weighted average annualized interest rate of 1.35%.
NOTE 3—Investment Advisory Fee and Other Transactions With Affiliates:
(a) Pursuant to an investment advisory agreement with the Manager, the investment advisory fee is computed at the annual rate of .80% of the value of the fund’s average daily net assets up to $500 million, .75% of the next $500 million of such assets, .70% of the next $500 million of such assets, .60% of the next $500 million of such assets, and .50% of the fund’s average daily net assets in excess of $2 billion and is payable monthly.
The Manager has agreed to waive receipt of its fees and/or assume the expenses of the fund, from February 11, 2010 until August 31, 2010, so that the annual direct expenses of the fund (excluding taxes, interest, brokerage commissions, acquired fund fees and extraordinary expenses) do not exceed 1.00% of the value of the fund’s average daily net assets. Prior to February 11, 2010, the Manager was limiting the fund’s operating expenses or assuming all or part of the expenses of the fund, so that such expenses did not exceed an annual rate of 1.25% of the value of the fund’s average daily net assets. The reduction in investment advisory fee, pursuant to the undertakings, amounted to $131,920 during the period ended March 31, 2010.
The Trust entered into an agreement with The Bank of New York Mellon pursuant to which The Bank of New York Mellon provides administration and fund accounting services for the fund. For these services, the fund paysThe Bank of NewYork Mellon a fixed fee plus asset and transaction based fees, as well as out-of-pocket expenses. Pursuant to this agreement, the fund was charged $30,000 during the period ended March 31, 2010 for administration and fund accounting services.
(b) The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing
22
personnel and facilities to perform transfer agency services for the fund. During the period ended March 31, 2010, the fund was charged $575 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under cash management agreements for performing cash management services related to fund subscriptions and redemptions. During the period ended March 31, 2010, the fund was charged $181 pursuant to the cash management agreements, which is included in Shareholder servicing costs in the Statement of Operations.
The fund also compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended March 31, 2010, the fund was charged $72,402 pursuant to the custody agreement.
During the period ended March 31, 2010, the fund was charged $2,742 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of:investment advisory fees $19,881, custodian fees $76,082, chief compliance officer fees $2,742 and transfer agency per account fees $158, which are offset against an expense reimbursement currently in effect in the amount of $35,250.
(c) Prior to January 1, 2010, eachTrustee received $45,000 per year, plus $6,000 for each joint Board meeting of the Trust,The Dreyfus/Laurel Funds, Inc.,The Dreyfus/Laurel Funds Trust,The Dreyfus/Laurel Tax-Free Municipal Funds and Dreyfus Funds, Inc. (collectively, the “Board Group Open-End Funds”) attended, $2,000 for separate in-person committee meetings attended which were not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that were conducted by telephone. Effective January 1, 2010, the Board Group Open-End Funds will pay each Trustee who is not an “interested person” of the Trust (as
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
defined in the Act) $60,000 per annum, plus $7,000 per joint Board Group Open-End Funds Board meeting attended, $2,500 for separate in-person committee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $2,000 for Board meetings and separate committee meetings attended that are conducted by telephone.The Board Group Open-End Funds also reimburse each Trustee who is not an “interested person” of the Trust (as defined in the Act) for travel and out-of-pocket expenses.With respect to Board meetings, the Chairman of the Board receives an additional 25% of such compensation (with the exception of reimbursable amounts). With respect to compensation committee meetings prior to January 1, 2010, the Chair of the compensation committee received $900 per compensation committee meeting. Effective January 1, 2010, the Chair of each of the Board’s committees, unless the Chair also serves as Chair of the Board, will receive $1,350 per applicable committee meeting. In the event that there is an in-person joint committee meeting or a joint telephone meeting of the Board Group Open-End Funds and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee (prior to January 1, 2010) or the $2,500 or $2,000 fee (effective January 1, 2010), as applicable, is allocated between the Board Group Open-End Funds and Dreyfus HighYield Strategies Fund.TheTrust’s portion of these fees and expenses are charged and allocated to each series based on net assets.
(d) A 2% redemption fee is charged and retained by the fund on certain shares redeemed within sixty days following the date of issuance, subject to exceptions, including redemptions made through the use of the fund’s exchange privilege. During the period ended March 31, 2010, redemption fees charged and retained by the fund amounted to $1,724.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, financial futures and forward contracts, during the period ended March 31, 2010, amounted to $18,538,843 and $65,274,247, respectively.
24
The fund may invest in shares of certain affiliated investment companies also advised or managed by the adviser. Investments in affiliated investment companies for the period ended March 31, 2010 were as follows:
Affiliated | |||||
Investment | Value | Value | Net | ||
Company | 9/30/2009 ($) | Purchases ($) | Sales ($) | 3/31/2010 ($) | Assets (%) |
Dreyfus | |||||
Institutional | |||||
Preferred | |||||
Plus Money | |||||
Market Fund | 207,323 | 13,084,700 | 13,292,023 | — | — |
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The disclosure requirements distinguish between derivatives, which are accounted for as “hedges” and those that do not qualify for hedge accounting. Because investment companies value their derivatives at fair value and recognize changes in fair value through the Statement of Operations, they do not qualify for such accounting.Accordingly, even though a fund’s investments in derivatives may represent economic hedges, they are considered to be non-hedge transactions for purposes of this disclosure.The following tables show the fund’s exposure to differe nt types of market risk as it relates to the Statement of Assets and Liabilities and the Statement of Operations, respectively.
Fair value of derivative instruments as of March 31,2010 is shown below:
Derivative | Derivative | ||
Assets ($) | Liabilities ($) | ||
Foreign exchange risk | — | Foreign exchange risk1 | (556) |
Gross fair value of | |||
derivatives contracts | — | (556) | |
Statement of Assets and Liabilities location: | |||
1 Unrealized depreciation on forward foreign currency exchange contracts. |
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The effect of derivative instruments in the Statement of Operations | ||||
for the period ended March 31, 2010 is shown below: | ||||
Amount of realized gain or (loss) on derivatives recognized in income ($) | ||||
Forward | ||||
Underlying risk | Futures2 | Contracts3 | Total | |
Equity | 376,614 | — | 376,614 | |
Foreign exchange | — | (74,198) | (74,198) | |
Total | 376,614 | (74,198) | 302,416 | |
Change in unrealized appreciation or (depreciation) on derivatives recognized in income ($)4 | ||||
Underlying risk | Forward Contracts | |||
Foreign Exchange | 262 | |||
Statement of Operations location: | ||||
2 | Net realized gain (loss) on financial futures. | |||
3 | Net realized gain (loss) on forward foreign currency exchange contracts. | |||
4 | Net unrealized appreciation (depreciation) on investments, financial futures and forward foreign | |||
currency exchange contracts. |
During the period ended March 31, 2010, the average market value of equity futures contracts was $1,108,373, which represented 2.31% of average net assets.The average market value of forward contracts was $1,766,532, which represented 3.68% of average net assets.
Futures Contracts: In the normal course of pursuing its investment objective, the fund is exposed to market risk, including equity price risk, as a result of changes in value of underlying financial instruments. The fund invests in financial futures contracts in order to manage its exposure to or protect against changes in the market.A futures contract represents a commitment for the future purchase or a sale of an asset at a specified date. Upon entering into such contracts, 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. Accordingly, variation margin payments are received or made to reflect daily unrealized gains or losses which are recorded in the Statement of Operations. Futures contracts are valued daily at the
26
last sales price established by the Board of Trade or exchange upon which they are traded.When the contracts are closed, the fund recognizes a realized gain or loss.There is minimal counterparty credit risk to the fund with futures, since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default.At March 31, 2010, there were no open financial futures contracts outstanding.
Forward Foreign Currency Exchange Contracts: The fund enters into forward contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to settle foreign currency transactions or as a part of its investment strategy.When executing forward contracts, the fund is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future. With respect to sales of forward contracts, the fund incurs a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed.The fund realizes a gain if the value of the contract decreases between those dates.With respect to purchases of forward contracts, the fund incurs a loss if the value of the contract decreases between the date the forward contract is opened and t he date the forward contract is closed. The fund realizes a gain if the value of the contract increases between those dates.The fund is exposed to foreign currency risk as a result of changes in value of underlying financial instruments.The fund is also exposed to credit risk associated with counterparty nonperformance on these forward contracts, which is typically limited to the unrealized gain on each open contract.The following summarizes open forward contracts at March 31, 2010:
Foreign | ||||
Forward Foreign Currency | Currency | Unrealized | ||
Exchange Contracts | Amounts | Cost ($) | Value ($) | (Depreciation) ($) |
Purchases: | ||||
Japanese Yen, | ||||
Expiring 4/1/2010 | 7,663,273 | 82,525 | 81,969 | (556) |
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
At March 31, 2010, accumulated net unrealized appreciation on investments was $4,426,178, consisting of $4,882,982 gross unrealized appreciation and $456,804 gross unrealized depreciation.
At March 31, 2010, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
NOTE 5—Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
28
INFORMATION ABOUT THE REVIEW AND
APPROVAL OF THE FUND’S INVESTMENT
ADVISORY AGREEMENT (Unaudited)
At a meeting of the fund’s Board of Trustees held on February 9, 2010, the Board considered the re-approval of the fund’s Investment Advisory Agreement (“Management Agreement”), pursuant to which the Manager provides the fund with investment advisory and certain 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 relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund, as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including those of the fund. The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including assistance in meeting legal and regulatory requirements.The Board members also considered the Manager’s extensive compliance infrastructure. The Board also considered the Manager’s brokerage policies and practices, the standards applied in seeking best execution and the Manager’s policies and practices regarding soft dollars.
The Fund 29
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S |
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of institutional international large-cap value funds (the “Performance Group”) and to a larger universe of funds, consisting of all retail and institutional international large-cap value funds (the “Performance Universe”) selected and provided by Lipper, Inc., an independent provider of investment company data.The Board was provided with a description of the methodology Lipper used to select the Performance Group and Performance Universe, as well as the Expense Group and Expense Universe (discussed below). The Board members discussed the results of the comparisons and noted that the fund’s total return performance was below the Performance Group and Performance Univer se medians for each of the reported periods ended December 31, 2009, except the fund’s total return performance was above the Performance Group and Performance Universe medians for the 10-year period ended December 31, 2009. The Manager also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.A representative of the Manager reminded the Board of the change to the fund’s primary portfolio manager, which was effective January 2010.The Board members noted that the performance periods being reviewed were prior to the portfolio manager change and it was expected to take some time for the new management to favorably affect the fund’s performance, but they remained concerned about the fund’s relative total return performance.
The Board members also discussed the fund’s contractual and actual management fee and expense ratio and reviewed the range of management fees and expense ratios of a comparable group of funds (the “Expense Group”) and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper.The Lipper data presenting the fund’s “actual management fees” included fees paid by the fund, as calculated by Lipper, for administrative services provided byThe Bank of NewYork Mellon, the Trust’s administrator. Such reporting was necessary, according to Lipper, to allow the Board to compare the fund’s advisory fees to those peers that include administrative fees within a
30
combined management (investment advisory and administrative) fee. The fund’s actual management fee and expense ratio for the fiscal year ended September 30, 2009 also reflected a waiver by the Manager. A representative of the Manager informed the Board members that the Manager had been limiting the fund’s total expense ratio (excluding brokerage commissions, taxes and extraordinary expenses) to 1.25% of the fund’s average daily net assets and that such limitation was voluntary and could be terminated at any time.The Board noted that the fund’s contractual management fee was at the Expense Group median and that the fund’s actual management fee and expense ratio were each above their respective Expense Group and Expense Universe medians for the fiscal year ended September 30, 2009. Representatives of the Manager and the Board members agreed that the Manager would contractually agree to lower the Manager 146;s limitation of expenses whereby the Manager would waive receipt of its fees and/or assume the expenses of the fund, until August 31, 2010, so that the annual direct expenses of the fund (excluding taxes, interest, brokerage commissions, acquired fund fees and extraordinary expenses) do not exceed 1.00% of the fund’s average daily net assets.
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”), and by other accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund (the “Similar Accounts”).The Manager’s representatives explained the nature of the Similar Accounts and the differences, from the Manager’s perspective, in providing services to such Similar Accounts as compared to managing and providing services to the fund.The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided. The Board members considered the relevance of the fee information provi ded for the Similar Funds and the Similar Accounts to evaluate the appropriateness and reasonableness of the fund’s management fee.
The Fund 31
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S |
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex.The Board also was informed that the methodology had also been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of the fund.The Board members evaluated the profitability analysis in light of the r elevant circumstances for the fund. the Board members also considered potential benefits to the Manager from acting as investment adviser and noted the Manager’s soft dollar arrangements with respect to trading the fund’s portfolio.The Board also noted the fee waiver arrangement and its effect on the profitability of the Manager.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It also was noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.
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
32
Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
The Board concluded that the nature, extent and quality of the services provided by the Manager are adequate and appropriate.
While the Board was concerned with the fund’s performance, the Board noted the portfolio manager change in January 2010 and believed the Manager was seeking to improve performance. The Board determined to closely monitor performance.
The Board concluded that, taking into consideration the increase to the fee waiver, the fee paid by the fund to the Manager was reason- able in light of the services provided, comparative performance, expense and management fee information, costs of services provided and profits realized and benefits derived or to be derived by the Manager from its relationship with the fund.
The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in con- nection with the management fee rate charged to the fund and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
The Fund 33
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
11 | Statement of Assets and Liabilities |
12 | Statement of Operations |
13 | Statement of Changes in Net Assets |
15 | Financial Highlights |
18 | Notes to Financial Statements |
28 | Information About the Review and Approval of the Fund’s Investment Advisory Agreement |
FOR MORE INFORMATION | |
Back Cover |
Dreyfus/The Boston
Company Large Cap
Core Fund
The Fund
A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus/The Boston Company Large Cap Core Fund, covering the six-month period from October 1, 2009, through March 31, 2010.
The equity markets continued to produce some of the most dramatic performance returns in recent years off of the March 2009 lows, as efforts to support the global economic recovery appeared to gain traction.The “risk trade,” in which assets are shifted from conservative to more aggressive investments to take advantage of improving market conditions, continued to benefit investors in both U.S. and international markets. However, since the beginning of 2010, recent overseas credit concerns have dampened international markets to an extent, which might be an implication that this trend is moderating.
We believe that sustained global and U.S. economic expansions should proceed at an above-trend pace in 2010, the result of macroeconomic stimulation adopted by nearly every country in the world over the last year. As for the worldwide stock markets, positive returns over the foreseeable future are likely to be delivered through in-depth research and a selective security evaluation process. If you have questions about equities, your financial advisor is best suited to provide current market perspectives relative to your portfolio and to discuss potential opportunities which may match your current expectations and your long-term investment targets.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
April 15, 2010
2
DISCUSSION OF FUND PERFORMANCE
For the period of October 1, 2009, through March 31, 2010, as provided by Sean P. Fitzgibbon and Jeffrey D. McGrew, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended March 31, 2010, Dreyfus/The Boston Company Large Cap Core Fund’s Class A shares produced a total return of 12.33%, Class C shares returned 11.91% and Class I shares returned 12.51%.1 In comparison, the fund’s benchmark, the Standard & Poor’s 500 Composite Stock Price Index (the “S&P 500 Index”), produced a total return of 11.75% for the same period.2
Large-cap stocks generally advanced over the reporting period as the economy continued to recover from a recession and financial crisis. The fund proved well positioned for the market rebound through stocks that appeared to have been punished more severely during the downturn than warranted by their business fundamentals.
The Fund’s Investment Approach
The fund seeks long-term growth of capital.The fund normally invests at least 80% of its assets in equity securities of large-cap companies that appear to be undervalued relative to underlying business fundamentals. The fund currently considers large-cap companies to be those with total market capitalizations, at the time of purchase, that are greater than the market capitalizations of companies in the bottom 5% of the capitalization range represented in the S&P 500 Index.The portfolio managers employ a core investment style that incorporates both growth and value criteria in managing the fund’s portfolio.The portfolio managers use a combination of quantitative and fundamental research to identify portfolio candidates.
Economic Recovery Drove Stock Prices Higher
The reporting period witnessed the continuation of an economic recovery and stock market rally that began early in 2009. Although unemployment remained stubbornly high, improved manufacturing activity and an apparent bottoming of residential housing prices helped boost confidence among investors, consumers and businesses.
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
For much of the reporting period, investors continued to search for bargains among lower-quality stocks. This activity typically benefited smaller, more speculative stocks more than their better established counterparts. However, during the first quarter of 2010 we began to see a shift in investors’ focus toward companies with sustainable revenues and earnings in a normalized operating environment.
Constructive Investment Posture Bolstered Fund Results
The fund continued to focus on stocks which appeared to be priced for worst-case scenarios that, in our judgment, were unlikely to occur. However, during the reporting period we adopted a more conservative stance with regard to risk. As valuations in the securities we held expanded, we trimmed positions that we considered to be at or near our target price.When making new investments, we emphasized companies that appeared to be in a better competitive position after the recession, especially those that we believed could achieve sustainable earnings growth over the long term.
The fund achieved particularly strong results in the energy sector, where lack of exposure to industry giant Exxon Mobil helped drive returns. Instead, we focused on better-performing exploration-and-production specialists, such as XTO Energy, which was acquired by Exxon Mobil during the reporting period, and Newfield Exploration.Alpha Natural Resources benefited from rising demand for metalurgical coal from steel producers.
In the consumer discretionary sector, auto parts supplier Autoliv gained value as the automobile manufacturing industry rebounded from depressed levels. Retailer Home Depot and appliances maker Whirlpool advanced when consumers resumed spending to update their residences, and apparel retailer Limited Brands fared well as consumers returned to more upscale products. Among industrial stocks, railroad Norfolk Southern and shipper FedEx rose along with business and consumer confidence, while Delta Air Lines provided an effective way to participate in better conditions in the airline industry. Machinery producers also made positive contributions to perform ance, including Cummins, Parker Hannifin and Dover. Finally, in the health care sector, insurer CIGNA appeared poised to benefit from health care reform, and generic drug producer AmerisourceBergen seemed well positioned for upcoming patent expirations on branded drugs.
4
Disappointments during the reporting period included the financials sector, where unfortunate timing in the sale of Citigroup prevented the fund from participating in subsequent gains. Custodial bank State Street weighed on performance due to weakness in its processing and securities lending businesses. In the information technology sector, handset maker Motorola suffered from weaker-than-expected earnings despite a successful entry into the growing smartphone market. Similarly, software giant Microsoft lagged despite strong sales of an upgrade to the Windows operating system.
Focusing on Fundamentals
As the economic recovery progresses, we believe that investors will continue to turn away from bargain hunting in favor of conducting research to find companies with sound business fundamentals. Therefore, we have intensified our focus on forward earnings estimates in an effort to identify companies with good growth prospects and attractive valuations. In our view, this is the right strategy as the economy and financial markets continue to normalize.
April 15, 2010
Please note, the position in any security highlighted with italicized typeface was sold during the | |
reporting period. | |
Equity funds are subject generally to market, market sector, market liquidity, issuer, and investment | |
style risks, among other factors, to varying degrees, all of which are more fully described in the | |
fund’s prospectus. | |
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take into |
consideration the maximum initial sales charge in the case of Class A shares, or the applicable | |
contingent deferred sales charge imposed on redemptions in the case of Class C shares. Had these | |
charges been reflected, returns would have been lower. Past performance is no guarantee of future | |
results. Share price and investment return fluctuate such that upon redemption, fund shares may be | |
worth more or less than their original cost.The fund’s returns reflect the absorption of certain fund | |
expenses by The Dreyfus Corporation pursuant to an agreement in effect through February 1, | |
2011, at which time it may be extended, terminated or modified. Had these expenses not been | |
absorbed, the fund’s returns would have been lower. | |
2 | SOURCE: LIPPER INC. — Reflects the monthly reinvestment of dividends and, where |
applicable, capital gain distributions.The Standard & Poor’s 500 Composite Stock Price Index is | |
a widely accepted, unmanaged index of U.S. stock market performance. Index return does 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/The Boston Company Large Cap Core Fund from October 1, 2009 to March 31, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment | |||
assuming actual returns for the six months ended March 31, 2010 | |||
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 6.09 | $ 10.04 | $ 4.77 |
Ending value (after expenses) | $1,123.30 | $1,119.10 | $1,125.10 |
COMPARING YOUR FUND’S EXPENSES |
WITH THOSE OF OTHER FUNDS (Unaudited) |
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment | |||
assuming a hypothetical 5% annualized return for the six months ended March 31, 2010 | |||
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 5.79 | $ 9.55 | $ 4.53 |
Ending value (after expenses) | $1,019.20 | $1,015.46 | $1,020.44 |
† Expenses are equal to the fund’s annualized expense ratio of 1.15% for Class A, 1.90% for Class C, and .90% for Class I, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
March 31, 2010 (Unaudited) |
Common Stocks—100.0% | Shares | Value ($) |
Consumer Discretionary—13.9% | ||
Autoliv | 7,240 | 373,077 |
Carnival | 4,050 | 157,464 |
Central European Media Enterprises, Cl. A | 8,260 a | 242,101 |
Darden Restaurants | 5,170 | 230,272 |
Gap | 14,960 | 345,726 |
Home Depot | 18,500 | 598,475 |
Limited Brands | 8,140 | 200,407 |
Newell Rubbermaid | 13,250 | 201,400 |
News, Cl. A | 43,110 | 621,215 |
Stanley Black and Decker | 3,030 | 173,952 |
Target | 12,360 | 650,136 |
Time Warner | 16,240 | 507,825 |
4,302,050 | ||
Consumer Staples—10.2% | ||
Clorox | 3,810 | 244,373 |
Coca-Cola Enterprises | 16,420 | 454,177 |
CVS Caremark | 6,680 | 244,221 |
Energizer Holdings | 3,890 a | 244,136 |
Nestle, ADR | 7,110 | 364,032 |
PepsiCo | 11,710 | 774,734 |
Philip Morris International | 10,640 | 554,982 |
Unilever, ADR | 9,750 | 285,480 |
3,166,135 | ||
Energy—10.0% | ||
Alpha Natural Resources | 3,720 a | 185,591 |
Chevron | 6,572 | 498,355 |
ConocoPhillips | 7,760 | 397,079 |
ENSCO, ADR | 8,170 | 365,853 |
Hess | 7,300 | 456,615 |
Newfield Exploration | 6,030 a | 313,862 |
Occidental Petroleum | 6,590 | 557,119 |
Valero Energy | 16,380 | 322,686 |
3,097,160 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Exchange Traded Funds—.8% | ||
Standard & Poor’s Depository | ||
Receipts S&P 500 ETF Trust | 2,130 | 249,210 |
Financial—14.0% | ||
American Express | 7,580 | 312,751 |
Bank of America | 51,120 | 912,492 |
Capital One Financial | 6,310 | 261,297 |
Franklin Resources | 2,100 | 232,890 |
Genworth Financial, Cl. A | 17,930 a | 328,836 |
Goldman Sachs Group | 940 | 160,392 |
JPMorgan Chase & Co. | 18,330 | 820,268 |
Lincoln National | 9,260 | 284,282 |
MetLife | 7,520 | 325,917 |
Morgan Stanley | 6,010 | 176,033 |
Wells Fargo & Co. | 13,060 | 406,427 |
XL Capital, Cl. A | 5,410 | 102,249 |
4,323,834 | ||
Health Care—15.9% | ||
Alexion Pharmaceuticals | 4,580 a | 249,015 |
AmerisourceBergen | 13,860 | 400,831 |
Amgen | 4,950 a | 295,812 |
Amylin Pharmaceuticals | 9,160 a | 206,008 |
CIGNA | 6,260 | 228,991 |
Covidien | 4,337 | 218,064 |
Hospira | 3,840 a | 217,536 |
Human Genome Sciences | 13,270 a | 400,754 |
King Pharmaceuticals | 16,850 a | 198,156 |
Mednax | 2,560 a | 148,966 |
Merck & Co. | 17,643 | 658,966 |
Pfizer | 43,030 | 737,965 |
St. Jude Medical | 3,810 a | 156,401 |
Teva Pharmaceutical Industries, ADR | 3,000 | 189,240 |
Thermo Fisher Scientific | 3,020 a | 155,349 |
Universal Health Services, Cl. B | 6,930 | 243,174 |
WellPoint | 3,580 a | 230,480 |
4,935,708 |
8
Common Stocks (continued) | Shares | Value ($) |
Industrial—10.2% | ||
AMR | 17,300 a | 157,603 |
Cummins | 3,130 | 193,903 |
Dover | 7,600 | 355,300 |
FedEx | 2,850 | 266,190 |
General Electric | 13,380 | 243,516 |
Norfolk Southern | 10,640 | 594,670 |
Parker Hannifin | 4,500 | 291,330 |
Raytheon | 7,620 | 435,254 |
Textron | 12,340 | 261,978 |
Tyco International | 9,377 | 358,670 |
3,158,414 | ||
Materials—2.0% | ||
Dow Chemical | 9,430 | 278,845 |
E.I. du Pont de Nemours & Co. | 9,540 | 355,270 |
634,115 | ||
Technology—19.2% | ||
Apple | 2,100 a | 493,353 |
BMC Software | 5,890 a | 223,820 |
Cisco Systems | 22,640 a | 589,319 |
EMC | 18,670 a | 336,807 |
Google, Cl. A | 1,010 a | 572,680 |
Hewlett-Packard | 11,290 | 600,063 |
International Business Machines | 3,200 | 410,400 |
Microsoft | 30,020 | 878,685 |
Motorola | 32,410 a | 227,518 |
Oracle | 23,530 | 604,486 |
QUALCOMM | 12,460 | 523,195 |
Sybase | 5,680 a | 264,802 |
Teradata | 6,487 a | 187,409 |
5,912,537 | ||
Telecommunication | ||
Services—1.4% | ||
AT & T | 17,020 | 439,797 |
Utilities—2.4% | ||
American Electric Power | 5,430 | 185,597 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Utilities (continued) | ||
PG & E | 5,440 | 230,765 |
Public Service Enterprise Group | 11,550 | 340,956 |
757,318 | ||
Total Investments (cost $25,521,606) | 100.0% | 30,976,278 |
Cash and Receivables (Net) | .0% | 901 |
Net Assets | 100.0% | 30,977,179 |
ADR—American Depository Receipts | ||
a Non-income producing security. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Technology | 19.2 | Energy | 10.0 |
Health Care | 15.9 | Utilities | 2.4 |
Financial | 14.0 | Materials | 2.0 |
Consumer Discretionary | 13.9 | Telecommunication Services | 1.4 |
Consumer Staples | 10.2 | Exchange Traded Funds | .8 |
Industrial | 10.2 | 100.0 | |
† Based on net assets. | |||
See notes to financial statements. |
10
STATEMENT OF ASSETS AND LIABILITIES |
March 31, 2010 (Unaudited) |
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments | 25,521,606 | 30,976,278 | |
Receivable for investment securities sold | 491,886 | ||
Dividends and interest receivable | 38,877 | ||
Prepaid expenses | 23,933 | ||
31,530,974 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 58,290 | ||
Cash overdraft due to Custodian | 301,394 | ||
Payable for investment securities purchased | 158,540 | ||
Payable for shares of Beneficial Interest redeemed | 1,274 | ||
Accrued expenses | 34,297 | ||
553,795 | |||
Net Assets ($) | 30,977,179 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 43,526,163 | ||
Accumulated undistributed investment income—net | 144,682 | ||
Accumulated net realized gain (loss) on investments | (18,148,338) | ||
Accumulated net unrealized appreciation | |||
(depreciation) on investments | 5,454,672 | ||
Net Assets ($) | 30,977,179 | ||
Net Asset Value Per Share | |||
Class A | Class C | Class I | |
Net Assets ($) | 47,856 | 15,145 | 30,914,178 |
Shares Outstanding | 1,530 | 485.44 | 987,153 |
Net Asset Value Per Share ($) | 31.28 | 31.20 | 31.32 |
See notes to financial statements. |
The Fund 11
STATEMENT OF OPERATIONS |
Six Months Ended March 31, 2010 (Unaudited) |
Investment Income ($): | |
Income: | |
Cash dividends (net of $179 foreign taxes withheld at source): | |
Unaffiliated issuers | 295,729 |
Affiliated issuers | 71 |
Total Income | 295,800 |
Expenses: | |
Investment advisory fee—Note 3(a) | 82,717 |
Registration fees | 28,786 |
Accounting and administration fee—Note 3(a) | 26,500 |
Custodian fees—Note 3(c) | 15,443 |
Auditing fees | 15,316 |
Prospectus and shareholders’ reports | 11,421 |
Legal fees | 6,726 |
Shareholder servicing costs—Note 3(c) | 2,605 |
Trustees’ fees and expenses—Note 3(d) | 273 |
Distribution fees—Note 3(b) | 53 |
Interest expense—Note 2 | 42 |
Miscellaneous | 4,457 |
Total Expenses | 194,339 |
Less—reduction in expenses due to undertaking—Note 3(a) | (45,316) |
Net Expenses | 149,023 |
Investment Income—Net | 146,777 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | 1,728,329 |
Net unrealized appreciation (depreciation) on investments | 1,983,334 |
Net Realized and Unrealized Gain (Loss) on Investments | 3,711,663 |
Net Increase in Net Assets Resulting from Operations | 3,858,440 |
See notes to financial statements. |
12
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2010 | Year Ended | |
(Unaudited) | September 30, 2009a | |
Operations ($): | ||
Investment income—net | 146,777 | 539,278 |
Net realized gain (loss) on investments | 1,728,329 | (16,113,462) |
Net unrealized appreciation | ||
(depreciation) on investments | 1,983,334 | 7,886,234 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 3,858,440 | (7,687,950) |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class A Shares | (50) | (105) |
Class C Shares | — | (68) |
Class I shares | (131,718) | (650,474) |
Total Dividends | (131,768) | (650,647) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 29,030 | 12,000 |
Class C Shares | — | 10,000 |
Class I shares | 858,780 | 2,844,463 |
Dividends reinvested: | ||
Class A Shares | 7 | 16 |
Class I shares | 76,544 | 400,365 |
Cost of shares redeemed: | ||
Class I shares | (8,304,973) | (20,333,550) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (7,340,612) | (17,066,706) |
Total Increase (Decrease) in Net Assets | (3,613,940) | (25,405,303) |
Net Assets ($): | ||
Beginning of Period | 34,591,119 | 59,996,422 |
End of Period | 30,977,179 | 34,591,119 |
Undistributed investment income—net | 144,682 | 129,673 |
The Fund 13
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||
March 31, 2010 | Year Ended | |
(Unaudited) | September 30, 2009a | |
Capital Share Transactions: | ||
Class A | ||
Shares sold | 959 | 570 |
Shares issued for dividends reinvested | —b | 1 |
Net Increase (Decrease) in Shares Outstanding | 959 | 571 |
Class C | ||
Shares sold | — | 485 |
Class I | ||
Shares sold | 28,881 | 126,265 |
Shares issued for dividends reinvested | 2,637 | 17,755 |
Shares redeemed | (280,724) | (881,809) |
Net Increase (Decrease) in Shares Outstanding | (249,206) | (737,789) |
a | The fund changed to a multiple class fund on March 31, 2009. The existing shares were redesignated as Class I |
and the fund commenced offering Class A and Class C shares. | |
b | Amount represents less than 1 per share. |
See notes to financial statements. |
14
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 | ||
March 31, 2010 | Year Ended | |
Class A Shares | (Unaudited) | September 30, 2009a |
Per Share Data ($): | ||
Net asset value, beginning of period | 27.93 | 20.60 |
Investment Operations: | ||
Investment income—netb | .09 | .09 |
Net realized and unrealized | ||
gain (loss) on investments | 3.35 | 7.43 |
Total from Investment Operations | 3.44 | 7.52 |
Distributions: | ||
Dividends from investment income—net | (.09) | (.19) |
Net asset value, end of period | 31.28 | 27.93 |
Total Return (%)c,d | 12.33 | 36.67 |
Ratios/Supplemental Data (%): | ||
Ratio of total expenses to average net assetse | 2.15 | 4.43 |
Ratio of net expenses to average net assetse | 1.15 | 1.15 |
Ratio of net investment income | ||
to average net assetse | .63 | .74 |
Portfolio Turnover Rate | 35.01d | 116.21 |
Net Assets, end of period ($ x 1,000) | 48 | 16 |
a | From March 31, 2009 (commencement of initial offering) to September 30, 2009. |
b | Based on average shares outstanding at each month end. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
See notes to financial statements. |
The Fund 15
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||
March 31, 2010 | Year Ended | |
Class C Shares | (Unaudited) | September 30, 2009a |
Per Share Data ($): | ||
Net asset value, beginning of period | 27.87 | 20.60 |
Investment Operations: | ||
Investment income (loss)—netb | (.01) | .00c |
Net realized and unrealized | ||
gain (loss) on investments | 3.34 | 7.41 |
Total from Investment Operations | 3.33 | 7.41 |
Distributions: | ||
Dividends from investment income—net | — | (.14) |
Net asset value, end of period | 31.20 | 27.87 |
Total Return (%)d,e | 11.91 | 36.16 |
Ratios/Supplemental Data (%): | ||
Ratio of total expenses to average net assetsf | 3.14 | 3.45 |
Ratio of net expenses to average net assetsf | 1.90 | 1.90 |
Ratio of net investment income | ||
(loss) to average net assetsf | (.09) | .01 |
Portfolio Turnover Rate | 35.01e | 116.21 |
Net Assets, end of period ($ x 1,000) | 15 | 14 |
a | From March 31, 2009 (commencement of initial offering) to September 30, 2009. |
b | Based on average shares outstanding at each month end. |
c | Amount represents less than $.01 per share. |
d | Exclusive of sales charge. |
e | Not annualized. |
f | Annualized. |
See notes to financial statements. |
16
Six Months Ended | ||||||
March 31, 2010 | Year Ended September 30, | |||||
Class I Shares | (Unaudited) | 2009a | 2008 | 2007 | 2006 | 2005 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 27.95 | 30.39 | 43.28 | 37.58 | 39.57 | 35.24 |
Investment Operations: | ||||||
Investment income—netb | .13 | .34 | .43 | .43 | .36 | .41 |
Net realized and unrealized | ||||||
gain (loss) on investments | 3.36 | (2.38) | (9.32)c | 7.01c | 3.22 | 4.28c |
Total from Investment Operations | 3.49 | (2.04) | (8.89) | 7.44 | 3.58 | 4.69 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.12) | (.40) | (.53) | (.33) | (.39) | (.36) |
Dividends from net realized | ||||||
gain on investments | — | — | (3.47) | (1.41) | (5.18) | — |
Total Distributions | (.12) | (.40) | (4.00) | (1.74) | (5.57) | (.36) |
Net asset value, end of period | 31.32 | 27.95 | 30.39 | 43.28 | 37.58 | 39.57 |
Total Return (%) | 12.51d | (6.43) | (22.41) | 20.27 | 9.84 | 13.34 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.17e | 1.23 | .84 | .80f | .99f | .85f |
Ratio of net expenses | ||||||
to average net assets | .90e | .91 | .84 | .80f | .90f | .85f |
Ratio of net investment income | ||||||
to average net assets | .89e | 1.43 | 1.17 | 1.05 | .98 | 1.10 |
Portfolio Turnover Rate | 35.01d | 116.21 | 61 | 59g | 103g | 85g |
Net Assets, end of period | ||||||
($ x 1,000) | 30,914 | 34,562 | 59,996 | 122,591 | 93,745 | 46,036 |
a The fund commenced offering three classes of shares on March 31, 2009.The existing shares were redesignated as Class I shares. b Based on average shares outstanding at each month end. c Amounts includes litigation proceeds received by the fund of $0.02 for the year ended September 30, 2008, $0.04 for the year ended September 30, 2007 and $0.02 for the year ended September 30, 2005. d Not annualized. e Annualized. f For the period October 1, 2006 to September 19, 2007 and for the fiscal years ended September 30, 2004-2006, the ratio includes the fund’s share of the TBC Large Cap Core Portfolio’s (the “Portfolio”) allocated expenses. g On September 19, 2007 the fund, which owned 100% of the Portfolio on such date, withdrew entirely from the Portfolio and received the Portfolio’s securities and cash in exchange for its interest in the Portfolio. Effective September 20, 2007, the fund began investing directly in securities. Portf olio turnover represents combined investment activity of the fund and the Portfolio for the year ended September 30, 2007.The amounts shown for 2005 and 2006 are ratios for the Portfolio.
