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: | 3/31/2009 |
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 International Small Cap 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 Cap Value Fund II -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
Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.dreyfus.com and sign up for Dreyfus eCommunications. It’s simple and only takes a few minutes.
The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
13 | Statement of Assets and Liabilities |
14 | Statement of Operations |
15 | Statement of Changes in Net Assets |
17 | Financial Highlights |
19 | Notes to Financial Statements |
32 | 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 CEO Dear Shareholder: |
We present this semiannual report for Dreyfus/The Boston Company Emerging Markets Core Equity Fund, covering the six-month period from October 1, 2008, through March 31, 2009.
The reporting period has been one of the most challenging for the U.S. economy, which has undoubtedly affected the global financial markets. The bankruptcy of Lehman Brothers in mid-September 2008 triggered a cascading global economic decline that affected both industrialized and emerging economies throughout the world.As the credit crisis dried up the availability of funding for businesses and consumers, international trade activity slumped, commodity prices plummeted, investors de-leveraged their portfolios, companies liquidated inventories, unemployment surged and corporate earnings sagged.
On the heels of a –6.3% annualized U.S. economic growth rate in the fourth quarter of 2008, we expect another sharp decline for the first quarter of 2009. However, our Chief Economist anticipates that the U.S. recession may reach a trough around the third quarter of this year, followed by a slow recovery. Indeed, an unprecedented and concerted worldwide effort has signaled that most developed markets are intent to do whatever it takes to forestall the economic slowdown, including interest-rate reductions by the ECB, the U.K and Japan, as well as massive monetary and fiscal stimulus and support for troubled financial institutions.Although times seem dire now, we believe it is always appropriate to maintain a long-term investment focus and to discuss any investment modifications with your financial adviser.Together, you can prepare for the risks that lie ahead and position your assets to perform in this current market downturn, and in the future.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund’s Portfolio Manager.
Thank you for your continued confidence and support.
Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation April 15, 2009 |
2
DISCUSSION OF FUND PERFORMANCE
For the period of October 1, 2008, through March 31, 2009, as provided by William Patzer, Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended March 31, 2009, Dreyfus/The Boston Company Emerging Markets Core Equity Fund’s Class I shares produced a total return of –30.14%.1 On March 31, 2009, the fund also began offering Class A and Class C shares. In comparison, the fund’s benchmark, the Morgan Stanley Capital International Emerging Markets (the “MSCI EM Index”) Index, produced a total return of –26.82% for the same period.2
Despite a rally over the final weeks of March, a global economic downturn weighed heavily on the emerging markets for the reporting period overall.The fund produced a return lower than its benchmark, as relatively strong results from information technology and health care stocks could not offset the laggards in other areas.
The Fund’s Investment Approach
The fund seeks to achieve long-term growth of capital by investing, under normal circumstances, at least 80% of net 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 and Financial Crises Roiled Equity Markets
Precipitated by a worldwide economic contraction, emerging equity markets followed their more developed counterparts into a free fall during the fourth quarter of 2008, producing one of the asset class’s weaker quarters historically. However, late in the first quarter of 2009, developing markets experienced an aggressive reversal. Capital and trade surpluses, floating currency valuations, reduced interest rates and
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
implementation of government measures to forestall further economic damage helped spark a rally that offset a portion of the emerging markets’ earlier declines.
Security Selections Produced Mixed Results
Several disappointments offset the performance benefits of the fund’s top performers. Materials, energy and industrials stocks declined steeply as commodities prices fell, dragging down stocks in South Africa, Israel and Brazil.The South African arm of steel producer ArcelorMittal suffered as global demand fell, while Israel Chemical Ltd. (ICL) plummeted in a softer agricultural chemicals market. Both securities were sold during the reporting period. In addition, a recent purchase of strong-performing South African gold producer Gold Fields and lack of exposure to AngloGold Ashanti weighed on the fund’s results. Key detractors in the energy sector included Russia’s Gazprom and Lukoil and Hong Kong’s CNOOC Ltd., which retreated along with oil prices. CNOOC was sold during the reporting period. Mexican industrial conglomerate Alfa SAB de CV was hurt by poor results in its manufacturing and petrochemical units, and was sold during the reporting period. Slowing demand undermined South Korea’s Kuhmo Industrial Co.,Ltd.,as well as Brazilian steel firm Usinas and aircraft manufacturer Embraer. Kuhmo was sold during the reporting period.
Finally, South Africa’s MTN Group suffered as its fixed-line counterpart outperformed the wireless telecommunications provider. South African construction firm Aveng also dragged down performance due to slack demand.
The fund’s performance was buoyed by its information technology and health care holdings. Chinese technology stock Shanda Interactive Entertainment rose amid steady demand for online gaming. Chinese telecommunications equipment manufacturer ZTE benefited from greater competition among mobile communications firms. Drastic inventory reductions and lower production levels by Taiwan Semiconductor Manufacturing and Quanta Computer during the fourth quarter of 2008 created a favorable supply-demand imbalance in 2009, helping to revive their stocks.The fund’s performance in the health care sector was bolstered in part by China Pharmaceutical Group, which
4
retained a captive market in its home nation, and Israeli generic drug manufacturer Teva Pharmaceutical Industries, which benefited from robust demand for its products.
In other sectors, Malaysian financial firm Hong Leong Bank fared relatively well due to lack of exposure to the troubled debt of international banks, while leasing agent KLCC Property Holdings proved to be a relatively safe haven in the volatile investment environment. Finally, light exposure to Eastern European, Middle Eastern and African markets —which experienced pressure due to their national credit profiles and consumer end markets — proved advantageous. Also supporting the fund’s performance were Taiwanese auto-parts manufacturer Tong Yang Industry Co., Ltd., which benefited as Chinese and Taiwanese automak-ers rebounded with better-than-expected sales; and Telecom Egypt, whose performance was sustained by its defensive business model.Tong Yang Industry was sold during the reporting period.
Focusing on Healthy Balance Sheets
While we may see further market troughs over the near term, we believe that the longer-term growth outlook for emerging market equities is positive, and that the recent rally is evidence of the confidence investors have in this asset class. Consequently, we have increased the fund’s exposure to beaten-down stocks with strong balance sheets that, in our view, have the ability to outperform regardless of the economic environment. Conversely, we have avoided lower-quality firms despite their recent gains, which we regard as fundamentally unwarranted.
April 15, 2009
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 currently | |
is limiting the fund’s operating expenses. Had these expense limitations not been in effect, returns | |
would have been lower.These expense limitations are voluntary, not contractual, and may be | |
terminated at any time. | |
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, 2008 to March 31, 2009. 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, 2009† | ||||
Class A | Class C | Class I | ||
Expenses paid per $1,000†† | $ .06 | $ .08 | $ 6.01 | |
Ending value (after expenses) | $1,021.40 | $1,021.40 | $698.60 |
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, 2009††† | |||
Class A | Class C | Class I | |
Expenses paid per $1,000†††† | $ 10.05 | $ 13.79 | $ 7.14 |
Ending value (after expenses) | $1,014.96 | $1,011.22 | $1,017.85 |
† | From March 31, 2009 (commencement of initial offering) to March 31, 2009 for Class A and Class C shares. |
†† | Expenses are equal to the fund’s annualized expense ratio of 2.00% for Class A and 2.75% for Class C, |
multiplied by the average account value over the period, multiplied by 1/365 (to reflect the actual days in the | |
period). Expenses are equal to the fund’s annualized expense ratio of 1.42% for Class I, multiplied by the | |
average account value over the period, multiplied by 182/365 (to reflect the one-half year period). | |
††† | Please note that while Class A and Class C shares commenced operations on March 31, 2009, the Hypothetical |
expenses paid during the period reflect projected activity for the full six months period for purposes of | |
comparability. This projection assumes that annualized expense ratios were in effect during the period October 1, | |
2008 to March 31, 2009. | |
†††† | Expenses are equal to the fund’s annualized expense ratio of 2.00% for Class A, 2.75% for Class C and |
1.42% for Class I , multiplied by the average account value over the period, multiplied by 182/365 (to reflect | |
the one-half year period). |
6
STATEMENT OF INVESTMENTS March 31, 2009 (Unaudited) |
Common Stocks—85.6% | Shares | Value ($) |
Brazil—1.9% | ||
Redecard | 6,400 | 77,388 |
Souza Cruz | 2,200 | 41,492 |
Unibanco—Uniao de Bancos Brasileiros (Units) | 10,600 | 67,262 |
186,142 | ||
China—14.9% | ||
Bank of China, Cl. H | 311,000 | 103,159 |
China BlueChemical, Cl. H | 100,000 | 54,725 |
China Communications Construction, Cl. H | 67,000 | 73,516 |
China Construction Bank, Cl. H | 309,000 | 175,481 |
China COSCO Holdings, Cl. H | 93,000 | 60,630 |
China Life Insurance, Cl. H | 37,000 | 121,731 |
China Petroleum & Chemical, Cl. H | 88,000 | 56,455 |
Guangshen Railway, Cl. H | 154,000 | 49,910 |
Industrial & Commercial Bank of China, Cl. H | 401,000 | 208,590 |
PetroChina, Cl. H | 166,000 | 132,311 |
Shanda Interactive Entertainment, ADR | 2,110 a,b | 83,408 |
Sino-Ocean Land Holdings | 64,000 | 41,964 |
Yanzhou Coal Mining, Cl. H | 122,000 | 87,883 |
Zhejiang Expressway, Cl. H | 122,000 | 88,961 |
ZTE, Cl. H | 21,800 | 89,173 |
1,427,897 | ||
Czech Republic—.4% | ||
Cesky Telecom | 2,150 | 42,621 |
Egypt—1.2% | ||
Commercial International Bank | 4,213 | 24,337 |
Orascom Telecom | 9,800 | 44,642 |
Telecom Egypt | 17,395 | 46,321 |
115,300 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Hong Kong—4.8% | ||
China Agri-Industries Holdings | 180,481 b | 85,947 |
China Mobile | 27,500 | 239,396 |
China Pharmaceutical Group | 172,000 | 68,811 |
Shanghai Industrial Holdings | 24,000 b | 66,433 |
460,587 | ||
India—6.4% | ||
Bank of India | 8,960 | 39,126 |
Bharat Petroleum | 7,208 | 53,092 |
Bharti Airtel | 6,000 b | 74,493 |
Cairn India | 15,250 b | 55,130 |
Canara Bank | 8,100 | 26,674 |
Grasim Industries | 3,117 | 92,172 |
Infosys Technologies | 1,820 | 47,412 |
Patni Computer Systems, ADR | 9,500 | 52,535 |
State Bank of India | 2,570 | 54,482 |
Steel Authority of India | 29,370 | 54,117 |
Sterlite Industries (India) | 9,870 | 68,876 |
618,109 | ||
Indonesia—1.0% | ||
Bank Central Asia | 164,500 | 44,500 |
Gudang Garam | 101,000 | 51,981 |
96,481 | ||
Israel—3.2% | ||
Bank Leumi Le-Israel | 17,810 | 35,202 |
Elbit Systems | 1,197 | 56,708 |
Teva Pharmaceutical Industries, ADR | 4,810 a | 216,691 |
308,601 | ||
Luxembourg—.2% | ||
Evraz Group, GDR | 1,990 c,d | 16,437 |
Malaysia—2.5% | ||
Hong Leong Bank | 85,200 | 125,062 |
KLCC Property Holdings | 65,900 | 54,227 |
RHB Capital | 64,700 | 63,017 |
242,306 |
8
Common Stocks (continued) | Shares | Value ($) |
Mexico—3.5% | ||
America Movil, ADR, Ser. L | 6,990 a | 189,289 |
Fomento Economico Mexicano, ADR | 4,080 | 102,857 |
Grupo Aeroportuario del Sureste, Cl. B | 15,100 | 43,333 |
335,479 | ||
Peru—.6% | ||
Credicorp | 1,240 | 58,082 |
Poland—.5% | ||
Polskie Gornictwo Naftowe I Gazownictwo | 49,920 | 48,366 |
Russia—5.6% | ||
Gazprom, ADR | 14,500 | 215,325 |
LUKOIL, ADR | 5,690 | 213,375 |
MMC Norilsk Nickel, ADR | 5,662 a | 33,972 |
Mobile Telesystems, ADR | 2,560 | 76,595 |
539,267 | ||
South Africa—7.7% | ||
ABSA Group | 6,488 | 65,890 |
Aveng | 14,530 | 39,959 |
Fountainhead Property Trust | 46,340 | 27,640 |
Gold Fields | 7,890 | 87,042 |
Growthpoint Properties | 29,030 | 41,587 |
Impala Platinum Holdings | 5,510 | 92,051 |
Metropolitan Holdings | 60,738 | 67,326 |
MTN Group | 7,884 | 87,392 |
Naspers, Cl. N | 4,730 | 79,894 |
Nedbank Group | 4,550 | 40,829 |
Remgro | 7,072 | 50,394 |
Shoprite Holdings | 10,980 | 58,641 |
738,645 | ||
South Korea—15.2% | ||
CJ Home Shopping | 1,455 | 58,552 |
Daegu Bank | 5,990 | 31,779 |
Honam Petrochemical | 1,473 | 63,558 |
Hyundai Heavy Industries | 714 | 101,766 |
Hyundai Marine & Fire Insurance | 7,380 | 67,201 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
South Korea (continued) | ||
Hyundai Mobis | 940 | 54,943 |
Korea Electric Power | 3,270 b | 60,042 |
KT & G | 1,251 | 68,894 |
LG | 2,783 | 99,661 |
LG Chem | 1,113 | 71,078 |
LG Electronics | 948 | 63,017 |
LG Fashion | 3,710 | 49,004 |
NCsoft | 914 | 61,814 |
POSCO | 600 | 159,410 |
Samsung Electronics | 750 | 309,758 |
Shinhan Financial Group | 4,710 b | 84,551 |
Youngone | 7,490 | 47,066 |
1,452,094 | ||
Taiwan—8.2% | ||
Au Optronics | 101,000 | 84,151 |
Compal Electronics | 83,282 | 59,912 |
Formosa Plastics | 39,900 | 60,216 |
Giant Manufacturing | 28,000 | 57,819 |
Lite-On Technology | 101,500 | 68,737 |
Powertech Technology | 28,000 | 50,859 |
Quanta Computer | 60,680 | 76,863 |
Taiwan Mobile | 39,645 | 57,432 |
Taiwan Semiconductor Manufacturing, ADR | 23,727 | 212,357 |
Unimicron Technology | 96,000 | 57,417 |
785,763 | ||
Thailand—2.3% | ||
Bangkok Bank | 16,700 | 35,625 |
C.P. Seven Eleven | 158,500 | 55,929 |
Electricity Generating | 43,500 | 81,058 |
10
Common Stocks (continued) | Shares | Value ($) |
Thailand (continued) | ||
PTT | 10,100 | 43,872 |
216,484 | ||
Turkey—2.3% | ||
Haci Omer Sabanci Holding | 19,202 | 33,028 |
Selcuk Ecza Deposu Ticaret ve Sanayi | 64,377 | 65,045 |
Tupras Turkiye Petrol Rafine | 4,713 | 47,336 |
Turkcell Iletisim Hizmet | 9,310 | 45,633 |
Turkiye Is Bankasi, Cl. C | 11,650 | 26,204 |
217,246 | ||
United States—3.2% | ||
iShares MSCI Emerging Markets Index Fund | 12,470 | 309,381 |
Total Common Stocks | ||
(cost $9,578,433) | 8,215,288 | |
Preferred Stocks—13.1% | ||
Brazil | ||
Banco Bradesco | 6,200 | 61,739 |
Banco Itau Holding Financeira | 7,200 | 79,612 |
Bradespar | 6,000 | 58,558 |
Cia de Bebidas das Americas | 1,400 | 66,000 |
Cia Paranaense de Energia, Cl. B | 8,000 | 83,112 |
Cia Vale do Rio Doce, Cl. A | 24,800 | 285,979 |
Klabin | 28,000 | 34,400 |
Petroleo Brasileiro | 36,100 | 444,296 |
Tele Norte Leste Participacoes | 3,200 | 44,832 |
Usinas Siderurgicas de Minas Gerais, Cl. A | 3,975 | 50,550 |
Vivo Participacoes | 3,900 | 51,361 |
Total Preferred Stocks | ||
(cost $1,583,518) | 1,260,439 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Investment of Cash Collateral | ||
for Securities Loaned—3.2% | Shares | Value ($) |
Registered Investment Company; | ||
Dreyfus Institutional Cash Advantage Fund | ||
(cost $310,663) | 310,663 e | 310,663 |
Total Investments (cost $11,472,614) | 101.9% | 9,786,390 |
Liabilities, Less Cash and Receivables | (1.9%) | (180,325) |