See notes to financial statements.
The Fund 17
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus/The Boston Company Large Cap Core Fund (the “fund”) is a separate diversified series of Dreyfus Investment Funds (the “Trust”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company currently offering twelve series, including the fund. The fund’s investment objective is to achieve long-term growth of capital. The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of NewYork Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares. 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 C, and Class I. Class A shares are subject to a sales charge imposed at the time of purchase. Class C shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class C shares redeemed within one year of purchase. Class I shares are sold primarily to bank trust departments and other financial service providers (including The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus), acting on behalf of customers having a qualified trust or investment account or relationship at such institution, and bear no distribution or shareholder services fees. Class I shares are offered w ithout a front-end sales charge or CDSC. Other differences between the classes include the services offered to, 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.
As of March 31, 2010, MBC Investments Corp., an indirect subsidiary of BNY Mellon, held 485 Class A and Class C shares of the fund.
18
The Trust accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities.Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities are valued at the last sales price on the securities exchange or national securities market on which such securities are primarily traded. Securities listed on the National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price that day, at the last sales price. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Registered investment companies that are not traded on an exchange are valued at their net asset value. When market quotations or offici al closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market),but before the fund calculates its net asset value,the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Trustees. Fair valuing of secu-
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
rities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant ADRs and futures contracts. For other securities that are fair valued by the Board of Trustees, certain factors may be considered such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers. Financial futures are valued at the last sales price.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
20
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 March 31, 2010 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable | Unobservable | ||
Quoted Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in Securities: | ||||
Equity Securities— | ||||
Domestic† | 28,907,285 | — | — | 28,907,285 |
Equity Securities— | ||||
Foreign† | 1,819,783 | — | — | 1,819,783 |
Exchange Traded | ||||
Funds | 249,210 | — | — | 249,210 |
† See Statement of Investments for industry classification. |
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. ASU 2010-06 will require reporting entities to make new disclosures about amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3, and information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. The new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2009 except for the disclosures surrounding purchases,sales,issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements, which are effective f or fiscal years beginning after December 15, 2010. Management is currently evaluating the impact the adoption of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
The fund has arrangements with the custodian and cash management bank whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset custody and cash management fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
Investing in foreign markets may involve special risks and considerations not typically associated with investing in the U.S. These risks include revaluation of currencies, high rates of inflation, repatriation restrictions on income and capital, and adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls and delayed settlements, and their prices may be more volatile than those of comparable securities in the U.S.
(c) Affiliated issuers: Investments in other investment companies advised by the Manager are defined as “affiliated” in the Act.
(d) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”). Prior to January 1, 2010, the fund paid dividends from investment income-net semi-annually.To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(e) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the
22
best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended March 31, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the three-year period ended September 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $6,566,434 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to September 30, 2009. If not applied, the carryover expires in fiscal 2017.
The tax character of distributions paid to shareholders during the fiscal year ended September 30, 2009 was as follows: ordinary income $650,647.The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing.
The average amount of borrowings outstanding under the Facilities during the period ended March 31, 2010 was approximately $6,000, with a related weighted average annualized interest rate of 1.41%.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 3—Investment Advisory Fee and Other Transactions with Affiliates:
(a) Pursuant to an investment advisory agreement with the Manager, the investment advisory fee is computed at the annual rate of .50% of the value of the fund’s average daily net assets and is payable monthly.
The Manager is currently limiting the fund’s operating expenses or assuming all or part of the expenses of the fund, until February 1, 2011, so that annual direct fund operating expenses (excluding Rule 12b-1 fees, shareholder services fees, taxes, interest, brokerage commissions, and extraordinary expenses) do not exceed .90% of the value of the fund’s average daily net assets.The reduction in expenses, pursuant to the undertaking, amounted to $45,316 during the period ended March 31, 2010.
The Trust entered into an agreement with The Bank of New York Mellon, pursuant to which The Bank of New York Mellon provides administration and fund accounting services for the fund. For these services the fund pays The Bank of NewYork Mellon a fixed fee plus asset and transaction based fees, as well as out-of-pocket expenses. Pursuant to this agreement, the fund was charged $26,500 for the period ended March 31, 2010 for administration and fund accounting services.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing their shares at an annual rate of .75% of the value of the average daily net assets of Class C shares. During the period ended March 31, 2010, Class C shares were charged $53 pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at the annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding 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)
24
in respect of these services.The Distributor determines the amounts to be paid to Service Agents. During the period ended March 31, 2010, Class A and Class C shares were charged $36 and $18, 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 March 31, 2010, the fund was charged $3,001 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon, under cash management agreements for performing cash management services related to fund subscriptions and redemptions. During the period ended March 31, 2010, the fund was charged $163 pursuant to the cash management agreements.
The fund also compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended March 31, 2010, the fund was charged $15,443 pursuant to the custody agreement.
During the period ended March 31, 2010, the fund was charged $2,742 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: investment advisory fees $14,160, custodian fees $37,750, administrative service fees $6,750, Rule 12b-1 distribution plan fees $10, shareholder services plan fees $13, chief compliance officer fees $2,742 and transfer agency per account fees $440, which are offset against an expense reimbursement currently in effect in the amount of $3,575.
(d) Prior to January1, 2010, eachTrustee received $45,000 per year, plus $6,000 for each joint Board meeting of the Trust,The Dreyfus/Laurel Funds, Inc.,The Dreyfus/Laurel Funds Trust,The Dreyfus/Laurel Tax-
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Free Municipal Funds and Dreyfus Funds, Inc. (collectively, the “Board Group Open-End Funds”) attended, $2,000 for separate in-person committee meetings attended which were not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that were conducted by telephone. Effective January 1, 2010, the Board Group Open-End Funds will pay each Trustee who is not an “interested person” of the Trust (as defined in the Act) $60,000 per annum, plus $7,000 per joint Board Group Open-End Funds Board meeting attended, $2,500 for separate in-person committee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $2,000 for Board meetings and separate committee meetings attended that are conducted by telephone. The Board Group Open-End Funds also reimburse each Trustee who is not an “interested person 148; of the Trust (as defined in the Act) for travel and out-of-pocket expenses. With respect to Board meetings, the Chairman of the Board receives an additional 25% of such compensation (with the exception of reimbursable amounts).With respect to compensation committee meetings prior to January 1, 2010, the Chair of the compensation committee received $900 per compensation committee meeting. Effective January 1, 2010, the Chair of each of the Board’s committees, unless the Chair also serves as Chair of the Board, will receive $1,350 per applicable committee meeting. In the event that there is an in-person joint committee meeting or a joint telephone meeting of the Board Group Open-end Funds and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee (prior to January 1, 2010) or the $2,500 or $2,000 fee (effective January 1, 2010), as applicable, is allocated between the Board Group Open-End Funds and Dreyfus HighYield Strategies Fund.The Trust’s portion of these fees and expenses are charged and allocated to each series based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended March 31, 2010, amounted to $11,346,618 and $18,491,185, respectively.
26
The fund may invest in shares of certain affiliated investment companies also advised or managed by the adviser. Investments in affiliated investment companies for the period ended March 31, 2010 were as follows:
Affiliated | |||||
Investment | Value | Value | Net | ||
Company | 9/30/2009 ($) | Purchases ($) | Sales ($) | 3/31/2010 ($) | Assets (%) |
Dreyfus | |||||
Institutional | |||||
Preferred | |||||
Plus Money | |||||
Market Fund | 120,369 | 3,917,955 | 4,038,324 | — | — |
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which 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 fund held no derivatives during the period ended March 31, 2010. These disclosures did not impact the notes to the financial statements.
At March 31, 2010, accumulated net unrealized appreciation on investments was $5,454,672, consisting of $6,032,255 gross unrealized appreciation and $577,583 gross unrealized depreciation.
At March 31, 2010, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
NOTE 5—Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
The Fund 27
INFORMATION ABOUT THE REVIEW AND |
APPROVAL OF THE FUND’S INVESTMENT |
ADVISORY AGREEMENT (Unaudited) |
At a meeting of the fund’s Board of Trustees held on February 9, 2010, the Board considered the re-approval of the fund’s Investment Advisory Agreement (“Management Agreement”), pursuant to which the Manager provides the fund with investment advisory and certain 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 relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund, as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including those of the fund. The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including assistance in meeting legal and regulatory requirements.The Board members also considered the Manager’s extensive compliance infrastructure. The Board also considered the Manager’s brokerage policies and practices, the standards applied in seeking best execution and the Manager’s policies and practices regarding soft dollars.
28
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of institutional large-cap core funds (the “Performance Group”) and to a larger universe of funds, consisting of all retail and institutional large-cap core funds (the “Performance Universe”) selected and provided by Lipper, Inc., an independent provider of investment company data.The Board was provided with a description of the methodology Lipper used to select the Performance Group and Performance Universe, as well as the Expense Group and Expense Universe (discussed below).The Board members discussed the results of the comparisons and noted that the fund’s total return performance was variously above, at and below the Performance Group medians for the various perio ds ended December 31, 2009, above the Performance Universe medians for the one-, three-, four-, five- and ten-year periods ended December 31, 2009 but below the Performance Universe median for the two-year period ended December 31, 2009. The Manager also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.
The Board members also discussed the fund’s contractual and actual management fee and expense ratio and reviewed the range of management fees and expense ratios of a comparable group of funds (the “Expense Group”) and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper.The Lipper data presenting the fund’s “actual management fees” included fees paid by the fund, as calculated by Lipper, for administrative services provided byThe Bank of NewYork Mellon, the Trust’s administrator. Such reporting was necessary, according to Lipper, to allow the Board to compare the fund’s advisory fees to those peers that include administrative fees within a combined management (investment advisory and administrative) fee. The fund’s actual management fee and expense ratio for the fiscal year ended September 30, 2009 also reflected a waiver by the Manager. A representative of the Manager informed the Board members that the
The Fund 29
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S |
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
Manager had agreed, until February 1, 2011, to waive receipt of its fees and/or assume the expenses of the fund so that the direct expenses of none of the classes (excluding Rule 12b-1 fees, shareholder services fees, taxes, interest, brokerage commissions, acquired fund fees and extraordinary expenses) exceed .90% of the value of the fund’s average daily net assets. The fund’s contractual management fee was below its Expense Group median. The Board noted that, with the expense waiver, the fund’s actual management fee was below its Expense Group and Expense Universe medians and the fund’s expense ratio was below its Expense Group median and above its Expense Universe median.
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”), and by other accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund (the “Similar Accounts”).The Manager’s representatives explained the nature of the Similar Accounts and the differences, from the Manager’s perspective, in providing services to such Similar Accounts as compared to managing and providing services to the fund.The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided. The Board members considered the relevance of the fee information provi ded for the Similar Funds and the Similar Accounts to evaluate the appropriateness and reasonableness of the fund’s management fee.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund
30
complex.The Board also was informed that the methodology had also been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of the fund.The Board members evaluated the profitability analysis in light of the relevant circumstances for the fund.The Board members also considered potential benefits to the Manager from acting as investment adviser and noted the Manager’s soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It also was noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.The Board also noted the fee waiver arrangement and its effect on the profitability of the Manager.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
The Board concluded that the nature, extent and quality of the services provided by the Manager are adequate and appropriate.
The Fund 31
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S |
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
The Board was generally satisfied with the fund’s overall relative performance.
The Board concluded, taking into account the fee waiver, that the fee paid by the fund to the Manager was reasonable in light of the services provided, comparative performance, expense and manage- ment fee information, costs of the services provided and profits real- ized 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 determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
32
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
12 | Statement of Assets and Liabilities |
13 | Statement of Operations |
14 | Statement of Changes in Net Assets |
15 | Financial Highlights |
16 | Notes to Financial Statements |
26 | Information About the Review and Approval of the Fund’s Investment Advisory Agreement |
FOR MORE INFORMATION | |
Back Cover |
Dreyfus/The Boston
Company Small Cap
Growth Fund
The Fund
A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus/The Boston Company Small Cap Growth Fund, covering the six-month period from October 1, 2009, through March 31, 2010.
The equity markets continued to produce some of the most dramatic performance returns in recent years off of the March 2009 lows, as efforts to support the global economic recovery appeared to gain traction.The “risk trade,” in which assets are shifted from conservative to more aggressive investments to take advantage of improving market conditions, continued to benefit investors in both U.S. and international markets. However, since the beginning of 2010, recent overseas credit concerns have dampened international markets to an extent, which might be an implication that this trend is moderating.
We believe that sustained global and U.S. economic expansions should proceed at an above-trend pace in 2010, the result of macroeconomic stimulation adopted by nearly every country in the world over the last year. As for the worldwide stock markets, positive returns over the foreseeable future are likely to be delivered through in-depth research and a selective security evaluation process. If you have questions about equities, your financial advisor is best suited to provide current market perspectives relative to your portfolio and to discuss potential opportunities which may match your current expectations and your long-term investment targets.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
April 15, 2010
2
DISCUSSION OF FUND PERFORMANCE
For the period of October 1, 2009, through March 31, 2010, as provided by B. Randall Watts and P. Hans Von Der Luft, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended March 31, 2010, Dreyfus/The Boston Company Small Cap Growth Fund’s Class I shares produced a total return of 9.20%.1 In comparison, the fund’s benchmark, the Russell 2000 Growth Index (the “Index”), produced a total return of 12.07% for the same period.2 Small-cap stocks generally advanced over the reporting period as the global economy continued to recover from a recession and financial crisis.The fund produced lower returns than its benchmark, primarily due to shortfalls in our stock selection strategy in the consumer discretionary and financials sectors.
The Fund’s Investment Approach
The fund seeks long-term growth of capital.To pursue its goal, the fund normally invests at least 80% of its assets in equity securities of small-cap U.S. companies with total market capitalizations, at the time of purchase, equal to or less than that of the largest company in the Index. When choosing stocks, we seek to identify high-quality, small-cap companies with rapid current or expected earnings or revenue growth.We employ fundamental research to identify companies with attractive characteris-tics,such as strong business and competitive positions,solid cash flows and balance sheets, high-quality management, high sustainable growth. We also may invest in companies that our research indicates will experience accelerating revenues and expanding operating margins.
Economic Recovery Drove Stock Prices Higher
The reporting period witnessed the continuation of an economic recovery and stock market rally that began early in 2009. Although unemployment rates have remained stubbornly high, improved manufacturing activity and an apparent bottoming of residential housing prices helped boost confidence among investors, consumers and businesses.
For much of the reporting period, investors generally continued to search for value-oriented opportunities among lower-quality stocks
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
that had been severely punished during the downturn. This activity typically benefited smaller, more speculative stocks more than their better established, steadily growing counterparts. However, during the first quarter of 2010, we began to detect a shift in market sentiment as investors appeared to pay more attention to underlying business fundamentals. In our view, this suggests the beginning of a change in their focus toward companies with sustainable revenues and earnings in a normalized operating environment.
Consumer and Financial Stocks Weighed on Relative Results
The fund participated in the small-cap market rally to a significant degree, but its relative performance was dampened by an underweighted position in the consumer discretionary sector, which ranked among the benchmark’s top-performing segments. In addition, our stock selection strategy proved relatively weak in the sector.For example,the stock price of fine watches and jewelry maker Movado Group pre-announced fourth quarter earnings results lower than expected and provided 2011 fiscal year guidance for a loss. Despite strong quarterly earnings and higher guidance, for-profit education providers Career Education and Bridgepoint Education were hurt by regulatory investigations of for-profit accreditation standards and their access to Title IV program funds, a major source of tuition revenue. Finally, independent filmmaker Lions Gate Entertainment encountered heightened volatility in the midst of a low offer for the company that was rejected. During the reporting period, the company reported relatively solid revenue, but profits fell short on higher costs.
Our security selection strategy also produced shortfalls in the financials sector. Real estate investment trusts Hatteras Financial and Starwood Property Trust declined due to concerns regarding future revenue growth. Among insurance companies, Tower Group did not enjoy the increased pricing power we had anticipated in the wake of the recession, prompting us to eliminate the fund’s position.The fund’s results in the consumer staples sector were compromised by weakness in personal products provider Alberto-Culver, which was hurt by generally tepid conditions in the hair care industry.
Positioned for the Next Phase of the Economic Cycle
We remain optimistic regarding the potential for small-cap growth stocks over the remainder of 2010.As the economic recovery progresses,
4
we continue to think that the lower quality, low-priced stocks that performed well off the market lows do not look as cheap as they once were and fundamentals support higher quality companies. Credit spreads falling along with lower volatility has supported momentum. There could be a change as valuations of smaller, lower rated stocks are not nearly as attractive as they once were. We have found a number of opportunities meeting our growth-oriented investment criteria in the health care sector, where the recent passage of reform legislation appears likely to benefit service providers, medical device manufacturers and health care technology companies. We also have maintained overweighted exposure to technology companies that, in our judgment, are poised for greater spending among businesses seeking to boost efficiency and productivity through technology upgrades.
Conversely, we have found relatively fewer opportunities in the consumer discretionary sector, where retailers may continue to suffer from sluggish consumer spending amid relatively high unemployment rates and ongoing deleveraging activity. We also have reduced the fund’s overweighted positions in the financials and energy sectors. In our view, these are prudent strategies as we seek to capture the opportunities and confront the challenges of a rapidly evolving marketplace.
April 15, 2010
Please note, the position in any security highlighted with italicized typeface was sold during the | |
reporting period. | |
Equity funds are subject generally to market, market sector, market liquidity, issuer, and investment | |
style risks, among other factors, to varying degrees, all of which are more fully described in the | |
fund’s prospectus. | |
The prices of small company stocks tend to be more volatile than the prices of large company | |
stocks, mainly because these companies have less established and more volatile earnings histories. | |
They also tend to be less liquid than larger company stocks. | |
1 | Total return includes reinvestment of dividends and any capital gains paid. Past performance is no |
guarantee of future results. Share price and investment return fluctuate such that upon redemption, | |
fund shares may be worth more or less than their original cost. | |
2 | SOURCE: LIPPER INC. — The Russell 2000 Growth Index is an unmanaged index, which |
measures the performance of those Russell 2000 companies with higher price-to-book ratios and | |
higher forecasted growth values.The total return figure cited for this index assumes change in security | |
prices and reinvestment of dividends, but does not reflect the costs of managing 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/The Boston Company Small Cap Growth Fund from October 1, 2009 to March 31, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment | |
assuming actual returns for the six months ended March 31, 2010 | |
Expenses paid per $1,000† | $ 4.90 |
Ending value (after expenses) | $1,092.00 |
COMPARING YOUR FUND’S EXPENSES |
WITH THOSE OF OTHER FUNDS (Unaudited) |
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment | |
assuming a hypothetical 5% annualized return for the six months ended March 31, 2010 | |
Expenses paid per $1,000† | $ 4.73 |
Ending value (after expenses) | $1,020.24 |
† Expenses are equal to the fund’s annualized expense ratio of .94% for Class I, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
March 31, 2010 (Unaudited) |
Common Stocks—98.3% | Shares | Value ($) |
Consumer Discretionary—16.0% | ||
99 Cents Only Stores | 155,490 a,b | 2,534,487 |
Brinker International | 160,390 | 3,092,319 |
Carter’s | 87,750 b | 2,645,662 |
Cato, Cl. A | 121,420 | 2,603,245 |
Chipotle Mexican Grill | 13,227 b | 1,490,286 |
Citi Trends | 45,730 b | 1,483,481 |
Columbia Sportswear | 25,100 a | 1,318,503 |
Gentex | 94,320 a | 1,831,694 |
Gymboree | 50,880 b | 2,626,934 |
Hibbett Sports | 49,860 a,b | 1,275,419 |
Interface, Cl. A | 168,130 | 1,946,945 |
Jarden | 61,750 | 2,055,657 |
JOS. A. Bank Clothiers | 76,480 b | 4,179,632 |
Lions Gate Entertainment | 282,980 a,b | 1,765,795 |
P.F. Chang’s China Bistro | 29,830 a,b | 1,316,398 |
Take-Two Interactive Software | 90,250 b | 888,963 |
THQ | 327,940 b | 2,298,859 |
Tractor Supply | 62,220 a | 3,611,871 |
Wolverine World Wide | 80,050 | 2,334,258 |
41,300,408 | ||
Consumer Staples—1.6% | ||
Alberto-Culver | 63,610 | 1,663,401 |
Inter Parfums | 126,930 | 1,881,103 |
Seneca Foods, Cl. A | 18,890 b | 550,077 |
4,094,581 | ||
Energy—3.9% | ||
Arena Resources | 43,420 a,b | 1,450,228 |
Dril-Quip | 22,030 b | 1,340,305 |
Nordic American Tanker Shipping | 31,140 | 942,608 |
Oil States International | 28,420 b | 1,288,563 |
Penn Virginia | 42,250 | 1,035,125 |
Petroleum Development | 57,410 b | 1,330,190 |
Quicksilver Resources | 198,120 b | 2,787,548 |
10,174,567 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Exchange Traded Funds—1.6% | ||
iShares Russell 2000 Growth Index Fund | 56,545 a | 4,141,356 |
Financial—6.8% | ||
Altisource Portfolio Solutions | 92,450 a,b | 2,070,880 |
Arch Capital Group | 26,140 b | 1,993,175 |
Hatteras Financial | 85,030 | 2,191,223 |
Portfolio Recovery Associates | 56,150 a,b | 3,080,951 |
Prosperity Bancshares | 75,130 a | 3,080,330 |
Starwood Property Trust | 99,560 a | 1,921,508 |
Westamerica Bancorporation | 54,890 a | 3,164,409 |
17,502,476 | ||
Health Care—26.7% | ||
Alexion Pharmaceuticals | 43,590 b | 2,369,988 |
Allscripts-Misys Healthcare Solutions | 107,650 a,b | 2,105,634 |
Analogic | 53,360 | 2,280,073 |
AngioDynamics | 75,760 b | 1,183,371 |
Bio-Rad Laboratories, Cl. A | 20,025 b | 2,072,988 |
Bruker | 162,010 b | 2,373,446 |
Cardiome Pharma | 266,860 b | 1,763,945 |
Catalyst Health Solutions | 47,590 b | 1,969,274 |
Centene | 70,690 b | 1,699,388 |
Chemed | 43,310 a | 2,355,198 |
Emergency Medical Services, Cl. A | 47,648 b | 2,694,494 |
ev3 | 139,560 b | 2,213,422 |
Human Genome Sciences | 157,660 b | 4,761,332 |
InterMune | 30,080 b | 1,340,666 |
MAP Pharmaceuticals | 104,300 a,b | 1,657,327 |
Mednax | 35,230 b | 2,050,034 |
Myriad Genetics | 106,750 b | 2,567,337 |
Natus Medical | 82,710 b | 1,315,916 |
Nektar Therapeutics | 172,350 a,b | 2,621,443 |
Owens & Minor | 52,730 | 2,446,145 |
PerkinElmer | 90,600 | 2,165,340 |
PSS World Medical | 118,380 a,b | 2,783,114 |
RehabCare Group | 65,300 b | 1,780,731 |
Salix Pharmaceuticals | 86,030 b | 3,204,618 |
Sirona Dental Systems | 79,580 b | 3,026,427 |
8
Common Stocks (continued) | Shares | Value ($) |
Health Care (continued) | ||
SXC Health Solutions | 40,610 b | 2,732,241 |
Thermo Fisher Scientific | 42,900 b | 2,206,776 |
Thoratec | 44,790 a,b | 1,498,226 |
United Therapeutics | 30,040 a,b | 1,662,113 |
Volcano | 107,393 a,b | 2,594,615 |
ZymoGenetics | 249,550 a,b | 1,429,922 |
68,925,544 | ||
Industrial—11.5% | ||
Columbus McKinnon | 81,110 b | 1,287,216 |
Crane | 57,740 | 2,049,770 |
EnerSys | 74,060 b | 1,826,320 |
EnPro Industries | 83,450 a,b | 2,426,726 |
Exponent | 34,580 b | 986,222 |
Heidrick & Struggles International | 72,950 a | 2,044,788 |
Hub Group, Cl. A | 87,700 b | 2,453,846 |
Kforce | 166,630 b | 2,534,442 |
Knight Transportation | 173,000 a | 3,648,570 |
Landstar System | 63,370 a | 2,660,273 |
Mueller Industries | 81,950 | 2,195,440 |
Quanex Building Products | 76,730 | 1,268,347 |
Teledyne Technologies | 53,275 b | 2,198,659 |
Werner Enterprises | 85,470 a | 1,980,340 |
29,560,959 | ||
Materials—2.7% | ||
Haynes International | 62,910 | 2,235,192 |
Horsehead Holding | 118,450 b | 1,402,448 |
Schnitzer Steel Industries, Cl. A | 38,030 | 1,997,716 |
Zep | 59,210 | 1,295,515 |
6,930,871 | ||
Technology—27.5% | ||
Acxiom | 139,770 b | 2,507,474 |
Advanced Energy Industries | 125,090 b | 2,071,490 |
Art Technology Group | 344,630 b | 1,519,818 |
Atheros Communications | 70,530 a,b | 2,730,216 |
Blackboard | 63,720 a,b | 2,654,575 |
CACI International, Cl. A | 76,740 b | 3,748,749 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Technology (continued) | ||
Coherent | 29,430 a,b | 940,583 |
CyberSource | 171,190 a,b | 3,019,792 |
DTS | 88,440 b | 3,010,498 |
Finisar | 120,500 b | 1,893,055 |
Gartner | 108,730 b | 2,418,155 |
Harmonic | 412,100 b | 2,600,351 |
Mellanox Technologies | 103,020 b | 2,428,181 |
Mentor Graphics | 146,280 b | 1,173,166 |
MicroStrategy, Cl. A | 14,210 b | 1,208,845 |
NCI, Cl. A | 25,400 b | 767,842 |
NETGEAR | 48,790 b | 1,273,419 |
NetLogic Microsystems | 67,860 b | 1,997,120 |
NetScout Systems | 169,800 b | 2,511,342 |
Pericom Semiconductor | 167,020 b | 1,788,784 |
PMC-Sierra | 156,510 b | 1,396,069 |
QLogic | 176,210 b | 3,577,063 |
Quality Systems | 22,130 a | 1,359,667 |
Quest Software | 140,260 b | 2,495,225 |
Skyworks Solutions | 123,020 b | 1,919,112 |
SMART Modular Technologies | 354,430 b | 2,732,655 |
SonicWALL | 177,200 b | 1,539,868 |
SuccessFactors | 72,380 b | 1,378,115 |
TeleCommunication Systems, Cl. A | 262,190 b | 1,921,853 |
Triquint Semiconductor | 284,800 b | 1,993,600 |
Ultratech | 69,430 b | 944,248 |
Verigy | 201,070 a,b | 2,247,963 |
Vishay Intertechnology | 185,360 b | 1,896,233 |
Vocus | 72,160 a,b | 1,230,328 |
Volterra Semiconductor | 81,810 b | 2,053,431 |
70,948,885 | ||
Total Common Stocks | ||
(cost $203,758,701) | 253,579,647 |
10
Other Investment—1.7% | Shares | Value ($) |
Registered Investment Company; | ||
Dreyfus Institutional Preferred | ||
Plus Money Market Fund | ||
(cost $4,317,385) | 4,317,385 c | 4,317,385 |
Investment of Cash Collateral | ||
for Securities Loaned—13.8% | ||
Registered Investment Company; | ||
Dreyfus Institutional Cash Advantage Fund | ||
(cost $35,587,500) | 35,587,500 c | 35,587,500 |
Total Investments (cost $243,663,586) | 113.8% | 293,484,532 |
Liabilities, Less Cash and Receivables | (13.8%) | (35,616,914) |
Net Assets | 100.0% | 257,867,618 |
a Security, or portion thereof, on loan.At March 31, 2010, the total market value of the fund’s securities on loan is |
$34,475,393 and the total market value of the collateral held by the fund is $35,587,500. |
b Non-income producing security. |
c Investment in affiliated money market mutual fund. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Technology | 27.5 | Energy | 3.9 |
Health Care | 26.7 | Materials | 2.7 |
Consumer Discretionary | 16.0 | Consumer Staples | 1.6 |
Money Market Investments | 15.5 | Exchange Traded Funds | 1.6 |
Industrial | 11.5 | ||
Financial | 6.8 | 113.8 | |
† Based on net assets. | |||
See notes to financial statements. |
The Fund 11
STATEMENT OF ASSETS AND LIABILITIES |
March 31, 2010 (Unaudited) |
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments (including | ||
securities on loan, valued at $34,475,393)—Note 1(b): | ||
Unaffiliated issuers | 203,758,701 | 253,579,647 |
Affiliated issuers | 39,904,885 | 39,904,885 |
Cash | 113,408 | |
Receivable for investment securities sold | 2,147,909 | |
Receivable for shares of Beneficial Interest subscribed | 205,426 | |
Dividends and interest receivable | 173,516 | |
Prepaid expenses | 13,412 | |
296,138,203 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(b) | 240,427 | |
Liability for securities on loan—Note 1(b) | 35,587,500 | |
Payable for investment securities purchased | 1,947,688 | |
Payable for shares of Beneficial Interest redeemed | 433,429 | |
Accrued expenses | 61,541 | |
38,270,585 | ||
Net Assets ($) | 257,867,618 | |
Composition of Net Assets ($): | ||
Paid-in capital | 270,091,380 | |
Accumulated Investment (loss)—net | (416,110) | |
Accumulated net realized gain (loss) on investments | (61,628,598) | |
Accumulated net unrealized appreciation | ||
(depreciation) on investments | 49,820,946 | |
Net Assets ($) | 257,867,618 | |
Class I Shares Outstanding | ||
(unlimited number of $.001 par value shares of Beneficial Interest authorized) | 5,446,223 | |
Net Asset Value, offering and redemption price per share ($) | 47.35 | |
See notes to financial statements. |
12
STATEMENT OF OPERATIONS |
Six Months Ended March 31, 2010 (Unaudited) |
Investment Income ($): | |
Income: | |
Cash dividends: | |
Unaffiliated issuers | 839,950 |
Affiliated issuers | 2,890 |
Income from securities lending—Note 1(b) | 26,516 |
Total Income | 869,356 |
Expenses: | |
Investment advisory fee—Note 3(a) | 1,095,068 |
Custodian fees—Note 3(b) | 64,617 |
Shareholder servicing costs—Note 3(b) | 36,670 |
Professional fees | 35,367 |
Accounting and administration fees—Note 3(a) | 22,500 |
Registration fees | 9,039 |
Loan commitment fees—Note 2 | 5,308 |
Prospectus and shareholders’ reports | 4,097 |
Trustees’ fees and expenses—Note 3(c) | 3,519 |
Interest expense—Note 2 | 1,526 |
Miscellaneous | 7,758 |
Total Expenses | 1,285,469 |
Less—reduction in fees due to earnings credits—Note 1(b) | (3) |
Net Expenses | 1,285,466 |
Investment (Loss)—Net | (416,110) |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | 21,188,567 |
Net unrealized appreciation (depreciation) on investments | 2,005,993 |
Net Realized and Unrealized Gain (Loss) on Investments | 23,194,560 |
Net Increase in Net Assets Resulting from Operations | 22,778,450 |
See notes to financial statements. |
The Fund 13
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2010 | Year Ended | |
(Unaudited) | September 30, 2009a | |
Operations ($): | ||
Investment (loss)—net | (416,110) | (762,541) |
Net realized gain (loss) on investments | 21,188,567 | (60,106,751) |
Net unrealized appreciation | ||
(depreciation) on investments | 2,005,993 | 53,910,681 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 22,778,450 | (6,958,611) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold | 8,134,607 | 154,067,155 |
Cost of shares redeemed | (72,608,709) | (80,251,671) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (64,474,102) | 73,815,484 |
Total Increase (Decrease) in Net Assets | (41,695,652) | 66,856,873 |
Net Assets ($): | ||
Beginning of Period | 299,563,270 | 232,706,397 |
End of Period | 257,867,618 | 299,563,270 |
Accumulated investment (loss)—net | (416,110) | — |
Capital Share Transactions (Shares): | ||
Shares sold | 184,647 | 4,424,502 |
Shares redeemed | (1,647,381) | (2,179,770) |
Net Increase (Decrease) in Shares Outstanding | (1,462,734) | 2,244,732 |
a Effective September 1, 2009, the fund’s shares were redesignated as Class I shares. | ||
See notes to financial statements. |
14
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||
March 31, 2010 | Year Ended September 30, | |||||
Class I Shares | (Unaudited) | 2009a | 2008 | 2007 | 2006 | 2005 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 43.36 | 49.89 | 59.41 | 49.67 | 46.30 | 37.95 |
Investment Operations: | ||||||
Investment (loss)—netb | (.07) | (.12) | (.11) | (.11) | (.14) | (.20) |
Net realized and unrealized | ||||||
gain (loss) on investments | 4.06 | (6.41) | (9.41)c | 9.85c | 3.51 | 8.55 |
Total from Investment Operations | 3.99 | (6.53) | (9.52) | 9.74 | 3.37 | 8.35 |
Net asset value, end of period | 47.35 | 43.36 | 49.89 | 59.41 | 49.67 | 46.30 |
Total Return (%) | 9.20d | (13.14) | (16.02) | 19.61 | 7.28 | 22.00 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | .94e | 1.00 | 1.01 | 1.09f | 1.38f | 1.41f |
Ratio of net expenses | ||||||
to average net assets | .94e,g | 1.00 | 1.01 | 1.09f | 1.10f | 1.17f |
Ratio of net investment (loss) | ||||||
to average net assets | (.30)e | (.34) | (.20) | (.20) | (.30) | (.48) |
Portfolio Turnover Rate | 92.67d | 271 | 207 | 175h | 166h | 135h |
Net Assets, end of period | ||||||
($ x 1,000) | 257,868 299,563 | 232,706 | 186,991 | 42,103 | 36,323 |
a | Effective September 1, 2009, the fund’s shares were redesignated as Class I shares. |
b | Based on average shares outstanding at each month end. |
c | Amounts include litigation proceeds received by the fund of $.01 for the year ended September 30, 2008 and $.01 |
for the year ended September 30, 2007. | |
d | Not annualized. |
e | Annualized. |
f | Include the fund’s share of the TBC Small Cap Growth Portfolio’s (the “Portfolio”) allocated expenses. |
g | Expense waivers and/or reimbursements amounted to less than .01%. |
h | On September 19, 2007, the fund, which owned 100% of the Portfolio on such date, withdrew entirely from the |
Portfolio and received the Portfolio’s securities and cash in exchange for its interests in the Portfolio. Effective | |
September 20, 2007, the fund began investing directly in the securities in which the Portfolio had invested. Portfolio | |
turnover represents activity of both the fund and the Portfolio for 2007.The amounts shown for 2005-2006 are the | |
turnover rates for the Portfolio. | |
See notes to financial statements. |
The Fund 15
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus/The Boston Company Small Cap Growth Fund (the “fund”) is a separate diversified series of Dreyfus Investment Funds (the “Trust”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company currently offering twelve series, including the fund. The fund’s investment objective is to seek long-term growth of capital.The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser. MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares, which are sold without a sales charge.