Net Assets | 100.0% | 9,606,065 |
ADR—American Depository Receipts |
GDR—Global Depository Receipts |
a All or a portion of these securities are on loan. At March 31, 2009, the total market value of the fund’s securities on |
loan is $311,872 and the total market value of the collateral held by the fund is $310,663. |
b Non-income producing security. |
c 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, 2009, this security |
amounted to $16,437 or .2% of net assets. |
d The valuation of this security has been determined in good faith under the direction of the Board of Trustees. |
e Investment in affiliated money market mutual fund. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Financials | 20.4 | Consumer Discretionary | 4.3 |
Energy | 14.6 | Health Care | 3.6 |
Information Technology | 13.9 | Money Market Investments | 3.2 |
Materials | 13.4 | Exchange Traded Funds | 3.2 |
Telecommunication Services | 10.4 | Utilities | 2.3 |
Industrials | 7.1 | ||
Consumer Staples | 5.5 | 101.9 | |
† Based on net assets. | |||
See notes to financial statements. |
12
STATEMENT OF ASSETS AND LIABILITIES March 31, 2009 (Unaudited) |
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments (including | |||
securities on loan, valued at $311,872)—Note 1(c): | |||
Unaffiliated issuers | 11,161,951 | 9,475,727 | |
Affiliated issuers | 310,663 | 310,663 | |
Cash denominated in foreign currencies | 117,874 | 118,402 | |
Receivable for investment securities sold | 618,171 | ||
Dividends and interest receivable | 25,466 | ||
Receivable for shares of Beneficial Interest subscribed | 1,457 | ||
Unrealized appreciation on forward currency exchange contracts—Note 4 | 536 | ||
Prepaid expenses | 10,453 | ||
10,560,875 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(d) | 20,004 | ||
Cash overdraft due to Custodian | 17,713 | ||
Liability for securities on loan—Note 1(c) | 310,663 | ||
Bank note payable—Note 2 | 300,000 | ||
Payable for investment securities purchased | 283,344 | ||
Unrealized depreciation on forward | |||
currency exchange contracts—Note 4 | 492 | ||
Interest payable—Note 2 | 51 | ||
Accrued expenses | 22,543 | ||
954,810 | |||
Net Assets ($) | 9,606,065 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 17,760,872 | ||
Accumulated undistributed investment income—net | 10,215 | ||
Accumulated net realized gain (loss) on investments | (6,480,857) | ||
Accumulated net unrealized appreciation (depreciation) | |||
on investments and foreign currency transactions | (1,684,165) | ||
Net Assets ($) | 9,606,065 | ||
Net Asset Value Per Share | |||
Class A | Class C | Class I | |
Net Assets ($) | 10,213 | 10,213 | 9,585,639 |
Shares Outstanding | 738 | 738 | 693,224 |
Net Asset Value Per Share ($) | 13.84 | 13.84 | 13.83 |
See notes to financial statements. |
The Fund 13
STATEMENT OF OPERATIONS | |
Six Months Ended March 31, 2009 (Unaudited) | |
Investment Income ($): | |
Income: | |
Cash dividends (net of $9,806 foreign taxes withheld at source): | |
Unaffiliated issuers | 86,114 |
Affiliated issuers | 542 |
Income from securities lending | 1,408 |
Total Income | 88,064 |
Expenses: | |
Investment advisory fee—Note 3(a) | 58,160 |
Custodian fees—Note 3(d) | 57,511 |
Accounting and administration fees—Note 3(a) | 30,000 |
Shareholder servicing costs—Note 3(c,d) | 11,797 |
Auditing fees | 9,807 |
Registration fees | 3,528 |
Prospectus and shareholders’ reports | 2,460 |
Trustees’ fees and expenses—Note 3(e) | 1,522 |
Legal fees | 772 |
Loan commitment fees—Note 2 | 198 |
Interest expense—Note 2 | 82 |
Miscellaneous | 10,012 |
Total Expenses | 185,849 |
Less—expense reimbursement from The Dreyfus | |
Corporation due to undertaking—Note 3(a) | (110,913) |
Less—reduction in fees due to earnings credits—Note 1(c) | (63) |
Net Expenses | 74,873 |
Investment Income—Net | 13,191 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments and foreign currency transactions | (6,236,022) |
Net realized gain (loss) on forward currency exchange contracts | (20,737) |
Net Realized Gain (Loss) | (6,256,759) |
Net unrealized appreciation (depreciation) on | |
investments and foreign currency transactions | 1,455,314 |
Net Realized and Unrealized Gain (Loss) on Investments | (4,801,445) |
Net (Decrease) in Net Assets Resulting from Operations | (4,788,254) |
See notes to financial statements. |
14
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2009 | Year Ended | |
(Unaudited)a | September 30, 2008 | |
Operations ($): | ||
Investment income—net | 13,191 | 196,847 |
Net realized gain (loss) on investments | (6,256,759) | 895,984 |
Net unrealized appreciation | ||
(depreciation) on investments | 1,455,314 | (6,849,560) |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | (4,788,254) | (5,756,729) |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class I shares | (145,186) | (132,037) |
Net realized gain on investments: | ||
Class I shares | (620,343) | (1,349,478) |
Total Dividends | (765,529) | (1,481,515) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 10,000 | — |
Class C Shares | 10,000 | — |
Class I shares | 19,844,041 | 7,882,079 |
Dividends reinvested: | ||
Class I shares | 588,263 | 1,416,355 |
Cost of shares redeemed: | ||
Class I shares | (20,620,390) | (403,210) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (168,086) | 8,895,224 |
Total Increase (Decrease) in Net Assets | (5,721,869) | 1,656,980 |
Net Assets ($): | ||
Beginning of Period | 15,327,934 | 13,670,954 |
End of Period | 9,606,065 | 15,327,934 |
Undistributed investment income—net | 10,215 | 142,210 |
The Fund 15
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||
March 31, 2009 | Year Ended | |
(Unaudited)a | September 30, 2008 | |
Capital Share Transactions ($): | ||
Class A | ||
Shares sold | 738 | — |
Class C | ||
Shares sold | 738 | — |
Class I | ||
Shares sold | 834,408 | 275,989 |
Shares issued for dividends reinvested | 43,096 | 47,368 |
Shares redeemed | (902,990) | (15,900) |
Net Increase (Decrease) in Shares Outstanding | (25,486) | 307,457 |
a | The fund changed to a three class fund on March 31, 2009.The existing shares were redesignated as Class I shares |
and the fund commenced offering Class A and Class C shares. | |
See notes to financial statements. |
16
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the fund’s financial statements.
For the Period Ended | ||
March 31, 2009 (Unaudited)a | ||
Class A | Class C | |
Shares | Shares | |
Per Share Data ($): | ||
Net asset value, beginning of period | 13.55 | 13.55 |
Investment Operations: | ||
Investment (loss)—netb,c | (.00) | (.00) |
Net realized and unrealized | ||
gain (loss) on investments | .29 | .29 |
Total from Investment Operations | .29 | .29 |
Net asset value, end of period | 13.84 | 13.84 |
Total Return (%)d,e | 2.14 | 2.14 |
Ratios/Supplemental Data (%): | ||
Ratio of total expenses to average net assetsf | 2.79 | 3.54 |
Ratio of net expenses to average net assetsf | 2.00 | 2.75 |
Ratio of net investment (loss) | ||
to average net assetsf | (2.11) | (2.86) |
Portfolio Turnover Ratee | 92.27 | 92.27 |
Net Assets, end of period ($ x 1,000) | 10 | 10 |
a | From March 31, 2009 (commencement of initial offering) to March 31, 2009. |
b | Based on average shares outstanding at each month end. |
c | Amount represents less than $.01 per share. |
d | Exclusive of sales charge. |
e | Not annualized. |
f | Annualized. |
See notes to financial statements. |
The Fund 17
FINANCIAL HIGHLIGHTS (continued) |
Six Months Ended | ||||
March 31, 2009 | Year Ended September 30, | |||
Class I Shares | (Unaudited)a | 2008 | 2007 | 2006b |
Per Share Data ($): | ||||
Net asset value, beginning of period | 21.33 | 33.24 | 20.55 | 20.00 |
Investment Operations: | ||||
Investment income—netc | .02 | .35 | .31 | .06 |
Net realized and unrealized | ||||
gain (loss) on investments | (6.47) | (8.86) | 12.62 | .49 |
Total from Investment Operations | (6.45) | (8.51) | 12.93 | .55 |
Distributions: | ||||
Dividends from investment income—net | (.20) | (.26) | (.24) | — |
Dividends from net realized | ||||
gain on investments | (.85) | (3.14) | — | — |
Total Distributions | (1.05) | (3.40) | (.24) | — |
Net asset value, end of period | 13.83 | 21.33 | 33.24 | 20.55 |
Total Return (%) | (30.14)d | (28.51)e | 63.25e | 2.75d,e |
Ratios/Supplemental Data (%): | ||||
Ratio of total expenses to average net assets | 3.52f | 2.74 | 3.18 | 8.64f |
Ratio of net expenses to average net assets | 1.42f | 1.45 | 1.45 | 1.45f |
Ratio of net investment income | ||||
to average net assets | .25f | 1.21 | 1.15 | 1.31f |
Portfolio Turnover Rate | 92.27d | 128 | 76 | 31d |
Net Assets, end of period ($ x 1,000) | 9,586 | 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 | Total return would have been lower in the absence of expense waivers. |
f | Annualized. |
See notes to financial statements. |
18
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 a diversified open-end management investment company and operates as a series company currently offering fourteen series, including the fund.The fund’s investment objective is to achieve long-term growth of capital. Prior to December 1, 2008, The Boston Company Asset Management LLC, a wholly owned subsidiary of The Bank of NewYork Mellon Corporation (“BNY Mellon”), served as the fund’s investment advisor. Effective December 1, 2008, The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of BNY Mellon, serves as the fund’s investment adviser.
At a meeting of the Board of Trustees held on August 27, 2008, the Board approved, effective December 1, 2008, a proposal to change the names of the Trust and the fund from “Mellon Institutional Funds Investment Trust” and “The Boston Company Emerging Markets Core Equity Fund” to “Dreyfus Investment Funds” and “Dreyfus/The Boston Company Emerging Markets Core Equity Fund,” respectively.
At the Board meetings held on February 9-10, 2009, the Board of Trustees approved, effective March 31, 2009, the implementation of a multiple class structure for the fund. On March 31, 2009, existing shares were classified as Class I shares and the fund added Class A and Class C shares.
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 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”) on Class C shares redeemed within one year of purchase. Class I shares are sold at net asset value per share
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
only to institutional investors. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
As of March 31, 2009, 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 that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The fund’s financial statements are prepared in accordance with U.S. generally accepted accounting principles, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
(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 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 for-
20
eign 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 contracts. For other securities that are fair valued by the Board ofTrustees, 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 currency exchange contracts are valued at the forward rate.
The fund adopted Statement of Financial Accounting Standards No. 157 “FairValue Measurements” (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements.
Various inputs are used in determining the value of the fund’s investments relating to FAS 157.These inputs are summarized in the three broad levels listed below.
Level 1—quoted prices in active markets for identical investments. |
Level 2—other significant observable inputs (including quoted |
prices for similar securities, interest rates, prepayment speeds, |
credit risk, etc.). |
Level 3—significant unobservable inputs (including the fund’s own |
assumptions in determining the fair value of investments). |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The following is a summary of the inputs used as of March 31, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Quoted | Observable Unobservable | |||
Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in | ||||
Securities | 4,818,532 | 4,967,858 | — | 9,786,390 |
Other Financial | ||||
Instruments† | — | 536 | — | 536 |
Liabilities ($) | ||||
Other Financial | ||||
Instruments† | — | (492) | — | (492) |
† Other financial instruments include derivative instruments, such as futures, forward currency exchange contracts, swap contracts and options contracts. Amounts shown represent unrealized appreciation (depreciation) at period end.
The following is a reconciliation of the change in value of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Investments in | |
Securities ($) | |
Balance as of 9/30/2008 | 144,388 |
Realized gain (loss) | — |
Change in unrealized appreciation (depreciation) | — |
Net purchases (sales) | (144,388) |
Transfers in and/or out of Level 3 | — |
Balance as of 3/31/2009 | — |
(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 and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the fund’s books and the U.S. dollar
22
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.
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, 2009,The Bank of New York Mellon earned $758 from lending fund portfolio securities, pursuant to the securities lending agreement.
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.
Until December 10, 2007, all cash collateral received by the fund and other series of the Trust in connection with the securities lending program was invested in the BlackRock Cash Strategies Fund LLC (the “BlackRock Fund”), a private investment fund not affiliated with the Trust or its investment adviser. On December 10, 2007, the BlackRock Fund announced that it was suspending investor withdrawal privileges due to conditions related to the credit markets and the adverse affect of such conditions on the liquidity of the BlackRock Fund’s portfolio holdings. Commencing on December 11, 2007, all new cash collateral received in connection with the securities lending activity of the fund and other series of the Trust was invested by the securities lending agent in the Dreyfus Institutional Cash Advantage Fund (the “Dreyfus Fund”), an affiliated money market fund registered as an investment company under the Investment Company Act of 1940, as amended.To the extent that the BlackRock Fund agreed to permit withdrawals during the period December 11, 2007 through January 22, 2009, the securities lending agent effected such withdrawals and the cash proceeds from such withdrawals by the fund were reinvested in the shares of the Dreyfus Fund. As of January 22, 2009, the final withdrawal was reinvested in the shares of the Dreyfus Fund. Repayments of cash collateral during the period were made from the proceeds of redemptions of shares of the Dreyfus Fund.
(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
24
from net realized capital gains, if any, are normally declared and paid semiannually 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”).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 U.S. generally accepted accounting principles.
(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, 2009, 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, 2008 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The tax character of distributions paid to shareholders during the fiscal year ended September 30, 2008 was as follows: ordinary income $1,125,936 and long-term capital gains $355,579.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 Trust entered into two separate agreements with The Bank of New York Mellon, an affiliate of the Manager, that enable the fund, and other series in the Trust, to borrow, in the aggregate, (i) up to $35 million from a committed line of credit and (ii) up to $15 million
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
from an uncommitted line of credit. In connection therewith, the fund has agreed to pay administrative and facility fees on its pro rata portion of the lines of credit. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowing.
The average daily amount of borrowings outstanding under the lines of credit during the period ended March 31, 2009, was approximately $20,100 with a related weighted average annualized interest rate of .82%.