The Trust accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants.The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities are valued at the last sales price on the securities exchange or national securities market on which such securities are primarily traded. Securities listed on the National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price
16
that day, at the last sales price. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Registered investment companies that are not traded on an exchange are valued at their net asset value.When market quotations or official closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Trustees. Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant American Depository Receipts and futures contracts. For other securities that are fair valued by the Board of Trustees, certain factors may be considered such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers. Financial futures are valued at the last sales price.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The Fund 17
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of March 31, 2010 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable | Unobservable | ||
Quoted Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in Securities: | ||||
Equity Securities— | ||||
Domestic† | 245,426,383 | — | — | 245,426,383 |
Equity Securities— | ||||
Foreign† | 4,011,908 | — | — | 4,011,908 |
Mutual Funds/ | ||||
Exchange | ||||
Traded Funds | 44,046,241 | — | — | 44,046,241 |
† See Statement of Investments for industry classification. |
18
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. ASU 2010-06 will require reporting entities to make new disclosures about amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3, and information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. The new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2009 except for the disclosures surrounding purchases,sales,issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements, which are effective f or fiscal years beginning after December 15, 2010. Management is currently evaluating the impact the adoption of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
The fund has arrangements with the custodian and cash management bank whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset custody and cash management fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
Pursuant to a securities lending agreement with The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, the fund may lend securities to qualified institutions. It is the fund’s
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
policy that, at origination, all loans are secured by collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan is maintained at all times. Collateral is either in the form of cash, which can be invested in certain money market mutual funds managed by the Manager, U.S. Government and Agency securities or letters of credit.The fund is entitled to receive all income on securities loaned, in addition to income earned as a result of the lending transaction. Although each security loaned is fully collateralized, the fund bears the risk of delay in recovery of, or loss of rights in, the securities loaned should a borrower fail to return the securities in a timely manner. During the period ended March 31, 2010, The Bank of New York Mellon earned $8,839 from lending portfolio securities, pursuant to the securities lending agreement.
(c) Affiliated issuers: Investments in other investment companies advised by the Manager are defined as “affiliated” in the Act.
(d) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”). Prior to January 1, 2010, the fund paid dividends from investment income-net semi-annually.To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(e) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable pro-
20
visions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended March 31, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the three-year period ended September 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $32,142,902 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to September 30, 2009. If not applied, $939,793 of the carryover expires in fiscal 2011 and $31,203,109 expires in fiscal 2017.
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing.
The average amount of borrowings outstanding under the Facilities during the period ended March 31, 2010 was approximately $218,700, with a related weighted average annualized interest rate of 1.40%.
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 3—Investment Advisory Fee and Other Transactions With Affiliates:
(a) Pursuant to an investment advisory agreement with the Manager, the investment advisory fee is computed at the annual rate .80% of the value of the fund’s average daily net assets and is payable monthly.
The Trust entered into an agreement with The Bank of New York Mellon, pursuant to which The Bank of New York Mellon provides administration and fund accounting services for the fund. For these services the fund pays The Bank of NewYork Mellon a fixed fee plus asset and transaction based fees, as well as out-of-pocket expenses. Pursuant to this agreement, the fund was charged $22,500 during the period ended March 31, 2010 for administration and fund accounting services.
(b) 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 March 31, 2010, the fund was charged $5,595 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under cash management agreements for performing cash management services related to fund subscriptions and redemptions. During the period ended March 31, 2010, the fund was charged $1,674 pursuant to the cash management agreements, which is included in Shareholder servicing costs in the Statement of Operations.These fees were partially offset by earnings credits which amounted to $3.
The fund also compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended March 31, 2010, the fund was charged $64,617 pursuant to the custody agreement.
22
During the period ended March 31, 2010, the fund was charged $2,742 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: investment advisory fees $176,146, custodian fees $58,800, chief compliance officer fees $2,742 and transfer agency per account fees $2,739.
(c) Prior to January 1, 2010, each Trustee received $45,000 per year, plus $6,000 for each joint Board meeting of the Trust, The Dreyfus/Laurel Funds, Inc., The Dreyfus/Laurel Funds Trust, The Dreyfus/Laurel Tax-Free Municipal Funds and Dreyfus Funds, Inc. (collectively, the “Board Group Open-End Funds”) attended, $2,000 for separate in-person committee meetings attended which were not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that were conducted by telephone. Effective January 1, 2010, the Board Group Open-End Funds will pay each Trustee who is not an “interested person” of the Trust (as defined in the Act) $60,000 per annum, plus $7,000 per joint Board Group Open-End Funds Board meeting attended, $2,500 for separate in-person committee meetin gs attended which are not held in conjunction with a regularly scheduled Board meeting and $2,000 for Board meetings and separate committee meetings attended that are conducted by telephone.The Board Group Open-End Funds also reimburse each Trustee who is not an “interested person” of the Trust (as defined in the Act) for travel and out-of-pocket expenses.With respect to Board meetings, the Chairman of the Board receives an additional 25% of such compensation (with the exception of reimbursable amounts). With respect to compensation committee meetings prior to January 1, 2010, the Chair of the compensation committee received $900 per compensation committee
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
meeting. Effective January 1, 2010, the Chair of each of the Board’s committees, unless the Chair also serves as Chair of the Board, will receive $1,350 per applicable committee meeting. In the event that there is an in-person joint committee meeting or a joint telephone meeting of the Board Group Open-End Funds and Dreyfus HighYield Strategies Fund, the $2,000 or $1,500 fee (prior to January 1, 2010) or the $2,500 or $2,000 fee (effective January 1, 2010), as applicable, is allocated between the Board Group Open-End Funds and Dreyfus High Yield Strategies Fund. The Trust’s portion of these fees and expenses are charged and allocated to each series based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended March 31, 2010, amounted to $245,305,289 and $307,264,552, respectively.
The fund may invest in shares of certain affiliated investment companies also advised or managed by the adviser. Investments in affiliated investment companies for the period ended March 31, 2010 were as follows:
Affiliated | ||||
Investment | Value | Value | Net | |
Company | 9/30/2009 ($) | Purchases ($) | Sales ($) 3/31/2010 ($) | Assets (%) |
Dreyfus | ||||
Institutional | ||||
Preferred | ||||
Plus Money | ||||
Market | ||||
Fund | 9,652,872 | 74,342,852 | 79,678,339 4,317,385 | 1.7 |
Dreyfus | ||||
Institutional | ||||
Cash | ||||
Advantage | ||||
Fund | 46,771,888 | 128,340,274 | 139,524,662 35,587,500 | 13.8 |
Total | 56,424,760 | 202,683,126 | 219,203,001 39,904,885 | 15.5 |
24
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which 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 fund held no derivatives during the period ended March 31, 2010. These disclosures did not impact the notes to the financial statements.
At March 31, 2010, accumulated net unrealized appreciation on investments was $49,820,946, consisting of $51,815,724 gross unrealized appreciation and $1,994,778 gross unrealized depreciation.
At March 31, 2010, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
NOTE 5—Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
The Fund 25
INFORMATION ABOUT THE REVIEW AND |
APPROVAL OF THE FUND’S INVESTMENT |
ADVISORY AGREEMENT (Unaudited) |
At a meeting of the fund’s Board of Trustees held on February 9, 2010, the Board considered the re-approval of the fund’s Investment Advisory Agreement (“Management Agreement”), pursuant to which the Manager provides the fund with investment advisory and certain 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 relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund,as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including those of the fund. The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including assistance in meeting legal and regulatory requirements.The Board members also considered the Manager’s extensive compliance infrastructure.The Board also considered the Manager’s brokerage policies and practices, the standards applied in seeking best execution and the Manager’s policies and practices regarding soft dollars.
26
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of institutional small-cap growth funds (the “Performance Group”) and to a larger universe of funds, consisting of all retail and institutional small-cap growth funds (the “Performance Universe”) selected and provided by Lipper, Inc., an independent provider of investment company data.The Board was provided with a description of the methodology Lipper used to select the Performance Group and Performance Universe, as well as the Expense Group and Expense Universe (discussed below). The Board members discussed the results of the comparisons and noted that the fund’s total return performance was below the Performance Group and Performance Universe medians for the one-, t wo-, three-, and ten-year periods ended December 31, 2009, above the Performance Group median and below the Performance Universe median for the four-year period ended December 31, 2009 and above the Performance Group and Performance Universe medians for the five-year period ended December 31, 2009. As part of an overall presentation to the Board members, representatives of the Manager discussed the market environment in 2009, noting that high beta stocks outperformed during 2009 and high quality stocks had been out of favor during 2009. The Manager also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.
The Board members also discussed the fund’s contractual and actual management fee and expense ratio and reviewed the range of management fees and expense ratios of a comparable group of funds (the “Expense Group”) and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper.The Lipper data presenting the fund’s “actual management fees” included fees paid by the fund, as calculated by Lipper, for administrative services provided byThe Bank of NewYork Mellon, the Trust’s administrator. Such reporting was necessary, according to Lipper, to allow the Board to compare the fund’s
The Fund 27
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S |
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
advisory fees to those peers that include administrative fees within a combined management (investment advisory and administrative) fee. Noting that the fund’s expense ratio had not been affected for the most recent fiscal year, a representative of the Manager informed the Board members that the Manager was currently limiting the fund’s total expense ratio to 1.10% of the fund’s average daily net assets and that such limitation is voluntary and may be terminated at any time.The Board noted that the fund’s contractual management fee was below the Expense Group median, the actual management fee was above the Expense Group and Expense Universe medians and the fund’s expense ratio was below the Expense Group and Expense Universe medians.
Representatives of the Manager reviewed with the Board members the fees paid to the Manager or its affiliates by mutual funds managed by the Manager or its affiliates with similar investment objectives, policies and strategies, and included in the same Lipper category as the fund (the “Similar Funds”), and by other accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund (the “Similar Accounts”). The Manager’s representatives explained the nature of the Similar Accounts and the differences, from the Manager’s perspective, in providing services to such Similar Accounts as compared to managing and providing services to the fund. The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided. The Board members considered the relevance of the fee information pro vided for the Similar Funds and the Similar Accounts to evaluate the appropriateness and reasonableness of the fund’s management fee.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex.The Board also was informed that the methodology had also
28
been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of the fund.The Board members evaluated the profitability analysis in light of the relevant circumstances for the fund, noting that the fund had been generally closed to new investors since July 2007.The Board members also considered potential benefits to the Manager from acting as investment adviser and noted the Manager’s soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It also was noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
The Board concluded that the nature, extent and quality of the services provided by the Manager are adequate and appropriate.
Although it was generally satisfied with the fund’s overall relative performance, the Board was somewhat concerned with the fund’s more recent relative performance and determined to closely moni- tor performance.
The Fund 29
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S |
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
The Board concluded that the fee paid by the fund to the Manager was reasonable in light of the services provided, comparative performance, expense and management fee information, costs of the services pro- vided and profits realized and benefits derived or to be derived by the Manager from its relationship with the fund.
The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in con- nection with the management fee rate charged to the fund and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
30
NOTES
Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.dreyfus.com and sign up for Dreyfus eCommunications. It’s simple and only takes a few minutes.
The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
12 | Statement of Assets and Liabilities |
13 | Statement of Operations |
14 | Statement of Changes in Net Assets |
15 | Financial Highlights |
16 | Notes to Financial Statements |
25 | Information About the Review and Approval of the Fund’s Investment Advisory Agreement |
FOR MORE INFORMATION | |
Back Cover |
Dreyfus/The Boston
Company Small Cap
Tax-Sensitive Equity Fund
The Fund
A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus/The Boston Company Small Cap Tax-Sensitive Equity Fund, covering the six-month period from October 1, 2009, through March 31, 2010.
The equity markets continued to produce some of the most dramatic performance returns in recent years off of the March 2009 lows, as efforts to support the global economic recovery appeared to gain traction.The “risk trade,” in which assets are shifted from conservative to more aggressive investments to take advantage of improving market conditions, continued to benefit investors in both U.S. and international markets. However, since the beginning of 2010, recent overseas credit concerns have dampened international markets to an extent, which might be an implication that this trend is moderating.
We believe that sustained global and U.S. economic expansions should proceed at an above-trend pace in 2010, the result of macroeconomic stimulation adopted by nearly every country in the world over the last year. As for the worldwide stock markets, positive returns over the foreseeable future are likely to be delivered through in-depth research and a selective security evaluation process. If you have questions about equities, your financial advisor is best suited to provide current market perspectives relative to your portfolio and to discuss potential opportunities which may match your current expectations and your long-term investment targets.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
April 15, 2010
2
DISCUSSION OF FUND PERFORMANCE
For the period of October 1, 2009, through March 31, 2010, as provided by Todd Wakefield and B. Randall Watts, Jr., Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended March 31, 2010, Dreyfus/The Boston Company Small Cap Tax-Sensitive Equity Fund’s Class I shares produced a total return of 9.29%.1 In comparison, the fund’s benchmark, the Russell 2000 Growth Index (the “Index”), produced a total return of 12.07% for the same period.2 Small-cap stocks generally advanced over the reporting period as the global economy continued to recover from a recession and financial crisis.The fund produced lower returns than its benchmark, primarily due to shortfalls in our stock selection strategy in the consumer discretionary and financials sectors.
The Fund’s Investment Approach
The fund seeks to maximize after-tax total return, consisting of long-term growth of capital.To pursue its goal, the fund normally invests at least 80% of its assets in equity securities of small-cap U.S. companies with total market capitalizations, at the time of purchase, equal to or less than that of the largest company in the Russell 2000 Growth Index.When choosing stocks, we seek to identify small-cap companies which are experiencing or are expected to experience rapid growth. We use tax-sensitive strategies in seeking to reduce the impact of federal and state income taxes on the fund’s after-tax returns, including minimizing sales of securities that result in capital gains and selling underperforming securities to realize capital losses that can be offset against realized capital gains.
Economic Recovery Drove Stock Prices Higher
The reporting period witnessed the continuation of an economic recovery and stock market rally that began early in 2009. Although unemployment rates have remained stubbornly high, improved
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
manufacturing activity and an apparent bottoming of residential housing prices helped boost confidence among investors, consumers and businesses.
For much of the reporting period, investors generally continued to search for value-oriented opportunities among lower-quality stocks that had been severely punished during the downturn. This activity typically benefited smaller, more speculative stocks more than their better established, steadily growing counterparts. However, during the first quarter of 2010, we began to detect a shift in market sentiment as investors appeared to pay more attention to underlying business fundamentals. In our view, this suggests the beginning of a change in their focus toward companies with sustainable revenues and earnings in a normalized operating environment.
Consumer and Financial Stocks Weighed on Relative Results
The fund participated in the small-cap market rally to a significant degree, but its relative performance was dampened by an underweighted position in the consumer discretionary sector, which ranked among the benchmark’s top-performing segments. In addition, our stock selection strategy proved relatively weak in the sector.For example,the stock price of fine watches and jewelry maker Movado Group pre-announced fourth quarter earnings results lower than expected and provided 2011 fiscal year guidance for a loss. Despite strong quarterly earnings and higher guidance, for-profit education providers Career Education and Bridgepoint Education were hurt by regulatory investigations of for-profit accreditation standards and their access to Title IV program funds, a major source of tuition revenue. Finally, independent filmmaker Lions Gate Entertainment encountered heightened volatility in the midst of a low offer for the company that was rejected. During the reporting period, the company reported relatively solid revenue, but profits fell short on higher costs.
Our security selection strategy also produced shortfalls in the financials sector. Real estate investment trusts Hatteras Financial and Starwood Property Trust declined due to concerns regarding future revenue growth. Among insurance companies, Tower Group did not enjoy the increased pricing power we had anticipated in the wake of the recession, prompting us to eliminate the fund’s position.The fund’s results in the consumer staples sector were compromised by weakness in personal products provider Alberto-Culver, which was hurt by generally tepid conditions in the hair care industry.
4
Positioned for the Next Phase of the Economic Cycle
We remain optimistic regarding the potential for small-cap growth stocks over the remainder of 2010. As the economic recovery progresses, we continue to think that the lower quality, low-priced stocks that performed well off the market lows do not look as cheap as they once were and fundamentals support higher quality companies. Credit spreads falling along with lower volatility has supported momentum.There could be a change as smaller, lower quality stocks are not nearly as attractive as they once were.We have found a number of opportunities meeting our growth-oriented investment criteria in the health care sector, where the recent passage of reform legislation appears likely to benefit service providers, medical device manufacturers and health care technology companies.We also have maintained overweighted exposure to technology companies that, in our judgment, are poised for greater spending among businesses seeking to boost efficiency and productivity through technology upgrades.
Conversely, we have found relatively fewer opportunities in the consumer discretionary sector, where retailers may continue to suffer from sluggish consumer spending amid relatively high unemployment rates and ongoing deleveraging activity. We also have reduced the fund’s overweighted positions in the financials and energy sectors. In our view, these are prudent strategies as we seek to capture the opportunities and confront the challenges of a rapidly evolving marketplace.
April 15, 2010
Please note, the position is any security highlighted with italicized typeface was sold during the | |
reporting period. | |
Equity funds are subject generally to market, market sector, market liquidity, issuer, and investment | |
style risks, among other factors, to varying degrees, all of which are more fully described in the | |
fund’s prospectus. | |
The prices of small company stocks tend to be more volatile than the prices of large company | |
stocks, mainly because these companies have less established and more volatile earnings histories. | |
They also tend to be less liquid than larger company stocks. | |
1 | Total return includes reinvestment of dividends and any capital gains paid. Past performance is no |
guarantee of future results. Share price and investment return fluctuate such that upon redemption, | |
fund shares may be worth more or less than their original cost. Return figure provided reflects the | |
absorption of certain fund expenses by The Dreyfus Corporation. Had these expenses not been | |
absorbed, return would have been lower.This waiver is voluntary and may be terminated or | |
changed at any time. | |
2 | SOURCE: LIPPER INC. — The Russell 2000 Growth Index is an unmanaged index, which |
measures the performance of those Russell 2000 companies with higher price-to-book ratios and | |
higher forecasted growth values.The total return figure cited for this index assumes change in security | |
prices and reinvestment of dividends, but does not reflect the costs of managing 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/The Boston Company Small Cap Tax-Sensitive Equity Fund from October 1, 2009 to March 31, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment | |
assuming actual returns for the six months ended March 31, 2010 | |
Expenses paid per $1,000† | $ 5.27 |
Ending value (after expenses) | $1,092.90 |
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 March 31, 2010 | |
Expenses paid per $1,000† | $ 5.09 |
Ending value (after expenses) | $1,019.90 |
† Expenses are equal to the fund’s annualized expense ratio of 1.01% for Class I, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
March 31, 2010 (Unaudited) |
Common Stocks—98.4% | Shares | Value ($) |
Consumer Discretionary—15.9% | ||
99 Cents Only Stores | 119,610 a,b | 1,949,643 |
Brinker International | 124,320 | 2,396,890 |
Carter’s | 67,790 b | 2,043,868 |
Cato, Cl. A | 94,090 | 2,017,290 |
Chipotle Mexican Grill | 10,322 b | 1,162,980 |
Citi Trends | 35,590 b | 1,154,540 |
Columbia Sportswear | 19,450 a | 1,021,708 |
Gentex | 73,850 | 1,434,167 |
Gymboree | 39,430 b | 2,035,771 |
Hibbett Sports | 38,840 a,b | 993,527 |
Interface, Cl. A | 130,550 | 1,511,769 |
Jarden | 47,890 a | 1,594,258 |
JOS. A. Bank Clothiers | 58,740 b | 3,210,141 |
Lions Gate Entertainment | 219,742 a,b | 1,371,190 |
P.F. Chang’s China Bistro | 23,220 a,b | 1,024,699 |
Take-Two Interactive Software | 69,630 a,b | 685,856 |
THQ | 254,110 b | 1,781,311 |
Tractor Supply | 48,040 a | 2,788,722 |
Wolverine World Wide | 62,430 | 1,820,459 |
31,998,789 | ||
Consumer Staples—1.6% | ||
Alberto-Culver | 50,333 | 1,316,208 |
Inter Parfums | 98,360 | 1,457,695 |
Seneca Foods, Cl. A | 15,010 b | 437,091 |
3,210,994 | ||
Energy—3.9% | ||
Arena Resources | 33,640 b | 1,123,576 |
Dril-Quip | 17,020 b | 1,035,497 |
Nordic American Tanker Shipping | 24,270 | 734,653 |
Oil States International | 22,080 b | 1,001,107 |
Penn Virginia | 32,910 | 806,295 |
Petroleum Development | 44,100 b | 1,021,797 |
Quicksilver Resources | 153,030 b | 2,153,132 |
7,876,057 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Exchange Traded Funds—1.8% | ||
iShares Russell 2000 Growth Index Fund | 49,500 a | 3,625,380 |
Financial—6.9% | ||
Altisource Portfolio Solutions | 74,950 b | 1,678,880 |
Arch Capital Group | 20,260 b | 1,544,825 |
Hatteras Financial | 68,830 | 1,773,749 |
Portfolio Recovery Associates | 43,550 a,b | 2,389,588 |
Prosperity Bancshares | 59,280 a | 2,430,480 |
Starwood Property Trust | 76,910 | 1,484,363 |
Westamerica Bancorporation | 43,310 a | 2,496,822 |
13,798,707 | ||
Health Care—26.6% | ||
Alexion Pharmaceuticals | 33,620 b | 1,827,919 |
Allscripts-Misys Healthcare Solutions | 83,090 a,b | 1,625,240 |
Analogic | 40,910 | 1,748,084 |
AngioDynamics | 58,860 b | 919,393 |
Bio-Rad Laboratories, Cl. A | 14,985 b | 1,551,247 |
Bruker | 125,540 b | 1,839,161 |
Cardiome Pharma | 206,320 b | 1,363,775 |
Catalyst Health Solutions | 36,720 b | 1,519,474 |
Centene | 54,440 b | 1,308,738 |
Chemed | 33,780 | 1,836,956 |
Emergency Medical Services, Cl. A | 36,768 b | 2,079,230 |
ev3 | 108,110 b | 1,714,625 |
Human Genome Sciences | 123,200 b | 3,720,640 |
InterMune | 23,280 b | 1,037,590 |
MAP Pharmaceuticals | 80,820 a,b | 1,284,230 |
Mednax | 26,940 b | 1,567,639 |
Myriad Genetics | 82,890 b | 1,993,504 |
Natus Medical | 64,170 b | 1,020,945 |
Nektar Therapeutics | 133,550 a,b | 2,031,295 |
Owens & Minor | 42,730 | 1,982,245 |
PerkinElmer | 69,620 | 1,663,918 |
PSS World Medical | 91,350 a,b | 2,147,638 |
RehabCare Group | 50,770 b | 1,384,498 |
Salix Pharmaceuticals | 66,570 b | 2,479,733 |
Sirona Dental Systems | 61,120 b | 2,324,394 |
8
Common Stocks (continued) | Shares | Value ($) |
Health Care (continued) | ||
SXC Health Solutions | 31,610 b | 2,126,721 |
Thermo Fisher Scientific | 32,770 b | 1,685,689 |
Thoratec | 35,410 a,b | 1,184,465 |
United Therapeutics | 23,330 a,b | 1,290,849 |
Volcano | 83,550 b | 2,018,568 |
ZymoGenetics | 195,240 b | 1,118,725 |
53,397,128 | ||
Industrial—11.4% | ||
Columbus McKinnon | 62,480 b | 991,558 |
Crane | 45,070 | 1,599,985 |
EnerSys | 56,350 b | 1,389,591 |
EnPro Industries | 65,130 a,b | 1,893,980 |
Exponent | 26,600 b | 758,632 |
Heidrick & Struggles International | 53,290 a | 1,493,719 |
Hub Group, Cl. A | 67,950 b | 1,901,241 |
Kforce | 135,100 b | 2,054,871 |
Knight Transportation | 132,890 | 2,802,650 |
Landstar System | 51,430 | 2,159,031 |
Mueller Industries | 63,300 | 1,695,807 |
Quanex Building Products | 59,170 | 978,080 |
Teledyne Technologies | 41,418 b | 1,709,321 |
Werner Enterprises | 66,220 | 1,534,317 |
22,962,783 | ||
Materials—2.7% | ||
Haynes International | 48,300 | 1,716,099 |
Horsehead Holding | 91,970 b | 1,088,925 |
Schnitzer Steel Industries, Cl. A | 29,540 | 1,551,736 |
Zep | 47,000 | 1,028,360 |
5,385,120 | ||
Technology—27.6% | ||
Acxiom | 104,650 b | 1,877,421 |
Advanced Energy Industries | 98,670 b | 1,633,975 |
Art Technology Group | 267,130 b | 1,178,043 |
Atheros Communications | 55,530 a,b | 2,149,566 |
Blackboard | 49,370 a,b | 2,056,754 |
CACI International, Cl. A | 60,544 a,b | 2,957,574 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Technology (continued) | ||
Coherent | 23,080 b | 737,637 |
CyberSource | 132,150 a,b | 2,331,126 |
DTS | 68,320 b | 2,325,613 |
Finisar | 93,650 b | 1,471,241 |
Gartner | 88,010 b | 1,957,342 |
Harmonic | 316,530 b | 1,997,304 |
Mellanox Technologies | 80,037 b | 1,886,472 |
Mentor Graphics | 113,000 b | 906,260 |
MicroStrategy, Cl. A | 10,970 b | 933,218 |
NCI, Cl. A | 19,660 b | 594,322 |
NETGEAR | 37,570 b | 980,577 |
NetLogic Microsystems | 55,020 a,b | 1,619,239 |
NetScout Systems | 131,560 b | 1,945,772 |
Pericom Semiconductor | 126,800 b | 1,358,028 |
PMC-Sierra | 123,660 b | 1,103,047 |
QLogic | 135,350 b | 2,747,605 |
Quality Systems | 17,080 a | 1,049,395 |
Quest Software | 109,130 b | 1,941,423 |
Skyworks Solutions | 95,560 b | 1,490,736 |
SMART Modular Technologies | 287,370 b | 2,215,623 |
SonicWALL | 137,630 b | 1,196,005 |
SuccessFactors | 56,500 b | 1,075,760 |
TeleCommunication Systems, Cl. A | 202,690 b | 1,485,718 |
Triquint Semiconductor | 220,750 b | 1,545,250 |
Ultratech | 52,950 b | 720,120 |
Verigy | 156,750 a,b | 1,752,465 |
Vishay Intertechnology | 142,440 b | 1,457,161 |
Vocus | 55,890 b | 952,925 |
Volterra Semiconductor | 64,630 b | 1,622,213 |
55,252,930 | ||
Total Common Stocks | ||
(cost $164,738,367) | 197,507,888 |
10
Other Investment—1.7% | Shares | Value ($) |
Registered Investment Company; | ||
Dreyfus Institutional Preferred | ||
Plus Money Market Fund | ||
(cost $3,438,659) | 3,438,659 c | 3,438,659 |
Investment of Cash Collateral | ||
for Securities Loaned—15.5% | ||
Registered Investment Company; | ||
Dreyfus Institutional Cash Advantage Fund | ||
(cost $31,139,500) | 31,139,500 c | 31,139,500 |
Total Investments (cost $199,316,526) | 115.6% | 232,086,047 |
Liabilities, Less Cash and Receivables | (15.6%) | (31,352,405) |
Net Assets | 100.0% | 200,733,642 |
a Security, or portion thereof, on loan. At March 31, 2010, the total market value of the fund’s securities on loan is |
$30,080,445 and the total market value of the collateral held by the fund is $31,139,500. |
b Non-income producing security. |
c Investment in affiliated money market mutual fund. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Technology | 27.6 | Energy | 3.9 |
Health Care | 26.6 | Materials | 2.7 |
Money Market Investments | 17.2 | Exchange Traded Funds | 1.8 |
Consumer Discretionary | 15.9 | Consumer Staples | 1.6 |
Industrial | 11.4 | ||
Financial | 6.9 | 115.6 | |
† Based on net assets. | |||
See notes to financial statements. |
The Fund 11
STATEMENT OF ASSETS AND LIABILITIES |
March 31, 2010 (Unaudited) |
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments (including | ||
securities on loan, valued at $30,080,445)—Note 1(b): | ||
Unaffiliated issuers | 164,738,367 | 197,507,888 |
Affiliated issuers | 34,578,159 | 34,578,159 |
Cash | 29,490 | |
Receivable for investment securities sold | 1,545,824 | |
Dividends and interest receivable | 138,316 | |
Receivable for shares of Beneficial Interest subscribed | 15,945 | |
Prepaid expenses | 17,015 | |
233,832,637 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(b) | 210,073 | |
Liability for securities on loan—Note 1(b) | 31,139,500 | |
Payable for investment securities purchased | 1,458,966 | |
Payable for shares of Beneficial Interest redeemed | 210,235 | |
Accrued expenses | 80,221 | |
33,098,995 | ||
Net Assets ($) | 200,733,642 | |
Composition of Net Assets ($): | ||
Paid-in capital | 246,427,534 | |
Accumulated investment (loss)—net | (351,679) | |
Accumulated net realized gain (loss) on investments | (78,111,734) | |
Accumulated net unrealized appreciation | ||
(depreciation) on investments | 32,769,521 | |
Net Assets ($) | 200,733,642 | |
Class I Shares Outstanding | ||
(unlimited number of $.001 par value shares of Beneficial Interest authorized) | 6,322,766 | |
Net Asset Value, offering and redemption price per share ($) | 31.75 | |
See notes to financial statements. |
12
STATEMENT OF OPERATIONS |
Six Months Ended March 31, 2010 (Unaudited) |
Investment Income ($): | |
Income: | |
Cash dividends: | |
Unaffiliated issuers | 616,760 |
Affiliated issuers | 2,182 |
Income from securities lending—Note 1(b) | 20,325 |
Total Income | 639,267 |
Expenses: | |
Investment advisory fee—Note 3(a) | 786,103 |
Custodian fees—Note 3(b) | 59,505 |
Shareholder servicing costs—Note 3(b) | 57,890 |
Professional fees | 30,142 |
Accounting and administration fees—Note 3(a) | 22,500 |
Prospectus and shareholders’ reports | 11,355 |
Registration fees | 9,798 |
Trustees’ fees and expenses—Note 3(c) | 4,152 |
Loan commitment fees—Note 2 | 2,327 |
Miscellaneous | 7,174 |
Total Expenses | 990,946 |
Investment (Loss)—Net | (351,679) |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | 21,391,188 |
Net unrealized appreciation (depreciation) on investments | (3,587,759) |
Net Realized and Unrealized Gain (Loss) on Investments | 17,803,429 |
Net Increase in Net Assets Resulting from Operations | 17,451,750 |
See notes to financial statements. |
The Fund 13
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2010 | Year Ended | |
(Unaudited) | September 30, 2009a | |
Operations ($): | ||
Investment (loss)—net | (351,679) | (805,574) |
Net realized gain (loss) on investments | 21,391,188 | (75,416,037) |
Net unrealized appreciation | ||
(depreciation) on investments | (3,587,759) | 31,483,918 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 17,451,750 | (44,737,693) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold | 10,111,483 | 76,973,547 |
Cost of shares redeemed | (30,634,644) | (131,676,622) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (20,523,161) | (54,703,075) |
Total Increase (Decrease) in Net Assets | (3,071,411) | (99,440,768) |
Net Assets ($): | ||
Beginning of Period | 203,805,053 | 303,245,821 |
End of Period | 200,733,642 | 203,805,053 |
Accumulated investment (loss)—net | (351,679) | — |
Capital Share Transactions (Shares): | ||
Shares sold | 344,274 | 3,295,500 |
Shares redeemed | (1,036,134) | (5,308,402) |
Net Increase (Decrease) in Shares Outstanding | (691,860) | (2,012,902) |
a Effective September 1, 2009, the fund’s shares were redesignated as Class I shares. | ||
See notes to financial statements. |
14
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||
March 31, 2010 | Year Ended September 30, | |||||
Class I Shares | (Unaudited) | 2009a | 2008 | 2007 | 2006 | 2005 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 29.05 | 33.59 | 43.15 | 42.27 | 42.35 | 34.71 |
Investment Operations: | ||||||
Investment (loss)—netb | (.05) | (.09) | (.07) | (.07) | (.08) | (.10) |
Net realized and unrealized | ||||||
gain (loss) on investments | 2.75 | (4.45) | (6.42)c | 8.07c | 3.08 | 7.74 |
Total from Investment Operations | 2.70 | (4.54) | (6.49) | 8.00 | 3.00 | 7.64 |
Distributions: | ||||||
Dividends from net realized | ||||||
gain on investments | — | — | (3.07) | (7.12) | (3.08) | — |
Net asset value, end of period | 31.75 | 29.05 | 33.59 | 43.15 | 42.27 | 42.35 |
Total Return (%) | 9.29d | (13.54) | (15.99) | 20.79 | 7.49 | 22.01 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.01e | 1.05 | .95 | .96 | .99 | .99 |
Ratio of net expenses | ||||||
to average net assets | 1.01e | 1.05f | .95 | .96 | .99 | .99 |
Ratio of net investment (loss) | ||||||
to average net assets | (.36)e | (.38) | (.19) | (.17) | (.18) | (.26) |
Portfolio Turnover Rate | 88.29d | 265.74 | 209 | 170 | 169 | 137 |
Net Assets, end of period | ||||||
($ x 1,000) | 200,734 | 203,805 | 303,246 | 316,479 | 160,552 | 160,035 |
a | Effective September 1, 2009, the fund’s shares were redesignated as Class I shares. |
b | Based on average shares outstanding at each month end. |
c | Amounts include litigation proceeds received by the fund of $.01 for the year ended September 30, 2008 and $.04 |
for the year ended September 30, 2007. | |
d | Not annualized. |
e | Annualized. |
f | Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements. |
The Fund 15
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus/ The Boston Company Small Cap Tax-Sensitive Equity Fund (the “fund”) is a separate diversified series of Dreyfus Investment Funds (the “Trust”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates a series company currently offering twelve series, including the fund.The fund’s investment objective is to achieve a maximize after-tax total return, consisting of long-term growth of capital. The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser. MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares, which are sold without a sales charge.
The Trust accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants.The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities are valued at the last sales price on the securities exchange or national securities market on which such securities are primarily traded. Securities listed on the National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price that day, at the last sales price. Securities not listed on an exchange or
16
the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Registered investment companies that are not traded on the exchange are valued at their net asset value.When market quotations or official closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Trustees. Fair valuing of se curities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant American Depository Receipts and futures contracts. For other securities that are fair valued by the Board of Trustees, certain factors may be considered such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold and public trading in similar securities of the issuer or comparable issuers. Financial futures are valued at the last sales price.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not
The Fund 17
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of March 31, 2010 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable | Unobservable | ||
Quoted Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in Securities: | ||||
Equity Securities— | ||||
Domestic† | 190,766,268 | — | — | 190,766,268 |
Equity Securities— | ||||
Foreign† | 3,116,240 | — | — | 3,116,240 |
Mutual Funds/ | ||||
Exchange | ||||
Traded Funds | 38,203,539 | — | — | 38,203,539 |
† See Statement of Investments for industry classification. |
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. ASU 2010-06 will require reporting entities to make new disclosures about amounts and reasons for significant transfers in and out of Level 1
18
and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3, and information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. The new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2009 except for the disclosures surrounding purchases,sales,issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact the adoption of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
The fund has arrangements with the custodian and cash management bank whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset custody and cash management fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
Pursuant to a securities lending agreement with The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, the fund may lend securities to qualified institutions. It is the fund’s policy that, at origination, all loans are secured by collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan is maintained at all times. Collateral is either in the form of cash, which can be invested in certain money
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
market mutual funds managed by the Manager, U.S. Government and Agency securities or letters of credit.The fund is entitled to receive all income on securities loaned, in addition to income earned as a result of the lending transaction. Although each security loaned is fully collateralized, the fund bears the risk of delay in recovery of, or loss of rights in, the securities loaned should a borrower fail to return the securities in a timely manner. During the period ended March 31, 2010, The Bank of New York Mellon earned $6,775 from lending portfolio securities, pursuant to the securities lending agreement.
(c) Affiliated issuers: Investments in other investment companies advised by the Manager are defined as “affiliated” in the Act.
(d) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”). Prior to January 1, 2010, the fund paid dividends from investment income-net semi-annually.To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(e) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended March 31, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
20
Each of the tax years in the three-year period ended September 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $34,288,195 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to September 30, 2009. If not applied, the carryover expires in fiscal 2017.
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended on March 31, 2010, the fund did not borrow under the Facilities.
NOTE 3—Investment Advisory Fee and Other Transactions With Affiliates:
(a) Pursuant to an investment advisory agreement with the Manager, the advisory fee is computed at the annual rate of .80% of the value of the fund’s average daily net assets and is payable monthly.
The Trust entered into an agreement with The Bank of New York Mellon pursuant to which The Bank of New York Mellon provides administration and fund accounting services for the fund. For these services, the fund paysThe Bank of NewYork Mellon a fixed fee plus asset and transaction based fees, as well as out-of-pocket expenses. Pursuant to this agreement, the fund was charged $22,500 during the period
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
ended March 31, 2010 for administration and fund accounting services.
(b) 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 March 31, 2010, the fund was charged $2,312 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under cash management agreements for performing cash management services related to fund subscriptions and redemptions. During the period ended March 31, 2010, the fund was charged $374 pursuant to the cash management agreements, which is included in Shareholder servicing costs in the Statement of Operations.
The fund also compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended March 31, 2010, the fund was charged $59,505 pursuant to the custody agreement.
During the period ended March 31, 2010, the fund was charged $2,742 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: investment advisory fees $136,742, custodian fees $62,415, chief compliance officer fees $2,742 and transfer agency per account fees $8,174.
(c) Prior to January 1, 2010, eachTrustee received $45,000 per year, plus $6,000 for each joint Board meeting of the Trust,The Dreyfus/Laurel Funds, Inc.,The Dreyfus/Laurel Funds Trust,The Dreyfus/Laurel Tax-Free Municipal Funds and Dreyfus Funds, Inc. (collectively, the “Board Group Open-End Funds”) attended, $2,000 for separate in-person committee meetings attended which were not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and
22
separate committee meetings attended that were conducted by telephone. Effective January 1, 2010, the Board Group Open-End Funds will pay each Trustee who is not an “interested person” of the Trust (as defined in the Act) $60,000 per annum, plus $7,000 per joint Board Group Open-End Funds Board meeting attended, $2,500 for separate in-person committee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $2,000 for Board meetings and separate committee meetings attended that are conducted by telephone.The Board Group Open-End Funds also reimburse each Trustee who is not an “interested person” of the Trust (as defined in the Act) for travel and out-of-pocket expenses.With respect to Board meetings, the Chairman of the Board receives an additional 25% of such compensation (with the exception of reimbursable amounts). With respect to compensation committee meetings pri or to January 1, 2010, the Chair of the compensation committee received $900 per compensation committee meeting. Effective January 1, 2010, the Chair of each of the Board’s committees, unless the Chair also serves as Chair of the Board, will receive $1,350 per applicable committee meeting. In the event that there is an in-person joint committee meeting or a joint telephone meeting of the Board Group Open-End Funds and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee (prior to January 1, 2010) or the $2,500 or $2,000 fee (effective January 1, 2010), as applicable, is allocated between the Board Group Open-End Funds and Dreyfus HighYield Strategies Fund.TheTrust’s portion of these fees and expenses are charged and allocated to each series based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended March 31, 2010, amounted to $168,605,656 and $189,194,222, respectively.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The fund may invest in shares of certain affiliated investment companies also advised or managed by the adviser. Investments in affiliated investment companies for the period ended March 31, 2010 were as follows:
Affiliated | |||||
Investment | Value | Value | Net | ||
Company | 9/30/2009 ($) | Purchases ($) | Sales ($) | 3/31/2010 ($) | Assets (%) |
Dreyfus | |||||
Institutional | |||||
Preferred | |||||
Plus Money | |||||
Market | |||||
Fund | 5,817,937 | 42,032,450 | 44,411,728 | 3,438,659 | 1.7 |
Dreyfus | |||||
Institutional | |||||
Cash | |||||
Advantage | |||||
Fund | 30,401,130 | 102,918,925 | 102,180,555 | 31,139,500 | 15.5 |
Total | 36,219,067 | 144,951,375 | 146,592,283 | 34,578,159 | 17.2 |
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which 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 fund held no derivatives during the period ended March 31, 2010. These disclosures did not impact the notes to the financial statements.
At March 31, 2010, accumulated net unrealized appreciation on investments was $32,769,521, consisting of $33,966,621 gross unrealized appreciation and $1,197,100 gross unrealized depreciation.
At March 31, 2010, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
NOTE 5—Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
24
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT
ADVISORY AGREEMENT (Unaudited)
At a meeting of the fund’s Board of Trustees held on February 9, 2010, the Board considered the re-approval of the fund’s Investment Advisory Agreement (“Management Agreement”), pursuant to which the Manager provides the fund with investment advisory and certain 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 relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund, as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including those of the fund. The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including assistance in meeting legal and regulatory requirements.The Board members also considered the Manager’s extensive compliance infrastructure. The Board also considered the Manager’s brokerage policies and practices, the standards applied in seeking best execution and the Manager’s policies and practices regarding soft dollars.
The Fund 25
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S |
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of retail and institutional small-cap growth and small-cap core funds (the “Performance Group”) and to a larger universe of funds, consisting of all retail and institutional small-cap growth funds (the “Performance Universe”) selected and provided by Lipper, Inc., an independent provider of investment company data.The Board was provided with a description of the methodology Lipper used to select the Performance Group and Performance Universe, as well as the Expense Group and Expense Universe (discussed below).The Board members discussed the results of the comparisons and noted that the fund’s total return performance was below the Performance Group medians for the one - -, two-, three-, four-, five-year periods ended December 31, 2009 and above the Performance Group median for the ten-year period ended December 31, 2009.The Board members noted that the fund’s total return performance was below the Performance Universe medians for the one-, two-, three-and ten-year periods ended December 31, 2009 and above the Performance Universe medians for the four- and five-year periods ended December 31, 2009. As part of an overall presentation to the Board members, representatives of the Manager discussed the market environment in 2009, noting that high beta stocks had outperformed during 2009 and high quality stock had been out of favor during 2009.The Manager also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.
The Board members also discussed the fund’s contractual and actual management fee and expense ratio and reviewed the range of management fees and expense ratios of a comparable group of funds (the “Expense Group”) and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper.The Lipper data presenting the fund’s “actual management fees” included fees paid by the fund, as calculated by Lipper, for administrative services provided by The Bank of NewYork Mellon, the Trust’s administrator. Such reporting was necessary, according to Lipper, to allow the Board to compare
26
the fund’s advisory fees to those peers that include administrative fees within a combine management (investment advisory and administrative) fee. Noting that the fund’s expense ratio had not been affected for the most recent fiscal year, a representative of the Manager informed the Board members that the Manager was currently limiting the fund’s total expense ratio to 1.10% of the fund’s average daily net assets and that such limitation was voluntary and could be terminated at any time.The Board noted that the fund’s contractual and actual management fees were equal to the respective Expense Group medians, the fund’s actual management fee was above the Expense Universe median and the fund’s expense ratio was below the Expense Group and Expense Universe medians.
Representatives of the Manager reviewed with the Board members the fees paid to the Manager or its affiliates by mutual funds managed by the Manager or its affiliates with similar investment objectives, policies and strategies, and included in the same Lipper category as the fund (the “Similar Funds”). It was noted that there were no other accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund.The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided.The Board members considered the relevance of the fee information provided for the Similar Funds to evaluate the appropriateness and reasonableness of the fund’s management fee.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund com-plex.The Board also was informed that the methodology had also been reviewed by an independent registered public accounting firm which,
The Fund 27
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S |
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
like the consultant, found the methodology to be reasonable.The consulting firm also analyzed where any economies of scale might emerge in connection with the management of the fund.The Board members evaluated the profitability in light of the relevant circumstances for the fund, noting that the fund had generally been closed to new investors since July 2007 and also noted the decrease to the fund’s recent asset levels. The Board members also considered potential benefits to the Manager from acting as investment adviser and noted the Manager’s soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It also was noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
The Board concluded that the nature, extent and quality of the services provided by the Manager are adequate and appropriate.
The Board was concerned with the fund’s overall total return rela- tive performance and determined to closely monitor performance.
28
The Board concluded that the fee paid by the fund to the Manager was reasonable in light of the services provided, comparative per- formance, expense and management fee information, costs of the services provided and profits 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 determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
The Fund 29
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
13 | Statement of Financial Futures |
14 | Statement of Assets and Liabilities |
15 | Statement of Operations |
16 | Statement of Changes in Net Assets |
17 | Financial Highlights |
18 | Notes to Financial Statements |
29 | Information About the Review and Approval of the Fund’s Investment Advisory Agreement |
FOR MORE INFORMATION | |
Back Cover |
The Fund
Dreyfus/The Boston
Company Small Cap
Value Fund
A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus/The Boston Company Small Cap Value Fund, covering the six-month period from October 1, 2009, through March 31, 2010.
The equity markets continued to produce some of the most dramatic performance returns in recent years off of the March 2009 lows, as efforts to support the global economic recovery appeared to gain traction.The “risk trade,” in which assets are shifted from conservative to more aggressive investments to take advantage of improving market conditions, continued to benefit investors in both U.S. and international markets. However, since the beginning of 2010, recent overseas credit concerns have dampened international markets to an extent, which might be an implication that this trend is moderating.
We believe that sustained global and U.S. economic expansions should proceed at an above-trend pace in 2010, the result of macroeconomic stimulation adopted by nearly every country in the world over the last year.As for the worldwide stock markets, positive returns over the foreseeable future are likely to be delivered through in-depth research and a selective security evaluation process. If you have questions about equities, your financial advisor is best suited to provide current market perspectives relative to your portfolio and to discuss potential opportunities which may match your current expectations and your long-term investment targets.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
April 15, 2010
2
DISCUSSION OF FUND PERFORMANCE
For the period of October 1,2009,through March 31,2010,as provided by Joseph M. Corrado, CFA, and Stephanie K. Brandaleone, CFA, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended March 31, 2010, Dreyfus/The Boston Company Small Cap Value Fund’s Class I shares produced a total return of 14.30%.1 In comparison, the fund’s benchmark, the Russell 2000 Value Index (the “Index”), produced a total return of 14.01% for the same period.2 Stocks generally advanced over the reporting period as the global economy continued to recover from a recession and financial crisis. Value-oriented small-cap stocks generally outperformed their more growth-oriented counterparts. The fund produced slightly higher returns than its benchmark, primarily due to positive impacts in the consumer discretionary, healthcare, energy and utilities sectors.
The Fund’s Investment Approach
The fund seeks long-term growth of capital.To pursue its goal, the fund normally invests at least 80% of its assets in equity securities of small-cap U.S. companies with market capitalizations, at the time of purchase, that are equal to or less than the total market capitalization of the largest company in the Index. We use fundamental research and qualitative analysis to select stocks and look for companies with strong competitive positions, high quality management, and financial strength. We use a consistent three-step fundamental research process to evaluate the stocks, consisting of valuation, which is to identify small cap companies that are considered to be attractively priced relative to their earnings potential; fundamentals, which is to verify the strength of the underlying business position; and catalyst, which is to identify a specific event that has the potential to cause the stocks to appreciate in value.
Economic Recovery Drove Stock Prices Higher
The reporting period witnessed the continuation of an economic recovery and stock market rally that began early in 2009. Although unemployment rates have remained stubbornly high, improved manufacturing activity and an apparent bottoming of residential housing prices helped boost confidence among investors, consumers and businesses.
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
For much of the reporting period, investors continued to search for opportunities among lower-quality stocks that had been severely punished during the downturn.This activity typically benefited smaller, more speculative stocks—including companies selling at deep discounts to their historical valuations—over their better established counterparts. However, during the first quarter of 2010, we began to detect a shift in market sentiment as investors appeared to pay more attention to underlying business fundamentals. In our view, this suggests the beginning of a change in their focus away from bargain hunting and toward attractively valued companies with sustainable earnings.
Security Selection Strategy Produced Mixed Results
Small-cap stocks generally produced higher returns than their large-cap counterparts during the reporting period, and the fund participated in many of their gains. However, the fund’s relative performance was undermined by disappointments in the traditionally defensive consumer staples sector, where an overweighted position hurt in this weak performing group. Driving the weakness from a stock selection standpoint were food retailers BJ’s Wholesale Club, Winn-Dixie Stores, and Casey’s General Stores, which were impacted by increasing competition, rising costs, and a cost-conscious consumer.
In the technology sector, semiconductor manufacturer FormFactor fell as the company guided the fourth quarter lower and reduced 2010 expectations. Our earnings visibility into the forward quarters of this company is less clear as manufacturing lead time has shortened. Makers of automated teller machines Diebold and NCR Corp. also were hurt by sluggish sales to the banking industry.
The laggards, mentioned above, were offset to a significant degree by better results in other areas. Many of the fund’s holdings in the consumer discretionary sector surged ahead as many companies benefited from soft comparatives and improving results. Specialty retail drove the segment, with investments in Williams-Sonoma, Foot Locker, OfficeMax, and Children’s Place Retail Stores each rising sharply during the period on stronger results and improving guidance. In the textile/apparel group, investments in Skechers USA and Timberland Co. enjoyed meaningful gains as both companies handily beat earnings expectations.Also driving the portfolio higher were investments in the healthcare sector. The providers & services segment was the biggest relative contributor, led by an investment in AMERIGROUP Corp., which rose as their improved fourth quarter earnings were due to lower than expected medical costs
4
and the benefit of premium rate increases. Also rising were Odyssey HealthCare, Magellan Health Services, and LifePoint Hospitals. Each these companies reported better than expected fourth quarter earnings and indicated better visibility into 2010 earnings.
Positioned for the Next Phase of the Economic Cycle
We remain optimistic regarding the potential for small-cap value stocks over the remainder of 2010. As the economic recovery progresses, we believe that investors increasingly will favor companies with sound business fundamentals, favorable prospects and attractive valuations.We have found what we believe are a number of opportunities meeting our investment criteria in the consumer discretionary, technology, health care and energy sectors.Within the consumer discretionary sector, the most compelling opportunities appear to remain in the specialty retail segment as results continue to improve despite the questionable stability of consumers’ willingness to spend.We have found potential opportunities in healthcare that are largely focused in the providers services segment, as well as equipment & suppliers. Conversely, we have found relatively few opportunities in the utilities sector, where tradi tionally defensive stocks that held up well during the downturn appear to have fallen out of favor with investors. In our view, these are prudent strategies as we seek to capture the opportunities and confront the challenges of a rapidly evolving marketplace.
April 15, 2010
Please note: the position in any security highlighted with italicized typeface was sold during the reporting period. | |
Equity funds are subject generally to market, market sector, market liquidity, issuer, and investment style risks, among other factors, to varying degrees, all of which are more fully described in the fund’s prospectus. | |
Small companies carry additional risks because their operating histories tend to be more limited, their earnings and revenues less predictable, and their share prices more volatile than those of larger, more established companies.The shares of smaller companies tend to trade less frequently than those of larger, more established companies. | |
1 | Total return includes reinvestment of dividends and any capital gains paid. Past performance is no guarantee of future results. Share price and investment return fluctuate such that upon redemption, fund shares may be worth more or less than their original cost. Return figure provided reflects the absorption of certain fund expenses by The Dreyfus Corporation. Had these expenses not been absorbed, return would have been lower.This waiver is voluntary and may be terminated or changed at any time. |
2 | SOURCE: LIPPER INC. — Reflects the reinvestment of dividends and, where applicable, capital gain distributions.The Russell 2000 Value Index is an unmanaged index, which measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. |
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/The Boston Company Small CapValue Fund from October 1, 2009 to March 31, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment
assuming actual returns for the six months ended March 31, 2010
Expenses paid per $1,000† | $4.92 |
Ending value (after expenses) | $1,143.00 |
COMPARING YOUR FUND’S EXPENSES
WITH THOSE OF OTHER FUNDS (Unaudited)
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment
assuming a hypothetical 5% annualized return for the six months ended March 31, 2010
Expenses paid per $1,000† | $4.63 |
Ending value (after expenses) | $1,020.34 |
† Expenses are equal to the fund’s annualized expense ratio of .92% for Class I shares, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS
March 31, 2010 (Unaudited)
Common Stocks—98.4% | Shares | Value ($) |
Consumer Discretionary—16.3% | ||
Bebe Stores | 427,140 | 3,801,546 |
Belo, Cl. A | 337,460 a | 2,301,477 |
Brown Shoe | 133,880 | 2,072,462 |
Callaway Golf | 427,670 b | 3,772,049 |
Cavco Industries | 38,752 a | 1,322,993 |
Children’s Place Retail Stores | 76,730 a | 3,418,322 |
Drew Industries | 101,790 a | 2,241,416 |
Ethan Allen Interiors | 230,110 b | 4,747,169 |
Foot Locker | 308,750 | 4,643,600 |
Furniture Brands International | 117,540 a | 755,782 |
Gymboree | 76,350 a,b | 3,941,950 |
JOS. A. Bank Clothiers | 66,360 a | 3,626,574 |
MDC Holdings | 115,890 | 4,010,953 |
Meredith | 153,450 b | 5,280,214 |
OfficeMax | 414,614 a | 6,807,962 |
Ryland Group | 257,660 b | 5,781,890 |
Saks | 581,400 a,b | 5,000,040 |
Sonic Automotive, Cl. A | 211,480 a,b | 2,326,280 |
Thor Industries | 89,780 | 2,712,254 |
Timberland, Cl. A | 148,030 a | 3,158,960 |
Tractor Supply | 43,103 b | 2,502,129 |
Williams-Sonoma | 290,462 b | 7,636,246 |
Wolverine World Wide | 72,060 | 2,101,270 |
83,963,538 | ||
Consumer Staples—4.2% | ||
BJ’s Wholesale Club | 160,730 a | 5,945,403 |
Casey’s General Stores | 130,924 | 4,111,014 |
Flowers Foods | 136,400 b | 3,374,536 |
Hain Celestial Group | 121,290 a,b | 2,104,381 |
Lance | 45,020 | 1,041,313 |
Spartan Stores | 144,130 | 2,078,355 |
Winn-Dixie Stores | 252,720 a,b | 3,156,473 |
21,811,475 | ||
Energy—7.1% | ||
Arena Resources | 184,370 a | 6,157,958 |
Comstock Resources | 83,780 a | 2,664,204 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Energy (continued) | ||
Dril-Quip | 86,333 a | 5,252,500 |
Frontier Oil | 223,040 | 3,011,040 |
Matrix Service | 159,710 a | 1,718,480 |
Penn Virginia | 134,740 | 3,301,130 |
St. Mary Land & Exploration | 112,780 | 3,925,872 |
Tesco | 158,970 a | 1,855,180 |
Tidewater | 54,420 | 2,572,433 |
Unit | 138,360 a | 5,849,861 |
36,308,658 | ||
Financial—28.6% | ||
Aspen Insurance Holdings | 135,420 | 3,905,513 |
Associated Banc-Corp | 259,510 | 3,581,238 |
Assured Guaranty | 103,970 | 2,284,221 |
BioMed Realty Trust | 234,760 c | 3,882,930 |
Brandywine Realty Trust | 154,380 c | 1,884,980 |
CBL & Associates Properties | 330,870 b,c | 4,532,919 |
Citizens Republic Bancorp | 2,506,090 a,b | 2,957,186 |
City National | 185,887 b | 10,032,321 |
Cogdell Spencer | 165,110 | 1,221,814 |
Cohen & Steers | 6,842 b | 170,776 |
CVB Financial | 385,090 b | 3,823,944 |
DiamondRock Hospitality | 312,251 a | 3,156,858 |
E*TRADE FINANCIAL | 2,331,200 a | 3,846,480 |
Entertainment Properties Trust | 46,670 c | 1,919,537 |
Essex Property Trust | 41,620 b,c | 3,743,719 |
First American | 303,830 | 10,281,607 |
First Horizon National | 372,086 a,b | 5,227,811 |
FirstMerit | 229,595 | 4,952,364 |
Glacier Bancorp | 158,410 | 2,412,584 |
Hanover Insurance Group | 103,630 | 4,519,304 |
Investment Technology Group | 175,401 a | 2,927,443 |
Kilroy Realty | 81,290 b,c | 2,506,984 |
LaSalle Hotel Properties | 204,910 c | 4,774,403 |
Lexington Realty Trust | 487,370 b,c | 3,172,779 |
Mack-Cali Realty | 95,310 c | 3,359,677 |
MGIC Investment | 104,150 a | 1,142,525 |
National Health Investors | 54,670 c | 2,119,009 |
8
Common Stocks (continued) | Shares | Value ($) |
Financial (continued) | ||
National Penn Bancshares | 188,980 b | 1,303,962 |
NewAlliance Bancshares | 329,967 | 4,164,184 |
Old National Bancorp | 315,530 b | 3,770,584 |
Omega Healthcare Investors | 183,950 b,c | 3,585,186 |
PacWest Bancorp | 108,310 b | 2,471,634 |
Piper Jaffray | 104,570 a | 4,214,171 |
Protective Life | 116,260 | 2,556,557 |
Provident Financial Services | 239,230 | 2,846,837 |
Raymond James Financial | 37,830 | 1,011,574 |
Southwest Bancorp | 121,777 | 1,007,096 |
SVB Financial Group | 78,770 a | 3,675,408 |
TradeStation Group | 287,030 a | 2,012,080 |
Urstadt Biddle Properties, Cl. A | 58,670 c | 927,573 |
Viad | 97,530 | 2,004,242 |
W.P. Carey & Co. | 42,970 b | 1,262,459 |
Washington Federal | 278,601 | 5,661,172 |
Washington Trust Bancorp | 39,740 b | 740,754 |
Whitney Holding | 239,310 | 3,300,085 |
Wilmington Trust | 117,759 | 1,951,267 |
146,807,751 | ||
Health Care—10.2% | ||
Air Methods | 105,920 a,b | 3,601,280 |
Amerigroup | 191,880 a | 6,378,091 |
Analogic | 64,610 | 2,760,785 |
Assisted Living Concepts, Cl. A | 48,410 a,b | 1,589,784 |
Endo Pharmaceuticals Holdings | 119,530 a | 2,831,666 |
Haemonetics | 53,570 a | 3,061,525 |
Kensey Nash | 93,244 a | 2,199,626 |
LifePoint Hospitals | 105,640 a,b | 3,885,439 |
Magellan Health Services | 46,400 a | 2,017,472 |
Mednax | 83,633 a | 4,866,604 |
Odyssey HealthCare | 210,480 a | 3,811,793 |
RehabCare Group | 238,820 a | 6,512,621 |
STERIS | 189,470 b | 6,377,560 |
Sun Healthcare Group | 292,300 a | 2,788,542 |
52,682,788 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Industrial—12.3% | ||
Astec Industries | 131,960 a,b | 3,821,562 |
Atlas Air Worldwide Holdings | 49,590 a | 2,630,749 |
Clean Harbors | 75,710 a,b | 4,206,448 |
Comfort Systems USA | 91,600 | 1,144,084 |
CRA International | 30,750 a,b | 704,790 |
FTI Consulting | 130,500 a,b | 5,131,260 |
Granite Construction | 119,644 b | 3,615,642 |
Heidrick & Struggles International | 54,050 b | 1,515,021 |
Hexcel | 172,110 a | 2,485,268 |
McGrath Rentcorp | 84,280 | 2,042,104 |
Mueller Industries | 76,890 | 2,059,883 |
Pike Electric | 221,340 a | 2,062,889 |
Simpson Manufacturing | 83,820 | 2,326,843 |
Snap-On | 81,510 | 3,532,643 |
Spirit Aerosystems Holdings, Cl. A | 255,760 a | 5,979,669 |
Steelcase, Cl. A | 333,730 b | 2,159,233 |
Sterling Construction | 81,360 a | 1,278,979 |
Team | 124,470 a | 2,064,957 |
Thomas & Betts | 74,520 a | 2,924,165 |
Triumph Group | 64,990 | 4,555,149 |
US Ecology | 127,580 | 2,054,038 |
Waste Connections | 150,789 a | 5,120,794 |
63,416,170 | ||
Materials—6.0% | ||
Carpenter Technology | 122,470 | 4,482,402 |
Coeur d’Alene Mines | 154,320 a,b | 2,311,714 |
Domtar | 39,300 a | 2,531,313 |
Louisiana-Pacific | 574,180 a,b | 5,196,329 |
Packaging Corp. of America | 195,480 b | 4,810,763 |
RTI International Metals | 152,730 a | 4,632,301 |
Temple-Inland | 260,680 | 5,325,692 |
Wausau Paper | 172,420 a | 1,472,467 |
30,762,981 | ||
Technology—12.2% | ||
Arris Group | 291,980 a | 3,506,680 |
10
Common Stocks (continued) | Shares | Value ($) |
Technology (continued) | ||
Aspen Technology | 240,652 a | 2,466,683 |
Aviat Networks | 150,530 a | 998,014 |
Avid Technology | 169,940 a,b | 2,341,773 |
Cadence Design Systems | 551,060 a | 3,670,060 |
Cymer | 94,460 a | 3,523,358 |
DealerTrack Holdings | 205,365 a,b | 3,507,634 |
Diebold | 161,730 b | 5,136,545 |
Electronics for Imaging | 177,931 a | 2,069,338 |
Entropic Communications | 201,940 a | 1,025,855 |
FormFactor | 194,680 a,b | 3,457,517 |
Harmonic | 447,237 a | 2,822,065 |
MKS Instruments | 178,240 a | 3,491,722 |
MTS Systems | 51,570 | 1,497,077 |
NetScout Systems | 177,570 a | 2,626,260 |
Neutral Tandem | 183,060 a,b | 2,925,299 |
SonicWALL | 171,300 a | 1,488,597 |
Sonus Networks | 1,032,367 a | 2,694,478 |
Tekelec | 125,400 a | 2,277,264 |
Teradyne | 362,500 a,b | 4,049,125 |
Triquint Semiconductor | 374,200 a | 2,619,400 |
Websense | 204,850 a,b | 4,664,435 |
62,859,179 | ||
Utilities—1.5% | ||
El Paso Electric | 194,800 a | 4,012,880 |
Portland General Electric | 186,250 | 3,596,488 |
7,609,368 | ||
Total Common Stocks | ||
(cost $436,629,140) | 506,221,908 | |
Other Investment—1.1% | ||
Registered Investment Company; | ||
Dreyfus Institutional Preferred | ||
Plus Money Market Fund | ||
(cost $5,529,421) | 5,529,421 d | 5,529,421 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Investment of Cash Collateral | ||
for Securities Loaned—17.0% | Shares | Value ($) |
Registered Investment Company; | ||
Dreyfus Institutional Cash | ||
Advantage Fund | ||
(cost $87,271,330) | 87,271,330 d | 87,271,330 |
Total Investments (cost $529,429,891) | 116.5% | 599,022,659 |
Liabilities, Less Cash and Receivables | (16.5%) | (84,896,295) |
Net Assets | 100.0% | 514,126,364 |
a | Non-income producing security. |
b | Security, or portion thereof, on loan. At March 31, 2010, the total market value of the fund’s securities on loan is $84,195,674 and the total market value of the collateral held by the fund is $87,271,330. |
c | Investment in real estate investment trust. |
d | Investment in affiliated money market mutual fund. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Financial | 28.6 | Energy | 7.1 |
Money Market Investments | 18.1 | Materials | 6.0 |
Consumer Discretionary | 16.3 | Consumer Staples | 4.2 |
Industrial | 12.3 | Utilities | 1.5 |
Technology | 12.2 | ||
Health Care | 10.2 | 116.5 | |
† Based on net assets. | |||
See notes to financial statements. |
12
STATEMENT OF FINANCIAL FUTURES
March 31, 2010 (Unaudited)
Market Value | Unrealized | |||
Covered by | Appreciation | |||
Contracts | Contracts ($) | Expiration | at 3/31/2010 ($) | |
Russell 2000 Mini Index | 40 | 2,708,400 | June 2010 | 10,104 |
See notes to financial statements. |
The Fund 13
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2010 (Unaudited)
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments (including | ||
securities on loan, valued at $84,195,674)—Note 1(b): | ||
Unaffiliated issuers | 436,629,140 | 506,221,908 |
Affiliated issuers | 92,800,751 | 92,800,751 |
Cash | 2,434,597 | |
Due to Broker | 160,000 | |
Receivable for investment securities sold | 15,472,545 | |
Dividends and interest receivable | 636,133 | |
Receivable for shares of Beneficial Interest subscribed | 126,661 | |
Prepaid expenses | 16,105 | |
617,868,700 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(b) | 411,189 | |
Liability for securities on loan—Note 1(b) | 87,271,330 | |
Payable for investment securities purchased | 15,648,896 | |
Payable for shares of Beneficial Interest redeemed | 260,032 | |
Payable for futures variation margin—Note 4 | 20,800 | |
Accrued expenses | 130,089 | |
103,742,336 | ||
Net Assets ($) | 514,126,364 | |
Composition of Net Assets ($): | ||
Paid-in capital | 555,664,601 | |
Accumulated undistributed investment income—net | 617,179 | |
Accumulated net realized gain (loss) on investments | (111,758,288) | |
Accumulated net unrealized appreciation (depreciation) | ||
on investments (including $10,104 net unrealized | ||
appreciation on financial futures) | 69,602,872 | |
Net Assets ($) | 514,126,364 | |
Class I Shares Outstanding | ||
(unlimited number of $.001 par value shares of Beneficial Interest authorized) | 24,336,861 | |
Net Asset Value, offering and redemption price per share ($) | 21.13 | |
See notes to financial statements. |
14
STATEMENT OF OPERATIONS | |
Six Months Ended March 31, 2010 (Unaudited) | |
Investment Income ($): | |
Income: | |
Cash dividends: | |
Unaffiliated issuers | 3,527,735 |
Affiliated issuers | 3,258 |
Income from securities lending—Note 1(b) | 34,208 |
Total Income | 3,565,201 |
Expenses: | |
Investment advisory fee—Note 3(a) | 1,861,692 |
Shareholder servicing costs—Note 3(b) | 142,200 |
Custodian fees—Note 3(b) | 62,584 |
Professional fees | 22,757 |
Accounting and administration fees—Note 3(a) | 22,500 |
Trustees’ fees and expenses—Note 3(c) | 11,640 |
Registration fees | 7,913 |
Loan commitment fees—Note 2 | 6,751 |
Prospectus and shareholders’ reports | 6,682 |
Miscellaneous | 4,312 |
Total Expenses | 2,149,031 |
Investment Income—Net | 1,416,170 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | 29,295,246 |
Net realized gain (loss) on financial futures | 194,358 |
Net Realized Gain (Loss) | 29,489,604 |
Net unrealized appreciation (depreciation) on investments | 32,496,072 |
Net unrealized appreciation (depreciation) on financial futures | 92,939 |
Net Unrealized Appreciation (Depreciation) | 32,589,011 |
Net Realized and Unrealized Gain (Loss) on Investments | 62,078,615 |
Net Increase in Net Assets Resulting from Operations | 63,494,785 |
See notes to financial statements. |
The Fund 15
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2010 | Year Ended | |
(Unaudited) | September 30, 2009a | |
Operations ($): | ||
Investment income—net | 1,416,170 | 2,778,316 |
Net realized gain (loss) on investments | 29,489,604 | (101,657,755) |
Net unrealized appreciation | ||
(depreciation) on investments | 32,589,011 | 65,039,732 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 63,494,785 | (33,839,707) |
Dividends to Shareholders from ($): | ||
Investment income—net | (1,329,931) | (2,759,107) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold | 40,150,460 | 89,918,544 |
Dividends reinvested | 1,044,363 | 1,989,473 |
Cost of shares redeemed | (47,731,942) | (101,183,732) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (6,537,119) | (9,275,715) |
Total Increase (Decrease) in Net Assets | 55,627,735 | (45,874,529) |
Net Assets ($): | ||
Beginning of Period | 458,498,629 | 504,373,158 |
End of Period | 514,126,364 | 458,498,629 |
Undistributed investment income—net | 617,179 | 530,940 |
Capital Share Transactions (Shares): | ||
Shares sold | 2,050,842 | 6,042,574 |
Shares issued for dividends reinvested | 55,141 | 143,192 |
Shares redeemed | (2,493,744) | (6,875,106) |
Net Increase (Decrease) in Shares Outstanding | (387,761) | (689,340) |
a Effective September 1, 2009, the fund’s shares were redesignated as Class I shares. | ||
See notes to financial statements. |
16
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||
March 31, 2010 | Year Ended September 30, | |||||
Class I Shares | (Unaudited) | 2009a | 2008 | 2007 | 2006 | 2005 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 18.54 | 19.85 | 25.26 | 23.70 | 22.55 | 21.91 |
Investment Operations: | ||||||
Investment income—netb | .06 | .11 | .18 | .16 | .09 | .02 |
Net realized and unrealized | ||||||
gain (loss) on investments | 2.59 | (1.31) | (3.95) | 2.48 | 2.58 | 4.29 |
Total from Investment Operations | 2.65 | (1.20) | (3.77) | 2.64 | 2.67 | 4.31 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.06) | (.11) | (.19) | (.09) | (.03) | — |
Dividends from net realized | ||||||
gain on investments | — | — | (1.45) | (.99) | (1.49) | (3.67) |
Total Distributions | (.06) | (.11) | (1.64) | (1.08) | (1.52) | (3.67) |
Net asset value, end of period | 21.13 | 18.54 | 19.85 | 25.26 | 23.70 | 22.55 |
Total Return (%) | 14.30c | (5.83) | (15.38) | 11.18 | 12.42 | 21.34 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | .92d | .97 | .93 | .90e | .94e | 1.05e |
Ratio of net expenses | ||||||
to average net assets | .92d,f | .97f | .93 | .90e | .94e | 1.05e |
Ratio of net investment income | ||||||
to average net assets | .61d | .76 | .85 | .61 | .40 | .08 |
Portfolio Turnover Rate | 41.67c | 82.04 | 73 | 67g | 60g | 70g |
Net Assets, end of period | ||||||
($ x 1,000) | 514,126 | 458,499 | 504,373 | 829,957 | 539,560 | 189,647 |
a | Effective September 1, 2009, the fund’s shares were redesignated as Class I shares. |
b | Based on average shares outstanding at each month end. |
c | Not annualized. |
d | Annualized. |
e | Includes the fund’s share of the The Boston Company Small Cap Value Portfolio’s (the “Portfolio”) allocated expenses. |
f | Expense waivers and/or reimbursements amounted to less than .01%. |
g | On September 19, 2007, the fund, which owned 100% of the Portfolio on such date, withdrew entirely from the Portfolio and received the Portfolio’s securities and cash in exchange for its interests in the Portfolio. Effective September 20, 2007, the fund began investing directly in the securities in which the Portfolio had invested. Portfolio turnover represents activity of both the fund and the Portfolio for the year ended September 30, 2007.The amounts shown for 2005-2006 are ratios for the Portfolio. |
See notes to financial statements.
The Fund 17
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus/The Boston Company Small Cap Value Fund (the “fund”) is a separate diversified series of Dreyfus Investment Funds (the “Trust”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company currently offering twelve series, including the fund. The fund’s investment objective seeks long-term growth of capital. The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser. MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares, which are sold without a sales charge.
The Trust accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities.Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities are valued at the last sales price on the securities exchange or national securities market on which such securities are primarily traded. Securities listed on the National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price that day, at the last sales price. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked
18
prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Registered investment companies that are not traded on an exchange are valued at their net asset value.When market quotations or official closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Trustees. Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropr iate indicators, such as prices of relevant American Depository Receipts and futures contracts. For other securities that are fair valued by the Board of Trustees, certain factors may be considered such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers. Financial futures are valued at the last sales price.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of March 31, 2010 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable | Unobservable | ||
Quoted Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in Securities: | ||||
Equity Securities— | ||||
Domestic† | 506,221,908 | — | — | 506,221,908 |
Mutual Funds | 92,800,751 | — | — | 92,800,751 |
Other Financial | ||||
Instruments†† | 10,104 | — | — | 10,104 |
Liabilities ($) | ||||
Other Financial | ||||
Instruments†† | — | — | — | — |
† See Statement of Investments for industry classification.