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 currently is limiting the fund’s operating expenses or assuming all or part of the expenses of the fund (excluding Rule 12b-1 fees, shareholder services fees, taxes, interest, brokerage commissions, acquired fund fees and extraordinary expenses), not to exceed an annual rate of 1.75% of the value of the fund’s average daily net assets of Class A and C shares. The Manager currently is limiting the fund’s operating expenses or assuming all or part of the expenses of the fund, not to exceed an annual rate of 1.45% of the value of the fund’s average daily net assets of Class I shares.The expense limitation and waiver are voluntary, not contractual, and may be terminated at any time.The expense reimbursement, pursuant to the undertaking, amounted to $110,913 during the period ended March 31, 2009.
The Trust entered into an agreement with The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, pursuant to which The Bank of NewYork 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. Pursuant to this agreement, the fund was charged $30,000 during the period ended March 31, 2009 for administration and fund accounting services.
26
(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. During the period ended March 31, 2009, Class C shares were charged less than $1 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, 2009, Class A and Class C shares were charged less than $1 pursuant to the Shareholder Services Plan.
(d) 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, 2009, the fund was charged $3,088 pursuant to the transfer agency agreement.
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, 2009, the fund was charged $63 pursuant to the cash management agreements. These fees were offset by earnings credits 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, 2009, the fund was charged $57,511 pursuant to the custody agreement.
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
During the period ended March 31, 2009, the fund was charged $2,578 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 $8,479, custodian fees $20,000, chief compliance officer fees $2,578 and transfer agency per account fees $2,000, which are offset against an expense reimbursement currently in effect in the amount of $13,053.
(e) Effective December 1, 2008, each Trustee receives $45,000 per year, plus $6,000 for each joint Board meeting of The Dreyfus/Laurel Funds, Inc.,The Dreyfus/Laurel Funds Trust and The Dreyfus/Laurel Tax-Free Municipal Funds, (collectively, the “Dreyfus/Laurel Funds”) and theTrust attended, $2,000 for separate in-person committee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that are conducted by telephone and is reimbursed 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, the Chair of the compensation committee receives $900 per meeting. In the event that there is an in person joint committee meeting of the Dreyfus/Laurel Funds, the Trust and Dreyfus HighYield Strategies Fund, the $2,000 or $1,500 fee, as applicable, will be allocated between the Dreyfus/Laurel Funds, theTrust and Dreyfus HighYield Strategies Fund.These fees and expenses are charged and allocated to each series based on net assets.
(f) 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, 2009, there were no redemption fees charged and retained by the fund.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities and forward currency exchange
28
contracts, during the period ended March 31, 2009, amounted to $10,073,293 and $10,747,888, respectively.
The fund enters into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings and to settle foreign currency transac-tions.When executing forward currency exchange contracts, the fund is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future. With respect to sales of forward currency exchange contracts, the fund would incur a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed.The fund realizes a gain if the value of the contract decreases between those dates. With respect to purchases of forward currency exchange contracts, the fund would incur a loss if the value of the contract decreases between the date the forward contract is opened and the date the forward contract is closed. The fund realizes a gain if the value of the contract increases between those dates. The fund is also exposed to credit risk associated with counterparty nonperformance on these forward currency exchange contracts which is typically limited to the unrealized gain on each open contract. The following summarizes open forward currency exchange contracts at March 31, 2009:
Foreign | Unrealized | |||
Forward Currency | Currency | Appreciation | ||
Exchange Contracts | Amounts | Cost ($) | Value ($) (Depreciation) ($) | |
Purchases: | ||||
Hong Kong Dollar, | ||||
Expiring 4/1/2009 | 147,563 | 19,041 | 19,039 | (2) |
Sales: | Proceeds ($) | |||
Israeli Shekel, | ||||
Expiring 4/1/2009 | 239,889 | 57,266 | 56,852 | 414 |
Mexican Peso, | ||||
Expiring 4/1/2009 | 301,295 | 20,780 | 21,270 | (490) |
Mexican Peso, | ||||
Expiring 4/2/2009 | 229,959 | 16,356 | 16,234 | 122 |
Total | 44 |
The Fund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
At March 31, 2009, accumulated net unrealized depreciation on investments was $1,686,224, consisting of $400,690 gross unrealized appreciation and $2,086,914 gross unrealized depreciation.
At March 31, 2009, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
The Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements.The application of FAS 161 is required for fiscal years and interim periods beginning after November 15, 2008.At this time, management is evaluating the implications of FAS 161 and its impact on the financial statements and the accompanying notes has not yet been determined.
NOTE 5—Change in Independent Registered Public Accounting Firm:
PricewaterhouseCoopers LLP (“PWC”), 300 Madison Avenue, New York, New York 10017, an independent registered public accounting firm, were the independent registered public accounting firm for the fund for the fiscal year ended September 30, 2008. At the meetings held on February 9-10, 2009, the Audit Committee and the Board of Trustees of the Trust engaged KPMG LLP to replace PWC as the independent registered public accounting firm for the Trust, effective upon the conclusion of the audit of the December 31, 2008 financial statements of other series of the Trust.
30
During the funds’ past two fiscal years and any subsequent interim period: (i) no report on the funds’ financial statements contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles; and (ii) there were no “disagreements” (as such term is used in Item 304 of Regulation S-K) with PWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of PWC, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report.
The Fund 31
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 and 10, 2009, 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.
Representatives of the Manager reminded the Board members that the Manager became the investment adviser of the fund, effective December 1, 2008, and that there were no changes to the portfolio management of the fund as a result of the appointment of the Manager as the fund’s investment adviser.
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. 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
32
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.
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 above the Performance Group and Performance Universe medians for the one-and two-year periods ended December 31, 2008.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. A representative of the Manager informed the Board members that the Manager is currently limiting the fund’s total expense ratio (excluding brokerage commissions, taxes and extraordinary expenses) to 1.45% of the fund’s average daily net assets and that such limitation is voluntary and may be terminated at any time.The Board members noted that the fund’s contractual management fee was below the Expense Group median
The Fund 33
NFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
and that, because of the limitation on expenses, the fund did not pay a management fee for the fiscal year ended September 30, 2008.The Board members also were informed that 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 New York 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 blended advisory fee.The Board noted that the fund’s actual management fee (which was zero) was below the Expense Group and Expense Universe medians, the fund’s contractual management fee was below the Expense Group median, and the fund’s expense ratio was above 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 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 Manager’s representatives also reviewed the costs associated with distribution through intermediaries.The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided. The Board members considered the relevance of the fee information provided for the Similar Funds and the Similar Account to evaluate the appropriateness and reasonableness of the fund’s management fee.The Board acknowledged that differences in fees paid by the Similar Account seemed to be consistent with the services provided.
34
Analysis of Profitability and Economies of Scale. A representative of the Manager reminded the Board members that The Bank of New York Mellon Corporation, the parent company of the Manager, paid all of the expenses associated with the Manager becoming the fund’s investment adviser and the proxy campaign with respect to the Board members becoming the Trust’s Board members. Because the Manager only became the fund’s investment adviser effective December 1, 2008, the Manager’s representatives were not able to provide a dollar amount of expenses allocated and profit received by the Manager, but a representative of the Manager did review the method to be used to determine such expenses and profit in the future. 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 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 considered whether the fund would be able to participate in any economies of scale that the Manager may experience in the event that the fund attracts a large amount of assets but noted the decrease to the fund’s recent asset levels. The Board members discussed the renewal requirements for advisory agreements and their ability to review the management fee annually.
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
The Fund 35
NFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
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 to be 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 to be provided, comparative performance, expense and advisory fee information and potential profits to be realized and benefits to be derived by the Manager from its relationship with the fund.
- The Board determined that because the Manager had become the investment adviser of the fund effective December 1,2008,economies of scale were not a factor at this time, but, to the extent that material economies of scale are not shared with the fund in the future, the Board would seek to do so in connection with future renewals.
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 and that the Management Agreement would be renewed through April 4, 2010.
36
Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.dreyfus.com and sign up for Dreyfus eCommunications. It’s simple and only takes a few minutes.
The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
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 |
30 | Information About the Review and Approval of the Fund’s Investment Advisory Agreement |
FOR MORE INFORMATION | |
Back Cover |
The Fund |
Dreyfus/The Boston Company International Core Equity Fund |
A LETTER FROM THE CEO Dear Shareholder: |
We present this semiannual report for Dreyfus/The Boston Company International Core Equity Fund, covering the six-month period from October 1, 2008, through March 31, 2009.
The reporting period has been one of the most challenging for the U.S. economy, which has undoubtedly affected the global financial markets. The bankruptcy of Lehman Brothers in mid-September 2008 triggered a cascading global economic decline that affected both industrialized and emerging economies throughout the world.As the credit crisis dried up the availability of funding for businesses and consumers, international trade activity slumped, commodity prices plummeted, investors de-leveraged their portfolios, companies liquidated inventories, unemployment surged and corporate earnings sagged.
On the heels of a –6.3% annualized U.S. economic growth rate in the fourth quarter of 2008, we expect another sharp decline for the first quarter of 2009. However, our Chief Economist anticipates that the U.S. recession may reach a trough around the third quarter of this year, followed by a slow recovery. Indeed, an unprecedented and concerted worldwide effort has signaled that most developed markets are intent to do whatever it takes to forestall the economic slowdown, including interest-rate reductions by the ECB, the U.K. and Japan, as well as massive monetary and fiscal stimulus and support for troubled financial institutions. Although times seem dire now, we believe it is always appropriate to maintain a long-term investment focus and to discuss any investment modifications with your financial adviser.Together, you can prepare for the risks that lie ahead and position your assets to perform in this current market downturn, and in t he future.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund’s Portfolio Manager.
Thank you for your continued confidence and support.
Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation April 15, 2009 |
2
DISCUSSION OF FUND PERFORMANCE
For the period of October 1, 2008, through March 31, 2009, as provided by William Patzer, Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended March 31, 2009, Dreyfus/The Boston Company International Core Equity Fund produced a total return of –34.09%.1 In comparison, the fund’s benchmark, the Morgan Stanley Capital International Europe, Australasia and Far East Index (“MSCI EAFE Index”), produced a total return of –31.11% for the same period.2
Global economic instability created a significantly negative impact on large-capitalization equities during the reporting period. In this falling market, the fund was unable to keep pace with its benchmark due primarily to negative contributions by investments in Japan as well as the financials and industrials sectors.
The Fund’s Investment Approach
The objective of the fund is to achieve long-term growth of capital by investing, under normal circumstances, 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 and Financial Crises Roiled Equity Markets
A deteriorating global economy — battered by an intensifying credit crisis, evaporating production demand, plummeting commodities prices
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
and slackened consumer spending — caused equity markets to hemorrhage value during the fourth quarter of 2008. However, in the first quarter of 2009, central banks and governments intervened massively to stimulate their national economies and re-energize credit markets.These measures were greeted positively by equity markets late in the reporting period, sparking a rally that offset some previous declines.
As can be expected under volatile market conditions, the fund encountered numerous disappointments during the reporting period, particularly in Japan, the United Kingdom and Germany, as well as in the financials and industrials areas. Exposure to weak-performing real-estate investment trusts and faltering Japanese property companies, such as Mitsubishi UFJ Financial Group, Leopalace21 and Nomura Real Estate Holdings, impeded the fund’s performance, as did a reduced allocation to Japanese consumer credit companies, which outpaced the benchmark despite the possibility of bankruptcy. Poor returns by banking giants HSBC Holdings and Barclays in the United Kingdom also detracted from performance. The fund’s holdings of industrials stocks were dragged down by Central Japan Railway, whose outperformance in the fourth quarter of 2008 reversed in early 2009 as investors moved away from traditionally defensive railroad stocks. Japanese logistical transportation company Nippon Express plummeted when manufacturing activity evaporated, reducing transportation orders. In the utilities sector, Germany’s E.ON suffered from reduced service levels and falling oil prices, while Tokyo Gas’ stock price fell due to softened demand and a weakening yen.
However, the fund received positive contributions from a number of investments during the reporting period. Investments in Belgium and Ireland generally supported the fund’s results, as did Switzerland. Germany’s Software AG produced above-average returns, while Norway’s videoconferencing giant Tandberg saw solid demand despite the slowing business spending environment. Within the consumer staples sector, Belgian supermarket chain Delhaize Group’s position in a traditionally defensive industry group helped support its stock price, as did its presence in international markets. A market leader in Italy and strong competitor in Canada, Parmalat rebounded on an improv-
4
ing cost profile. Strong performance by Switzerland’s Nestlé delivered a positive contribution to performance, as diversification, strong sales and ability to pass along increased pricing boosted the stock. A modestly overweighted position in the traditionally defensive health care sector, paired with a significant investment in strong-performing Swiss pharmaceutical giant Roche Holding, helped bolster the fund’s results. Robust exposure to Credit Suisse Group and an avoidance of Switzerland’s UBS also helped the fund, while advantageous timing in the purchase of Ireland’s building materials firm CRH also proved beneficial to results during the reporting period.
Focus on Recovery and Growth
Despite reductions in global economic growth forecasts for some of the world’s major regions, the developed market equities began to see more positive results in the final weeks of the reporting period, based on early signs of potential economic stabilization and some encouraging earnings reports. Over the course of the past few quarters, we have repositioned the fund to favor stocks that we believe have elements of downside protection due to lower, sustainable debt profiles, yet have attractive valuations and strong earnings recovery potential when markets stabilize and improve.We are avoiding exposure to businesses which, after various industry pricing busts, have shown poor capital structure or credit profiles. We continue to seek stocks that combine sustainable business momentum and valuations regardless of the market environment.