Other financial instruments include derivative instruments, such as futures, forward foreign currency exchange contracts, swap contracts and options contracts. Amounts shown represent unrealized appreciation (depreciation), or in the case of options, market value at period end.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. ASU 2010-06 will require reporting entities to make new disclosures
20
about amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3, and information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. The new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2009 except for the disclosures surrounding purchases,sales,issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact the adoption of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
The fund has arrangements with the custodian and cash management bank whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset custody and cash management fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
Pursuant to a securities lending agreement with The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, the fund may lend securities to qualified institutions. It is the fund’s policy that, at origination, all loans are secured by collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan is maintained at all times. Collateral is either in the form of cash, which can be invested in certain money
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
market mutual funds managed by the Manager, U.S Government and Agency securities or letters of credit.The fund is entitled to receive all income on securities loaned, in addition to income earned as a result of the lending transaction. Although each security loaned is fully collateralized, the fund bears the risk of delay in recovery of, or loss of rights in, the securities loaned should a borrower fail to return the securities in a timely manner. During the period ended March 31, 2010, The Bank of New York Mellon earned $11,403 from lending portfolio securities, pursuant to the securities lending agreement.
(c) Affiliated issuers: Investments in other investment companies advised by the Manager are defined as “affiliated” in the Act.
(d) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”). Prior to January 1, 2010, the fund paid dividends from investment income-net semi-annually.To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(e) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended March 31, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
22
Each of the tax years in the three-year period ended September 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $61,534,792 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to September 30, 2009. If not applied, the carryover expires in fiscal 2017.
The tax character of distributions paid to shareholders during the fiscal year ended September 30, 2009 was as follows: ordinary income $2,759,107. The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended March 31, 2010, the fund did not borrow under the Facilities.
NOTE 3—Investment Advisory Fee and Other Transactions With Affiliates:
(a) Pursuant to an investment advisory agreement with the Manager, the investment advisory fee is computed at the annual rate of .80% of the fund’s average daily net assets and is payable monthly.The Manager currently is limiting the fund’s operating expenses or assuming all or part of the expenses of the fund, exceed an annual rate of 1.25% of the value of the fund’s average daily net assets.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The Trust entered into an agreement with The Bank of New York Mellon, pursuant to which The Bank of New York Mellon provides administration and fund accounting services for the fund. For these services the fund pays The Bank of New York Mellon a fixed fee plus asset and transaction based fees, as well as out-of-pocket expenses. During the period ended March 31, 2010, the fund was charged $22,500 for administration and fund accounting services pursuant to the agreement.
(b) 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 March 31, 2010, the fund was charged $1,970 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under cash management agreements for performing cash management services related to fund subscriptions and redemptions. During the period ended March 31, 2010, the fund was charged $756 pursuant to the cash management agreements, which is included in Shareholder servicing costs in the Statement of Operations.
The fund also compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended March 31, 2010, the fund was charged $62,584 pursuant to the custody agreement.
During the period ended March 31, 2010, the fund was charged $2,742 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: investment advisory fees $342,203, custodian fees $57,400, chief compliance officer fees $2,742 and transfer agency per account fees $8,844.
24
(c) Prior to January 1, 2010, each Trustee received $45,000 per year, plus $6,000 for each joint Board meeting of the Trust, The Dreyfus/Laurel Funds, Inc., The Dreyfus/Laurel Funds Trust, The Dreyfus/Laurel Tax-Free Municipal Funds and Dreyfus Funds, Inc. (collectively, the “Board Group Open-End Funds”) attended, $2,000 for separate in-person committee meetings attended which were not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that were conducted by telephone. Effective January 1, 2010, the Board Group Open-End Funds will pay each Trustee who is not an “interested person” of the Trust (as defined in the Act) $60,000 per annum, plus $7,000 per joint Board Group Open-End Funds Board meeting attended, $2,500 for separate in-person committee meetin gs attended which are not held in conjunction with a regularly scheduled Board meeting and $2,000 for Board meetings and separate committee meetings attended that are conducted by telephone. The Board Group Open-End Funds also reimburse eachTrustee who is not an “interested person” of the Trust (as defined in the Act) for travel and out-of-pocket expenses.With respect to Board meetings, the Chairman of the Board receives an additional 25% of such compensation (with the exception of reimbursable amounts). With respect to compensation committee meetings prior to January 1, 2010, the Chair of the compensation committee received $900 per compensation committee meeting. Effective January 1, 2010, the Chair of each of the Board’s committees, unless the Chair also serves as Chair of the Board, will receive $1,350 per applicable committee meeting. In the event that there is an in-person joint committee meeting or a joint telephone meeting of the Board Group Open-End Funds and Dreyfus High Yield Strate gies Fund, the $2,000 or $1,500 fee (prior to January 1, 2010) or the $2,500 or $2,000 fee (effective January 1, 2010), as applicable, is allocated between the Board Group Open-End Funds and Dreyfus HighYield Strategies Fund.The
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Trust’s portion of these fees and expenses are charged and allocated to each series 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 March 31, 2010, amounted to $189,639,825 and $196,595,595, respectively.
The fund may invest in shares of certain affiliated investment companies also advised or managed by the adviser. Investments in affiliated investment companies for the period ended March 31, 2010 were as follows:
Affiliated | ||||
Investment | Value | Value | Net | |
Company | 9/30/2009 ($) | Purchases ($) | Sales ($) 3/31/2010 ($) Assets (%) | |
Dreyfus | ||||
Institutional | ||||
Preferred Plus | ||||
Money Market | ||||
Fund | 5,438,649 | 77,328,739 | 77,237,967 5,529,421 | 1.1 |
Dreyfus | ||||
Institutional | ||||
Cash | ||||
Advantage | ||||
Fund | 89,959,065 | 149,187,855 | 151,875,590 87,271,330 | 17.0 |
Total | 95,397,714 | 226,516,594 | 229,113,557 92,800,751 | 18.1 |
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which 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 disclosure requirements distinguish between derivatives, which are accounted for as “hedges” and those that do not qualify for hedge accounting. Because investment companies value their derivatives at
26
fair value and recognize changes in fair value through the Statement of Operations, they do not qualify for such accounting. Accordingly, even though a fund’s investments in derivatives may represent economic hedges, they are considered to be non-hedge transactions for purposes of this disclosure.
During the period ended March 31, 2010, the average market value of equity future contracts was $2,662,776, which represented .57% of average net assets.
Futures Contracts: In the normal course of pursuing its investment objective, the fund is exposed to market risk, including equity price risk, as a result of changes in value of underlying financial instruments. The fund invests in financial futures contracts in order to manage its exposure to or protect against changes in the market.A futures contract represents a commitment for the future purchase or a sale of an asset at a specified date. Upon entering into such contracts, 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. Accordingly, variation margin payments are received or made to reflect daily unrealized gains or losses which are recorded in the Statement of Operations. Futures contracts are valued daily at the last sales price established by the Board of Trade or exchange upon which they are traded.When the contracts are closed, the fund recognizes a realized gain or loss.There is minimal counterparty credit risk to the fund with futures, since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Contracts open at March 31, 2010 are set forth in the Statement of Financial Futures.
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
At March 31, 2010, accumulated net unrealized appreciation on investments was $69,592,768, consisting of $84,448,686 gross unrealized appreciation and $14,855,918 gross unrealized depreciation.
At March 31, 2010, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
NOTE 5 — Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
28
INFORMATION ABOUT THE REVIEW AND
APPROVAL OF THE FUND’S INVESTMENT
ADVISORY AGREEMENT (Unaudited)
At a meeting of the fund’s Board of Trustees held on February 9, 2010, the Board considered the re-approval of the fund’s Investment Advisory Agreement (“Management Agreement”), pursuant to which the Manager provides the fund with investment advisory and certain 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 relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund, as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including those of the fund. The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including assistance in meeting legal and regulatory requirements. The Board members also considered the Manager’s extensive compliance infrastructure. The Board also considered the Manager’s brokerage policies and practices, the standards applied in seeking best execution and the Manager’s policies and practices regarding soft dollars.
The Fund 29
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of institutional small-cap core funds (the “Performance Group”) and to a larger universe of funds, consisting of all retail and institutional small-cap core funds (the “Performance Universe”) selected and provided by Lipper, Inc., an independent provider of investment company data. The Board was provided with a description of the methodology Lipper used to select the Performance Group and Performance Universe, as well as the Expense Group and Expense Universe (discussed below). The Board members discussed the results of the comparisons and noted that the fund’s total return performance was at or above the Performance Group and Performance Universe medians for the one- , two-, three-, four-, five- and ten-year periods ended December 31, 2009. The Manager also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.
The Board members also discussed the fund’s contractual and actual management fee and expense ratio and reviewed the range of management fees and expense ratios of a comparable group of funds (the “Expense Group”) and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper.The Lipper data presenting the fund’s “actual management fees” included fees paid by the fund, as calculated by Lipper, for administrative services provided by The Bank of NewYork Mellon, the Trust’s administrator. Such reporting was necessary, according to Lipper, to allow the Board to compare the fund’s advisory fees to those peers that include administrative fees within a combined management (investment advisory and administrative) fee. Noting that the fund’s expense ratio had not been affected for the most recent fiscal year, a representative of the Manager informed the Board members that the Manager was currently limiting the fund’s total expense ratio to 1.25% of the fund’s average daily net assets and that such limitation was voluntary and could be terminated at any time.The Board noted that the fund’s contractual management fee was
30
below the Expense Group median and the fund’s actual management fee was equal to the Expense Group median and above the Expense Universe median. The Board noted that the fund’s expense ratio was below the Expense Group and Expense Universe medians.
Representatives of the Manager reviewed with the Board members the fees paid to the Manager or its affiliates by mutual funds managed by the Manager or its affiliates with similar investment objectives, policies and strategies, and included in the same Lipper category as the fund (the “Similar Funds”), and by other accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund (the “Similar Accounts”).The Manager’s representatives explained the nature of the Similar Accounts and the differences, from the Manager’s perspective, in providing services to such Similar Accounts as compared to managing and providing services to the fund.The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided. The Board members considered the relevance of the fee information provi ded for the Similar Funds and the Similar Accounts to evaluate the appropriateness and reasonableness of the fund’s management fee.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex.The Board also was informed that the methodology had also been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of the fund.The
The Fund 31
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
Board members evaluated the profitability analysis in light of the relevant circumstances for the fund, noting that the fund has generally been closed to new investors since August 2006.The Board members also considered potential benefits to the Manager from acting as investment adviser and noted the Manager’s soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It also was noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.
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 ser vices provided by the Manager are adequate and appropriate.
The Board was satisfied with the fund’s relative performance.
The Board concluded that the fee paid by the fund to the Manager was reasonable in light of the services provided, comparative per formance, expense and management fee information, costs of the services provided and profits realized and benefits derived or to be derived by the Manager from its relationship with the fund.
32
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 determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
The Fund 33
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
12 | Statement of Assets and Liabilities |
13 | Statement of Operations |
14 | Statement of Changes in Net Assets |
15 | Financial Highlights |
18 | Notes to Financial Statements |
30 | Information About the Review and Approval of the Fund’s Investment Advisory Agreement |
FOR MORE INFORMATION | |
Back Cover |
Dreyfus/The Boston |
Company Small/Mid Cap |
Growth Fund |
The Fund
A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus/The Boston Company Small/Mid Cap Growth Fund, covering the six-month period from October 1, 2009, through March 31, 2010.
The equity markets continued to produce some of the most dramatic performance returns in recent years off of the March 2009 lows, as efforts to support the global economic recovery appeared to gain traction.The “risk trade,” in which assets are shifted from conservative to more aggressive investments to take advantage of improving market conditions, continued to benefit investors in both U.S. and international markets. However, since the beginning of 2010, recent overseas credit concerns have dampened international markets to an extent, which might be an implication that this trend is moderating.
We believe that sustained global and U.S. economic expansions should proceed at an above-trend pace in 2010, the result of macroeconomic stimulation adopted by nearly every country in the world over the last year. As for the worldwide stock markets, positive returns over the foreseeable future are likely to be delivered through in-depth research and a selective security evaluation process. If you have questions about equities, your financial advisor is best suited to provide current market perspectives relative to your portfolio and to discuss potential opportunities which may match your current expectations and your long-term investment targets.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
Jonathan R. Baum |
Chairman and Chief Executive Officer |
The Dreyfus Corporation |
April 15, 2010 |
2
DISCUSSION OF FUND PERFORMANCE
For the period of October 1, 2009, through March 31, 2010, as provided by Todd Wakefield and B. Randall Watts, Jr., Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended March 31, 2010, Dreyfus/The Boston Company Small/Mid Cap Growth Fund’s Class A shares produced a total return of 10.72%, Class C shares returned 9.96% and Class I shares returned 10.90%.1 In comparison, the fund’s benchmark, the Russell 2500 Growth Index (the “Index”), produced a total return of 14.87% for the same period.2 Stocks generally advanced over the reporting period as the global economy continued to recover from a recession and financial crisis. The fund produced lower returns than its benchmark, primarily due to weak stock selections in the technology, consumer discretionary and financials sectors.
The Fund’s Investment Approach
The fund seeks long-term growth of capital.To pursue its goal, the fund normally invests at least 80% of its assets in equity securities of small-cap and midcap U.S. companies with market capitalizations, at the time of purchase, equal to or less than the total market capitalization of the largest company in the Index. When choosing stocks, we seek to identify high-quality small-cap and midcap companies with rapid current or expected earnings or revenue growth. We employ fundamental research to identify companies with attractive characteristics, such as strong business and competitive positions, solid cash flows and balance sheets, high-quality management and high sustainable growth.We also may invest in companies that our research indicates will experience accelerating revenues and expanding operating margins.
Economic Recovery Drove Stock Prices Higher
The reporting period witnessed the continuation of an economic recovery and stock market rally that began early in 2009. Although unemployment rates have remained stubbornly high, improved manufacturing activity and an apparent bottoming of residential housing prices helped boost confidence among investors, consumers and businesses.
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
For much of the reporting period, investors generally continued to search for opportunities among lower-quality stocks that had been severely punished during the downturn.This activity typically benefited smaller, more speculative stocks more than their better established counterparts. However, during the first quarter of 2010, we began to detect a shift in market sentiment as investors appeared to pay more attention to underlying business fundamentals. In our view, this suggests the beginning of a change in their focus toward companies with sustainable revenues and earnings.
Security Selection Strategy Produced Mixed Results
Small- and midcap stocks generally produced higher returns than their large-cap counterparts during the reporting period, and the fund participated in their gains to a significant degree. However, the fund’s relative performance was undermined by a few disappointments in the technology sector, where a number of semiconductor manufacturers—including PMC-Sierra, MKS Instruments and Verigy—encountered headwinds in the execution of their business plans.Among software developers,Mentor Graphics reduced its earnings guidance despite strong quarterly results, dampening its stock price.
In the consumer discretionary sector, which ranked among the benchmark’s top-performing segments, the fund encountered weakness in for-profit education providers Career Education, Bridgepoint Education and
ITT Educational Services. All three companies were hurt by a regulatory investigation into accreditation standards and potential impacts to Title IV funds, a large souce of student funding, which drove their stocks lower despite rising earnings and higher guidance. Casino equipment companies International Gaming Technologies and WMS Industries lagged due to concerns regarding future demand for their products.
Our security selection strategy also produced shortfalls in the financials sector. Insurance companies such as Tower Group did not enjoy the increased pricing power we had anticipated in the wake of the recession, prompting us to cut back the fund’s positions in the industry.
On a more positive note, the fund scored success in the industrials sector, where staffing agency Robert Half International benefited from greater use of temporary employees in the wake of widespread layoffs during the recession. Agricultural equipment providers also benefited from the economic recovery, with AGCO and Crane seeing greater demand due, in part, to the U.S. government’s economic stimulus
4
programs. In the consumer staples sector, Estee Lauder Companies gained value as the company has executed exceptionally well overseas emphasizing their Estee Lauder and Clinique brands, while re-vamping their domestic sales strategy in the department stores.
Positioned for the Next Phase of the Economic Cycle
We remain optimistic regarding the potential for small- and midcap growth stocks over the remainder of 2010. As the economic recovery progresses, we believe that investors will increasingly favor companies with sound business fundamentals and favorable growth prospects. We have found a number of opportunities meeting our investment criteria in the health care sector, where the recent passage of reform legislation appears likely to benefit service providers, medical device manufacturers and health care technology companies.
Conversely,we have found relatively fewer opportunities in the consumer discretionary sector, where retailers may continue to suffer from sluggish consumer spending amid relatively high unemployment rates and ongoing deleveraging activity. We also have reduced the fund’s overweighted positions in the financials and energy sectors. In our view, these are prudent strategies as we seek to capture the opportunities and confront the challenges of a rapidly evolving marketplace.
April 15, 2010
Please note, the position in any security highlighted with italicized typeface was sold during the | |
reporting period. | |
Equity funds are subject generally to market, market sector, market liquidity, issuer, and investment | |
style risks, among other factors, to varying degrees, all of which are more fully described in the | |
fund’s prospectus. | |
The prices of small company stocks tend to be more volatile than the prices of large company | |
stocks, mainly because these companies have less established and more volatile earnings histories. | |
They also tend to be less liquid than larger company stocks. | |
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take into |
consideration the maximum initial sales charge in the case of Class A shares, or the applicable | |
contingent deferred sales charge imposed on redemptions in the case of Class C shares. Had these | |
charges been reflected, returns would have been lower. Past performance is no guarantee of future | |
results. Share price and investment return fluctuate such that upon redemption, fund shares may be | |
worth more or less than their original cost. | |
2 | SOURCE: LIPPER INC. — The Russell 2500 Growth Index is an unmanaged index that |
measures the performance of those Russell 2500 companies (the 2,500 smallest companies in the | |
Russell 3000 Index, which is comprised of the 3,000 largest U.S. companies based on total | |
market capitalization) with higher price-to-book ratios and higher forecasted growth values.The | |
total return figure cited for this index assumes change in security prices and reinvestment of | |
dividends, but does not reflect the costs of managing 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/The Boston Company Small/Mid Cap Growth Fund from October 1, 2009 to March 31, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment | |||
assuming actual returns for the six months ended March 31, 2010 | |||
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 6.88 | $ 12.72 | $ 4.52 |
Ending value (after expenses) | $1,107.20 | $1,099.60 | $1,109.00 |
COMPARING YOUR FUND’S EXPENSES |
WITH THOSE OF OTHER FUNDS (Unaudited) |
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment | |||
assuming a hypothetical 5% annualized return for the six months ended March 31, 2010 | |||
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 6.59 | $ 12.19 | $ 4.33 |
Ending value (after expenses) | $1,018.40 | $1,012.81 | $1,020.64 |
† Expenses are equal to the fund’s annualized expense ratio of 1.31% for Class A, 2.43% for Class C and .86% for Class I , multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS
March 31, 2010 (Unaudited)
Common Stocks—99.5% | Shares | Value ($) |
Consumer Discretionary—12.8% | ||
Brinker International | 127,990 | 2,467,647 |
Carter’s | 85,770 a | 2,585,965 |
Cato, Cl. A | 51,250 | 1,098,800 |
Children’s Place Retail Stores | 24,230 a | 1,079,446 |
Choice Hotels International | 61,470 b | 2,139,771 |
Columbia Sportswear | 19,960 | 1,048,499 |
Gentex | 103,110 | 2,002,396 |
Jarden | 46,700 | 1,554,643 |
Lions Gate Entertainment | 216,218 a,b | 1,349,200 |
P.F. Chang’s China Bistro | 23,470 a,b | 1,035,731 |
Panera Bread, Cl. A | 15,650 a | 1,197,069 |
PetSmart | 56,100 | 1,792,956 |
Williams-Sonoma | 172,790 b | 4,542,649 |
WMS Industries | 29,790 a | 1,249,393 |
Wolverine World Wide | 52,930 | 1,543,439 |
26,687,604 | ||
Consumer Staples—3.9% | ||
Alberto-Culver | 49,530 | 1,295,209 |
Estee Lauder, Cl. A | 32,880 | 2,132,926 |
Hansen Natural | 60,230 a | 2,612,777 |
Whole Foods Market | 55,610 a,b | 2,010,302 |
8,051,214 | ||
Energy—4.3% | ||
Cabot Oil & Gas | 28,570 | 1,051,376 |
Concho Resources | 51,760 a | 2,606,634 |
Dril-Quip | 17,190 a | 1,045,840 |
EXCO Resources | 57,120 | 1,049,866 |
Nordic American Tanker Shipping | 31,310 | 947,754 |
Quicksilver Resources | 155,300 a | 2,185,071 |
8,886,541 | ||
Exchange Traded Funds—.5% | ||
iShares Russell 2000 Growth Index Fund | 14,150 b | 1,036,346 |
Financial—8.3% | ||
Arch Capital Group | 20,800 a | 1,586,000 |
Jefferies Group | 121,600 b | 2,878,272 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Financial (continued) | ||
KeyCorp | 510,530 | 3,956,608 |
MFA Financial | 143,430 c | 1,055,645 |
Och-Ziff Capital Management Group, Cl. A | 108,310 | 1,732,960 |
Plum Creek Timber | 40,560 b,c | 1,578,190 |
Prosperity Bancshares | 47,610 b | 1,952,010 |
Westamerica Bancorporation | 44,080 b | 2,541,212 |
17,280,897 | ||
Health Care—25.8% | ||
Alexion Pharmaceuticals | 33,050 a | 1,796,928 |
Allscripts-Misys Healthcare Solutions | 83,850 a,b | 1,640,106 |
AmerisourceBergen | 56,170 | 1,624,436 |
Amylin Pharmaceuticals | 38,800 a | 872,612 |
Bio-Rad Laboratories, Cl. A | 18,200 a | 1,884,064 |
Bruker | 129,060 a | 1,890,729 |
Centene | 54,890 a | 1,319,556 |
Dendreon | 47,370 a,b | 1,727,584 |
Emergency Medical Services, Cl. A | 28,509 a | 1,612,184 |
ev3 | 103,707 a | 1,644,793 |
Hologic | 160,780 a | 2,980,861 |
Human Genome Sciences | 80,280 a | 2,424,456 |
InterMune | 24,050 a | 1,071,909 |
Mednax | 30,920 a | 1,799,235 |
Myriad Genetics | 105,280 a | 2,531,984 |
Nektar Therapeutics | 137,100 a,b | 2,085,291 |
Owens & Minor | 43,180 | 2,003,120 |
Patterson | 82,990 | 2,576,840 |
PerkinElmer | 92,480 | 2,210,272 |
PSS World Medical | 80,060 a,b | 1,882,211 |
RehabCare Group | 49,730 a | 1,356,137 |
Salix Pharmaceuticals | 46,910 a | 1,747,398 |
Sirona Dental Systems | 44,120 a | 1,677,884 |
SXC Health Solutions | 30,680 a | 2,064,150 |
Thermo Fisher Scientific | 33,960 a | 1,746,902 |
Thoratec | 34,760 a,b | 1,162,722 |
8
Common Stocks (continued) | Shares | Value ($) |
Health Care (continued) | ||
United Therapeutics | 36,470 a,b | 2,017,885 |
Universal Health Services, Cl. B | 59,800 | 2,098,382 |
Volcano | 84,703 a,b | 2,046,424 |
53,497,055 | ||
Industrial—18.2% | ||
Aecom Technology | 103,110 a | 2,925,231 |
AGCO | 28,430 a,b | 1,019,784 |
AMETEK | 64,110 | 2,658,001 |
Crane | 43,970 | 1,560,935 |
EnerSys | 43,370 a | 1,069,504 |
Flowserve | 26,990 | 2,976,187 |
IDEX | 65,060 | 2,153,486 |
Jacobs Engineering Group | 66,410 a | 3,001,068 |
Knight Transportation | 100,070 b | 2,110,476 |
Landstar System | 107,650 | 4,519,147 |
Mueller Industries | 63,870 | 1,711,077 |
Pall | 52,460 | 2,124,105 |
Quanex Building Products | 59,530 | 984,031 |
Robert Half International | 83,090 b | 2,528,429 |
Roper Industries | 28,910 | 1,672,154 |
SAIC | 150,430 a | 2,662,611 |
Teledyne Technologies | 54,827 a | 2,262,710 |
37,938,936 | ||
Materials—3.4% | ||
Carpenter Technology | 46,820 | 1,713,612 |
Intrepid Potash | 71,520 a,b | 2,169,202 |
Schnitzer Steel Industries, Cl. A | 60,300 | 3,167,559 |
7,050,373 | ||
Technology—22.3% | ||
Atheros Communications | 54,610 a,b | 2,113,953 |
Blackboard | 72,420 a,b | 3,017,017 |
BMC Software | 66,020 a | 2,508,760 |
CACI International, Cl. A | 48,220 a,b | 2,355,547 |
CyberSource | 133,700 a | 2,358,468 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Technology (continued) | ||
Gartner | 88,490 a | 1,968,018 |
Genpact | 129,160 a | 2,166,013 |
Harris | 88,060 | 4,181,969 |
IAC/InterActiveCorp | 97,340 a | 2,213,512 |
Ingram Micro, Cl. A | 79,740 a | 1,399,437 |
LSI | 246,500 a | 1,508,580 |
Mentor Graphics | 114,020 a | 914,440 |
Micros Systems | 47,090 a | 1,548,319 |
MicroStrategy, Cl. A | 11,070 a | 941,725 |
MKS Instruments | 114,780 a | 2,248,540 |
NetLogic Microsystems | 55,340 a | 1,628,656 |
ON Semiconductor | 195,380 a,b | 1,563,040 |
PMC-Sierra | 121,070 a | 1,079,944 |
QLogic | 110,080 a | 2,234,624 |
Quality Systems | 17,240 b | 1,059,226 |
Quest Software | 105,530 a | 1,877,379 |
Rofin-Sinar Technologies | 44,220 a | 1,000,256 |
Skyworks Solutions | 96,930 a | 1,512,108 |
Verigy | 144,040 a | 1,610,367 |
Vishay Intertechnology | 141,910 a | 1,451,739 |
46,461,637 | ||
Total Common Stocks | ||
(cost $176,894,921) | 206,890,603 | |
Other Investment—1.9% | ||
Registered Investment Company; | ||
Dreyfus Institutional Preferred | ||
Plus Money Market Fund | ||
(cost $4,009,493) | 4,009,493 d | 4,009,493 |
10
Investment of Cash Collateral | ||
for Securities Loaned—16.0% | Shares | Value ($) |
Registered Investment Company; | ||
Dreyfus Institutional Cash Advantage Fund | ||
(cost $33,395,996) | 33,395,996 d | 33,395,996 |
Total Investments (cost $214,300,410) | 117.4% | 244,296,092 |
Liabilities, Less Cash and Receivables | (17.4%) | (36,120,088) |
Net Assets | 100.0% | 208,176,004 |
a Non-income producing security. |
b Security, or portion thereof, on loan. At March 31, 2010, the total market value of the fund’s securities on loan is |
$32,301,230 and the total market value of the collateral held by the fund is $33,395,996. |
c Investment in real estate investment trust. |
d Investment in affiliated money market mutual fund. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Health Care | 25.8 | Energy | 4.3 |
Technology | 22.3 | Consumer Staples | 3.9 |
Industrial | 18.2 | Materials | 3.4 |
Money Market Investments | 17.9 | Exchange Traded Funds | .5 |
Consumer Discretionary | 12.8 | ||
Financial | 8.3 | 117.4 | |
† Based on net assets. | |||
See notes to financial statements. |
The Fund 11
STATEMENT OF ASSETS AND LIABILITIES |
March 31, 2010 (Unaudited) |
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments (including | |||
securities on loan, valued at $32,301,230)—Note 1(b): | |||
Unaffiliated issuers | 176,894,921 | 206,890,603 | |
Affiliated issuers | 37,405,489 | 37,405,489 | |
Cash | 184,450 | ||
Receivable for investment securities sold | 2,331,173 | ||
Receivable for shares of Beneficial Interest subscribed | 91,209 | ||
Dividends and interest receivable | 51,463 | ||
Prepaid expenses | 31,377 | ||
246,985,764 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 160,963 | ||
Liability for securities on loan—Note 1(b) | 33,395,996 | ||
Payable for investment securities purchased | 4,931,709 | ||
Payable for shares of Beneficial Interest redeemed | 217,145 | ||
Accrued expenses | 103,947 | ||
38,809,760 | |||
Net Assets ($) | 208,176,004 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 190,669,285 | ||
Accumulated Investment (loss)—net | (78,546) | ||
Accumulated net realized gain (loss) on investments | (12,410,417) | ||
Accumulated net unrealized appreciation | |||
(depreciation) on investments | 29,995,682 | ||
Net Assets ($) | 208,176,004 | ||
Net Asset Value Per Share | |||
Class A | Class C | Class I | |
Net Assets ($) | 257,133 | 14,530 | 207,904,341 |
Shares Outstanding | 20,921 | 1,196 | 16,893,012 |
Net Asset Value Per Share ($) | 12.29 | 12.15 | 12.31 |
See notes to financial statements. |
12
STATEMENT OF OPERATIONS |
Six Months Ended March 31, 2010 (Unaudited) |
Investment Income ($): | |
Income: | |
Cash dividends: | |
Unaffiliated issuers | 691,951 |
Affiliated issuers | 2,291 |
Income from securities lending—Note 1(b) | 13,014 |
Total Income | 707,256 |
Expenses: | |
Investment advisory fee—Note 3(a) | 548,960 |
Shareholder servicing costs—Note 3(c) | 98,976 |
Custodian fees—Note 3(c) | 44,716 |
Professional fees | 26,685 |
Registration fees | 19,988 |
Accounting and administration fee—Note 3(a) | 24,500 |
Prospectus and shareholders’ reports | 7,297 |
Trustees’ fees and expenses—Note 3(d) | 5,264 |
Loan commitment fees—Note 2 | 2,587 |
Distribution fees—Note 3(b) | 51 |
Miscellaneous | 6,783 |
Total Expenses | 785,807 |
Less—reduction in expenses due to undertaking—Note 3(a) | (5) |
Net Expenses | 785,802 |
Investment (Loss)—Net | (78,546) |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | 13,131,505 |
Net realized gain (loss) on financial futures | (68,591) |
Net Realized Gain (Loss) | 13,062,914 |
Net unrealized appreciation (depreciation) on investments | 6,721,548 |
Net Realized and Unrealized Gain (Loss) on Investments | 19,784,462 |
Net Increase in Net Assets Resulting from Operations | 19,705,916 |
See notes to financial statements. |
The Fund 13
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2010 | Year Ended | |
(Unaudited) | September 30, 2009a | |
Operations ($): | ||
Investment (loss)—net | (78,546) | (9,704) |
Net realized gain (loss) on investments | 13,062,914 | (19,981,257) |
Net unrealized appreciation | ||
(depreciation) on investments | 6,721,548 | 27,751,645 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 19,705,916 | 7,760,684 |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 197,703 | 157,650 |
Class C Shares | — | 10,000 |
Class I Shares | 38,795,469 | 97,319,239 |
Cost of shares redeemed: | ||
Class A Shares | (140,559) | — |
Class I Shares | (19,213,121) | (26,684,215) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | 19,639,492 | 70,802,674 |
Total Increase (Decrease) in Net Assets | 39,345,408 | 78,563,358 |
Net Assets ($): | ||
Beginning of Period | 168,830,596 | 90,267,238 |
End of Period | 208,176,004 | 168,830,596 |
Undistributed investment (loss)—net | (78,546) | — |
Capital Share Transactions (Shares): | ||
Class A | ||
Shares sold | 16,796 | 16,751 |
Shares redeemed | (12,626) | — |
Net Increase (Decrease) in Shares Outstanding | 4,170 | 16,751 |
Class C | ||
Shares sold | — | 1,196 |
Class I | ||
Shares sold | 3,389,221 | 10,482,193 |
Shares redeemed | (1,681,537) | (2,840,128) |
Net Increase (Decrease) in Shares Outstanding | 1,707,684 | 7,642,065 |
a | The fund changed to a multiple class fund on March 31, 2009.The existing shares were redesignated as Class I and |
the fund commenced offering Class A and Class C shares. | |
See notes to financial statements. |
14
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 | ||
March 31, 2010 | Year Ended | |
Class A Shares | (Unaudited) | September 30, 2009a |
Per Share Data ($): | ||
Net asset value, beginning of period | 11.10 | 8.36 |
Investment Operations: | ||
Investment (loss)—netb | (.03) | (.02) |
Net realized and unrealized | ||
gain (loss) on investments | 1.22 | 2.76 |
Total from Investment Operations | 1.19 | 2.74 |
Net asset value, end of period | 12.29 | 11.10 |
Total Return (%)c,d | 10.72 | 32.78 |
Ratios/Supplemental Data (%): | ||
Ratio of total expenses to average net assetse | 1.31 | 1.26 |
Ratio of net expenses to average net assetse | 1.31f | 1.25 |
Ratio of net investment (loss) | ||
to average net assetse | (.55) | (.37) |
Portfolio Turnover Rate | 104.20d | 278.73g |
Net Assets, end of period ($ x 1,000) | 257 | 186 |
a | From March 31, 2009 (commencement of initial offering) to September 30, 2009. |
b | Based on average shares outstanding at each month end. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
f | Expense waivers and/or reimbursements amounted to less than .01%. |
g | Represents portfolio turnover for the fund for the year. |
See notes to financial statements. |
The Fund 15
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||
March 31, 2010 | Year Ended | |
Class C Shares | (Unaudited) | September 30, 2009a |
Per Share Data ($): | ||
Net asset value, beginning of period | 11.05 | 8.36 |
Investment Operations: | ||
Investment (loss)—netb | (.09) | (.06) |
Net realized and unrealized | ||
gain (loss) on investments | 1.19 | 2.75 |
Total from Investment Operations | 1.10 | 2.69 |
Net asset value, end of period | 12.15 | 11.05 |
Total Return (%)c,d | 9.96 | 32.18 |
Ratios/Supplemental Data (%): | ||
Ratio of total expenses to average net assetse | 2.43 | 2.16 |
Ratio of net expenses to average net assetse | 2.43f | 2.00 |
Ratio of net investment (loss) | ||
to average net assetse | (1.66) | (1.20) |
Portfolio Turnover Rate | 104.20d | 278.73g |
Net Assets, end of period ($ x 1,000) | 15 | 13 |
a | From March 31, 2009 (commencement of initial offering) to September 30, 2009. |
b | Based on average shares outstanding at each month end. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
f | Expense waivers and/or reimbursements amounted to less than .01%. |
g | Represents portfolio turnover for the fund for the year. |
See notes to financial statements. |
16
Six Months Ended | ||||||
March 31, 2010 | Year Ended September 30, | |||||
Class I Shares | (Unaudited) | 2009a | 2008 | 2007 | 2006 | 2005 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 11.10 | 11.97 | 17.66 | 14.92 | 13.84 | 11.26 |
Investment Operations: | ||||||
Investment income (loss)—netb | (.00)c | (.00)c | (.02) | .01 | (.02) | (.04) |
Net realized and unrealized | ||||||
gain (loss) on investments | 1.21 | (.87) | (1.93)d | 3.74d | 1.10 | 2.62 |
Total from Investment Operations | 1.21 | (.87) | (1.95) | 3.75 | 1.08 | 2.58 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | — | — | (.01) | — | — | — |
Dividends from net realized | ||||||
gain on investments | — | — | (3.73) | (1.01) | — | — |
Total Distributions | — | — | (3.74) | (1.01) | — | — |
Net asset value, end of period | 12.31 | 11.10 | 11.97 | 17.66 | 14.92 | 13.84 |
Total Return (%) | 10.90e | (7.27) | (14.32) | 26.31 | 7.80f | 22.91 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | .86g | .93 | 1.11 | 1.23 | 1.29 | 1.38 |
Ratio of net expenses | ||||||
to average net assets | .86g,h | .93h | 1.00 | 1.00 | 1.00 | 1.00 |
Ratio of net investment income | ||||||
(loss) to average net assets | (.09)g | (.01) | (.15) | .07 | (.16) | (.32) |
Portfolio Turnover Rate | 104.20e | 278.73 | 201 | 180 | 161 | 167 |
Net Assets, end of period | ||||||
($ x 1,000) | 207,904 168,631 | 90,267 | 22,432 | 20,389 | 19,709 |
a The fund changed to a multiple class fund on March 31, 2009.The existing shares were redesignated as Class I shares. b Based on average shares outstanding at each month end. c Amount represents less than $.01 per share. d Amounts include litigations proceeds received by the fund of $.01 for the year ended September 30, 2008 and $.19 for the year ended September 30, 2007. e Not Annualized. f For the year ended September 30, 2006, .03% of the fund’s return consisted of a payment by the advisor to compensate the fund for a trading error. Excluding this payment, total return was 7.77%. g Annualized. h Expense waivers and/or reimbursements amounted to less than .01%.
See notes to financial statements.
The Fund 17
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus/The Boston Company Small/Mid Cap Growth Fund (the “fund”) is a separate diversified series of Dreyfus Investment Funds (the “Trust”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company currently offering twelve series, including the fund.The fund’s investment objective is to achieve long-term growth of capital.The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of BNY Mellon, serves as the fund’s investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares. 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 C and Class I shares. Class A shares are subject to a sales charge imposed at the time of purchase. Class C shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class C shares redeemed within one year of purchase. Class I shares are sold primarily to bank trust departments and other financial service providers (including The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus), acting on behalf of customers having a qualified trust or an investment account or relationship at such institution, and bear no distribution or shareholder services fees. Class I shares are offered without a front-end sales charge or CDSC. Other differences between the classes include the services offered to, 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 Trust accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
18
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants.The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities are valued at the last sales price on the securities exchange or national securities market on which such securities are primarily traded. Securities listed on the National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price that day, at the last sales price. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Registered investment companies that are not traded on an exchange are valued at their net asset value.When market quotations or officia l closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market),but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Trustees. Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant American Depository Receipts and futures contracts. For other securi-
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
ties that are fair valued by the Board of Trustees, certain factors may be considered such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold and public trading in similar securities of the issuer or comparable issuers. Financial futures are valued at the last sales price.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
20
The following is a summary of the inputs used as of March 31, 2010 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable | Unobservable | ||
Quoted Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in Securities: | ||||
Equity Securities— | ||||
Domestic† | 204,243,890 | — | — | 204,243,890 |
Equity Securities— | ||||
Foreign† | 1,610,367 | — | — | 1,610,367 |
Mutual Funds/ | ||||
Exchange Traded | ||||
Funds | 38,441,835 | — | — | 38,441,835 |
† See Statement of Investments for industry classification. |
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. ASU 2010-06 will require reporting entities to make new disclosures about amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3, and information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. The new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2009 except for the disclosures surrounding purchases,sales,issuances and settlements on a gross basis in the reconciliation of Level 3 †fair value measurements, which are effec tive for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact the adoption of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
The fund has arrangements with the custodian and cash management bank whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset custody and cash management fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
Pursuant to a securities lending agreement with The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, the fund may lend securities to qualified institutions. It is the fund’s policy that, at origination, all loans are secured by collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan is maintained at all times. Collateral is either in the form of cash, which can be invested in certain money market mutual funds managed by the Manager, U.S. Government and Agency securities or letters of credit.The fund is entitled to receive all income on securities loaned, in addition to income earned as a result of the lending transaction. Although each security loaned is fully collateralized, the fund bears the risk of delay in recovery of, or loss of rights in, the securities loaned should a borrower fail to return the securities in a timely manner. During the period ended March 31, 2010, The Bank of New York Mellon earned $4,338 from lending portfolio securities, pursuant to the securities lending agreement.
(c) Affiliated issuers: Investments in other investment companies advised by the Manager are defined as “affiliated” in the Act.
(d) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from
22
net realized capital gains, if any, are normally declared and paid semian-nually and annually, respectively, 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”).The Board of Trustees approved, effective on or about January 1, 2010, the fund to pay dividends from investment income-net annually. To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(e) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended March 31, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the three-year period ended September 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $9,601,514 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to September 30, 2009. If not applied, the carryover expires in fiscal 2017.
The tax character of current year distributions, if any, will be determined at the end of the current fiscal year.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon, (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended March 31, 2010, the fund did not borrow under the Facilities.
NOTE 3—Investment Advisory Fee and Other Transactions With Affiliates:
(a) Pursuant to an investment advisory agreement with the Manager, the investment advisory fee is computed at the annual rate of .60% of the value of the fund’s average daily net assets and is payable monthly.
The Manager currently is limiting the fund’s operating expenses or assuming all or part of the expenses of the fund so that such expenses (excluding Rule 12b-1 fees, shareholder services fees, taxes, interest, brokerage commissions, commitment fees, acquired fund fees and extraordinary expenses) do not exceed 1.00% of the value of the fund’s average daily net assets. The reduction in expenses due to undertaking expired on February 1, 2010.The reduction in expenses, pursuant to the undertaking, amounted to $5 during the period ended March 31, 2010.
The Trust entered into an agreement with The Bank of New York Mellon, pursuant to which The Bank of New York Mellon provides administration and fund accounting services for the fund. For these services, the fund paysThe Bank of NewYork Mellon a fixed fee plus asset and transaction based fees, as well as out-of-pocket expenses. Pursuant to this agreement, the fund was charged $19,750 for the period ended March 31, 2010 for administration and fund accounting services.
24
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing their shares at an annual rate of .75% of the value of the average daily net assets of Class C shares. During the period ended March 31, 2010, Class C shares were charged $51 pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding 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 March 31, 2010, Class A and Class C shares were charged $169 and $17, 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 March 31, 2010, the fund was charged $1,212 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended March 31, 2010, the fund was charged $334 pursuant to the cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund also compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
the period ended March 31, 2010, the fund was charged $49,466 pursuant to the custody agreement.
During the period ended March 31, 2010, the fund was charged $2,742 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: investment advisory fees $104,879, Rule 12b-1 distribution plan fees $9, shareholders service fees $40, custodian fees $52,758, chief compliance officer fees $2,742 and transfer agency per account fees $535.
(d) Prior to January 1, 2010, each Trustee received $45,000 per year, plus $6,000 for each joint Board meeting of the Trust, The Dreyfus/Laurel Funds, Inc., The Dreyfus/Laurel Funds Trust, The Dreyfus/Laurel Tax-Free Municipal Funds and Dreyfus Funds, Inc. (collectively, the “Board Group Open-End Funds”) attended, $2,000 for separate in-person committee meetings attended which were not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that were conducted by telephone. Effective January 1, 2010, the Board Group Open-End Funds will pay each Trustee who is not an “interested person” of the Trust (as defined in the Act) $60,000 per annum, plus $7,000 per joint Board Group Open-End Funds Board meeting attended, $2,500 for separate in-person committee meetin gs attended which are not held in conjunction with a regularly scheduled Board meeting and $2,000 for Board meetings and separate committee meetings attended that are conducted by telephone. The Board Group Open-End Funds also reimburse each Trustee who is not an “interested person” of the Trust (as defined in the Act) for travel and out-of-pocket expenses.With respect to Board meetings, the Chairman of the Board receives an additional 25% of such compensation (with the exception of reimbursable amounts). With respect to compensation committee meetings prior to January 1, 2010, the Chair of the compensation committee received $900 per compensation committee meeting. Effective January 1, 2010, the Chair of each of the Board’s committees, unless the
26
Chair also serves as Chair of the Board, will receive $1,350 per applicable committee meeting. In the event that there is an in-person joint committee meeting or a joint telephone meeting of the Board Group Open-End Funds and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee (prior to January 1, 2010) or the $2,500 or $2,000 fee (effective January 1, 2010), as applicable, is allocated between the Board Group Open-End Funds and Dreyfus HighYield Strategies Fund.The Trust’s portion of these fees and expenses are charged and allocated to each series based on net assets.
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 March 31, 2010, amounted to $207,922,024 and $185,457,692, respectively.
The fund may invest in shares of certain affiliated investment companies also advised or managed by the adviser. Investments in affiliated investment companies for the period ended March 31, 2010 were as follows:
Affiliated | |||||
Investment | Value | Value | Net | ||
Company | 9/30/2009 ($) | Purchases ($) | Sales ($) | 3/31/2010 ($) Assets (%) |
Dreyfus Institutional Preferred Plus Money Market
Fund 4,807,629 61,635,188 62,433,324 4,009,493 1.9
Dreyfus | ||
Institutional | ||
Cash | ||
Advantage | ||
Fund | 34,033,874 92,478,090 93,115,968 33,395,996 | 16.0 |
Total | 38,841,503 154,113,278 155,549,292 37,405,489 | 17.9 |
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which 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
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
about credit-risk-related contingent features in derivative agreements. The disclosure requirements distinguish between derivatives, which are accounted for as “hedges” and those that do not qualify for hedge accounting. Because investment companies value their derivatives at fair value and recognize changes in fair value through the Statement of Operations, they do not qualify for such accounting. Accordingly, even though a fund’s investments in derivatives may represent economic hedges, they are considered to be non-hedge transactions for purposes of this disclosure.
Futures Contracts: In the normal course of pursuing its investment objective, the fund is exposed to market risk, including equity price risk and interest rate risk, as a result of changes in value of underlying financial instruments.The fund invests in financial futures contracts in order to manage its exposure to or protect against changes in the market. A futures contract represents a commitment for the future purchase or a sale of an asset at a specified date. Upon entering into such contracts, 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. Accordingly, variation margin payments are received or made to reflect daily unrealized gains or losses which are rec orded in the Statement of Operations. Futures contracts are valued daily at the last sales price established by the Board of Trade or exchange upon which they are traded. When the contracts are closed, the fund recognizes a realized gain or loss. There is minimal counterparty credit risk to the fund with futures, since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. At March 31, 2010, there were no open Financial Futures Contracts.
At March 31, 2010, accumulated net unrealized appreciation on investments was $29,995,682, consisting of $30,816,048 gross unrealized appreciation and $820,366 gross unrealized depreciation.
28
At March 31, 2010, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
NOTE 5—Plan of Reorganization:
At a meeting of the Board of Trustees of the fund held on October 29, 2009, the Board approved an Agreement and Plan of Reorganization between the fund and Dreyfus Discovery Fund (the “Acquired Fund”), providing for the transfer of all of the assets of the Acquired Fund to the fund as part of a tax-free reorganization. The merger, which was approved by the Acquired Fund’s shareholders on March 26,2010, occured on April 29, 2010. On that date, the Acquired Fund’s shareholders of Class A, Class B and Class F shares received Class A shares of the fund and Acquired Fund’s shareholders of Class C and Class I shares received Class C and Class I shares of the fund in an amount equal to the aggregate net asset value, subject to liabilities, of their investment in the Acquired Fund at the time of the exchange.
NOTE 6—Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
The Fund 29
INFORMATION ABOUT THE REVIEW AND |
APPROVAL OF THE FUND’S INVESTMENT |
ADVISORY AGREEMENT (Unaudited) |
At a meeting of the fund’s Board of Trustees held on February 9, 2010, the Board considered the re-approval of the fund’s Investment Advisory Agreement (“Management Agreement”), pursuant to which the Manager provides the fund with investment advisory and certain 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 relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund, as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including those of the fund. The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including assistance in meeting legal and regulatory requirements.The Board members also considered the Manager’s extensive compliance infrastructure.The Board also considered the Manager’s brokerage policies and practices, the standards applied in seeking best execution and the Manager’s policies and practices regarding soft dollars.
30
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of institutional mid-cap growth funds (the “Performance Group”) and to a larger universe of funds, consisting of all retail and institutional mid-cap growth funds (the “Performance Universe”) selected and provided by Lipper, Inc., an independent provider of investment company data. The Board was provided with a description of the methodology Lipper used to select the Performance Group and Performance Universe, as well as the Expense Group and Expense Universe (discussed below). The Board members discussed the results of the comparisons and noted that the fund’s total return performance was above the Performance Group and Performance Universe medians for the two-, thre e-, four-, five- and ten-year periods ended December 31, 2009, but was below the Performance Group and Performance Universe medians for the one-year period ended December 31, 2009. As part of an overall presentation to the Board members, representatives of the Manager discussed the market environment in 2009, noting that high beta stocks had outperformed during 2009 and high quality stocks had been out of favor during 2009. The Manager also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.
The Board members also discussed the fund’s contractual and actual management fee and expense ratio and reviewed the range of management fees and expense ratios of a comparable group of funds (the “Expense Group”) and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper.The Lipper data presenting the fund’s actual management fees included fees paid by the fund, as calculated by Lipper, for administrative services provided byThe Bank of NewYork Mellon, the Trust’s administrator. Such reporting was necessary, according to Lipper, to allow the Board to compare the fundís advisory fees to those peers that include administrative fees within a combined management (investment advisory and administrative) fee. The Board noted that the fund’s contractual management fee was below
The Fund 31
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S |
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
the Expense Group median and the fund’s actual management fee and expense ratio were each below the respective 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”), and by other accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund (the “Similar Accounts”).The Manager’s representatives explained the nature of the Similar Accounts and the differences, from the Manager’s perspective, in providing services to such Similar Accounts as compared to managing and providing services to the fund.The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided. The Board members considered the relevance of the fee information provi ded for the Similar Funds and the Similar Accounts to evaluate the appropriateness and reasonableness of the fund’s management fee.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex.The Board also was informed that the methodology had also been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of the fund.The Board members evaluated the profitability analysis in light of the r el-
32
evant circumstances for the fund.The Board members also considered potential benefits to the Manager from acting as investment adviser and noted the Manager’s soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It also was noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
The Board concluded that the nature, extent and quality of the services provided by the Manager are adequate and appropriate.
The Board was generally satisfied with the fund’s overall relative performance.
The Board concluded that the fee paid by the fund to the Manager was reasonable in light of the services provided, comparative per- formance, expense and management fee information, costs of the services provided and profits realized and benefits derived or to be derived by the Manager from its relationship with the fund.
The Fund 33
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S |
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
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 determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
34
NOTES
The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
19 | Statement of Assets and Liabilities |
20 | Statement of Operations |
21 | Statement of Changes in Net Assets |
23 | Financial Highlights |
26 | Notes to Financial Statements |
35 | Information About the Review and Approval of the Fund’s Investment Advisory Agreement |
FOR MORE INFORMATION | |
Back Cover |
Dreyfus/Standish
Intermediate Tax Exempt
Bond Fund
The Fund
A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus/Standish Intermediate Tax Exempt Bond Fund, covering the six-month period from October 1, 2009, through March 31, 2010.
The municipal markets continued to show resiliency despite budgetary constraints and revenue shortfalls, due in part to the American Recovery and Reinvestment Act of 2009’s positive impact on credit conditions and supply-and-demand factors. In addition, taxable-equivalent yield differences — which have been favorable to municipals for most of the past 10 years — along with near-zero percent yields on money market funds have also helped buoy demand for municipal securities through this recent market cycle.
Considering the political risk that potentially might affect many investors, we believe tax efficiency will be an important consideration for investors over the next few years.As for the municipal bond market outlook, we believe there will be challenges faced by lower-rated municipalities, but that the overall market remains solvent and sound. With that said, investors may benefit from active management processes that employ fundamental and independent credit analysis of the securities in which they invest. If you have questions about municipals, talk to your financial advisor.They can help you navigate through the current market environment and recommend appropriate ways to seek potential opportunities while maintaining your long-term goals within the appropriate level of risk you’re willing to accept.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
Jonathan R. Baum
Chairman & Chief Executive Officer
The Dreyfus Corporation
April 15, 2010
2
DISCUSSION OF FUND PERFORMANCE
For the period of October 1, 2009, through March 31, 2010, as provided by Christine Todd, CFA, and Steven Harvey, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended March 31, 2010, Dreyfus/Standish Intermediate Tax Exempt Bond Fund’s Class A shares produced a total return of 0.37%, Class C shares returned 0.05% and Class I shares returned 0.60%.1 In comparison, the fund’s benchmark, the Barclays Capital 3-,5-,7-,10-Year Municipal Bond Index (the“Index”),provided a total return of 0.78% for the same period.2
The Fund’s Investment Approach
The fund seeks to provide a high level of interest income exempt from federal income tax, while seeking preservation of shareholders’ capital. To pursue this goal, the fund normally invests at least 80% of its assets in municipal bonds that provide income exempt from federal personal income tax.
The fund invests exclusively in fixed-income securities rated, at the time of purchase, investment grade or the unrated equivalent as determined by Dreyfus, with an emphasis on high grade securities.3 The dollar-weighted average effective maturity of the fund’s portfolio generally will be between three and 10 years, but the fund may invest in individual securities of any maturity.We focus on identifying undervalued sectors and securities, and we minimize the use of interest rate forecasting.We select municipal bonds by using fundamental credit analysis to estimate the relative value and attractiveness of various sectors and securities and to exploit pricing inefficiencies in the municipal bond market. We actively trade among various sectors, such as escrowed, general obligation and revenue bo nds, based on their apparent relative values.
Municipal Bonds Rebounded with U.S. Economy
The reporting period began in the midst of a global recovery from a severe recession and financial crisis. Although the U.S. unemployment
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
rate has remained stubbornly high, evidence of economic improvement included rising manufacturing activity and an apparent bottoming of housing prices. Indeed, U.S. GDP returned to growth over the second half of 2009, but the pace of economic improvement proved to be slower than historical averages. In addition, most states continued to struggle with budget shortfalls due to tax revenue shortfalls and intensifying demand for services. In light of the sub-par economic recovery, the Federal Reserve Board left short-term interest rates unchanged in a historically low range between 0% and 0.25%.
As has been the case since early 2009, the municipal bond market during the reporting period was influenced by changing investor sentiment as the economic recovery gained traction. In addition, the municipal bond market was supported by favorable supply-and-demand dynamics. Issuance of new tax-exempt bonds moderated significantly due to the federally subsidized Build America Bonds program, a part of the federal stimulus package that shifted a substantial portion of new issuance to the taxable bond market. Meanwhile, demand for tax-exempt securities intensified as investors sought alternatives to low yielding money market funds and responded to concerns regarding potentially higher income taxes on the state and federal levels.
In this environment, yields of longer-term municipal bonds generally continued to trend downward over the reporting period. Performance was stronger among lower-rated municipal bonds that had been punished severely during the downturn. Conversely, general obligation bonds backed by general tax revenues lagged market averages.
Security Selection Strategy Supported Fund Returns
The fund benefited over the reporting period from its holdings of bonds backed by revenues from hospitals, housing projects and the states’ settlements of litigation with U.S. tobacco companies. Underweight exposure to “pre-refunded” municipal bonds, for which money for early redemption has been set aside in escrow, also helped boost the fund’s performance compared to its benchmark.
As valuations of lower-rated bonds became unfavorable in our view, we gradually upgraded the fund’s overall credit quality, reducing its holdings
4
of BBB-rated bonds in favor of bonds rated A or better.In addition,when general obligation bonds had declined to levels we considered oversold, we increased the fund’s exposure to such securities,primarily those issued by California, New York and Puerto Rico. Consistent with our value-oriented investment strategy, we maintained the fund’s average duration and yield-curve strategies in generally market-neutral positions.
Supply-and-Demand Factors May Remain Favorable
Although municipal bonds appeared to be fairly valued as of the reporting period’s end, we remain optimistic regarding their long-term prospects. Demand seems likely to remain robust as investors grow increasingly concerned regarding potential increases in state and federal income taxes. In addition, the Build America Bonds program may be extended beyond its current expiration date at the end of this year, which could keep the supply of new tax-exempt bonds relatively low.
Consequently, we have retained our focus on higher-quality bonds backed by revenues from entities such as hospitals and municipal water and sewer facilities. Of course, we are prepared to adjust our strategies as market conditions change.
April 15, 2010
Bond funds are subject generally to interest rate, credit, liquidity and market risks, to varying degrees, | |
all of which are more fully described in the fund's prospectus. Generally, all other factors being equal, | |
bond prices are inversely related to interest-rate changes and rate increases can cause price declines. | |
1 | Total returns include reinvestment of dividends and any capital gains paid. 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. Return figures provided reflect the | |
absorption of certain fund expenses by The Dreyfus Corporation, pursuant to an agreement in | |
effect through February 1, 2011, at which time it may be extended, modified or terminated. Had | |
these expenses not been absorbed, the fund’s returns would have been lower. | |
2 | SOURCE: LIPPER INC. — Reflects reinvestment of dividends and, where applicable, capital |
gain distributions.The Barclays Capital 3-, 5-, 7-, 10-Year Municipal Bond Index, an equal- | |
weighted composite of the Barclays Capital 3-Year, 5-Year, 7-Year and 10-Year Municipal Bond | |
indices, each of which is a broad measure of the performance of investment-grade, fixed-rate | |
municipal bonds. Investors cannot invest directly in any index. | |
3 | The fund may continue to own investment-grade bonds (at the time of purchase), which are |
subsequently downgraded to below investment grade. |
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/Standish IntermediateTax Exempt Bond Fund from October 1, 2009 to March 31, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment | |||
assuming actual returns for the six months ended March 31, 2010 | |||
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 4.00 | $ 7.73 | $ 2.25 |
Ending value (after expenses) | $1,003.70 | $1,000.50 | $1,006.00 |
COMPARING YOUR FUND’S EXPENSES |
WITH THOSE OF OTHER FUNDS (Unaudited) |
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment | |||
assuming a hypothetical 5% annualized return for the six months ended March 31, 2010 | |||
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 4.03 | $ 7.80 | $ 2.27 |
Ending value (after expenses) | $1,020.94 | $1,017.20 | $1,022.69 |
† Expenses are equal to the fund’s annualized expense ratio of .80% for Class A, 1.55% for Class C and .45% for Class I, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
March 31, 2010 (Unaudited) |
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments—98.8% | Rate (%) | Date | Amount ($) | Value ($) |
Alabama—2.1% | ||||
Alabama Public School and College | ||||
Authority, Capital Improvement | ||||
Revenue | 5.00 | 5/1/13 | 1,000,000 | 1,106,370 |
Birmingham Water Works Board, | ||||
Water Revenue (Insured; | ||||
Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 1/1/17 | 1,000,000 | 1,102,070 |
Alaska—1.0% | ||||
Alaska Student Loan Corporation, | ||||
Education Loan Revenue | 5.25 | 6/1/14 | 1,000,000 | 1,081,560 |
California—13.6% | ||||
California, | ||||
Economic Recovery Bonds | 5.00 | 7/1/18 | 1,500,000 | 1,657,680 |
California, | ||||
GO | 5.00 | 10/1/11 | 70,000 | 71,430 |
California, | ||||
GO (Insured; AMBAC) | 6.00 | 4/1/16 | 1,000,000 | 1,132,970 |
California, | ||||
GO (Insured; AMBAC) | 6.00 | 2/1/17 | 1,000,000 | 1,128,490 |
California, | ||||
GO (Various Purpose) | 5.00 | 10/1/17 | 1,500,000 | 1,610,235 |
California Housing Finance Agency, | ||||
Home Mortgage Revenue | 4.60 | 2/1/41 | 1,500,000 | 1,268,085 |
California Housing Finance Agency, | ||||
Home Mortgage Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.13 | 8/1/18 | 1,250,000 | 1,232,187 |
California Statewide Communities | ||||
Development Authority, Revenue | ||||
(Kaiser Permanente) | 5.00 | 4/1/14 | 1,000,000 | 1,091,810 |
Golden State Tobacco | ||||
Securitization Corporation, | ||||
Enhanced Tobacco Settlement | ||||
Asset-Backed Bonds | ||||
(Insured; AMBAC) | 5.00 | 6/1/20 | 500,000 | 499,255 |
Golden State Tobacco | ||||
Securitization Corporation, | ||||
Enhanced Tobacco Settlement | ||||
Asset-Backed Bonds | ||||
(Insured; AMBAC) | 0/4.60 | 6/1/23 | 750,000 a | 647,618 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
California (continued) | ||||
Golden State Tobacco | ||||
Securitization Corporation, | ||||
Tobacco Settlement | ||||
Asset-Backed Bonds | 4.50 | 6/1/27 | 1,130,000 | 1,044,583 |
Sacramento County, | ||||
Airport System Senior Revenue | 5.00 | 7/1/22 | 1,275,000 | 1,330,501 |
Tobacco Securitization Authority | ||||
of Southern California, | ||||
Tobacco Settlement | ||||
Asset-Backed Bonds (San Diego | ||||
County Tobacco Asset | ||||
Securitization Corporation) | 4.75 | 6/1/25 | 820,000 | 769,267 |
Tuolumne Wind Project Authority, | ||||
Revenue (Tuolumne | ||||
Company Project) | 5.00 | 1/1/18 | 1,000,000 | 1,085,440 |
Colorado—3.7% | ||||
Colorado Housing and Finance | ||||
Authority, Single Family Program | ||||
Senior and Subordinate Bonds | 6.80 | 2/1/31 | 980,000 | 997,483 |
Colorado Housing and Finance | ||||
Authority, Single Family | ||||
Program Senior and Subordinate | ||||
Bonds (Collateralized; FHA) | 6.60 | 8/1/32 | 700,000 | 739,690 |
Platte River Power Authority, | ||||
Power Revenue (Insured; | ||||
Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 6/1/13 | 2,000,000 | 2,224,320 |
District of Columbia—.0% | ||||
District of Columbia, | ||||
GO (Insured; National Public | ||||
Finance Guarantee Corp.) | 5.75 | 6/1/10 | 10,000 | 10,089 |
Florida—11.1% | ||||
Broward County School Board, | ||||
COP (Master Lease Purchase | ||||
Agreement) (Insured; National | ||||
Public Finance Guarantee Corp.) | 5.00 | 7/1/13 | 1,000,000 | 1,087,160 |
Citizens Property Insurance | ||||
Corporation, High-Risk Account | ||||
Senior Secured Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.00 | 3/1/14 | 1,000,000 | 1,059,950 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Florida (continued) | ||||
Citizens Property Insurance | ||||
Corporation, High-Risk Account | ||||
Senior Secured Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.00 | 3/1/15 | 2,000,000 | 2,128,060 |
Florida Housing Finance | ||||
Corporation, Homeowner | ||||
Mortgage Revenue (Insured; | ||||
Assured Guaranty Municipal Corp.) | 5.75 | 1/1/17 | 10,000 | 10,045 |
Florida Hurricane Catastrophe Fund | ||||
Finance Corporation, Revenue | 5.25 | 7/1/12 | 1,000,000 | 1,078,940 |
Hillsborough County, | ||||
Capacity Assessment Special | ||||
Assessment Revenue (Insured; | ||||
National Public Finance | ||||
Guarantee Corp.) | 5.00 | 3/1/13 | 1,000,000 | 1,062,020 |
Miami-Dade County, | ||||
Aviation Revenue (Miami | ||||
International Airport) | 5.25 | 10/1/23 | 1,000,000 | 1,055,610 |
Miami-Dade County, | ||||
Water and Sewer System Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.25 | 10/1/19 | 3,000,000 | 3,364,500 |
Orlando Utilities Commission, | ||||
Utility System Revenue | 5.00 | 10/1/14 | 100,000 | 113,287 |
Pasco County, | ||||
Solid Waste Disposal and | ||||
Resource Recovery System | ||||
Revenue (Insured; AMBAC) | 6.00 | 4/1/10 | 1,000,000 | 1,000,000 |
Georgia—1.0% | ||||
Atlanta, | ||||
Water and Wastewater Revenue | 6.00 | 11/1/20 | 1,000,000 | 1,100,140 |
Hawaii—2.0% | ||||
Hawaii, | ||||
Harbor System Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 1/1/14 | 1,000,000 | 1,067,100 |
Honolulu City and County Board of | ||||
Water Supply, Water System | ||||
Revenue (Insured; National | ||||
Public Finance Guarantee Corp.) | 5.00 | 7/1/14 | 1,000,000 | 1,087,320 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Illinois—4.0% | ||||
Chicago, | ||||
GO (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.50 | 1/1/19 | 2,000,000 | 2,299,140 |
Cook County Community High School | ||||
District Number 219, GO School | ||||
Bonds (Insured; FGIC) | 7.88 | 12/1/14 | 100,000 | 127,587 |
Cook County Community High School | ||||
District Number 219, GO School | ||||
Bonds (Insured; National | ||||
Public Finance Guarantee Corp.) | 7.88 | 12/1/14 | 650,000 | 816,010 |
Illinois, | ||||
GO | 5.00 | 1/1/18 | 1,000,000 | 1,079,850 |
Indiana—1.6% | ||||
Indiana Finance Authority, | ||||
State Revolving Fund Program | ||||
Revenue | 5.00 | 2/1/19 | 1,000,000 | 1,144,130 |
Indiana Health Facility Financing | ||||
Authority, Revenue (Ascension | ||||
Health Subordinate | ||||
Credit Group) | 5.00 | 11/1/11 | 500,000 | 534,530 |
Louisiana—1.9% | ||||
Louisiana Citizens Property | ||||
Insurance Corporation, | ||||
Assessment Revenue | ||||
(Insured; AMBAC) | 5.25 | 6/1/10 | 2,000,000 | 2,009,620 |
Maryland—2.0% | ||||
Anne Arundel County, | ||||
GO | 5.00 | 3/1/13 | 1,000,000 | 1,110,900 |
Maryland Economic Development | ||||
Corporation, EDR | ||||
(Transportation | ||||
Facilities Project) | 5.13 | 6/1/20 | 1,000,000 | 1,003,470 |
Massachusetts—2.1% | ||||
Massachusetts, | ||||
GO (Consolidated Loan) | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) (Prerefunded) | 5.00 | 3/1/15 | 1,000,000 b | 1,148,850 |
10
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Massachusetts (continued) | ||||
Massachusetts Health and | ||||
Educational Facilities | ||||
Authority, Revenue (Lahey | ||||
Clinic Medical Center Issue) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.00 | 8/15/14 | 1,000,000 | 1,076,370 |
Michigan—3.0% | ||||
Detroit, | ||||
Sewage Disposal System Second | ||||
Lien Revenue (Insured; | ||||
National Public Finance | ||||
Guarantee Corp.) | 5.00 | 7/1/13 | 1,000,000 | 1,069,130 |
Detroit, | ||||
Sewage Disposal System Senior | ||||
Lien Revenue (Insured; Assured | ||||
Guaranty Municipal Corp.) | 5.25 | 7/1/19 | 1,000,000 | 1,070,230 |
Detroit School District, | ||||
School Building and Site | ||||
Improvement Bonds (Insured; | ||||
Assured Guaranty Municipal Corp.) | 5.00 | 5/1/14 | 1,000,000 | 1,077,500 |
Missouri—1.0% | ||||
Saint Louis Board of Education, | ||||
GO (Missouri Direct Deposit | ||||
Program) (Prerefunded) | 5.25 | 4/1/12 | 1,000,000 b | 1,087,800 |
New Jersey—1.2% | ||||
New Jersey Transportation | ||||
Trust Fund Authority | ||||
(Transportation System) | 5.00 | 12/15/16 | 1,000,000 | 1,110,170 |
Tobacco Settlement Financing | ||||
Corporation of New Jersey, | ||||
Tobacco Settlement | ||||
Asset-Backed Bonds | 4.50 | 6/1/23 | 225,000 | 214,648 |
New Mexico—2.6% | ||||
Jicarilla, | ||||
Apache Nation Revenue | 5.00 | 9/1/13 | 440,000 | 469,058 |
New Mexico, | ||||
Severance Tax Bonds | 5.00 | 7/1/15 | 1,000,000 | 1,148,510 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
New Mexico (continued) | ||||
New Mexico Finance Authority, | ||||
State Transportation Senior | ||||
Lien Revenue (Insured; | ||||
National Public Finance | ||||
Guarantee Corp.) | 5.25 | 6/15/15 | 1,000,000 | 1,158,380 |
New York—6.1% | ||||
Metropolitan Transportation | ||||
Authority, Transportation | ||||
Revenue | 5.25 | 11/15/14 | 1,000,000 | 1,120,700 |
Nassau County, | ||||
General Improvement Bonds | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 6.00 | 7/1/10 | 25,000 | 25,356 |
New York City, | ||||
GO | 5.00 | 8/1/21 | 2,000,000 | 2,186,680 |
New York City Industrial | ||||
Development Agency, Special | ||||
Facility Revenue (Terminal One | ||||
Group Association, L.P. Project) | 5.50 | 1/1/14 | 1,000,000 | 1,074,020 |
New York State Dormitory | ||||
Authority, Third General | ||||
Resolution Revenue (State | ||||
University Educational | ||||
Facilities Issue) | 5.25 | 5/15/12 | 1,000,000 | 1,078,590 |
Port Authority of New York and New | ||||
Jersey (Consolidated Bonds, | ||||
139th Series) (Insured; | ||||
National Public Finance | ||||
Guarantee Corp.) | 5.00 | 10/1/13 | 1,000,000 | 1,089,420 |
North Carolina—1.2% | ||||
Raleigh-Durham Airport Authority, | ||||
Airport Revenue (Insured; | ||||
National Public Finance | ||||
Guarantee Corp.) | 5.00 | 5/1/14 | 1,190,000 | 1,291,959 |
Ohio—4.1% | ||||
Cleveland, | ||||
Waterworks Improvement First | ||||
Mortgage Revenue (Insured; | ||||
National Public Finance | ||||
Guarantee Corp.) | 5.50 | 1/1/13 | 1,030,000 | 1,080,109 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Ohio (continued) | ||||
Franklin County, | ||||
Revenue (Trinity Health | ||||
Credit Group) | 5.00 | 6/1/14 | 1,340,000 | 1,481,075 |
Ohio Housing Finance Agency, | ||||
Residential Mortgage Revenue | ||||
(Mortgage-Backed Securities | ||||
Program) (Collateralized; GNMA) | 5.35 | 9/1/18 | 125,000 | 127,513 |