April 15, 2009
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 currently is limiting the fund’s operating expenses. Had these expense limitations not been in effect, returns would have been lower.These expense limitations are voluntary, not contractual, and may be terminated 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, 2008 to March 31, 2009. 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, 2009 | |
Expenses paid per $1,000† | $4.92 |
Ending value (after expenses) | $659.10 |
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, 2009 | |
Expenses paid per $1,000† | $5.99 |
Ending value (after expenses) | $1,019.00 |
† Expenses are equal to the fund’s annualized expense ratio of 1.19%, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS March 31, 2009 (Unaudited) |
Common Stocks—91.6% | Shares | Value ($) |
Australia—5.1% | ||
BHP Billiton | 49,603 | 1,105,595 |
Commonwealth Bank of Australia | 22,460 | 544,047 |
Computershare | 44,549 | 272,358 |
CSL | 14,560 | 329,447 |
Westfield Group | 42,251 | 294,810 |
Westpac Banking | 63,804 | 849,324 |
3,395,581 | ||
Belgium—1.3% | ||
Delhaize Group | 9,500 | 616,067 |
Groupe Bruxelles Lambert | 3,650 | 248,095 |
864,162 | ||
Denmark—.6% | ||
Novo Nordisk, Cl. B | 7,910 | 378,827 |
Finland—1.3% | ||
Nokia | 76,590 | 903,609 |
France—11.4% | ||
Air Liquide | 6,210 | 505,310 |
Alstom | 8,010 | 414,883 |
AXA | 41,307 | 496,670 |
BNP Paribas | 14,470 | 598,279 |
Bouygues | 12,390 | 443,141 |
GDF SUEZ | 16,773 | 576,059 |
Sanofi-Aventis | 16,098 | 906,417 |
Scor | 13,760 | 283,273 |
Technip | 7,530 | 266,217 |
Teleperformance | 11,230 | 309,147 |
Total | 30,840 | 1,533,457 |
Unibail-Rodamco | 2,862 | 405,457 |
Vivendi | 35,900 | 950,360 |
7,688,670 | ||
Germany—7.5% | ||
Adidas | 9,770 | 325,290 |
Deutsche Lufthansa | 25,390 | 275,601 |
E.ON | 13,390 | 371,989 |
Hochtief | 10,990 | 416,285 |
Lanxess | 14,310 | 243,928 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Germany (continued) | ||
MAN | 7,050 | 307,226 |
Merck | 5,240 | 463,383 |
Muenchener Rueckversicherungs | 4,830 | 589,095 |
Rheinmetall | 5,750 | 195,647 |
RWE | 9,255 | 649,364 |
Salzgitter | 8,450 | 472,420 |
SAP | 9,540 | 338,166 |
Software | 5,610 | 399,878 |
5,048,272 | ||
Greece—.6% | ||
Public Power | 21,870 | 395,169 |
Hong Kong—1.8% | ||
Cheung Kong Holdings | 28,000 | 241,233 |
Henderson Land Development | 98,000 | 373,123 |
Link REIT | 153,500 | 303,121 |
Swire Pacific, Cl. A | 45,000 | 300,267 |
1,217,744 | ||
Ireland—.8% | ||
CRH | 12,905 | 280,845 |
Ryanair Holdings, ADR | 10,100 a | 233,411 |
514,256 | ||
Italy—3.9% | ||
Buzzi Unicem | 15,844 | 177,771 |
ENI | 48,350 | 939,159 |
Finmeccanica | 16,900 | 210,388 |
Intesa Sanpaolo | 201,050 | 553,597 |
Parmalat | 234,640 | 483,514 |
Terna | 78,120 | 243,389 |
2,607,818 | ||
Japan—22.6% | ||
Air Water | 21,000 | 183,933 |
Amada | 55,000 | 289,864 |
Astellas Pharma | 17,700 | 545,133 |
Bank of Kyoto | 28,000 | 238,659 |
Bridgestone | 34,200 | 493,883 |
Chiba Bank | 42,000 | 209,501 |
Chubu Electric Power | 24,100 | 530,269 |
8
Common Stocks (continued) | Shares | Value ($) |
Japan (continued) | ||
Daihatsu Motor | 33,000 | 261,299 |
Daiichi Sankyo | 24,400 | 412,386 |
Daito Trust Construction | 5,800 | 194,423 |
Honda Motor | 28,400 | 679,517 |
Japan Real Estate Investment | 22 | 169,883 |
JSR | 25,000 | 294,767 |
KDDI | 79 | 372,785 |
Keihin | 58,100 | 627,793 |
Kubota | 59,000 | 324,140 |
Lawson | 13,300 | 548,486 |
Mitsubishi UFJ Financial Group | 160,200 | 787,009 |
Mitsumi Electric | 21,400 | 312,924 |
Mizuho Financial Group | 241,900 | 470,893 |
Murata Manufacturing | 9,200 | 355,691 |
Nippon Electric Glass | 44,000 | 312,488 |
Nippon Express | 83,000 | 261,790 |
Nippon Telegraph & Telephone | 5,500 | 208,897 |
Nippon Yusen | 79,700 | 309,815 |
Nissin Foods Holdings | 8,300 | 243,754 |
Omron | 17,000 | 201,749 |
Pacific Metals | 40,000 | 177,602 |
Rakuten | 648 b | 309,846 |
Rohm | 6,000 | 300,607 |
Sega Sammy Holdings | 48,800 | 430,345 |
Shin-Etsu Chemical | 6,300 | 309,213 |
Shinko Electric Industries | 25,500 | 246,315 |
Softbank | 18,700 | 238,832 |
Sumitomo | 59,900 | 520,726 |
Sumitomo Electric Industries | 41,400 | 350,606 |
Sumitomo Heavy Industries | 116,700 | 394,062 |
Suruga Bank | 30,000 | 247,062 |
Tokai Rika | 33,400 | 336,435 |
Tokyo Electron | 7,300 | 274,986 |
Tokyo Gas | 141,000 | 492,441 |
Toyo Engineering | 123,000 | 364,502 |
Yamaguchi Financial Group | 36,000 | 338,904 |
15,174,215 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Netherlands—2.0% | ||
Koninklijke Ahold | 43,230 | 473,843 |
KONINKLIJKE KPN | 31,380 | 419,417 |
Koninklijke Vopak | 6,420 | 256,998 |
Wereldhave | 2,890 | 202,216 |
1,352,474 | ||
Norway—.5% | ||
Tandberg | 24,100 | 355,393 |
Spain—2.9% | ||
Banco Santander | 76,460 | 527,226 |
Criteria Caixacorp | 62,700 | 202,427 |
Repsol | 12,570 | 217,608 |
Telefonica | 49,020 | 978,225 |
1,925,486 | ||
Sweden—1.2% | ||
Alfa Laval | 27,210 | 206,076 |
Elekta, Cl. B | 38,340 | 385,993 |
Nordea Bank | 48,790 b | 243,374 |
835,443 | ||
Switzerland—8.2% | ||
Adecco | 7,600 | 237,554 |
Credit Suisse Group | 24,540 | 747,216 |
Nestle | 56,370 | 1,905,576 |
Novartis | 21,896 | 828,674 |
Roche Holding | 6,164 | 845,837 |
Syngenta | 2,190 | 441,348 |
Zurich Financial Services | 3,210 | 507,881 |
5,514,086 | ||
United Kingdom—19.2% | ||
Amlin | 54,690 | 269,942 |
AstraZeneca | 13,910 | 489,187 |
BAE Systems | 71,000 | 340,768 |
BHP Billiton | 22,630 | 449,717 |
BP | 121,000 | 818,600 |
Charter International | 87,540 | 572,764 |
10
Common Stocks (continued) | Shares | Value ($) |
United Kingdom (continued) | ||
HSBC Holdings | 71,830 | 407,106 |
Imperial Tobacco Group | 26,040 | 585,483 |
Kazakhmys | 50,760 a | 270,209 |
Kingfisher | 263,420 | 565,816 |
Man Group | 88,500 | 277,459 |
Persimmon | 74,570 | 369,672 |
Prudential | 75,890 | 366,960 |
Reckitt Benckiser Group | 8,400 | 315,660 |
Regus | 301,810 | 318,292 |
Rio Tinto | 6,520 | 219,847 |
Royal Dutch Shell, Cl. B | 79,430 | 1,744,875 |
RSA Insurance Group | 162,120 | 302,635 |
Scottish & Southern Energy | 22,470 | 357,552 |
Shire | 19,920 | 246,663 |
Tesco | 182,670 | 873,851 |
Thomas Cook Group | 155,560 | 535,690 |
Vodafone Group | 855,437 | 1,506,656 |
WPP | 126,350 | 712,026 |
12,917,430 | ||
United States—.7% | ||
iShares MSCI EAFE Index Fund | 12,120 | 455,590 |
Total Common Stocks | ||
(cost $74,394,619) | 61,544,225 | |
Preferred Stocks—.4% | ||
Germany | ||
Fresenius | ||
(cost $431,719) | 6,230 | 286,060 |
Other Investment—.8% | ||
Registered Investment Company; | ||
Dreyfus Institutional Preferred Plus | ||
Money Market Fund | ||
(cost $544,744) | 544,744 c | 544,744 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Investment of Cash Collateral | ||
for Securities Loaned—.0% | Shares | Value ($) |
Registered Investment Company; | ||
Dreyfus Institutional Cash Advantage Fund | ||
(cost $14,881) | 14,881 c | 14,881 |
Total Investments (cost $75,385,963) | 92.8% | 62,389,910 |
Cash and Receivables (Net) | 7.2% | 4,828,966 |
Net Assets | 100.0% | 67,218,876 |
ADR—American Depository Receipts |
a Non-income producing security. b All or a portion of these securities are on loan.At March 31, 2009, the total market value of the fund’s securities on loan is $13,916 and the total market value of the collateral held by the fund is $14,881. c Investment in affiliated money market mutual fund.
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Financials | 19.0 | Information Technology | 6.4 |
Industrials | 11.2 | Telecommunication Services | 5.6 |
Consumer Discretionary | 9.8 | Utilities | 5.4 |
Health Care | 9.1 | Money Market Investments | .8 |
Consumer Staples | 9.0 | Exchange Traded Funds | .7 |
Energy | 8.2 | ||
Materials | 7.6 | 92.8 | |
† Based on net assets. | |||
See notes to financial statements. |
12
STATEMENT OF FINANCIAL FUTURES
March 31, 2009 (Unaudited)
Market Value | ||||
Covered by | Unrealized | |||
Contracts | Contracts ($) | Expiration | Appreciation ($) | |
Financial Futures Long | ||||
DJ Euro STOXX | 64 | 1,694,660 | June 2009 | 51,966 |
Topix Index | 8 | 627,974 | June 2009 | 64,622 |
116,588 | ||||
See notes to financial statements. |
The Fund 13
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2009 (Unaudited)
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments (including | ||
securities on loan, valued at $13,916)—Note 1(c): | ||
Unaffiliated issuers | 74,826,338 | 61,830,285 |
Affiliated issuers | 559,625 | 559,625 |
Cash | 249,034 | |
Cash denominated in foreign currencies | 1,322,706 | 1,306,650 |
Dividends and interest receivable | 2,045,026 | |
Due from broker | 1,854,000a | |
Receivable for futures variation margin—Note 4 | 39,747 | |
Unrealized appreciation on forward | ||
currency exchange contracts—Note 4 | 2,227 | |
Prepaid expenses | 24,380 | |
67,910,974 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(b) | 112,245 | |
Payable for investment securities purchased | 443,717 | |
Liability for securities on loan—Note 1(c) | 14,881 | |
Payable for shares of Beneficial Interest redeemed | 6,000 | |
Unrealized depreciation on forward | ||
currency exchange contracts—Note 4 | 452 | |
Interest payable—Note 2 | 318 | |
Accrued expenses | 114,485 | |
692,098 | ||
Net Assets ($) | 67,218,876 | |
Composition of Net Assets ($): | ||
Paid-in capital | 199,808,367 | |
Accumulated undistributed investment income—net | 582,172 | |
Accumulated net realized gain (loss) on investments | (120,352,089) | |
Accumulated net unrealized appreciation (depreciation) on | ||
investments and foreign currency transactions (including | ||
$116,588 net unrealized appreciation on financial futures) | (12,819,574) | |
Net Assets ($) | 67,218,876 | |
Shares Outstanding | ||
(unlimited number of $.001 par value shares of Beneficial Interest authorized) | 5,903,944 | |
Net Asset Value, offering and redemption price per share—Note 3(d) ($) | 11.39 | |
a Represents collateral for open financial futures positions. | ||
See notes to financial statements. |
14
STATEMENT OF OPERATIONS | |
Six Months Ended March 31, 2009 (Unaudited) | |
Investment Income ($): | |
Income: | |
Cash dividends (net of $92,778 foreign taxes withheld at source): | |
Unaffiliated issuers | 1,295,485 |
Affiliated issuers | 7,240 |
Income from securities lending | 228 |
Total Income | 1,302,953 |
Expenses: | |
Investment advisory fee—Note 3(a) | 433,548 |
Custodian fees—Note 3(b) | 83,125 |
Shareholder servicing costs—Note 3(b) | 83,112 |
Accounting and administration fees—Note 3(a) | 30,000 |
Professional fees | 24,670 |
Prospectus and shareholders’ reports | 22,974 |
Registration fees | 14,362 |
Trustees’ fees and expenses—Note 3(c) | 12,797 |
Loan commitment fees—Note 2 | 2,821 |
Interest expense—Note 2 | 569 |
Miscellaneous | 16,156 |
Total Expenses | 724,134 |
Less—reduction in investment advisory fee due to undertaking—Note 3(a) | (81,545) |
Less—reduction in fees due to earnings credits—Note 1(c) | (378) |
Net Expenses | 642,211 |
Investment Income—Net | 660,742 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments and foreign currency transactions | (83,982,908) |
Net realized gain (loss) on financial futures | (490,375) |
Net realized gain (loss) on forward currency exchange contracts | 176,354 |
Net Realized Gain (Loss) | (84,296,929) |
Net unrealized appreciation (depreciation) on investments | |
and foreign currency transactions (including $170,485 | |
net unrealized appreciation on financial futures) | 25,413,638 |
Net Realized and Unrealized Gain (Loss) on Investments | (58,883,291) |
Net (Decrease) in Net Assets Resulting from Operations | (58,222,549) |
See notes to financial statements. |
The Fund 15
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2009 | Year Ended | |
(Unaudited) | September 30, 2008 | |
Operations ($): | ||
Investment income—net | 660,742 | 7,675,540 |
Net realized gain (loss) on investments | (84,296,929) | 15,161,848 |
Net unrealized appreciation | ||
(depreciation) on investments | 25,413,638 | (163,215,482) |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | (58,222,549) | (140,378,094) |
Dividends to Shareholders from ($): | ||
Investment income—net | — | (5,823,004) |
Net realized gain on investments | — | (251,708,803) |
Total Dividends | — | (257,531,807) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold | 11,088,760 | 70,954,970 |
Dividends reinvested | — | 247,332,619 |
Cost of shares redeemed | (60,525,646) | (1,002,877,155) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (49,436,886) | (684,589,566) |
Total Increase (Decrease) in Net Assets | (107,659,435) | (1,082,499,467) |
Net Assets ($): | ||
Beginning of Period | 174,878,311 | 1,257,377,778 |
End of Period | 67,218,876 | 174,878,311 |
Undistributed (distributions in excess of) | ||
investment income—net | 582,172 | (78,570) |
Capital Share Transactions (Shares): | ||
Shares sold | 839,644 | 2,724,470 |
Shares issued for dividends reinvested | — | 9,696,307 |
Shares redeemed | (5,056,552) | (29,614,136) |
Net Increase (Decrease) in Shares Outstanding | (4,216,908) | (17,193,359) |
See notes to financial statements. |
16
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||
March 31, 2009 | Year Ended September 30, | |||||
(Unaudited) | 2008 | 2007 | 2006 | 2005 | 2004 | |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 17.28 | 46.03 | 39.01 | 34.34 | 27.03 | 21.62 |
Investment Operations: | ||||||
Investment income—neta | .08 | .49 | .78 | .71 | .50 | .31 |
Net realized and unrealized | ||||||
gain (loss) on investments | (5.97) | (10.82) | 7.82 | 5.59 | 7.73 | 5.49 |
Total from | ||||||
Investment Operations | (5.89) | (10.33) | 8.60 | 6.30 | 8.23 | 5.80 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | — | (.44) | (.60) | (.40) | (.39) | (.39) |
Dividends from net realized | ||||||
gain on investments | — | (17.98) | (.98) | (1.23) | (.53) | — |
Total Distributions | — | (18.42) | (1.58) | (1.63) | (.92) | (.39) |
Net asset value, | ||||||
end of period | 11.39 | 17.28 | 46.03 | 39.01 | 34.34 | 27.03 |
Total Return (%) | (34.09)b | (35.03)c | 22.37c | 19.01 | 31.06 | 27.04 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.34d | 1.07 | .78 | .88 | 1.01 | 1.12 |
Ratio of net expenses | ||||||
to average net assets | 1.19d | .87 | .77e | .88e | 1.01e | 1.12e |
Ratio of net investment | ||||||
income to average | ||||||
net assets | 1.22d | 1.70 | 1.78 | 1.91 | 1.59 | 1.22 |
Portfolio Turnover Rate | 84.77b | 98 | 83f | 51f | 58f | 80f |
Net Assets, end of period | ||||||
($ x 1,000) | 67,219 | 174,878 | 1,257,378 | 2,015,088 | 287,065 | 124,675 |
a | Based on average shares outstanding at each month end. |
b | Not annualized. |
c | Total return would have been lower in the absence of expense waivers. |
d | Annualized. |
e | For the period October 1, 2006 to September 19, 2007 and for the fiscal years ended September 30, 2004-2006, the ratios include the fund’s share of The Boston Company International Core Equity Portfolio’s (the Portfolio) allocated expenses. |
f | On September 19, 2007, the fund, which had 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 investment activity of both the fund and the Portfolio for the year.The amounts shown for 2004-2006 are the 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 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 fourteen series, including the fund.The fund’s investment objective is to achieve long-term growth of capital. Prior to December 1, 2008, The Boston Company Asset Management LLC, a wholly owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), served as the fund’s investment adviser. Effective December 1, 2008, 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, which are sold without a sales charge.