Ohio Water Development Authority, | ||||
Water Pollution Control | ||||
Loan Fund Revenue | ||||
(Water Quality Series) | 5.00 | 12/1/22 | 1,500,000 | 1,680,105 |
Pennsylvania—3.1% | ||||
Pennsylvania, | ||||
GO (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 9/1/15 | 1,000,000 | 1,120,660 |
Pennsylvania Intergovernmental | ||||
Cooperation Authority, Special | ||||
Tax Revenue (City of | ||||
Philadelphia Funding Program) | 5.00 | 6/15/17 | 1,000,000 | 1,125,240 |
Philadelphia School District, | ||||
GO | 5.00 | 9/1/14 | 1,000,000 c | 1,108,450 |
Rhode Island—.1% | ||||
Rhode Island Housing and | ||||
Mortgage Finance Corporation, | ||||
Homeownership Opportunity Bonds | 4.95 | 10/1/16 | 100,000 | 100,107 |
Tennessee—1.1% | ||||
Memphis, | ||||
Electric System | ||||
Subordinate Revenue | 5.00 | 12/1/17 | 1,000,000 | 1,143,100 |
Texas—18.7% | ||||
Austin Independent School | ||||
District, Unlimited Tax Bonds | ||||
(Permanent School Fund | ||||
Guarantee Program) | 5.00 | 8/1/16 | 1,000,000 | 1,150,490 |
Cypress-Fairbanks Independent | ||||
School District, | ||||
Unlimited Tax Bonds | ||||
(Permanent School Fund | ||||
Guarantee Program) | 5.00 | 2/15/16 | 1,135,000 | 1,298,247 |
The Fund 13
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Texas (continued) | ||||
Dallas Independent School | ||||
District, Unlimited Tax School | ||||
Building Bonds (Permament | ||||
School Fund Guarantee Program) | 5.25 | 2/15/16 | 3,000,000 | 3,472,380 |
Fort Bend County, | ||||
Limited Tax Bonds (Insured; | ||||
National Public Finance | ||||
Guarantee Corp.) | 5.00 | 3/1/14 | 1,000,000 | 1,130,150 |
Harris County Health Facilities | ||||
Development Corporation, HR | ||||
(Memorial Hospital System | ||||
Project) (Insured; National | ||||
Public Finance Guarantee Corp.) | 6.00 | 6/1/13 | 1,000,000 | 1,106,950 |
Lower Colorado River Authority, | ||||
Revenue | 5.00 | 5/15/15 | 1,000,000 | 1,133,820 |
Lubbock County, | ||||
GO (Insured; Assured Guaranty | ||||
Municipal Corp.) | 4.50 | 2/15/21 | 1,000,000 | 1,044,780 |
Magnolia Independent School | ||||
District, Unlimited Tax | ||||
Schoolhouse Bonds (Permanent | ||||
School Fund Guarantee Program) | 5.00 | 8/15/18 | 1,000,000 | 1,133,490 |
Midlothian Development Authority, | ||||
Tax Increment Contract Revenue | ||||
(Insured; Radian) | 5.00 | 11/15/13 | 530,000 | 533,980 |
Pasadena Independent School | ||||
District, Unlimited Tax School | ||||
Building Bonds (Permanent | ||||
School Fund Guarantee Program) | 5.00 | 2/15/15 | 1,360,000 | 1,561,076 |
SA Energy Acquisition Public | ||||
Facility Corporation, Gas | ||||
Supply Revenue | 5.25 | 8/1/14 | 590,000 | 633,507 |
San Antonio, | ||||
Airport System Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 7/1/13 | 1,000,000 | 1,071,230 |
San Antonio, | ||||
General Improvement Bonds | 5.00 | 2/1/15 | 1,000,000 | 1,144,530 |
14
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Texas (continued) | ||||
San Manuel Entertainment | ||||
Authority, Public | ||||
Improvement Revenue | 4.50 | 12/1/16 | 1,000,000 | 874,840 |
Stafford Economic Development | ||||
Corporation, Sales Tax Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 6.00 | 9/1/15 | 525,000 | 610,397 |
Texas, | ||||
GO (College Student Loan) | 5.00 | 8/1/17 | 1,000,000 | 1,098,670 |
Texas Municipal Power Agency, | ||||
Revenue (Insured; National | ||||
Public Finance Guarantee Corp.) | 0.00 | 9/1/16 | 10,000 d | 8,350 |
Texas Transportation Commission, | ||||
State Highway Fund | ||||
First Tier Revenue | 5.00 | 4/1/16 | 1,000,000 | 1,139,090 |
Utah—1.0% | ||||
Intermountain Power Agency, | ||||
Power Supply Revenue (Insured; | ||||
National Public Finance | ||||
Guarantee Corp.) | 6.50 | 7/1/10 | 1,000,000 | 1,015,310 |
Utah Housing Finance Agency, | ||||
SMFR (Collateralized; FHA) | 5.40 | 7/1/20 | 75,000 | 75,050 |
Washington—4.0% | ||||
Energy Northwest, | ||||
Electric Revenue (Columbia | ||||
Generating Station) | 5.50 | 7/1/15 | 1,000,000 | 1,173,300 |
Energy Northwest, | ||||
Electric Revenue (Project Three) | 5.00 | 7/1/15 | 1,000,000 | 1,149,580 |
NJB Properties, | ||||
LR (King County, | ||||
Washington Project) | 5.00 | 12/1/14 | 1,000,000 | 1,135,390 |
Tobacco Settlement Authority, | ||||
Tobacco Settlement | ||||
Asset-Backed Bonds | 6.50 | 6/1/26 | 830,000 | 842,674 |
Wisconsin—.0% | ||||
Wisconsin, | ||||
Transportation Revenue | 5.50 | 7/1/10 | 15,000 | 15,191 |
The Fund 15
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Wyoming—1.0% | ||||
Wyoming Community Development | ||||
Authority, Housing Revenue | 5.50 | 12/1/17 | 1,000,000 | 1,058,450 |
U.S. Related—4.5% | ||||
Puerto Rico Electric Power | ||||
Authority, Power Revenue | ||||
(Insured; XLCA) | 5.50 | 7/1/16 | 500,000 | 553,010 |
Puerto Rico Government Development | ||||
Bank, Senior Notes | 5.25 | 1/1/15 | 600,000 | 617,460 |
Puerto Rico Highways and | ||||
Transportation Authority, | ||||
Highway Revenue | 5.00 | 7/1/16 | 1,000,000 | 1,038,500 |
Puerto Rico Public Buildings | ||||
Authority, Government | ||||
Facilities Revenue | 5.00 | 7/1/12 | 1,000,000 | 1,023,850 |
Puerto Rico Sales Tax Financing | ||||
Corporation, Sales Tax Revenue | ||||
(First Subordinate Series) | 5.50 | 8/1/22 | 1,500,000 | 1,613,190 |
Total Long-Term Municipal Investments | ||||
(cost $103,194,670) | 106,091,164 | |||
Short-Term Municipal | ||||
Investment—.2% | ||||
New York; | ||||
New York City, | ||||
GO Notes | ||||
(LOC; JPMorgan Chase Bank) | ||||
(cost $200,000) | 0.28 | 4/1/10 | 200,000 e | 200,000 |
Total Investments (cost $103,394,670) | 99.0% | 106,291,164 | ||
Cash and Receivables (Net) | 1.0% | 1,116,622 | ||
Net Assets | 100.0% | 107,407,786 |
a Zero coupon until a specified date at which time the stated coupon rate becomes effective until maturity. |
b 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. |
c Purchased on a delayed delivery basis. |
d Security issued with a zero coupon. Income is recognized through the accretion of discount. |
e Variable rate demand note—rate shown is the interest rate in effect at March 31, 2010. Maturity date represents the |
next demand date, or the ultimate maturity date if earlier. |
16
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 | BPA | Bond Purchase Agreement |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | EDR | Economic Development Revenue |
EIR | Environmental Improvement Revenue | FGIC | Financial Guaranty Insurance |
Company | |||
FHA | Federal Housing Administration | FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage | FNMA | Federal National |
Corporation | Mortgage Association | ||
GAN | Grant Anticipation Notes | GIC | Guaranteed Investment Contract |
GNMA | Government National | ||
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 17
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Combined Ratings (Unaudited) | |||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† |
AAA | Aaa | AAA | 35.8 | ||
AA | Aa | AA | 26.9 | ||
A | A | A | 27.9 | ||
BBB | Baa | BBB | 7.5 | ||
Not Ratedf | Not Ratedf | Not Ratedf | 1.9 | ||
100.0 |
† | Based on total investments. |
f | Securities which, while not rated by Fitch, Moody’s and Standard & Poor’s, have been determined by the Manager to |
be of comparable quality to those rated securities in which the fund may invest. | |
See notes to financial statements. |
18
STATEMENT OF ASSETS AND LIABILITIES |
March 31, 2010 (Unaudited) |
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments | 103,394,670 | 106,291,164 | |
Cash | 1,089,237 | ||
Interest receivable | 1,278,486 | ||
Prepaid expenses | 24,434 | ||
108,683,321 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 60,785 | ||
Payable for investment securities purchased | 1,122,220 | ||
Payable for shares of Beneficial Interest redeemed | 27,916 | ||
Accrued expenses | 64,614 | ||
1,275,535 | |||
Net Assets ($) | 107,407,786 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 104,427,862 | ||
Accumulated undistributed investment income—net | 1,393 | ||
Accumulated net realized gain (loss) on investments | 82,037 | ||
Accumulated net unrealized appreciation | |||
(depreciation) on investments | 2,896,494 | ||
Net Assets ($) | 107,407,786 | ||
Net Asset Value Per Share | |||
Class A | Class C | Class I | |
Net Assets ($) | 512,073 | 24,515 | 106,871,198 |
Shares Outstanding | 23,063 | 1,104 | 4,811,645 |
Net Asset Value Per Share ($) | 22.20 | 22.21 | 22.21 |
See notes to financial statements. |
The Fund 19
STATEMENT OF OPERATIONS
Six Months Ended March 31, 2010 (Unaudited)
Investment Income ($): | |
Interest Income | 2,089,116 |
Dividend income | 410 |
Total Investment Income | 2,089,526 |
Expenses: | |
Investment advisory fee—Note 3(a) | 220,253 |
Accounting and administration fees—Note 3(a) | 26,500 |
Professional fees | 24,188 |
Registration fees | 32,095 |
Shareholder servicing costs—Note 3(c) | 28,813 |
Custodian fees—Note 3(c) | 17,485 |
Prospectus and shareholders’ reports | 6,214 |
Trustees’ fees and expenses—Note 3(d) | 3,938 |
Loan commitment fees—Note 2 | 1,154 |
Interest expense—Note 2 | 272 |
Distribution fees—Note 3(b) | 71 |
Miscellaneous | 14,226 |
Total Expenses | 375,209 |
Less—reduction in investment advisory fee due to undertaking—Note 3(a) | (125,237) |
Net Expenses | 249,972 |
Investment Income—Net | 1,839,554 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | 304,771 |
Net unrealized appreciation (depreciation) on investments | (1,302,208) |
Net Realized and Unrealized Gain (Loss) on Investments | (997,437) |
Net Increase in Net Assets Resulting from Operations | 842,117 |
See notes to financial statements. |
20
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2010 | Year Ended | |
(Unaudited) | September 30, 2009a | |
Operations ($): | ||
Investment income—net | 1,839,554 | 4,229,767 |
Net realized gain (loss) on investments | 304,771 | 68,107 |
Net unrealized appreciation | ||
(depreciation) on investments | (1,302,208) | 7,878,961 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 842,117 | 12,176,835 |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class A Shares | (5,551) | (289) |
Class C Shares | (214) | (136) |
Class I Shares | (1,832,396) | (4,215,271) |
Total Dividends | (1,838,161) | (4,215,696) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 473,389 | 53,763 |
Class C Shares | 8,885 | 15,000 |
Class I Shares | 18,015,392 | 26,704,312 |
Dividends reinvested: | ||
Class A Shares | 5,200 | 47 |
Class C Shares | 95 | 4 |
Class I Shares | 1,609,323 | 3,671,952 |
Cost of shares redeemed: | ||
Class A Shares | (19,679) | — |
Class I Shares | (18,659,789) | (73,384,538) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | 1,432,816 | (42,939,460) |
Total Increase (Decrease) in Net Assets | 436,772 | (34,978,321) |
Net Assets ($): | ||
Beginning of Period | 106,971,014 | 141,949,335 |
End of Period | 107,407,786 | 106,971,014 |
Undistributed investment income—net | 1,393 | — |
The Fund 21
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||
March 31, 2010 | Year Ended | |
(Unaudited) | September 30, 2009a | |
Capital Share Transactions: | ||
Class A | ||
Shares sold | 21,253 | 2,461 |
Shares issued for dividends reinvested | 234 | 2 |
Shares redeemed | (887) | — |
Net Increase (Decrease) in Shares Outstanding | 20,600 | 2,463 |
Class C | ||
Shares sold | 401 | 699 |
Shares issued for dividends reinvested | 4 | — |
Net Increase (Decrease) in Shares Outstanding | 405 | 699 |
Class I | ||
Shares sold | 814,323 | 1,257,579 |
Shares issued for dividends reinvested | 72,487 | 172,181 |
Shares redeemed | (835,814) | (3,477,583) |
Net Increase (Decrease) in Shares Outstanding | 50,996 | (2,047,823) |
a | The fund changed to a multiple class fund on March 31, 2009.The existing shares were redesignated as Class I |
shares and the fund commenced offering Class A and Class C shares. | |
See notes to financial statements. |
22
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 | ||
March 31, 2010 | Year Ended | |
Class A Shares | (Unaudited) | September 30, 2009a |
Per Share Data ($): | ||
Net asset value, beginning of period | 22.45 | 21.07 |
Investment Operations: | ||
Investment income—netb | .35 | .32 |
Net realized and unrealized gain (loss) on investments | (.27) | 1.42 |
Total from Investment Operations | .08 | 1.74 |
Distributions: | ||
Dividends from investment income—net | (.33) | (.36) |
Net asset value, end of period | 22.20 | 22.45 |
Total Return (%)c,d | .37 | 8.30 |
Ratios/Supplemental Data (%): | ||
Ratio of total expenses to average net assetse | .97 | .96 |
Ratio of net expenses to average net assetse | .80 | .80 |
Ratio of net investment income | ||
to average net assetse | 2.96 | 3.31 |
Portfolio Turnover Rate | 16.46d | 22.49 |
Net Assets, end of period ($ x 1,000) | 512 | 55 |
a | From March 31, 2009 (commencement of initial offering) to September 30, 2009. |
b | Based on average shares outstanding at each month end. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
See notes to financial statements. |
The Fund 23
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||
March 31, 2010 | Year Ended | |
Class C Shares | (Unaudited) | September 30, 2009a |
Per Share Data ($): | ||
Net asset value, beginning of period | 22.45 | 21.07 |
Investment Operations: | ||
Investment income—netb | .25 | .27 |
Net realized and unrealized gain (loss) on investments | (.24) | 1.39 |
Total from Investment Operations | .01 | 1.66 |
Distributions: | ||
Dividends from investment income—net | (.25) | (.28) |
Net asset value, end of period | 22.21 | 22.45 |
Total Return (%)c,d | .05 | 7.91 |
Ratios/Supplemental Data (%): | ||
Ratio of total expenses to average net assetse | 1.64 | 1.72 |
Ratio of net expenses to average net assetse | 1.55 | 1.55 |
Ratio of net investment income | ||
to average net assetse | 2.25 | 2.59 |
Portfolio Turnover Rate | 16.46d | 22.49 |
Net Assets, end of period ($ x 1,000) | 25 | 16 |
a | From March 31, 2009 (commencement of initial offering) to September 30, 2009. |
b | Based on average shares outstanding at each month end. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
See notes to financial statements. |
24
Six Months Ended | ||||||
March 31, 2010 | Year Ended September 30, | |||||
Class I Shares | (Unaudited) | 2009a | 2008 | 2007 | 2006 | 2005 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 22.45 | 20.85 | 21.60 | 21.69 | 21.71 | 22.05 |
Investment Operations: | ||||||
Investment income—netb | .37 | .79 | .79 | .78 | .78 | .77 |
Net realized and unrealized | ||||||
gain (loss) on investments | (.24) | 1.60 | (.75) | (.09) | (.02) | (.29) |
Total from Investment Operations | .13 | 2.39 | .04 | .69 | .76 | .48 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.37) | (.79) | (.79) | (.78) | (.78) | (.77) |
Dividends from net realized | ||||||
gain on investments | — | — | — | — | — | (.05) |
Total Distributions | (.37) | (.79) | (.79) | (.78) | (.78) | (.82) |
Net asset value, end of period | 22.21 | 22.45 | 20.85 | 21.60 | 21.69 | 21.71 |
Total Return (%) | .60c | 11.73 | .12 | 3.26 | 3.58 | 2.18 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | .68d | .67 | .60 | .59 | .63 | .62 |
Ratio of net expenses | ||||||
to average net assets | .45d | .45 | .45 | .45 | .45 | .45 |
Ratio of net investment income | ||||||
to average net assets | 3.34d | 3.74 | 3.63 | 3.63 | 3.61 | 3.50 |
Portfolio Turnover Rate | 16.46c | 22.49 | 34 | 10 | 29 | 35 |
Net Assets, end of period | ||||||
($ x 1,000) | 106,871 | 106,900 | 141,949 | 201,480 | 127,927 | 109,314 |
a | The fund commenced offering three classes of shares on March 31, 2009.The existing shares were redesignated as |
Class I shares. | |
b | Based on average shares outstanding at each month end. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus/Standish Intermediate Tax Exempt Bond Fund (the “fund”) is a separate diversified series of Dreyfus Investment Funds (the “Trust”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company currently offering twelve series, including the fund.The fund’s investment objective is to achieve a high level of interest income exempt from federal income tax, while seeking preservation of shareholders’ capital.The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares. 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 C and Class I. Class A shares are subject to a sales charge imposed at the time of purchase. Class C shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class C shares redeemed within one year of purchase and Class I shares are sold primarily to bank trust departments and other financial service providers (including The Bank of NewYork Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus), acting on behalf of customers having a qualified trust or an investment account or relationship at such institution, and bear no distribution or shareholder services fees. Class I shares are offer ed without a front-end sales charge or CDSC. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
As of March 31, 2010, MBC Investments Corp., an indirect subsidiary of BNY Mellon, held 475 Class C shares of the fund.
26
The Trust accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities.Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
(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 valued as determined by the Service, based on methods which include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. Opt ions 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 fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of March 31, 2010 in valuing the fund’s investments:
Level 1— | Level 2—Other | Level 3— | ||
Unadjusted | Significant | Significant | ||
Quoted | Observable | Unobservable | ||
Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investment in Securities: | ||||
Municipal Bonds | — | 106,291,164 | — | 106,291,164 |
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about FairValue Measurements”. ASU 2010-06 will require reporting entities to make new disclosures
28
about amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecur-ring fair value measurements that fall in either Level 2 or Level 3, and information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. The new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2009 except for the disclosures surrounding purchases, sales, issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact the adoption of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. 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 bank whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset custody and cash management fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
(c) Dividends to shareholders: It is the policy of the fund to declare dividends daily from investment income-net. Such dividends are paid monthly. Dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”).To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income
The Fund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(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.
As of and during the period ended March 31, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the three-year period ended September 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $111,091 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to September 30, 2009. If not applied, $61,832 of the carryover expires in fiscal 2015 and $49,259 expires in fiscal 2016.
The tax character of distributions paid to shareholders during the fiscal year ended September 30, 2009 was as follows: tax exempt income $4,212,111 and ordinary income $3,585. The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In
30
connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing.
The average amount of borrowings outstanding under the Facilities during the period ended March 31, 2010 was approximately $39,000, with a related weighted average annualized interest rate of 1.40%.
NOTE 3—Investment Advisory Fee and Other Transactions with Affiliates:
(a) Pursuant to an investment advisory agreement (“Agreement”) with the Manager, the investment advisory fee is computed at the annual rate of .40% of the value of the funds average daily net assets and is payable monthly.
The Manager has agreed, until February 1, 2011, to waive receipt of its fees and/or assume the expenses of the fund so that the direct expenses of Class A, Class C and Class I shares (excluding Rule 12b-1 fees, shareholder services fees, taxes, interest, brokerage commissions, acquired fund fees and extraordinary expenses) do not exceed .55%, .55% and .45%, respectively, of the value of the fund’s average daily net assets of Class A, Class C and Class I shares. The reduction in the investment advisory fee, pursuant to the undertaking, amounted to $125,237 during the year ended March 31, 2010.
The Trust entered into an agreement with The Bank of New York Mellon pursuant to which The Bank of New York Mellon provides administration and fund accounting services for the fund. For these services, the fund pays The Bank of NewYork Mellon a fixed fee plus asset and transaction based fees, as well as out-of-pocket expenses. Pursuant to this agreement, the fund was charged $26,500 during the period ended March 31, 2010 for administration and fund accounting services.
During the period ended March 31, 2010, the Distributor retained $899 from commissions earned on sales of the fund’s Class A shares.
The Fund 31
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of .75% of the value of the average daily net assets of Class C shares. During the period ended March 31, 2010, Class C shares were charged $71 pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at the annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding 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 March 31, 2010, Class A and Class C shares were charged $469 and $24, 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 March 31, 2010, the fund was charged $1,027 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under cash management agreements for performing cash management services related to fund subscriptions and redemptions. During the period ended March 31, 2010, the fund was charged $195 pursuant to the cash management agreements, which is included in Shareholder servicing costs in the Statement of Operations.
The fund also compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended March 31, 2010, the fund was charged $17,485 pursuant to the custody agreement.
32
During the period ended March 31, 2010, the fund was charged $2,742 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of:investment advisory fees $36,865,Rule 12b-1 distribution plan fees $16,shareholder services plan fees $109, custodian fees $30,931, chief compliance officer fees $2,742 and transfer agency per account fees $8,770, which are offset against an expense reimbursement currently in effect in the amount of $18,648.
(d) Prior to January 1, 2010, each Trustee received $45,000 per year, plus $6,000 for each joint Board meeting of the Trust, The Dreyfus/Laurel Funds, Inc., The Dreyfus/Laurel Funds Trust, The Dreyfus/Laurel Tax-Free Municipal Funds and Dreyfus Funds, Inc. (collectively, the “Board Group Open-End Funds”) attended, $2,000 for separate in-person committee meetings attended which were not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that were conducted by telephone. Effective January 1, 2010, the Board Group Open-End Funds will pay each Trustee who is not an “interested person” of the Trust (as defined in the Act) $60,000 per annum, plus $7,000 per joint Board Group Open-End Funds Board meeting attended, $2,500 for separate in-person committee meetin gs attended which are not held in conjunction with a regularly scheduled Board meeting and $2,000 for Board meetings and separate committee meetings attended that are conducted by telephone. The Board Group Open-End Funds also reimburse eachTrustee who is not an “interested person” of the Trust (as defined in the Act) for travel and out-of-pocket expenses. With respect to Board meetings, the Chairman of the Board receives an additional 25% of such compensation (with the exception of reimbursable amounts). With respect to compensation committee meetings prior to January 1, 2010, the Chair of the compensation committee received $900 per compensation committee meeting. Effective January 1, 2010, the Chair of each of the Board’s committees, unless the Chair also serves as Chair of the Board, will receive $1,350 per applic-
The Fund 33
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
able committee meeting. In the event that there is an in-person joint committee meeting or a joint telephone meeting of the Board Group Open-End Funds and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee (prior to January 1, 2010) or the $2,500 or $2,000 fee (effective January 1, 2010), as applicable, is allocated between the Board Group Open-End Funds and Dreyfus HighYield Strategies Fund.The Trust’s portion of these fees and expenses are charged and allocated to each series based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended March 31, 2010, amounted to $21,058,447 and $17,632,704, respectively.
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which 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 fund held no derivatives during the period ended March 31, 2010.These disclosures did not impact the notes to the financial statements.
At March 31, 2010, accumulated net unrealized appreciation on investments was $2,896,494, consisting of $3,583,335 gross unrealized appreciation and $686,841 gross unrealized depreciation.
At March 31, 2010, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
NOTE 5—Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
34
INFORMATION ABOUT THE REVIEW AND
APPROVAL OF THE FUND’S INVESTMENT
ADVISORY AGREEMENT (Unaudited)
At a meeting of the fund’s Board of Trustees held on February 9, 2010, the Board considered the re-approval of the fund’s Investment Advisory Agreement (“Management Agreement”), pursuant to which the Manager provides the fund with investment advisory and certain 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 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 broa d, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including those of the fund. The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including assistance in meeting legal and regulatory requirements. The Board members also considered the Manager’s extensive compliance infrastructure.The Board also considered the Manager’s brokerage policies and practices and the standards applied in seeking best execution.
The Fund 35
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of institutional intermediate municipal debt funds (the “Performance Group”) and to a larger universe of funds, consisting of all retail and institutional intermediate municipal debt funds (the “Performance Universe”) selected and provided by Lipper, Inc., an independent provider of investment company data. The Board was provided with a description of the methodology Lipper used to select the Performance Group and Performance Universe, as well as the Expense Group and Expense Universe (discussed below). The Board members discussed the results of the comparisons and noted that the fund’s total return performance was above the Performance Group and Performance Universe medians for the two-, three-, four- and five-year periods ended December 31, 2009, at the Performance Group median and below the Performance Universe median for the one-year period ended December 31, 2009 and below the Performance Group median and above the Performance Universe median for the ten-year period ended December 31, 2009.The Board members also noted that the fund’s yield performance was below the Performance Group median for seven of the ten one-year periods ended December 31st, including each of the one-year periods ended December 31st from 2004 to 2009. The Board noted that the fund’s yield performance was above the Performance Universe medians for each one-year period ended December 31st since 2000, except 2004, when the fund’s yield performance was below the Performance Universe median.The Manager also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.
The Board members also discussed the fund’s contractual and actual management fee and expense ratio and reviewed the range of management fees and expense ratios of a comparable group of funds (the “Expense Group”) and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper.The Lipper data presenting the fund’s “actual management fees” included fees paid by the fund, as calculated by Lipper, for administrative services provided by The Bank of NewYork Mellon, the Trust’s administrator. Such report-
36
ing was necessary, according to Lipper, to allow the Board to compare the fund’s advisory fees to those peers that include administrative fees within a combined management (investment advisory and administrative) fee. A representative of the Manager informed the Board members that the Manager has agreed, until February 1, 2011, to waive receipt of its fees and/or assume the expenses of the fund so that the direct expenses of Class A, Class C and Class I shares (excluding Rule 12b-1 fees, shareholder services fees, taxes, interest, brokerage commissions, acquired fund fees and extraordinary expenses) do not exceed .55%, .55% and .45%, respectively, of the fund’s average daily net assets. The Board noted that the fund’s contractual management fee was below the Expense Group median and that, with the expense waiver, the fund’s actual management fee and expense ratio were each below the respective 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”). It was noted that there were no other accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund.The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided.The Board members considered the relevance of the fee information provided for the Similar Funds to evaluate the appropriateness and reasonableness of the fund’s management fee.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex.The Board also was informed that the methodology had also
The Fund 37
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of the fund.The Board members evaluated the profitability analysis in light of the relevant circumstances for the fund.The Board members also considered potential benefits to the Manager from acting as investment adviser and noted that there were no soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It also was noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.The Board also noted the fee waiver arrangement and its effect on the profitability of the Manager.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management
38
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 ser- vices provided by the Manager are adequate and appropriate.
The Board was generally satisfied with the fund’s relative performance.
The Board concluded, taking into account the fee waiver, that the fee paid by the fund to the Manager was reasonable in light of the services provided, comparative performance, expense and manage- ment fee information, costs of the services provided and profits real- ized 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 determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
The Fund 39
NOTES
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
12 | Statement of Assets and Liabilities |
13 | Statement of Operations |
14 | Statement of Changes in Net Assets |
16 | Financial Highlights |
19 | Notes to Financial Statements |
33 | Information About the Review and Approval of the Fund’s Investment Advisory Agreement |
FOR MORE INFORMATION | |
Back Cover |
The Fund
Dreyfus/Newton
International Equity Fund
A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus/Newton International Equity Fund, covering the six-month period from October 1, 2009, through March 31, 2010.
The equity markets continued to produce some of the most dramatic performance returns in recent years off of the March 2009 lows, as efforts to support the global economic recovery appeared to gain traction.The “risk trade,” in which assets are shifted from conservative to more aggressive investments to take advantage of improving market conditions, continued to benefit investors in both U.S. and international markets. However, since the beginning of 2010, recent overseas credit concerns have dampened international markets to an extent, which might be an implication that this trend is moderating.
We believe that sustained global and U.S. economic expansions should proceed at an above-trend pace in 2010, the result of macroeconomic stimulation adopted by nearly every country in the world over the last year. As for the worldwide stock markets, positive returns over the foreseeable future are likely to be delivered through in-depth research and a selective security evaluation process. If you have questions about equities, your financial advisor is best suited to provide current market perspectives relative to your portfolio and to discuss potential opportunities which may match your current expectations and your long-term investment targets.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
April 15, 2010
2
DISCUSSION OF FUND PERFORMANCE
For the period of October 1, 2009, through March 31, 2010, as provided by Paul Markham, Lead Portfolio Manager, of Newton Capital Management Limited, Sub-Investment Adviser
Fund and Market Performance Overview
For the six-month period ended March 31, 2010, Dreyfus/Newton International Equity Fund’s Class A shares produced a total return of 3.93%, Class C shares returned 3.51% and Class I shares returned 4.06%.1 In comparison, the fund’s benchmark, the Morgan Stanley Capital International Europe,Australasia, Far East Index (“MSCI EAFE Index”), produced a total return of 3.06% for the same period.2 International stocks encountered heightened volatility during the reporting period, as the global economy recovered from a recession but Europe suffered a sovereign debt crisis.The fund produced higher returns than its benchmark, which we attribute to underweighted exposure to Europe and strong stock selections in a variety of markets.
The Fund’s Investment Approach
The fund normally invests at least 80% of its assets in common stocks or securities convertible into common stocks of foreign companies and depositary receipts evidencing ownership in such securities.The process of identifying investment ideas begins by identifying a core list of investment themes.These themes are based primarily on observable economic, industrial or social trends (typically global) that Newton believes will positively affect certain sectors or industries.During the reporting period, such themes included “all change” which asserted that the bursting of the credit bubble heralds a number of structural changes in economies and financial markets (and provided the rationale for the fund’s underweighted exposure to the financial sector). Elsewhere, Newton believes the “networked world” theme identifies the opportunities inherent in the growth of information technology networks around the world.
Economic Recovery, Debt Crisis Sparked Volatility
The reporting period witnessed the continuation of a global economic recovery that began early in 2009, albeit off very low levels. Although unemployment remained stubbornly high in many regions of the world, improved manufacturing activity and robust demand for energy and industrial commodities from the emerging markets helped boost
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
confidence among investors, consumers and businesses. However, market conditions differed significantly from one region to another.While developing nations in Asia and Latin America seemed to thrive, Europe was mired in a sovereign debt crisis emanating mainly from Greece.The United States showed encouraging signs of economic growth, but Japan continued to struggle with persistent economic weakness.
After rallying strongly earlier in 2009, international stock markets began to lose momentum during the final months of the year. Meanwhile, investors appeared to shift their focus from bargain-hunting among stocks that had been severely punished in the downturn to higher-quality companies with sustainable earnings growth. Equities pulled back sharply in January 2010 when Greece’s debt crisis dominated the headlines, but most markets subsequently bounced back, largely erasing previous losses amid evidence of further economic improvement. It is still unclear how long this improvement can be sustained.
Security Selections Bolstered Fund Performance
The fund benefited during the reporting period from its relatively light holdings of European stocks, particularly a lack of exposure to Spanish and Italian banks that were hurt by the sovereign debt crisis. However, an overweight position in gold mining companies, which gave back some of their previous gains due to a strengthening U.S. dollar, was a negative.The fund scored a number of successes in Japan, where financial institution Nomura Holdings gained value after acquiring the European and Asian assets of bankrupt U.S. investment bank Lehman Brothers. Japanese automobile manufacturers Nissan Motor and Honda Motor gained market share when rival Toyota Motor struggled with highly publicized safety issues. Despite this, we saw Toyota’s compelling valuation as an excellent opportunity to purchase a premium stock at a low valuation, and have faith that the company will overcome its short-term difficulties. A position was therefore added.Video games maker Nintendo bounced back from depressed levels after announcing the upcoming release of a new 3-D product.
The fund’s investments in the emerging markets also fared well, led higher by Banco Santander Chile.Among individual stocks, diversified mine operator Anglo American gained value along with commodity prices more than offsetting the fund’s lack of exposure to other base metal companies.
Disappointments during the reporting period included the health care sector, where Switzerland’s Actelion Pharmaceuticals and Lonza Group
4
were undermined by competitive pressures and concerns surrounding U.S. health care reform legislation, respectively. Among industrial companies, transportation and energy infrastructure developer Alstom trailed indexes due to budget cuts by the U.K. government.
Finding Opportunities One Stock at a Time
As the economic recovery progresses, we believe that investors are likely to become more selective, turning away from bargain hunting in favor of companies with sound business fundamentals. Such a shift in investor sentiment could result in an investment environment that is especially well suited to our research-intensive investment approach.
We have found a number of what we believe are opportunities meeting our investment criteria among health care companies with innovative products and operations.We also have identified several telecommunications companies with high dividend yields and attractive levels of free cash flow. Our bottom-up security selection process has found fewer opportunities in the technology sector. From a regional perspective, we remained underweighted in Europe due to its sovereign debt issues as of the end of the reporting period.We maintained a modestly overweighted position in Japanese equities, but we hedged our currency exposure, first to the U.S. dollar and as of the end of the reporting period, after the U.S. dollar’s underperformance, to the euro.