At a meeting of the Board of Trustees held on August 27, 2008, the Board approved, effective December 1, 2008, a proposal to change the names of the Trust and the fund from “Mellon Institutional Funds Investment Trust” and “The Boston Company International Core Equity Fund” to “Dreyfus Investment Funds” and “Dreyfus/The Boston Company International Core Equity Fund,” respectively.
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 fund’s financial statements are prepared in accordance with U.S. generally accepted accounting principles, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
18
(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 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 ADRs and futures contracts. For other securities that are fair valued by the Board ofTrustees, 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 currency exchange contracts are valued at the forward rate.
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The fund adopted Statement of Financial Accounting Standards No. 157 “FairValue Measurements” (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements.
Various inputs are used in determining the value of the fund’s investments relating to FAS 157.These inputs are summarized in the three broad levels listed below.
Level 1—quoted prices in active markets for identical investments. Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including 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, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Quoted | Observable Unobservable | |||
Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in | ||||
Securities | 42,602,370 | 19,787,540 | — | 62,389,910 |
Other Financial | ||||
Instruments† | 116,588 | 2,227 | — | 118,815 |
Liabilities ($) | ||||
Other Financial | ||||
Instruments† | — | (452) | — | (452) |
† Other financial instruments include derivative instruments, such as futures, forward currency exchange contracts, swap contracts and options contracts. Amounts shown represent unrealized appreciation (depreciation) at period end.
20
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Investments in Securities ($) | ||
Balance as of 9/30/2008 | 7,364 | |
Realized gain (loss) | — | |
Change in unrealized appreciation (depreciation) | — | |
Net purchases (sales) | (7,364) | |
Transfers in and/or out of Level 3 | — | |
Balance as of 3/31/2009 | — |
(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 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 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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.
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, 2009,The Bank of New York Mellon earned $123 from lending fund portfolio securities, pursuant to the securities lending agreement.
Until December 10, 2007, all cash collateral received by the fund and other series of the Trust in connection with the securities lending program was invested in the BlackRock Cash Strategies Fund LLC (the
22
“BlackRock Fund”), a private investment fund not affiliated with the Trust or its investment adviser. On December 10, 2007, the BlackRock Fund announced that it was suspending investor withdrawal privileges due to conditions related to the credit markets and the adverse affect of such conditions on the liquidity of the BlackRock Fund’s portfolio holdings. Commencing on December 11, 2007, all new cash collateral received in connection with the securities lending activity of the fund and other series of the Trust was invested by the securities lending agent in the Dreyfus Institutional Cash Advantage Fund (the “Dreyfus Fund”), an affiliated money market fund registered as an investment company under the Investment Company Act of 1940, as amended.To the extent that the BlackRock Fund agreed to permit withdrawals during the period December 11, 2007 through January 22, 2009, the securities lending agent effected such withdrawals and the cash proceeds from such withdrawals by the fund were reinvested in the shares of the Dreyfus Fund. As of January 22, 2009, the final withdrawal was reinvested in the shares of the Dreyfus Fund. Repayments of cash collateral during the period were made from the proceeds of redemptions of shares of the Dreyfus Fund.
(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 semi-annually 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”).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 U.S. generally accepted accounting principles.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(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, 2009, 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, 2008 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The tax character of distributions paid to shareholders during the fiscal year ended September 30, 2008 was as follows: ordinary income $11,931,652 and long-term capital gains $245,600,155. The tax character of current year distributions, if any, will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The Trust entered into two separate agreements with The Bank of New York Mellon that enable the fund, and other series in the Trust, to borrow, in the aggregate, (i) up to $35 million under a committed line of credit and (ii) up to $15 million under an uncommitted line of credit. In connection therewith, the fund has agreed to pay administrative and Facility fees on its pro rata portion of the lines of credit. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowing.
The average daily amount of borrowings outstanding under the lines of credit during the period ended March 31, 2009, was approximately $145,700 with a related weighted average annualized interest rate of .78%.
24
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 .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 currently is limiting the fund’s operating expenses or assuming all or part of the expenses of the fund so that such expenses do not exceed an annual rate of 1.25% of the value of the fund’s average daily net assets. The expense limitation and waiver are voluntary, not contractual, and may be terminated at any time.The reduction in investment advisory fee, pursuant to the undertaking, amounted to $81,545 during the period ended March 31, 2009.
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 $30,000 for the period ended March 31, 2009 for administration and fund accounting services.
(b) The fund compensates DreyfusTransfer, 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, 2009, the fund was charged $5,080 pursuant to the transfer agency agreement.
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
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
ended March 31, 2009, the fund was charged $378 pursuant to the cash management agreements.These fees were offset by earnings credits 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, 2009, the fund was charged $83,125 pursuant to the custody agreement.
During the period ended March 31, 2009, the fund was charged $2,578 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 $44,446, custodian fees $64,499, chief compliance officer fees $2,578 and transfer agency per account fees $722.
(c) Effective December 1, 2008, each Trustee receives $45,000 per year, plus $6,000 for each joint Board meeting of The Dreyfus/Laurel Funds, Inc.,The Dreyfus/Laurel Funds Trust and The Dreyfus/Laurel Tax-Free Municipal Funds, (collectively, the “Dreyfus/Laurel Funds”) and theTrust attended, $2,000 for separate in-person committee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that are conducted by telephone and is reimbursed 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, the Chair of the compensation committee receives $900 per meeting. In the event that there is an in person joint committee meeting of the Dreyfus/Laurel Funds, the Trust and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee, as applicable, will be allocated between the Dreyfus/Laurel Funds, the Trust and Dreyfus High Yield Strategies
26
Fund.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, 2009, redemption fees charged and retained by the fund amounted to $10,787.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, financial futures and forward currency exchange contracts, during the period ended March 31, 2009, amounted to $89,556,166 and $138,886,157, respectively.
The fund enters into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings and to settle foreign currency transactions. When executing forward currency exchange contracts, the fund is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future. With respect to sales of forward currency exchange contracts,the fund would incur a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed.The fund realizes a gain if the value of the contract decreases between those dates.With respect to purchases of forward currency exchange contracts, the fund would incur a loss if the value of the contract decreases between the date the forward contract is opened and the date the forward contract is closed.The fund realizes a gain if the value of the contract increases between those dates. The fund is also exposed to credit risk associated with counterparty nonperformance on these forward currency exchange contracts which is typically limited to
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
the unrealized gain on each open contract. The following summarizes open forward currency exchange contracts at March 31, 2009:
Foreign | Unrealized | |||
Forward Currency | Currency | Appreciation | ||
Exchange Contracts | Amounts | Proceeds ($) | Value ($) (Depreciation) ($) | |
Sales: | ||||
Euro, | ||||
expiring 4/1/2009 | 36,735 | 48,354 | 48,806 | (452) |
Japanese Yen, | ||||
expiring 4/1/2009 | 10,047,289 | 103,730 | 101,503 | 2,227 |
Total | 1,775 |
The fund may invest in financial futures contracts in order to gain exposure to or protect against changes in the market. The fund is exposed to market risk as a result of changes in the value of the underlying financial instruments. 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. Investments in financial futures require the fund to “mark to market” on a daily basis, which reflects the change in market value of the contracts at the close of each day’s trading. Accordingly, variation margin payments are received or made to reflect daily unrealized gains or losses. When the contracts are closed, the fund recognizes a realized gain or loss. Contracts open at March 31, 2009, are set forth in the Statement of Financial Futures.
At March 31, 2009, accumulated net unrealized depreciation on investments was $12,996,053, consisting of $1,799,151 gross unrealized appreciation and $14,795,204 gross unrealized depreciation.
At March 31, 2009, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
The Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires qualitative disclosures about objectives and strategies for using deriv-
28
atives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The application of FAS 161 is required for fiscal years and interim periods beginning after November 15, 2008. At this time, management is evaluating the implications of FAS 161 and its impact on the financial statements and the accompanying notes has not yet been determined.
NOTE 5—Change in Independent Registered Public Accounting Firm:
PricewaterhouseCoopers LLP (“PWC”), 300 Madison Avenue, New York, New York 10017, an independent registered public accounting firm, were the independent registered public accounting firm for the fund for the fiscal year ended September 30, 2008. At the meetings held on February 9-10, 2009, the Audit Committee and the Board of Trustees of the Trust engaged KPMG LLP to replace PWC as the independent registered public accounting firm for the Trust, effective upon the conclusion of the audit of the December 31, 2008 financial statements of other series of the Trust.
During the funds’ past two fiscal years and any subsequent interim period: (i) no report on the funds’ financial statements contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles; and (ii) there were no “disagreements” (as such term is used in Item 304 of Regulation S-K) with PWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of PWC, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report.
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 ofTrustees held on February 9 and 10, 2009, 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.
Representatives of the Manager reminded the Board members that the Manager became the investment adviser of the fund, effective December 1, 2008, and that there were no changes to the portfolio management of the fund as a result of the appointment of the Manager as the fund’s investment adviser.
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. 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 meet-
30
ing 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.
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 multi-cap value funds (the “Performance Group”) and to a larger universe of funds, consisting of all retail and institutional international multi-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 Universe medians for each of the reported periods ended December 31, 2008, except the fund’s total return performance was above the Performance Universe median for the 10-year period ended December 31, 2008. 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. A representative of the Manager informed the Board members that for the period of October 1, 2007 to August 31, 2008, the fund’s prior investment adviser, The Boston Company Asset Management LLC, an affiliate of the Manager, agreed to rebate 25% of its management fee to the fund. The Board members were informed that the rebate ended on
The Fund 31
NFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
September 1, 2008 and that the Manager is currently limiting the fund’s total expense ratio (excluding brokerage commissions, taxes and extraordinary expenses) to 1.45% of the fund’s average daily net assets and that such limitation is voluntary and may be terminated at any time. The Board members noted that the fund’s contractual management fee was below the Expense Group median and that, because of the rebate, the fund’s actual management fee was below the Expense Group and Expense Universe medians for the fiscal year ended September 30, 2008.The Board members also were informed that 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 blended advisory fee.The Board noted that the fund’s expense ratio, taking into account the rebate, 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 Manager’s representatives also reviewed the costs associated with distribution through intermediaries. The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided. The Board members considered the relevance of the fee information provided for the Similar Funds and the Similar Accounts to evaluate the appropri-
32
ateness and reasonableness of the fund’s management fee. The Board acknowledged that differences in fees paid by the Similar Accounts seemed to be consistent with the services provided.
Analysis of Profitability and Economies of Scale. A representative of the Manager reminded the Board members that The Bank of New York Mellon Corporation, the parent company of the Manager, paid all of the expenses associated with the Manager becoming the fund’s investment adviser and the proxy campaign with respect to the Board members becoming the Trust’s Board members. Because the Manager only became the fund’s investment adviser effective December 1, 2008, the Manager’s representatives were not able to provide a dollar amount of expenses allocated and profit received by the Manager, but a representative of the Manager did review the method to be used to determine such expenses and profit in the future.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 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 considered whether the fund would be able to participate in any economies of scale that the Manager may experience in the event that the fund attracts a large amount of assets but noted the significant decrease to the fund’s recent asset levels.The Board members discussed the renewal requirements for advisory agreements and their ability to review the management fee annually.
The Fund 33
NFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
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 to be provided by the Manager are adequate and appropriate.
- While the Board was concerned with the fund’s performance, the Board noted that the Manager only became the fund’s investment adviser effective December 1, 2008 and believed the Manager would seek to improve performance. The Board determined to closely monitor performance.
- The Board concluded that the fee paid by the fund to the Manager was reasonable in light of the services to be provided, comparative performance, expense and advisory fee information and potential profits to be realized and benefits to be derived by the Manager from its relationship with the fund.
- The Board determined that because the Manager had become the investment adviser of the fund effective December 1,2008,economies of scale were not a factor at this time, but, to the extent that material economies of scale are not shared with the fund in the future, the Board would seek to do so in connection with future renewals.
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 and that the Management Agreement would be renewed through April 4, 2010.
34
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 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 |
14 | Statement of Financial Futures |
15 | Statement of Assets and Liabilities |
16 | Statement of Operations |
17 | Statement of Changes in Net Assets |
18 | Financial Highlights |
19 | Notes to Financial Statements |
30 | Information About the Review and Approval of the Fund’s Investment Advisory Agreement |
FOR MORE INFORMATION | |
Back Cover |
The Fund |
Dreyfus/The Boston Company International Small Cap Fund |
A LETTER FROM THE CEO Dear Shareholder: |
We present this semiannual report for Dreyfus/The Boston Company International Small Cap Fund, covering the six-month period from October 1, 2008, through March 31, 2009.
The reporting period has been one of the most challenging for the U.S. economy, which has undoubtedly affected the global financial markets. The bankruptcy of Lehman Brothers in mid-September 2008 triggered a cascading global economic decline that affected both industrialized and emerging economies throughout the world.As the credit crisis dried up the availability of funding for businesses and consumers, international trade activity slumped, commodity prices plummeted, investors de-leveraged their portfolios, companies liquidated inventories, unemployment surged and corporate earnings sagged.
On the heels of a –6.3% annualized U.S. economic growth rate in the fourth quarter of 2008, we expect another sharp decline for the first quarter of 2009. However, our Chief Economist anticipates that the U.S. recession may reach a trough around the third quarter of this year, followed by a slow recovery. Indeed, an unprecedented and concerted worldwide effort has signaled that most developed markets are intent to do whatever it takes to forestall the economic slowdown, including interest-rate reductions by the ECB, the U.K and Japan, as well as massive monetary and fiscal stimulus and support for troubled financial institutions. Although times seem dire now, we believe it is always appropriate to maintain a long-term investment focus and to discuss any investment modifications with your financial adviser.Together, you can prepare for the risks that lie ahead and position your assets to perform in this current market downturn, and in th e future.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund’s Portfolio Managers.
Thank you for your continued confidence and support.
Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation April 15, 2009 |
2
DISCUSSION OF FUND PERFORMANCE
For the period of October 1, 2008, through March 31, 2009, as provided by William Patzer and Mark Bogar, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended March 31, 2009, Dreyfus/The Boston Company International Small Cap Fund produced a total return of –32.60%.1 In comparison, the fund’s benchmark, the S&P Developed Ex-U.S. Small Cap Index (the “EMI Ex-U.S. Index”), produced a total return of –31.94% for the same period.2
Global economic instability created a significantly negative impact on small-capitalization equities during the reporting period. Although the fund suffered in kind with the falling markets, it fell short of its benchmark primarily due to weak security selections in Japan, Greece and Australia.