April 15, 2010
Equity funds are subject generally to market, market sector, market liquidity, issuer, and investment style risks, among other factors, to varying degrees, all of which are more fully described in the fund’s prospectus. | |
Investing internationally involves special risks, including changes in currency exchange rates, political, econocmic, and social instability, a lack of comprehensive company information, differing auditing and legal standards, and less market liquidity. | |
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take into consideration the maximum initial sales charge in the case of Class A shares, or the applicable contingent deferred sales charge imposed on redemptions in the case of Class C shares. Had these charges been reflected, returns would have been lower. Past performance is no guarantee of future results. Share price, yield and investment return fluctuate such that upon redemption, fund shares may be worth more or less than their original cost. Investments in foreign securities involve special risks. Please read the prospectus for further discussion of these risks.The fund’s returns reflect the absorption of certain fund expenses by Newton pursuant to an agreement in effect through February 1, 2011, at which time it may be extended, terminated or modified. Had these expenses not been absorbed, the fund’s returns would have been lower. |
2 | SOURCE: LIPPER INC. — Reflects reinvestment of net dividends and, where applicable, capital gain distributions.The Morgan Stanley Capital International Europe, Australasia, Far East (MSCI EAFE) Index is an unmanaged index composed of a sample of companies representative of the market structure of European and Pacific Basin countries.The Index does not take into account fees and expenses to which the fund is subject. |
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/Newton International Equity Fund from October 1, 2009 to March 31, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment
assuming actual returns for the six months ended March 31, 2010
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 6.36 | $ 10.55 | $ 5.55 |
Ending value (after expenses) | $1,039.30 | $1,035.10 | $1,040.60 |
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 March 31, 2010
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 6.29 | $ 10.45 | $ 5.49 |
Ending value (after expenses) | $1,018.70 | $1,014.56 | $1,019.50 |
† Expenses are equal to the fund’s annualized expense ratio of 1.25% for Class A, 2.08% for Class C and 1.09% for Class I, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS
March 31, 2010 (Unaudited)
Common Stocks—93.3% | Shares | Value ($) |
Australia—5.0% | ||
AMP | 820,992 | 4,716,180 |
Newcrest Mining | 212,874 | 6,411,185 |
QBE Insurance Group | 242,255 | 4,630,620 |
Santos | 332,013 | 4,466,488 |
White Energy | 1,186,657 a | 2,809,455 |
23,033,928 | ||
Brazil—3.9% | ||
Banco Santander Brasil, ADR | 354,536 | 4,406,882 |
Hypermarcas | 339,622 a | 4,153,726 |
Natura Cosmeticos | 188,982 | 3,836,281 |
Rossi Residencial | 319,075 | 2,223,038 |
Tele Norte Leste Participacoes, ADR | 177,839 | 3,140,637 |
17,760,564 | ||
Canada—1.5% | ||
Barrick Gold | 59,532 | 2,284,214 |
Potash Corporation of Saskatchewan | 39,088 | 4,667,546 |
6,951,760 | ||
Chile—.3% | ||
Banco Santander Chile, ADR | 23,522 | 1,604,671 |
China—1.8% | ||
China Shenhua Energy, Cl. H | 733,300 | 3,168,653 |
Sands China | 3,288,000 a | 5,225,736 |
8,394,389 | ||
France—6.4% | ||
Air Liquide | 29,819 | 3,579,665 |
Alstom | 86,312 | 5,382,405 |
BNP Paribas | 68,652 | 5,272,364 |
L’Oreal | 35,387 | 3,721,375 |
Thales | 110,455 | 4,433,835 |
Total | 116,155 | 6,742,945 |
29,132,589 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Germany—4.6% | ||
Bayer | 98,518 | 6,663,850 |
Bilfinger Berger | 49,627 | 3,310,902 |
Deutsche Telekom | 455,539 | 6,174,308 |
Fresenius Medical Care & Co. | 83,675 | 4,721,255 |
20,870,315 | ||
Greece—.8% | ||
EFG Eurobank Ergasias | 389,894 a | 3,580,971 |
Hong Kong—1.9% | ||
Belle International Holdings | 2,939,000 | 3,951,851 |
Huabao International Holdings | 2,170,000 | 2,607,605 |
New World Development | 1,184,000 | 2,317,906 |
8,877,362 | ||
Japan—25.6% | ||
Asahi Breweries | 180,400 | 3,382,621 |
Canon | 125,100 | 5,794,021 |
Fuji Machine Manufacturing | 308,500 | 5,546,994 |
Honda Motor | 144,700 | 5,107,605 |
INPEX | 679 | 4,982,287 |
JFE Holdings | 144,000 | 5,799,123 |
KDDI | 443 | 2,293,422 |
Lawson | 112,800 | 4,814,119 |
Mitsubishi | 230,000 | 6,027,383 |
Nintendo | 22,600 | 7,566,371 |
Nissan Motor | 698,300 a | 5,982,868 |
Nomura Holdings | 1,496,200 | 11,026,653 |
Panasonic | 304,000 | 4,649,909 |
Sankyo | 54,000 | 2,671,409 |
Santen Pharmaceutical | 118,000 | 3,541,641 |
Secom | 74,900 | 3,276,725 |
Sony | 141,900 | 5,433,758 |
8
Common Stocks (continued) | Shares | Value ($) |
Japan (continued) | ||
Sumitomo Mitsui Financial Group | 262,300 | 8,669,451 |
Toshiba | 1,131,000 a | 5,843,117 |
Towa Pharmaceutical | 79,900 | 4,068,071 |
Toyota Motor | 264,300 | 10,587,266 |
117,064,814 | ||
Luxembourg—1.2% | ||
ArcelorMittal | 126,667 | 5,558,512 |
Netherlands—.9% | ||
Koninklijke Ahold | 313,614 | 4,180,786 |
Poland—.6% | ||
Telekomunikacja Polska | 462,796 | 2,626,172 |
Singapore—1.7% | ||
DBS Group Holdings | 351,000 | 3,587,905 |
Jardine Matheson Holdings | 133,200 | 4,435,560 |
8,023,465 | ||
South Africa—1.2% | ||
Gold Fields | 449,622 | 5,691,457 |
South Korea—.3% | ||
LG Telecom | 177,666 | 1,212,233 |
Spain—.7% | ||
Acciona | 28,488 | 3,159,391 |
Switzerland—14.5% | ||
ABB | 304,984 a | 6,661,401 |
Actelion | 93,984 a | 4,275,808 |
Bank Sarasin & Cie, Cl. B | 73,165 a | 3,035,820 |
Lonza Group | 34,482 | 2,812,454 |
Nestle | 242,385 | 12,413,496 |
Novartis | 172,969 | 9,342,360 |
Roche Holding | 81,106 | 13,153,572 |
Syngenta | 10,346 | 2,873,017 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Switzerland (continued) | ||
UBS | 429,222 a | 6,977,300 |
Zurich Financial Services | 19,288 | 4,944,562 |
66,489,790 | ||
Thailand—1.7% | ||
Bangkok Bank | 464,100 | 1,862,215 |
Bank of Ayudhya | 2,065,200 | 1,264,076 |
Bank of Ayudhya, NVDR | 7,203,700 | 4,641,528 |
7,767,819 | ||
United Kingdom—18.7% | ||
Anglo American | 198,929 a | 8,675,862 |
BAE Systems | 916,069 | 5,161,559 |
BG Group | 304,519 | 5,270,326 |
BowLeven | 1,486,077 a | 2,801,983 |
British American Tobacco | 184,366 | 6,355,085 |
Bunzl | 298,825 | 3,269,490 |
Cable & Wireless Communications | 2,944,524 | 2,473,207 |
Cable & Wireless Worldwide | 2,944,524 a | 4,110,841 |
Carnival | 138,268 | 5,675,664 |
Centrica | 834,741 | 3,722,880 |
GlaxoSmithKline | 362,933 | 6,969,737 |
HSBC Holdings | 471,899 | 4,783,583 |
ICAP | 609,579 | 3,457,778 |
Premier Oil | 191,310 a | 3,585,357 |
Smith & Nephew | 343,702 | 3,424,085 |
Standard Chartered | 97,184 | 2,650,888 |
Tesco | 409,928 | 2,708,779 |
Vodafone Group | 4,620,370 | 10,657,322 |
85,754,426 | ||
Total Common Stocks | ||
(cost $389,429,906) | 427,735,414 |
10
The Fund 11
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2010 (Unaudited)
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments: | |||
Unaffiliated issuers | 393,990,665 | 434,392,240 | |
Affiliated issuers | 17,629,053 | 17,629,053 | |
Cash | 47,529 | ||
Cash denominated in foreign currencies | 142,637 | 142,420 | |
Receivable for investment securities sold | 6,170,013 | ||
Unrealized appreciation on forward foreign | |||
currency exchange contracts—Note 4 | 3,003,876 | ||
Dividends and interest receivable | 2,162,591 | ||
Receivable for shares of Beneficial Interest subscribed | 1,773,361 | ||
Prepaid expenses | 34,671 | ||
465,355,754 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 429,651 | ||
Payable for investment securities purchased | 4,361,138 | ||
Unrealized depreciation on forward foreign | |||
currency exchange contracts—Note 4 | 1,529,608 | ||
Payable for shares of Beneficial Interest redeemed | 228,260 | ||
Accrued expenses | 157,594 | ||
6,706,251 | |||
Net Assets ($) | 458,649,503 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 415,878,936 | ||
Accumulated undistributed investment income—net | 1,018,760 | ||
Accumulated net realized gain (loss) on investments | (90,815) | ||
Accumulated net unrealized appreciation (depreciation) | |||
on investments and foreign currency transactions | 41,842,622 | ||
Net Assets ($) | 458,649,503 | ||
Net Asset Value Per Share | |||
Class A | Class C | Class I | |
Net Assets ($) | 21,123,965 | 1,438,069 | 436,087,469 |
Shares Outstanding | 1,258,145 | 86,442 | 25,965,416 |
Net Asset Value Per Share ($) | 16.79 | 16.64 | 16.79 |
See notes to financial statements. |
12
STATEMENT OF OPERATIONS | |
Six Months Ended March 31, 2010 (Unaudited) | |
Investment Income ($): | |
Income: | |
Cash dividends (net of $280,081 foreign taxes withheld at source): | |
Unaffiliated issuers | 4,040,738 |
Affiliated issuers | 6,191 |
Total Income | 4,046,929 |
Expenses: | |
Investment advisory fee—Note 3(a) | 1,594,740 |
Shareholder servicing costs—Note 3(c) | 339,030 |
Custodian fees—Note 3(c) | 142,297 |
Accounting and administration fees—Note 3(a) | 35,500 |
Professional fees | 25,828 |
Registration fees | 24,194 |
Trustees’ fees and expenses—Note 3(d) | 10,924 |
Prospectus and shareholders’ reports | 10,437 |
Distribution fees—Note 3(b) | 4,947 |
Loan commitment fees—Note 2 | 2,814 |
Miscellaneous | 15,050 |
Total Expenses | 2,205,761 |
Less—reduction in investment advisory fee | |
due to undertaking—Note 3(a) | (9,446) |
Net Expenses | 2,196,315 |
Investment Income—Net | 1,850,614 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments and foreign currency transactions | 11,282,493 |
Net realized gain (loss) on forward foreign currency exchange contracts | 195,779 |
Net Realized Gain (Loss) | 11,478,272 |
Net unrealized appreciation (depreciation) | |
on investments and foreign currency transactions | 2,470,970 |
Net unrealized appreciation (depreciation) | |
on forward foreign currency exchange contracts | 614,830 |
Net Unrealized Appreciation (Depreciation) | 3,085,800 |
Net Realized and Unrealized Gain (Loss) on Investments | 14,564,072 |
Net Increase in Net Assets Resulting from Operations | 16,414,686 |
See notes to financial statements. |
The Fund 13
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2010 | Year Ended | |
(Unaudited) | September 30, 2009a | |
Operations ($): | ||
Investment income—net | 1,850,614 | 4,231,813 |
Net realized gain (loss) on investments | 11,478,272 | (11,434,540) |
Net unrealized appreciation | ||
(depreciation) on investments | 3,085,800 | 50,620,104 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 16,414,686 | 43,417,377 |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class A Shares | (131,070) | (121,201) |
Class C Shares | (8,639) | (7,177) |
Class I Shares | (2,885,834) | (2,139,573) |
Net realized gain on investments: | ||
Class A Shares | — | (232,715) |
Class C Shares | — | (11,568) |
Class I Shares | — | (2,501,575) |
Total Dividends | (3,025,543) | (5,013,809) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 6,890,973 | 13,883,301 |
Class C Shares | 245,097 | 822,973 |
Class I Shares | 117,366,517 | 279,789,080 |
Dividends reinvested: | ||
Class A Shares | 130,729 | 313,710 |
Class C Shares | 8,590 | 18,063 |
Class I Shares | 940,851 | 2,279,008 |
Cost of shares redeemed: | ||
Class A Shares | (3,318,182) | (3,486,300) |
Class C Shares | (46,216) | (98,801) |
Class I Shares | (26,999,564) | (48,474,375) |
Class R Shares | — | (5,738) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | 95,218,795 | 245,040,921 |
Total Increase (Decrease) in Net Assets | 108,607,938 | 283,444,489 |
Net Assets ($): | ||
Beginning of Period | 350,041,565 | 66,597,076 |
End of Period | 458,649,503 | 350,041,565 |
Undistributed investment income—net | 1,018,760 | 2,193,689 |
14
Six Months Ended | ||
March 31, 2010 | Year Ended | |
(Unaudited) | September 30, 2009a | |
Capital Share Transactions: | ||
Class A | ||
Shares sold | 416,229 | 1,022,852 |
Shares issued for dividends reinvested | 7,894 | 23,058 |
Shares redeemed | (202,787) | (251,777) |
Net Increase (Decrease) in Shares Outstanding | 221,336 | 794,133 |
Class C | ||
Shares sold | 15,043 | 57,661 |
Shares issued for dividends reinvested | 523 | 1,330 |
Shares redeemed | (2,776) | (7,310) |
Net Increase (Decrease) in Shares Outstanding | 12,790 | 51,681 |
Class I | ||
Shares sold | 7,127,668 | 20,525,024 |
Shares issued for dividends reinvested | 56,849 | 167,828 |
Shares redeemed | (1,626,870) | (3,677,286) |
Net Increase (Decrease) in Shares Outstanding | 5,557,647 | 17,015,566 |
Class R | ||
Shares redeemed | — | (428) |
Net Increase (Decrease) in Shares Outstanding | — | (428) |
a Effective as of the close of business on December 3, 2008, the fund no longer offers Class R shares.
See notes to financial statements.
The Fund 15
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information 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 | |||
March 31, 2010 | Year Ended September 30, | ||
Class A Shares | (Unaudited) | 2009 | 2008a |
Per Share Data ($): | |||
Net asset value, beginning of period | 16.27 | 18.18 | 23.37 |
Investment Operations: | |||
Investment income—netb | .06 | .29 | .14 |
Net realized and unrealized | |||
gain (loss) on investments | .58 | (1.57) | (5.20) |
Total from Investment Operations | .64 | (1.28) | (5.06) |
Distributions: | |||
Dividends from investment income—net | (.12) | (.16) | (.13) |
Dividends from net realized gain on investments | — | (.47) | — |
Total Distributions | (.12) | (.63) | (.13) |
Net asset value, end of period | 16.79 | 16.27 | 18.18 |
Total Return (%)c | 3.93d | (6.33) | (21.78)d |
Ratios/Supplemental Data (%): | |||
Ratio of total expenses to average net assets | 1.34e | 1.52 | 2.35e |
Ratio of net expenses to average net assets | 1.25e | 1.26 | 1.40e |
Ratio of net investment income | |||
to average net assets | .75e | 2.27 | 1.61e |
Portfolio Turnover Rate | 30.60d | 115.69 | 105 |
Net Assets, end of period ($ x 1,000) | 21,124 | 16,864 | 4,412 |
a | From March 31, 2008 (commencement of operations) to September 30, 2008. |
b | Based on average shares outstanding at each month end. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
See notes to financial statements.
16
Six Months Ended | |||
March 31, 2010 | Year Ended September 30, | ||
Class C Shares | (Unaudited) | 2009 | 2008a |
Per Share Data ($): | |||
Net asset value, beginning of period | 16.17 | 18.14 | 23.37 |
Investment Operations: | |||
Investment income (loss)—netb | (.01) | .26 | .05 |
Net realized and unrealized | |||
gain (loss) on investments | .59 | (1.59) | (5.15) |
Total from Investment Operations | .58 | (1.33) | (5.10) |
Distributions: | |||
Dividends from investment income—net | (.11) | (.17) | (.13) |
Dividends from net realized gain on investments | — | (.47) | — |
Total Distributions | (.11) | (.64) | (.13) |
Net asset value, end of period | 16.64 | 16.17 | 18.14 |
Total Return (%)c | 3.51d | (6.67) | (21.95)d |
Ratios/Supplemental Data (%): | |||
Ratio of total expenses to average net assets | 2.10e | 1.83 | 6.42e |
Ratio of net expenses to average net assets | 2.08e | 1.42 | 2.15e |
Ratio of net investment income | |||
(loss) to average net assets | (.08)e | 2.07 | .49e |
Portfolio Turnover Rate | 30.60d | 115.69 | 105 |
Net Assets, end of period ($ x 1,000) | 1,438 | 1,191 | 399 |
a | From March 31, 2008 (commencement of operations) to September 30, 2008. |
b | Based on average shares outstanding at each month end. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
See notes to financial statements.
The Fund 17
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | |||||
March 31, 2010 | Year Ended September 30, | ||||
Class I Shares | (Unaudited) | 2009 | 2008a | 2007 | 2006b |
Per Share Data ($): | |||||
Net asset value, beginning of period | 16.27 | 18.21 | 26.94 | 21.51 | 20.00 |
Investment Operations: | |||||
Investment income—netc | .08 | .30 | .31 | .35 | .27 |
Net realized and unrealized | |||||
gain (loss) on investments | .57 | (1.59) | (6.64) | 5.41 | 1.54 |
Total from Investment Operations | .65 | (1.29) | (6.33) | 5.76 | 1.81 |
Distributions: | |||||
Dividends from investment income—net | (.13) | (.18) | (.35) | (.20) | (.30) |
Dividends from net realized | |||||
gain on investments | — | (.47) | (2.05) | (.13) | — |
Total Distributions | (.13) | (.65) | (2.40) | (.33) | (.30) |
Net asset value, end of period | 16.79 | 16.27 | 18.21 | 26.94 | 21.51 |
Total Return (%) | 4.06d | (6.32) | (25.80) | 26.92 | 9.15d |
Ratios/Supplemental Data (%): | |||||
Ratio of total expenses to average net assets | 1.09e | 1.16 | 1.59 | 1.36 | 1.53e |
Ratio of net expenses to average net assets | 1.09e,f | 1.13 | 1.15 | 1.15 | 1.15e |
Ratio of net investment income | |||||
to average net assets | .94e | 2.41 | 1.33 | 1.45 | 1.63e |
Portfolio Turnover Rate | 30.60d 115.69 | 105 | 87 | 84d | |
Net Assets, end of period ($ x 1,000) | 436,087 | 331,986 | 61,779 | 49,134 | 33,354 |
a | The fund commenced offering four classes of shares on March 31, 2008. The existing shares were redesignated Class I and the fund added Class A, Class C and Class R shares. |
b | From December 21, 2005 (commencement of operations) to September 30, 2006. |
c | Based on average shares outstanding at each month end. |
d | Not annualized. |
e | Annualized. |
f | Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements.
18
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus/Newton International Equity Fund (the “fund”) is a separate diversified series of Dreyfus Investment Funds (the “Trust”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company currently offering twelve series, including the fund.The fund’s investment objective is to achieve long-term growth of capital. 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. Newton Capital Management Limited (“Newton”) serves as the fund’s sub-investment advisor.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of Dreyfus, is the distributor of the fund’s shares.The fund is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in the following classes of shares: Class A, Class C and Class I. Class A shares are subject to a sales charge imposed at the time of purchase. Class C shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class C shares redeemed within one year of purchase. Class I shares are sold primarily to bank trust department and other financial services providers (including The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus), acting on behalf of customers having a qualified trust or an investment account or relationship at such institution, and bear no distribution or shareholder services fees. Class I shares are offered without a fr ont-end sales charge or CDSC. Other differences between the classes include the services offered to, 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 Trust accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S.generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities are valued at the last sales price on the securities exchange or national securities market on which such securities are primarily traded. Securities listed on the National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price that day, at the last sales price. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Registered investment companies that are not traded on an exchange are valued at their net asset value.When market quotations or officia l closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Trustees. Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant ADRs and futures
20
contracts. For other securities that are fair valued by the Board of Trustees, certain factors may be considered such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers. Financial futures are valued at the last sales price. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. Forward foreign currency exchange contracts (“forward contracts”) are valued at the forward rate.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The Fund 21
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 March 31, 2010 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable | Unobservable | ||
Quoted Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in Securities: | ||||
Equity Securities— | ||||
Foreign† | 434,392,240 | — | — | 434,392,240 |
Mutual Funds | 17,629,053 | — | — | 17,629,053 |
Other Financial | ||||
Instruments†† | — | 3,003,876 | — | 3,003,876 |
Liabilities ($) | ||||
Other Financial | ||||
Instruments†† | — | (1,529,608) | — | (1,529,608) |
† See Statement of Investments for country classification.
Other financial instruments include derivative instruments, such as futures, forward foreign currency exchange contracts, swap contracts and options contracts. Amounts shown represent unrealized appreciation (depreciation), or in the case of options, market value at period end.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. ASU 2010-06 will require reporting entities to make new disclosures about amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3, and information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. The new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2009 except for the disclosures surrounding purchases,sales,issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements, which are effective f or
22
fiscal years beginning after December 15, 2010. Management is currently evaluating the impact the adoption of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
(b) Foreign currency transactions: The fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized on securities transactions between trade and settlement date, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments resulting from changes in exchange rates. Foreign currency gains and losses on investments are included with net realized and unrealized gain or loss on investments.
(c) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
The fund has arrangements with the custodian and cash management bank whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset custody and cash management fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Investing in foreign markets may involve special risks and considerations not typically associated with investing in the U.S. These risks include revaluation of currencies, high rates of inflation, repatriation restrictions on income and capital,and adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls and delayed settlements, and their prices may be more volatile than those of comparable securities in the U.S.
(d) Affiliated issuers: Investments in other investment companies advised by Dreyfus are defined as “affiliated” in the Act.
(e) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”). Prior to January 1, 2010, the fund paid dividends from investment income-net semi-annually.To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(f) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended March 31, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the three-year period ended September 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
24
The fund has an unused capital loss carryover of $6,505,639 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to September 30, 2009. If not applied, the carryover expires in fiscal 2017.
The tax character of distributions paid to shareholders during the fiscal year ended September 30, 2009 was as follows: ordinary income $2,790,644 and long-term capital gains $2,223,165.The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended on March 31, 2010, the fund did not borrow under the Facilities.
NOTE 3—Investment Advisory Fee, Sub-Investment Advisory Fee and Other Transactions With Affiliates:
(a) Pursuant to an investment advisory agreement with Dreyfus, the investment advisory fee is computed at the annual rate of .80% of the value of the fund’s average daily net assets and is payable monthly. Dreyfus has agreed, until February 1, 2011, to waive receipt of its fees and/or assume the expenses of the fund so that the direct expenses of none of the classes (excluding Rule 12b-1 fees, shareholder services fees, taxes, interest, brokerage commissions, acquired fund fees and extraordinary expenses) exceed 1.15% of the value of the fund’s average daily net assets.The reduction in investment advisory fee, pursuant to the undertaking, amounted to $9,446 during the period ended March 31, 2010.
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Pursuant to a Sub-Investment Advisory Agreement between Dreyfus and Newton, Dreyfus pays Newton a monthly fee at an annual percentage rate of the value of the fund’s average daily net assets.
The Trust entered into an agreement with The Bank of New York Mellon pursuant to which The Bank of New York Mellon provides administration and fund accounting services for the fund. For these services, the fund paysThe Bank of NewYork Mellon a fixed fee plus asset and transaction based fees, as well as out-of-pocket expenses. Pursuant to this agreement, the fund was charged $35,500 during the period ended March 31, 2010 for administration and fund accounting services.
During the period ended March 31, 2010, the Distributor retained $4 from commissions earned on sales of the fund’s Class A shares and $121 from CDSCs on redemptions of the fund’s Class C shares.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of .75% of the value of the average daily net assets of Class C shares. During the period ended March 31, 2010, Class C shares were charged $4,947 pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding 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 industry professional) in respect of these services.The Distributor determines the amounts to be paid to Service Agents. During the period ended March 31, 2010, Class A and Class C shares were charged $23,697 and $1,648, respectively, pursuant to the Shareholder Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing
26
personnel and facilities to perform transfer agency services for the fund. During the period ended March 31, 2010, the fund was charged $1,219 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under cash management agreements for performing cash management services related to fund subscriptions and redemptions. During the period ended March 31, 2010, the fund was charged $192 pursuant to the cash management agreements, which is included in Shareholder servicing costs in the Statement of Operations.
The fund also compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended March 31, 2010, the fund was charged $142,297 pursuant to the custody agreement.
During the period ended March 31, 2010, the fund was charged $2,742 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of:investment advisory fees $301,675, Rule 12b-1 distribution plan fees $897, shareholder services plan fees $4,664, custodian fees $119,243, chief compliance officer fees $2,742 and transfer agency per account fees $430.
(d) Prior to January 1, 2010, eachTrustee received $45,000 per year, plus $6,000 for each joint Board meeting of the Trust,The Dreyfus/Laurel Funds, Inc.,The Dreyfus/Laurel Funds Trust,The Dreyfus/Laurel Tax-Free Municipal Funds and Dreyfus Funds, Inc. (collectively, the “Board Group Open-End Funds”) attended, $2,000 for separate in-person committee meetings attended which were not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that were conducted by telephone. Effective January 1, 2010, the Board Group Open-End Funds will pay each Trustee who is not an “interested person” of the Trust (as
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
defined in the Act) $60,000 per annum, plus $7,000 per joint Board Group Open-End Funds Board meeting attended, $2,500 for separate in-person committee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $2,000 for Board meetings and separate committee meetings attended that are conducted by telephone.The Board Group Open-End Funds also reimburse each Trustee who is not an “interested person” of the Trust (as defined in the Act) for travel and out-of-pocket expenses.With respect to Board meetings, the Chairman of the Board receives an additional 25% of such compensation (with the exception of reimbursable amounts). With respect to compensation committee meetings prior to January 1, 2010, the Chair of the compensation committee received $900 per compensation committee meeting. Effective January 1, 2010, the Chair of each of the Board’s committees, unless the Chair also serves as Chair of the Board, will receive $1,350 per applicable committee meeting. In the event that there is an in-person joint committee meeting or a joint telephone meeting of the Board Group Open-End Funds and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee (prior to January 1, 2010) or the $2,500 or $2,000 fee (effective January 1, 2010), as applicable, is allocated between the Board Group Open-End Funds and Dreyfus HighYield Strategies Fund.TheTrust’s portion of these fees and expenses are charged and allocated to each series based on net assets.
(e) A 2% redemption fee is charged and retained by the fund on certain shares redeemed within sixty days following the date of issuance, subject to exceptions, including redemptions made through the use of the fund’s exchange privilege. During the period ended March 31, 2010, redemption fees charged and retained by the fund amounted to $10,365.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities and forward contracts, during the period ended March 31, 2010, amounted to $204,032,075 and $116,697,582, respectively.
28
The fund may invest in shares of certain affiliated investment companies also advised or managed by the adviser. Investments in affiliated investment companies for the period ended March 31, 2010 were as follows:
Affiliated | |||||
Investment | Value | Value | Net | ||
Company | 9/30/2009 ($) | Purchases ($) | Sales ($) | 3/31/2010 ($) | Assets (%) |
Dreyfus | |||||
Institutional | |||||
Preferred | |||||
Plus Money | |||||
Market Fund | 7,182,904 | 104,214,366 | 93,768,217 | 17,629,053 | 3.8 |
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which 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 disclosure requirements distinguish between derivatives, which are accounted for as “hedges” and those that do not qualify for hedge accounting. Because investment companies value their derivatives at fair value and recognize changes in fair value through the Statement of Operations, they do not qualify for such accounting. Accordingly, even though a fund’s investments in derivatives may represent economic hedges, they are considered to be non-hedge transactions for purposes of this disclosure.
During the period ended March 31, 2010, the average market value of forward contracts was $215,170,241, which represented 53.82% of average net assets.
Forward Foreign Currency Exchange Contracts: The fund enters into forward contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to settle foreign currency transactions or as a part of its investment strategy.When executing forward contracts, the fund is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future. With
The Fund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
respect to sales of forward contracts, the fund incurs a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed.The fund realizes a gain if the value of the contract decreases between those dates.With respect to purchases of forward contracts, the fund incurs a loss if the value of the contract decreases between the date the forward contract is opened and the date the forward contract is closed. The fund realizes a gain if the value of the contract increases between those dates.The fund is exposed to foreign currency risk as a result of changes in value of underlying financial instruments.The fund is also exposed to credit risk associated with counterparty nonperformance on these forward contracts, which is typically limited to the unrealized gain on each open contract.The following summarizes open forward contracts at March 31, 2010:
Foreign | Unrealized | |||
Forward Foreign Currency | Currency | Appreciation | ||
Exchange Contracts | Amounts | Cost ($) | Value ($) (Depreciation) ($) | |
Purchases: | ||||
Australian Dollar, | ||||
Expiring 4/15/2010 | 4,039,611 | 3,615,452 | 3,700,989 | 85,537 |
British Pound, | ||||
Expiring 7/15/2010 | 10,420,000 | 15,781,611 | 15,802,277 | 20,666 |
British Pound, | ||||
Expiring 8/13/2010 | 3,882,237 | 5,999,438 | 5,886,592 | (112,846) |
Euro, | ||||
Expiring 4/6/2010 | 151,763 | 204,364 | 204,980 | 616 |
Euro, | ||||
Expiring 9/15/2010 | 13,453,068 | 18,337,924 | 18,169,313 | (168,611) |
Japanese Yen, | ||||
Expiring 4/15/2010 | 322,634,000 | 3,662,752 | 3,451,266 | (211,486) |
Japanese Yen, | ||||
Expiring 5/14/2010 | 317,576,840 | 3,662,939 | 3,397,722 | (265,217) |
Japanese Yen, | ||||
Expiring | ||||
6/15/2010 | 1,395,211,000 | 15,454,436 | 14,930,113 | (524,323) |
Norwegian Krone, | ||||
Expiring 8/13/2010 | 36,086,985 | 6,051,411 | 6,031,088 | (20,323) |
Singapore Dollar, | ||||
Expiring 4/15/2010 | 5,012,803 | 3,619,352 | 3,583,007 | (36,345) |
South Korean Won, | ||||
Expiring | ||||
5/14/2010 | 4,284,111,565 | 3,684,495 | 3,779,776 | 95,281 |
30
Foreign | Unrealized | |||
Forward Foreign Currency | Currency | Appreciation | ||
Exchange Contracts | Amounts | Cost ($) | Value ($) (Depreciation) ($) | |
Purchases (continued): | ||||
South Korean Won, | ||||
Expiring | ||||
7/15/2010 | 7,029,253,000 | 6,188,131 | 6,187,487 | (644) |
Swiss Franc, | ||||
Expiring 4/1/2010 | 560,490 | 527,917 | 531,572 | 3,655 |
Sales: | Proceeds ($) | |||
Australian Dollar, | ||||
Expiring 4/15/2010 | 4,042,982 | 3,662,752 | 3,704,078 | (41,326) |
British Pound, | ||||
Expiring 4/15/2010 | 2,278,000 | 3,619,352 | 3,456,536 | 162,816 |
British Pound, | ||||
Expiring 7/15/2010 | 5,096,000 | 8,233,454 | 7,728,254 | 505,200 |
British Pound, | ||||
Expiring 7/15/2010 | 5,324,000 | 8,178,399 | 8,074,023 | 104,376 |
British Pound, | ||||
Expiring 8/13/2010 | 3,826,000 | 6,051,411 | 5,801,321 | 250,090 |
Japanese Yen, | ||||
Expiring 4/5/2010 | 324,333,749 | 3,490,124 | 3,469,181 | 20,943 |
Japanese Yen, | ||||
Expiring 4/15/2010 | 322,634,000 | 3,615,452 | 3,451,266 | 164,186 |
Japanese Yen, | ||||
Expiring 5/14/2010 | 331,973,000 | 3,684,495 | 3,551,745 | 132,750 |
Japanese Yen, | ||||
Expiring 6/15/2010 | 699,000,000 | 7,910,264 | 7,479,979 | 430,285 |
Japanese Yen, | ||||
Expiring 6/15/2010 | 696,211,000 | 7,809,162 | 7,450,134 | 359,028 |
Japanese Yen, | ||||
Expiring 7/15/2010 | 570,185,999 | 6,188,131 | 6,103,035 | 85,096 |
Japanese Yen, | ||||
Expiring | ||||
9/15/2010 | 1,657,796,000 | 18,337,924 | 17,754,573 | 583,351 |
Norwegian Krone, | ||||
Expiring 8/13/2010 | 36,086,985 | 5,999,438 | 6,031,088 | (31,650) |
South Korean Won, | ||||
Expiring | ||||
5/14/2010 | 4,284,111,565 | 3,662,939 | 3,779,776 | (116,837) |
Gross Unrealized | ||||
Appreciation | 3,003,876 | |||
Gross Unrealized | ||||
Depreciation | (1,529,608) |
The Fund 31
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
At March 31, 2010, accumulated net unrealized appreciation on investments was $40,401,575, consisting of $47,099,604 gross unrealized appreciation and $6,698,029 gross unrealized depreciation.
At March 31, 2010, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
NOTE 5—Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
32
INFORMATION ABOUT THE REVIEW AND
APPROVAL OF THE FUND’S INVESTMENT
ADVISORY AGREEMENT (Unaudited)
At a meeting of the fund’s Board of Trustees held on February 9, 2010, the Board considered the approval of the fund’s Investment Advisory Agreement (“Management Agreement“), pursuant to which the Manager provides the fund with investment advisory and certain administrative services, and the Sub-Investment Advisory Agreement (the “Sub-Investment Advisory Agreement“) between the Manager and Newton Capital Management Limited (“Newton“), an affiliate of the Manager, with respect to the fund, pursuant to which Newton provides day-to-day management of the fund’s investments subject to the Manager’s oversight. 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 th e Manager and Newton.
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 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 and by Newton pursuant to the Sub-Investment Advisory 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 a mong the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including those of the fund. The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Fund 33
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
The Board members also considered Newton’s research and portfolio management capabilities.The Board members also considered that the Manager also provides oversight of day-to-day fund operations, including assistance in meeting legal and regulatory requirements.The Board members also considered the Manager’s extensive compliance infrastructure, as well as the Manager’s supervisory activities over Newton. The Board also considered Newton’s brokerage policies and practices, the standards applied in seeking best execution and the Manager’s and Newton’s policies and practices regarding soft dollars.
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of retail front-end load international large-cap core funds (the “Performance Group“) and to a larger universe of funds, consisting of all retail and institutional international large-cap core funds (the “Performance Universe“) selected and provided by Lipper, Inc., an independent provider of investment company data.The Board was provided with a description of the methodology Lipper used to select the Performance Group and Performance Universe, as well as the Expense Group and Expense Universe (discussed below).The Board members discussed the results of the comparisons and noted that the fund’s total return performance for the one-, two-, three- and four-year periods ended December 31, 2009 were below the Performance Group and Performance Universe medians.As part of an overall presentation to the Board members, representatives of the Manager discussed the market environment in 2009,noting that high beta stocks had outperformed during 2009 and high quality stocks had been out of favor during 2009. The Manager also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.
The Board members also discussed the fund’s contractual and actual management fee and expense ratio and reviewed the range of management fees and expense ratios of a comparable group of funds (the ““Expense Group“) and a broader group of funds (the “Expense Universe“), each selected and provided by Lipper.The Lipper data pre-
34
senting the fund’s “actual management fees“ included fees paid by the fund, as calculated by Lipper, for administrative services provided byThe Bank of NewYork Mellon, the Trust’s administrator. Such reporting was necessary, according to Lipper, to allow the Board to compare the fund’s advisory fees to those peers that include administrative fees within a combined management (investment advisory and administrative) fee. A representative of the Manager also noted that the Manager has contractually agreed to waive receipt of its fees and/or assume the expenses of the fund, until February 1, 2011, so that the annual direct fund operating expenses of none of the classes (excluding Rule 12b-1 fees, shareholder services fees, taxes, brokerage commissions, acquired fund fees and extraordinary expenses) exceed 1.15% of the fund’s average daily net assets. The Board members noted that the fund’s contra ctual management fee was below the Expense Group median and that, because of the waiver, the fund’s actual management fee was below the Expense Group and Expense Universe medians and the fund’s expense ratio was below the Expense Group and Expense Universe medians.
Representatives of the Manager reviewed with the Board members the fees paid to the Manager or its affiliates by mutual funds managed by the Manager or its affiliates with similar investment objectives, policies and strategies, and included in the same Lipper category as the fund (the “Similar Funds“), and by other accounts managed by the Manager, Newton or their respective affiliates with similar investment objectives, policies and strategies as the fund (the “Similar Accounts“).The Manager’s representatives explained the nature of the Similar Accounts and the differences, from the Manager’s and Newton’s perspective, as applicable, in providing services to such Similar Accounts as compared to managing and providing services to the fund.The Board analyzed differences in fees paid to the Manager or Newton and discussed the relationship of the fees paid in light of the services provided.The Boar d members considered the relevance of the fee information provided for the Similar Funds and the Similar Accounts to evaluate the appropriateness and reasonableness of the fund’s management fee and sub-investment advisory fee.
The Fund 35
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S
INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
The Board considered the fee to Newton in relation to the fee paid to the Manager and the respective services provided by Newton and the Manager. The Board also noted that Newton’s fee is paid by the Manager and not 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 com-plex.The Board also was informed that the methodology had also been reviewed by an independent registered public accounting firm, which, like the consultant, found the methodology to be reasonable.The consulting firm also analyzed where any economies of scale might emerge in connection with the management of the fund.The Board members evaluated the profitability analysis in light of the relevant circumstances for the fund.The Board members also considered potential benefits to the Manager or Newton from acting as investment adviser and sub-investment adviser, respectively, and noted there were no soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. Since the Manager, and not the fund, pays Newton pursuant to the Sub-Investment Advisory Agreement, the Board did not consider Newton’s profitability to be relevant to its deliberations. It also was noted that the profitability percentage for managing the fund was within the range determined by
36
appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager. The Board also noted the fee waiver arrangement and its effect on the profitability of the Manager.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement and Sub-Investment Advisory 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 and Newton are adequate and appropriate.
The Board was concerned with the fund’s performance.The Board determined to continue to closely monitor the fund’s performance.
The Board concluded, taking into account the fee waiver, that the fee paid by the fund to the Manager, and by the Manager to Newton, were reasonable in light of the considerations described above.
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 determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that approval of the fund’s Management Agreement and Sub-Investment Advisory Agreement was in the best interests of the fund and its shareholders.
The Fund 37
Item 2. | Code of Ethics. |
Not applicable. | |
Item 3. | Audit Committee Financial Expert. |
Not applicable. | |
Item 4. | Principal Accountant Fees and Services. |
Not applicable. | |
Item 5. | Audit Committee of Listed Registrants. |
Not applicable. | |
Item 6. | Investments. |
(a) | Not applicable. |
Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management |
Investment Companies. | |
Not applicable. | |
Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
Not applicable. | |
Item 9. | Purchases of Equity Securities by Closed-End Management Investment Companies and |
Affiliated Purchasers. | |
Not applicable. [CLOSED END FUNDS ONLY] | |
Item 10. | Submission of Matters to a Vote of Security Holders. |
There have been no material changes to the procedures applicable to Item 10. | |
Item 11. | Controls and Procedures. |
(a) The Registrant's principal executive and principal financial officers have concluded, based on their evaluation of the Registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the Registrant's disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes to the Registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
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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.
4
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 Investment Funds
By: | /s/ Bradley J. Skapyak |
Bradley J. Skapyak, | |
President | |
Date: | May 24, 2010 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: | /s/ Bradley J. Skapyak |
Bradley J. Skapyak, | |
President | |
Date: | April 22, 2010 |
By: | /s/ James Windels |
James Windels, | |
Treasurer | |
Date: | May 24, 2010 |
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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)
6