The Fund’s Investment Approach
The objective of the fund is to achieve long-term growth of capital by investing, under normal circumstances, at least 80% of net assets in equity securities of companies that are located in foreign countries represented in the EMI Ex-U.S. Index.The fund may invest up to 25% of its assets in securities of issuers located 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 process that emphasizes individual stock selection and the construction of a diversified portfolio through quantitative models and traditional qualitative analysis.
Economic and Financial Crises Roiled Equity Markets
A deteriorating global economy — battered by an intensifying credit crisis, evaporating production demand, plummeting commodities prices and slackened consumer spending — caused equity markets to hemorrhage value during the last quarter of 2008. However, in the first quarter of 2009, central banks and governments intervened to stimulate their national economies.These measures energized equity markets late in the reporting period, sparking a rally that offset some previous declines.
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
Lagging Stock Selection Hurt Relative Performance
Japan was, by far, the worst relative performing region for the fund. A large export-oriented country, Japan was hurt by an abrupt slowdown in manufacturing activity, depressed consumer spending and a strengthening yen, and the fund’s exposure to these faltering exporters dampened its return. Greek consumer staples firms also weakened performance.
The main detractor in the fund’s materials sector was Australian scrap metal leader Sims Metal Management, which was adversely affected by declining prices in the metals industry. U.K. packaging companies Mondi PLC and Rexam also felt pressure as global trade slowed. Japanese real-estate investment trusts and property management companies detracted from performance in the financials sector, as the Japanese real estate market continued to incur damage throughout the reporting period. Key detractors in the consumer staples sector included Greece’s Alapis Holding, Industrial and Commercial S.A., which plummeted when the household products firm experienced uncertainty surrounding an acquisition. Cosmetic and household product manufacturer Sarantis fell along with the Greek market decline. House Food Corporation also undermined the fund’s results as the Japanese food manufacturer’s stock sank when investors began moving away from relatively defensive stocks.
Although the fund posted negative absolute returns, it had strong contributions from investments in a number of regions. In France, the fund’s outperformance was due to strong stock selection in the consumer discretionary sector. Returns from Germany were buoyed by information technology and industrial stocks. Strategic purchases among Canadian industrial firms, such as WestJet Airlines, also aided the fund, as did Crescent Point Energy Trust, which performed solidly despite the falling energy prices.
British consumer discretionary companies Thomas Cook Group and TUI Travel saw stability in summer travel bookings among Europeans as well as benefits from their asset-light business model. Domino’s Pizza UK posted a relatively strong return as consumers sought lower cost dining alternatives. French media companies Havas and Publicis Groupe outperformed competitors due to both firms’ diversification and global reach. Germany’s Software AG and Wincor Nixdorf bested
4
the benchmark’s return in the information technology sector, and Norway’s videoconferencing giant Tandberg saw solid demand despite the slowing business spending environment.
The fund’s outperformance in the industrials sector was owed primarily to German aircraft engine manufacturer MTU Aero Engines, which benefited from recurring revenues from aircraft replacement parts and servicing, as well as resilient trends in its military business line.
Cautiously Optimistic for the Longer Term
Despite reductions in global economic growth forecasts for some of the world’s major nations, the small-capitalization market began to see positive returns in the last weeks of the reporting period based on early signs of potential economic stabilization and some encouraging earnings reports. Incentives from governments and industries may help stimulate commercial and consumer spending,which could aid small-cap firms and revive confidence in equities.With this in mind,we have repositioned the fund to favor stocks that we believe have elements of downside protection due to lower, sustainable debt profiles, yet have attractive valuations and strong earnings recovery potential when markets stabilize and improve. We are avoiding exposure to businesses which, after various industry pricing busts, have shown poor capital structure or credit pro-files.We have focused instead on firms with good recovery and growth prospects, and we have continued to seek stocks that combine sustainable business momentum and valuation regardless of the market environment.
April 15, 2009
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 currently is limiting the fund’s operating expenses. Had these expense limitations not been in effect, returns would have been lower.These expense limitations are voluntary, not contractual, and may be terminated at any time. |
2 | SOURCE: Standard & Poor’s — Reflects net reinvestment of dividends and, where applicable, capital gain distributions.The S&P Developed Ex-U.S. Small Cap Index captures the bottom 15% of companies in the developed countries excluding the U.S. within the S&P Global Broad Market Index, with a float adjusted market capitalization US$100 million or greater and a minimum annual trading liquidity of US$50 million. |
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 Small Cap Fund from October 1, 2008 to March 31, 2009. 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, 2009 | |
Expenses paid per $1,000† | $6.26 |
Ending value (after expenses) | $674.00 |
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, 2009 | |
Expenses paid per $1,000† | $7.54 |
Ending value (after expenses) | $1,017.45 |
† Expenses are equal to the fund’s annualized expense ratio of 1.50%, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS March 31, 2009 (Unaudited) |
Common Stocks—95.4% | Shares | Value ($) |
Australia—2.9% | ||
Australian Worldwide Exploration | 34,149 | 57,243 |
CFS Retail Property Trust | 35,860 | 40,680 |
Computershare | 8,028 | 49,081 |
Downer EDI | 18,470 | 57,367 |
Goodman Fielder | 58,160 | 42,355 |
Iluka Resources | 15,400 | 43,263 |
Metcash | 21,240 | 59,756 |
349,745 | ||
Belgium—.8% | ||
Bekaert | 710 | 47,911 |
Cofinimmo | 470 | 50,112 |
98,023 | ||
Bermuda—.5% | ||
Catlin Group | 13,710 | 61,572 |
Canada—7.6% | ||
Altagas Income Trust | 3,370 | 38,089 |
Biovail | 4,790 | 52,087 |
Cogeco Cable | 2,720 | 67,957 |
Crescent Point Energy Trust | 4,557 | 95,275 |
Emera | 6,930 | 104,599 |
First Quantum Minerals | 2,760 | 77,713 |
HudBay Minerals | 16,130 a | 75,609 |
IAMGOLD | 6,830 | 58,939 |
Laurentian Bank of Canada | 3,160 | 66,669 |
Red Back Mining | 14,960 a | 96,704 |
Rona | 3,870 a | 36,435 |
Silver Standard Resources | 3,290 a | 53,546 |
Sino-Forest | 7,130 a | 49,709 |
Westjet Airlines, Cl. W | 5,990 a | 55,206 |
928,537 | ||
China—1.3% | ||
China Agri-Industries Holdings | 186,000 a | 88,575 |
Zhejiang Expressway, Cl. H | 102,000 | 74,377 |
162,952 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Finland—1.3% | ||
Konecranes | 2,870 | 48,045 |
Outotec | 3,870 | 66,534 |
Tietoenator | 3,840 | 39,845 |
154,424 | ||
France—8.7% | ||
Cap Gemini | 1,763 | 56,731 |
CNP Assurances | 1,120 | 70,682 |
Eutelsat Communications | 2,410 | 51,231 |
Faiveley | 780 | 56,997 |
Fonciere des Regions | 688 | 32,317 |
Havas | 33,859 | 87,271 |
Ipsen | 1,595 | 61,433 |
Ipsos | 2,690 | 59,327 |
Neopost | 590 | 45,782 |
Publicis Groupe | 4,246 | 108,989 |
Scor | 6,360 | 130,931 |
Societe BIC | 910 | 44,728 |
Technip | 2,800 | 98,992 |
Teleperformance | 3,542 | 97,506 |
Unibail-Rodamco | 401 | 56,809 |
1,059,726 | ||
Germany—6.7% | ||
Adidas | 1,250 | 41,618 |
Deutsche Euroshop | 2,028 | 58,469 |
Deutsche Lufthansa | 5,575 | 60,515 |
Fielmann | 1,120 | 68,985 |
Lanxess | 4,720 | 80,457 |
MTU Aero Engines Holding | 2,900 | 67,966 |
Puma | 300 | 45,546 |
Rheinmetall | 1,420 | 48,316 |
Salzgitter | 1,517 | 84,812 |
Software | 1,020 | 72,705 |
Tognum | 7,820 | 68,156 |
Vossloh | 390 | 41,395 |
Wincor Nixdorf | 1,710 | 77,495 |
816,435 |
8
Common Stocks (continued) | Shares | Value ($) |
Greece—.5% | ||
Public Power | 2,570 | 46,437 |
Sarantis | 5,768 | 20,078 |
66,515 | ||
Hong Kong—1.0% | ||
Neo-China Land Group Holdings | 645,500 b | 62,463 |
Pacific Basin Shipping | 136,000 | 61,900 |
Peace Mark Holdings | 712,000 b | 0 |
124,363 | ||
Ireland—.8% | ||
DCC | 6,736 | 102,024 |
Italy—4.7% | ||
ACEA | 6,085 | 72,761 |
Banca Popolare di Milano Scarl | 18,764 | 93,487 |
Benetton Group | 13,724 | 89,437 |
Buzzi Unicem | 5,663 | 63,539 |
DiaSorin | 2,100 | 46,957 |
Parmalat | 64,990 | 133,923 |
Recordati | 13,170 | 71,741 |
571,845 | ||
Japan—25.8% | ||
Air Water | 7,800 | 68,318 |
Amada | 11,000 | 57,973 |
Asics | 5,000 | 34,944 |
Bank of Kyoto | 6,000 | 51,141 |
Bank of Yokohama | 12,000 | 51,555 |
Chiba Bank | 11,000 | 54,869 |
Chiyoda | 4,500 | 63,381 |
Circle K Sunkus | 4,500 | 64,111 |
COMSYS Holdings | 10,000 | 84,194 |
Daifuku | 11,500 | 62,363 |
Daito Trust Construction | 800 | 26,817 |
Disco | 1,800 | 44,582 |
F.C.C | 3,200 | 33,068 |
Fukuoka Financial Group | 15,000 | 46,146 |
Gourmet Navigator | 17 | 34,057 |
Hogy Medical | 1,081 | 58,971 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Japan (continued) | ||
Hokuhoku Financial Group | 40,000 | 73,442 |
House Foods | 4,400 | 61,205 |
Japan Aviation Electronics Industry | 10,000 | 49,622 |
Japan Excellent | 9 | 32,472 |
Kansai Paint | 16,000 | 89,810 |
Keihin | 10,400 | 112,376 |
Kinden | 9,000 | 73,129 |
Kuroda Electric | 15,800 | 87,315 |
KYORIN Co | 4,000 | 49,625 |
Kyowa Exeo | 4,000 | 32,585 |
Lintec | 3,800 | 47,249 |
Matsui Securities | 11,800 | 77,623 |
Matsumotokiyoshi Holdings | 3,100 | 49,750 |
MegaChips | 1,900 | 30,400 |
Mitsumi Electric | 5,900 | 86,274 |
NET One Systems | 38 | 50,139 |
NSD | 5,700 | 36,334 |
Pacific Metals | 11,000 | 48,841 |
Pigeon | 2,800 | 69,616 |
Point | 2,010 | 90,644 |
Seino Holdings | 24,000 | 115,750 |
Shimachu | 3,700 | 62,136 |
Shimano | 1,000 | 30,460 |
Shinko Electric Industries | 6,400 | 61,820 |
Shinko Plantech | 9,300 | 58,221 |
SKY Perfect JSAT Holdings | 111 | 42,312 |
Star Micronics | 5,500 | 51,033 |
Tokai Rika | 5,100 | 51,372 |
Tokuyama | 7,000 | 45,030 |
Tokyo Ohka Kogyo | 3,600 | 50,365 |
Tokyu Reit | 10 | 53,732 |
Top REIT | 13 | 47,536 |
Toshiba Machine | 30,000 | 89,578 |
Towa Pharmaceutical | 1,000 | 41,822 |
Toyo Engineering | 24,000 | 71,122 |
Tsumura & Co | 1,500 | 38,723 |
10
Common Stocks (continued) | Shares | Value ($) |
Japan (continued) | ||
Yamaguchi Financial Group | 6,000 | 56,484 |
Yokohama Rubber | 17,000 | 71,428 |
3,123,865 | ||
Netherlands—2.0% | ||
Gemalto | 2,290 a | 65,414 |
Imtech | 5,502 | 75,731 |
Koninklijke Vopak | 1,000 | 40,031 |
Wereldhave | 920 | 64,373 |
245,549 | ||
Norway—.8% | ||
Tandberg | 3,400 | 50,138 |
TGS Nopec Geophysical | 6,200 a | 48,344 |
98,482 | ||
Singapore—.7% | ||
ComfortDelgro | 68,000 | 60,847 |
Singapore Petroleum | 14,700 | 27,516 |
88,363 | ||
South Korea—4.5% | ||
CJ Home Shopping | 2,728 | 109,779 |
Daegu Bank | 6,890 | 36,312 |
Honam Petrochemical | 1,065 | 45,954 |
Kiwoom Securities | 1,099 | 36,071 |
Korea Plant Service & Engineering | 3,480 | 77,874 |
LG Fashion | 4,810 | 63,534 |
NCsoft | 720 | 48,694 |
Youngone | 6,890 | 43,296 |
Yuhan | 630 | 84,286 |
545,800 | ||
Spain—3.0% | ||
Bankinter | 6,120 | 64,804 |
Corporacion Financiera Alba | 2,984 | 112,197 |
Enagas | 2,818 | 39,949 |
Laboratorios Almirall | 9,873 | 85,525 |
Prosegur Cia de Seguridad | 2,180 | 58,738 |
361,213 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Sweden—.5% | ||
Elekta, Cl. B | 6,060 | 61,010 |
Switzerland—5.4% | ||
Actelion | 1,730 a | 78,954 |
Adecco | 3,296 | 103,023 |
Baloise Holding | 970 | 62,079 |
Banque Cantonale Vaudoise | 310 | 102,875 |
Kuoni Reisen Holding | 330 | 80,014 |
PSP Swiss Property | 2,300 a | 96,987 |
Schindler Holding | 2,910 | 137,409 |
661,341 | ||
United Kingdom—15.5% | ||
Aggreko | 9,080 | 64,067 |
AMEC | 7,070 | 54,120 |
Amlin | 16,821 | 83,026 |
Asos | 23,200 a | 100,281 |
Autonomy | 3,190 a | 59,732 |
Balfour Beatty | 17,000 | 80,007 |
Beazley Group | 39,467 | 48,701 |
Bellway | 3,340 | 32,468 |
Charter International | 17,370 | 113,650 |
Close Brothers Group | 6,906 | 53,211 |
Croda International | 11,910 | 90,572 |
Dana Petroleum | 2,358 a | 37,589 |
Davis Service Group | 11,730 | 44,054 |
De La Rue | 2,996 | 41,784 |
Domino’s Pizza UK & IRL | 29,660 | 95,648 |
Halfords Group | 10,580 | 44,365 |
Halma | 17,800 | 42,205 |
IG Group Holdings | 17,090 | 42,974 |
Interserve | 19,207 | 51,260 |
Jardine Lloyd Thompson Group | 11,975 | 75,344 |
London Stock Exchange Group | 6,230 | 50,550 |
Persimmon | 11,180 | 55,424 |
Regus | 66,070 | 69,678 |
Spectris | 7,200 | 41,582 |
Spirent Communications | 112,044 | 79,579 |
SSL International | 9,590 | 61,783 |
12
Common Stocks (continued) | Shares | Value ($) |
United Kingdom (continued) | ||
Thomas Cook Group | 36,280 | 124,935 |
Tui Travel | 29,479 | 96,756 |
Vedanta Resources | 4,390 | 42,549 |
1,877,894 | ||
United States—.4% | ||
Gran Tierra Energy | 18,090 a | 46,201 |
Total Common Stocks | ||
(cost $14,590,261) | 11,605,879 | |
Preferred Stocks—.6% | ||
United Kingdom | ||
Inmarsat | ||
(cost $66,302) | 11,200 | 78,624 |
Other Investment—3.4% | ||
Registered Investment Company; | ||
Dreyfus Institutional Preferred Plus Money Market Fund | ||
(cost $419,741) | 419,741 c | 419,741 |
Total Investments (cost $15,076,304) | 99.4% | 12,104,244 |
Cash and Receivables (Net) | .6% | 70,209 |
Net Assets | 100.0% | 12,174,453 |
a | Non-income producing security. |
b | Illiquid security, fair valued by management.At the period end, the value of these securities amounted to $62,463 or 0.5% of net assets.The valuation of these securities has been determined in good faith under the direction of the Board of Trustees. |
c | Investment in affiliated money market mutual fund. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Industrials | 22.1 | Consumer Staples | 4.8 |
Financials | 18.3 | Energy | 4.6 |
Consumer Discretionary | 17.2 | Money Market Investment | 3.4 |
Materials | 10.0 | Utilities | 2.2 |
Information Technology | 9.6 | Telecommunication Services | .7 |
Health Care | 6.5 | 99.4 | |
† Based on net assets. | |||
See notes to financial statements. |
The Fund 13
STATEMENT OF FINANCIAL FUTURES
March 31, 2009 (Unaudited)
Market Value | ||||
Covered by | Unrealized | |||
Contracts | Contracts ($) | Expiration | (Depreciation) ($) | |
Financial Futures Long | ||||
DJ Euro—Stoxx 50 | 16 | 423,665 | June 2009 | (9,506) |
Topix Index | 2 | 156,994 | June 2009 | (11,348) |
(20,854) | ||||
See notes to financial statements. |
14
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2009 (Unaudited)
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments: | ||
Unaffiliated issuers | 14,656,563 | 11,684,503 |
Affiliated issuers | 419,741 | 419,741 |
Cash | 50,001 | |
Cash denominated in foreign currencies | 202,972 | 200,916 |
Dividends and interest receivable | 347,470 | |
Due from broker | 145,000a | |
Receivable for investment securities sold | 105,408 | |
Receivable for futures variation margin—Note 4 | 13,494 | |
Prepaid expenses | 8,907 | |
12,975,440 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(b) | 51,969 | |
Payable for shares of Beneficial Interest redeemed | 558,724 | |
Payable for investment securities purchased | 132,933 | |
Interest payable—Note 2 | 507 | |
Unrealized depreciation on forward | ||
currency exchange contracts—Note 4 | 44 | |
Accrued expenses | 56,810 | |
800,987 | ||
Net Assets ($) | 12,174,453 | |
Composition of Net Assets ($): | ||
Paid-in capital | 46,276,736 | |
Accumulated distributions in excess of investment income—net | (45,431) | |
Accumulated net realized gain (loss) on investments | (31,073,228) | |
Accumulated net unrealized appreciation (depreciation) on | ||
investments and foreign currency transactions [including | ||
($20,854) net unrealized (depreciation) on financial futures] | (2,983,624) | |
Net Assets ($) | 12,174,453 | |
Shares Outstanding | ||
(unlimited number of $.001 par value shares of Beneficial Interest authorized) | 2,224,059 | |
Net Asset Value, offering and redemption price per share—Note 3(d) ($) | 5.47 | |
a Represents collateral for open financial futures positions. | ||
See notes to financial statements. |
The Fund 15
STATEMENT OF OPERATIONS | |
Six Months Ended March 31, 2009 (Unaudited) | |
Investment Income ($): | |
Income: | |
Cash dividends (net of $15,865 foreign taxes withheld at source): | |
Unaffiliated issuers | 235,048 |
Affiliated issuers | 3,694 |
Interest | 2,256 |
Total Income | 240,998 |
Expenses: | |
Investment advisory fee—Note 3(a) | 153,984 |
Custodian fees—Note 3(b) | 78,111 |
Accounting and administration fees—Note 3(a) | 30,000 |
Auditing fees | 23,522 |
Registration fees | 14,385 |
Trustees’ fees and expenses—Note 3(c) | 6,727 |
Interest expense—Note 2 | 1,640 |
Shareholder servicing costs—Note 3(b) | 1,146 |
Legal fees | 974 |
Loan commitment fees—Note 2 | 500 |
Miscellaneous | 184 |
Total Expenses | 311,173 |
Less—reduction in investment advisory fee due to undertaking—Note 3(a) | (79,954) |
Less—reduction in fees due to earnings credits—Note 1(c) | (1,146) |
Net Expenses | 230,073 |
Investment Income—Net | 10,925 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments and foreign currency transactions | (28,789,165) |
Net realized gain (loss) on financial futures | (135,665) |
Net realized gain (loss) on forward currency exchange contracts | 100,996 |
Net Realized Gain (Loss) | (28,823,834) |
Net unrealized appreciation (depreciation) on investments | |
and foreign currency transactions (including $24,449 | |
net unrealized appreciation on financial futures) | 10,588,820 |
Net Realized and Unrealized Gain (Loss) on Investments | (18,235,014) |
Net (Decrease) in Net Assets Resulting from Operations | (18,224,089) |
See notes to financial statements. |
16
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2009 | Year Ended | |
(Unaudited) | September 30, 2008 | |
Operations ($): | ||
Investment income—net | 10,925 | 1,037,817 |
Net realized gain (loss) on investments | (28,823,834) | 42,163,452 |
Net unrealized appreciation | ||
(depreciation) on investments | 10,588,820 | (101,430,790) |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | (18,224,089) | (58,229,521) |
Dividends to Shareholders from ($): | ||
Investment income—net | — | (885,496) |
Net realized gain on investments | — | (196,526,625) |
Total Dividends | — | (197,412,121) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold | 2,677,908 | 48,024,124 |
Dividends reinvested | — | 167,435,024 |
Cost of shares redeemed | (29,718,915) | (467,068,924) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (27,041,007) | (251,609,776) |
Total Increase (Decrease) in Net Assets | (45,265,096) | (507,251,418) |
Net Assets ($): | ||
Beginning of Period | 57,439,549 | 564,690,967 |
End of Period | 12,174,453 | 57,439,549 |
Distributions in excess of investment income—net | (45,431) | (56,356) |
Capital Share Transactions (Shares): | ||
Shares sold | 422,586 | 8,086,329 |
Shares issued for dividends reinvested | — | 136,126,035 |
Shares redeemed | (5,281,338) | (158,258,949) |
Net Increase (Decrease) in Shares Outstanding | (4,858,752) | (14,046,585) |
See notes to financial statements. |
The Fund 17
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||
March 31, 2009 | Year Ended September 30, | |||||
(Unaudited) | 2008a | 2007a | 2006a | 2005a | 2004a | |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 8.11 | 267.30 | 240.30 | 208.40 | 159.30 | 120.50 |
Investment Operations: | ||||||
Investment income—netb | .00c | .52 | 1.30 | 1.80 | 2.30 | 1.40 |
Net realized and unrealized | ||||||
gain (loss) on investments | (2.64) | (29.50) | 54.80 | 45.20 | 58.60 | 38.60 |
Total from Investment Operations | (2.64) | (28.98) | 56.10 | 47.00 | 60.90 | 40.00 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | — | (.59) | (1.90) | (1.90) | (1.70) | (1.20) |
Dividends from net realized | ||||||
gain on investments | — | (229.62) | (27.20) | (13.20) | (10.10) | — |
Total Distributions | — | (230.21) | (29.10) | (15.10) | (11.80) | (1.20) |
Net asset value, end of period | 5.47 | 8.11 | 267.30 | 240.30 | 208.40 | 159.30 |
Total Return (%) | (32.60)d (39.92)e | 24.50e | 23.72 | 40.20 | 33.35 | |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 2.03f | 1.53 | 1.12g | 1.11 | 1.16 | 1.27 |
Ratio of net expenses | ||||||
to average net assets | 1.50f | 1.28 | 1.10g | 1.11g | 1.16g | 1.27g |
Ratio of net investment income | ||||||
to average net assets | .07f | .69 | .68 | .79 | 1.26 | .99 |
Portfolio Turnover Rate | 94.26d | 136 | 88h | 65h | 50h | 72h |
Net Assets, end of period | ||||||
($ x 1,000) | 12,174 | 57,440 | 564,691 | 758,691 | 524,910 | 212,032 |
a | Amounts were adjusted to reflect a 1:10 reverse share split on January 24, 2008. |
b | Based on average shares outstanding at each month end. |
c | Amount represents less than $.01 per share. |
d | Not annualized. |
e | Total return would have been lower in the absence of expense waivers. |
f | Annualized. |
g | For the period October 1, 2006 to September 19, 2007 and for the fiscal years ended September 30, 2004-2006, the ratios include the fund’s share of the The Boston Company International Small Cap Portfolio’s (the Portfolio) allocated expenses. |
h | On September 19, 2007, the fund, which had 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 the securities in which the Portfolio had invested. Portfolio turnover represents investment activity of both the fund and the Portfolio for the year.The amounts shown for 2004- 2006 are the ratios for the Portfolio. |
See notes to financial statements. |
18
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus/The Boston Company International Small Cap 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 fourteen series, including the fund.The fund’s investment objective is to achieve long-term growth of capital. Prior to December 1, 2008,The Boston Company Asset Management LLC, a wholly owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), served as the fund’s investment advisor. Effective December 1, 2008,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, which are sold without a sales charge.
At a meeting of the Board of Trustees held on August 27, 2008, the Board approved, effective December 1, 2008, a proposal to change the names of the Trust and the fund from “Mellon Institutional Funds InvestmentTrust” and “The Boston Company International Small Cap Fund” to “Dreyfus Investment Funds” and “Dreyfus/The Boston Company International Small Cap Fund,” respectively.
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 fund’s financial statements are prepared in accordance with U.S. generally accepted accounting principles, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(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 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 ADRs and futures contracts. For other securities that are fair valued by the Board ofTrustees, 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 currency exchange contracts are valued at the forward rate.
20
The fund adopted Statement of Financial Accounting Standards No. 157 “FairValue Measurements” (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements.
Various inputs are used in determining the value of the fund’s investments relating to FAS 157.These inputs are summarized in the three broad levels listed below.
Level 1—quoted prices in active markets for identical investments. Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including 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, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Quoted | Observable Unobservable | |||
Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in | ||||
Securities | 7,781,539 | 4,260,242 | 62,463 | 12,104,244 |
Other Financial | ||||
Instruments† | — | — | — | — |
Liabilities ($) | ||||
Other Financial | ||||
Instruments† | (20,854) | (44) | — | (20,898) |
† Other financial instruments include derivative instruments, such as futures, forward currency exchange contracts, swap contracts and options contracts. Amounts shown represent unrealized appreciation (depreciation) at period end.
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Investments in | |
Securities ($) | |
Balance as of 9/30/2008 | 249,211 |
Realized gain (loss) | — |
Change in unrealized appreciation (depreciation) | (186,748) |
Net purchases (sales) | — |
Transfers in and/or out of Level 3 | — |
Balance as of 3/31/2009 | 62,463 |
(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 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
22
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 semi-annually 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”).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 U.S. generally accepted accounting principles.
(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, 2009, 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
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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, 2008 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The tax character of distributions paid to shareholders during the fiscal year ended September 30, 2008 was as follows: ordinary income $4,954,647 and long-term capital gains $192,457,474.The tax character of current year distributions, if any, will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The Trust entered into two separate agreements with The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, that enable the fund, and other series in the Trust, to borrow, in the aggregate, (i) up to $35 million under a committed line of credit and (ii) up to $15 million under an uncommitted line of credit. In connection therewith, the fund has agreed to pay administrative and Facility fees on its pro rata portion of the lines of credit. Interest is charged to the fund based on a prevailing market rates in effect at the time of borrowing.
The average daily amount of borrowings outstanding under the lines of credit during the period ended March 31, 2009, was approximately $388,200 with a related weighted average annualized interest rate of .85%.
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 1.00% 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, not to exceed an
24
annual rate of 1.50% of the value of the fund’s average daily net assets. The expense limitation and waiver are voluntary, not contractual, and may be terminated at any time.The reduction in investment advisory fee, pursuant to the undertaking, amounted to $79,954 during the period ended March 31, 2009.
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 $30,000 for the period ended March 31, 2009 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, 2009, the fund was charged $3,693 pursuant to the transfer agency agreement.
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, 2009, the fund was charged $1,146 pursuant to the cash management agreements.These fees were offset by earnings credits 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, 2009, the fund was charged $78,111 pursuant to the custody agreement.
During the period ended March 31, 2009, the fund was charged $2,578 for services performed by the Chief Compliance Officer.
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of:investment advisory fees $14,019, custodian fees $37,434, chief compliance officer fees $2,578 and transfer agency per account fees $4,800, which are offset against an expense reimbursement currently in effect in the amount of $6,862.
(c) Effective December 1, 2008, each Trustee receives $45,000 per year, plus $6,000 for each joint Board meeting ofThe Dreyfus/Laurel Funds, Inc.,The Dreyfus/Laurel Funds Trust and The Dreyfus/Laurel Tax-Free Municipal Funds, (collectively, the “Dreyfus/Laurel Funds”) and the Trust attended, $2,000 for separate in-person committee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that are conducted by telephone and is reimbursed 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, the Chair of the compensation committee receives $900 per meeting. In the event that there is an in person joint committee meeting of the Dreyfus/Laurel Funds, theTrust and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee, as applicable, will be allocated between the Dreyfus/Laurel Funds, the Trust and Dreyfus HighYield Strategies Fund.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, 2009, redemption fees charged and retained by the fund amounted to $6,176.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, financial futures and forward currency exchange contracts, during the period ended March 31, 2009, amounted to $28,478,148 and $53,463,441, respectively.
26
The fund enters into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings and to settle foreign currency transac-tions.When executing forward currency exchange contracts, the fund is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future. With respect to sales of forward currency exchange contracts, the fund would incur a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed.The fund realizes a gain if the value of the contract decreases between those dates. With respect to purchases of forward currency exchange contracts, the fund would incur a loss if the value of the contract decreases between the date the forward contract is opened and the date the forward contract is closed. The fund realizes a gain if the value of the contract increases between those dates. The fund is also exposed to credit risk associated with counterparty nonperformance on these forward currency exchange contracts which is typically limited to the unrealized gain on each open contract. The following summarizes open forward currency exchange contracts at March 31, 2009:
Foreign | ||||
Forward Currency | Currency | Unrealized | ||
Exchange Contracts | Amounts | Cost ($) | Value ($) (Depreciation) ($) | |
Purchase: | ||||
Canadian Dollar, | ||||
expiring 4/2/2009 | 29,966 | 23,811 | 23,767 | (44) |
The fund may invest in financial futures contracts in order to gain exposure to or protect against changes in the market. The fund is exposed to market risk as a result of changes in the value of the underlying financial instruments. 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. Investments in financial futures require the fund to “mark to market” on a daily basis, which reflects the change in market value of the con-
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
tracts at the close of each day’s trading. Accordingly, variation margin payments are received or made to reflect daily unrealized gains or losses. When the contracts are closed, the fund recognizes a realized gain or loss. Contracts open at March 31, 2009, are set forth in the Statement of Financial Futures.
At March 31, 2009, accumulated net unrealized depreciation on investments was $2,972,060, consisting of $729,272 gross unrealized appreciation and $3,701,332 gross unrealized depreciation.
At March 31, 2009, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
The Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The application of FAS 161 is required for fiscal years and interim periods beginning after November 15, 2008. At this time, management is evaluating the implications of FAS 161 and its impact on the financial statements and the accompanying notes has not yet been determined.
NOTE 5—Change in Independent Registered Public Accounting Firm:
PricewaterhouseCoopers LLP (“PWC”), 300 Madison Avenue, New York, New York 10017, an independent registered public accounting firm, were the independent registered public accounting firm for the fund for the fiscal year ended September 30, 2008. At the meetings held on February 9-10, 2009, the Audit Committee and the Board of Trustees of the Trust engaged KPMG LLP to replace PWC as the
28
independent registered public accounting firm for the Trust, effective upon the conclusion of the audit of the December 31, 2008 financial statements of other series of the Trust.
During the funds’ past two fiscal years and any subsequent interim period: (i) no report on the funds’ financial statements contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles; and (ii) there were no “disagreements” (as such term is used in Item 304 of Regulation S-K) with PWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of PWC, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report.
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 and 10, 2009, 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.
Representatives of the Manager reminded the Board members that the Manager became the investment adviser of the fund, effective December 1, 2008, and that there were no changes to the portfolio management of the fund as a result of the appointment of the Manager as the fund’s investment adviser.
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. 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 meet-
30
ing 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.
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 small/mid-cap core funds (the “Performance Group”) and to a larger universe of funds, consisting of all retail and institutional international small/mid-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 and below the Performance Group median for the reported periods ended December 31, 2008. The Board also noted that the fund’s total return performance was below the Performance Universe median for each of the reported periods ended December 31, 2008, except the fund’s total return performance was above the Performance Universe median for the 5-year period ended December 31, 2008.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. A representative of the Manager informed the Board members that for the period of October 1, 2007 to August 31, 2008, the fund’s prior investment adviser,The Boston Company Asset Management LLC, an affiliate of
The Fund |
31 |
NFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
the Manager, agreed to rebate 25% of its management fee to the fund. The Board members were informed that the rebate ended on September 1, 2008 and the Manager is currently limiting the fund’s total expense ratio (excluding brokerage commissions, taxes and extraordinary expenses) to 1.50% of the fund’s average daily net assets and that such limitation is voluntary and may be terminated at any time. The Board members noted that the fund’s contractual management fee was equal to the Expense Group median and that, because of the rebate, the fund’s actual management fee was below the Expense Group and Expense Universe medians for the fiscal year ended September 30, 2008.The Board members also were informed that 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 blended advisory fee.The Board noted that the fund’s expense ratio, with or without the rebate, was above 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 Manager’s representatives also reviewed the costs associated with distribution through intermediaries.The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided. The Board members considered the relevance of the fee information provided for the Similar Funds and the
32
Similar Accounts to evaluate the appropriateness and reasonableness of the fund’s management fee. The Board acknowledged that differences in fees paid by the Similar Accounts seemed to be consistent with the services provided.
Analysis of Profitability and Economies of Scale. A representative of the Manager reminded the Board members that The Bank of New York Mellon Corporation, the parent company of the Manager, paid all of the expenses associated with the Manager becoming the fund’s investment adviser and the proxy campaign with respect to the Board members becoming the Trust’s Board members. Because the Manager only became the fund’s investment adviser effective December 1, 2008, the Manager’s representatives were not able to provide a dollar amount of expenses allocated and profit received by the Manager, but a representative of the Manager did review the method to be used to determine such expenses and profit in the future.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 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 considered whether the fund would be able to participate in any economies of scale that the Manager may experience in the event that the fund attracts a large amount of assets but noted the significant decrease to the fund’s recent asset levels.The Board members discussed the renewal requirements for advisory agreements and their ability to review the management fee annually.
The Fund |
33 |
NFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)
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 to be provided by the Manager are adequate and appropriate.
- While the Board was concerned with the fund’s performance, the Board noted that the Manager only became the fund’s investment adviser effective December 1, 2008 and believed the Manager would seek to improve performance. The Board determined to closely monitor performance.
- The Board concluded that the fee paid by the fund to the Manager was reasonable in light of the services to be provided, comparative performance, expense and advisory fee information and potential profits to be realized and benefits to be derived by the Manager from its relationship with the fund.
- The Board determined that because the Manager had become the investment adviser of the fund effective December 1,2008,economies of scale were not a factor at this time, but, to the extent that material economies of scale are not shared with the fund in the future, the Board would seek to do so in connection with future renewals.
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 and that the Management Agreement would be renewed through April 4, 2010.
34
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 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 |
17 | Notes to Financial Statements |
27 | Information About the Review and Approval of the Fund’s Investment Advisory Agreement |
FOR MORE INFORMATION | |
Back Cover |
The Fund |
Dreyfus/The Boston Company Large Cap Core Fund |
A LETTER FROM THE CEO Dear Shareholder: |
We present this semiannual report for Dreyfus/The Boston Company Large Cap Core Fund, covering the six-month period from October 1, 2008, through March 31, 2009.
The reporting period has been one of the most challenging for the U.S. economy and virtually all sectors and capitalization ranges of the stock markets. A relatively mild economic downturn over the first several months of 2008 was severely exacerbated in mid-September 2008, when the bankruptcy of Lehman Brothers triggered a cascading global economic decline.As the credit crisis dried up the availability of funding for businesses and consumers, international trade activity slumped, commodity prices plummeted, the U.S. and global economies entered a period of intense inventory liquidation, and unemployment surged.
On the heels of a –6.3% annualized U.S. economic growth rate in the fourth quarter of 2008, we expect another sharp decline for the first quarter of 2009. However, our Chief Economist anticipates that the U.S. recession may reach a trough around the third quarter of this year, followed by a slow recovery. Indeed, the U.S. government and monetary authorities have signaled their intent to do whatever it takes to forestall a depression or a deflationary spiral, including historically low interest rates, mortgage modification programs, massive monetary and fiscal stimulus and support for troubled financial institutions. Although times seem dire now, we believe it is always appropriate to maintain a long-term investment focus and to discuss any investment modifications with your financial adviser. Together, you can prepare for the risks that lie ahead and position your assets to perform in this current market downturn, and in the future.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund’s Portfolio Managers.
Thank you for your continued confidence and support.
Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation April 15, 2009 |
2
DISCUSSION OF FUND PERFORMANCE
For the period of October 1, 2008, through March 31, 2009, 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, 2009, Dreyfus/The Boston Company Large Cap Core Fund’s Class I shares produced a total return of –30.73%.1 On March 31, 2009, the fund also began offering Class A and Class C shares. In comparison, the Standard & Poor’s 500 Composite Stock Price Index (the “S&P 500 Index”), the fund’s benchmark, achieved a total return of –30.52% for the same period.2
The fund very closely tracked the S&P 500 Index; the slight underper-formance is largely attributable to our stock selection in industrials, information technology, and energy.
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 value-based investment style in managing the fund’s portfolio, which means they seek to identify those companies with stocks trading at prices below what the portfolio managers believe are their intrinsic value. The portfolio managers use a combination of quantitative and fundamental research to identify portfolio candidates.
Market Volatility Continued
Investors who thought the final quarter of 2008 might provide a respite from the disconcerting developments of the year’s third quarter were disappointed, as turmoil continued to be the watchword of the financial markets through the end of the year. Investors fled from equities of virtually every stripe, seeking out less-volatile asset classes, though few markets offered a safe port in the market storm.
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
The Federal Reserve was active during the crisis, using every tool it had in its attempts to help restore investor confidence in the financial system, bring some stability to the marketplace, and stimulate economic activity. Of course, the ultimate outcome of these tactics is not yet certain. Although the path toward recovery is unlikely to be smooth or steady, the willingness of the world’s governments to act cooperatively drew a generally positive response from the financial markets in March.
Investors Respond to Hopeful Signs
Battle-worn investors appeared to regain some confidence in March. Even though results in the first three months of the year were negative, buyers came back to the market, with bargain hunters snatching up many of the companies that had been beaten down.
For example, Bank of America rebounded late in the reporting period, as investors sought to capitalize on the depressed valuations of many financials stocks.We had sold Bank of America earlier in the reporting period on concerns they would need to raise capital, which would be detrimental to shareholders, and this hurt our relative performance during the reporting period.
Over the past six months, every sector in the S&P 500 Index posted a negative return. Not surprisingly, the financials sector was hit hardest; this sector lost more than half its value over the reporting period. Concerns about the impact of tight credit and lower capital spending put a crimp on the results for information technology stocks. More moderate oil prices helped to relieve some pressure on consumers, but dimmed results and the outlook for companies in the energy industry.
Telecommunication services was the one sector able to keep its losses out of the double digits. The sector is generally considered to be defensive and thus more appealing in an uncertain economic climate. We don’t entirely share that view, however, given changes to the industry business model in recent years we thus elected to hold an underweight position in the portfolio.
Cautious Approach Warranted
The consumer discretionary sector overall was weak during the six months, but we were able to add significant value through our indi-
4
vidual stock selections.We focused on companies that were positioned to benefit from the tendency of consumers to favor value-oriented stores in difficult economic times, such as Family Dollar Stores (one of our top performers for the reporting period) and Ross Stores. Best Buy was a more opportunisic addition later in the reporting period, as we anticipated it would benefit from the liquidation of rival Circuit City. It, too, performed well.
Schering-Plough was a significant contributor to relative return during the reporting period. We stuck with this long-time holding earlier in the year when it encountered questions about its cholesterol-reducing drug Vytorin. Although that controversy was a setback, we retained confidence in the company’s solid drug pipeline. Schering-Plough recently received an attractive merger offer from Merck & Co.Moreover, we find the prospect of the combined entity so compelling that we established a new position in Merck.
Our Outlook
We are cautiously moving toward more opportunistic portfolio positioning as signs of recovery emerge. We have taken profits in some of our winners, as we expect many of the companies that helped us to weather the tough times may not continue to drive performance during recovery.
We continue to focus on quality companies with positive earnings momentum at attractive valuations.
April 15, 2009
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 currently is limiting the fund’s operating expenses. Had these expense limitations | |
not been in effect, returns would have been lower. These expense limitations are voluntary, not | |
contractual, and may be terminated at any time. | |
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, 2008 to March 31, 2009. 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, 2009† | ||||
Class A | Class C | Class I | ||
Expenses paid per $1,000†† | $ .03 | $ .05 | $ 3.88 | |
Ending value (after expenses) | $1,011.70 | $1,011.70 | $692.70 |
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, 2009††† | |||
Class A | Class C | Class I | |
Expenses paid per $1,000†††† | $ 5.79 | $ 9.55 | $ 4.63 |
Ending value (after expenses) | $1,019.20 | $1,015.46 | $1,020.34 |
† | From March 31, 2009 (commencement of initial offering) to March 31, 2009 for Class A and Class C shares. |
†† | Expenses are equal to the fund’s annualized expense ratio of 1.15% for Class A and 1.90% for Class C, |
multiplied by the average account value over the period, multiplied by 1/365 (to reflect the actual days in the | |
period). Expenses are equal to the fund’s annualized expense ratio of .92% for Class I, multiplied by the average | |
account value over the period, multiplied by 182/365 (to reflect the one-half year period) | |
††† | Please note that while Class A and Class C shares commenced operations on March 31, 2009, the Hypothetical |
expenses paid during the period reflect projected activity for the full six month period for purposes of comparability | |
This projection assumes that annualized expense ratios were in effect during the period October 1, 2008 to | |
March 31, 2009. | |
†††† | Expenses are equal to the fund’s annualized expense ratio of 1.15% for Class A, 1.90% for Class C, and |
.92% for Class I, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the | |
one-half year period). |
6
STATEMENT OF INVESTMENTS March 31, 2009 (Unaudited) |
Common Stocks—99.4% | Shares | Value ($) |
Consumer Discretionary—10.2% | ||
American Eagle Outfitters | 7,920 | 96,941 |
Bally Technologies | 10,010 a | 184,384 |
Best Buy | 14,560 | 552,698 |
Darden Restaurants | 7,556 | 258,869 |
Family Dollar Stores | 7,770 | 259,285 |
Home Depot | 20,290 | 478,032 |
Macy’s | 10,070 | 89,623 |
McDonald’s | 5,428 | 296,206 |
News, Cl. A | 38,690 | 256,128 |
Omnicom Group | 13,310 | 311,454 |
Rent-A-Center | 10,650 a | 206,291 |
Ross Stores | 10,480 | 376,022 |
Time Warner | 10,770 | 207,861 |
Time Warner Cable, Cl. A | 2,703 | 67,044 |
3,640,838 | ||
Consumer Staples—10.4% | ||
Coca-Cola Enterprises | 12,580 | 165,930 |
Colgate-Palmolive | 11,670 | 688,297 |
CVS Caremark | 19,550 | 537,429 |
Energizer Holdings | 7,850 a | 390,066 |
Lorillard | 6,220 | 384,023 |
PepsiCo | 5,170 | 266,152 |
Philip Morris International | 18,740 | 666,769 |
Wal-Mart Stores | 11,640 | 606,444 |
3,705,110 | ||
Energy—13.6% | ||
Anadarko Petroleum | 7,120 | 276,897 |
Chevron | 19,622 | 1,319,383 |
ConocoPhillips | 14,850 | 581,526 |
Hess | 10,530 | 570,726 |
Marathon Oil | 16,520 | 434,311 |
National Oilwell Varco | 10,010 a | 287,387 |
Newfield Exploration | 7,450 a | 169,115 |
Occidental Petroleum | 10,230 | 569,300 |
Williams | 13,570 | 154,427 |
XTO Energy | 15,885 | 486,399 |
4,849,471 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Financial—12.7% | ||
Ameriprise Financial | 16,040 | 328,660 |
BlackRock | 1,800 | 234,072 |
Charles Schwab | 17,290 | 267,995 |
Chubb | 16,500 | 698,280 |
First Horizon National | 31,043 | 333,396 |
Franklin Resources | 5,700 | 307,059 |
JPMorgan Chase & Co. | 33,310 | 885,380 |
KeyCorp | 29,060 | 228,702 |
MetLife | 9,050 | 206,069 |
Northern Trust | 4,930 | 294,913 |
Visa, Cl. A | 6,275 | 348,890 |
Wells Fargo & Co. | 27,410 | 390,318 |
4,523,734 | ||
Health Care—14.8% | ||
Aetna | 11,250 | 273,712 |
Amgen | 8,810 a | 436,271 |
Baxter International | 8,520 | 436,394 |
Biogen Idec | 3,550 a | 186,091 |
Cephalon | 2,540 a | 172,974 |
Covidien | 7,647 | 254,186 |
Gilead Sciences | 3,710 a | 171,847 |
Hospira | 6,780 a | 209,231 |
Life Technologies | 7,850 a | 254,968 |
McKesson | 4,160 | 145,766 |
Merck & Co. | 8,390 | 224,432 |
Owens & Minor | 4,980 | 164,987 |
Pfizer | 46,360 | 631,423 |
Schering-Plough | 19,590 | 461,345 |
St. Jude Medical | 8,820 a | 320,431 |
Vertex Pharmaceuticals | 17,000 a | 488,410 |
Wyeth | 9,570 | 411,893 |
5,244,361 | ||
Industrial—9.2% | ||
Dover | 13,060 | 344,523 |
FedEx | 7,890 | 351,026 |
Fluor | 9,260 | 319,933 |
8
Common Stocks (continued) | Shares | Value ($) |
Industrial (continued) | ||
General Electric | 23,570 | 238,293 |
Goodrich | 6,640 | 251,590 |
L-3 Communications Holdings | 4,730 | 320,694 |
Norfolk Southern | 13,360 | 450,900 |
Parker Hannifin | 11,040 | 375,139 |
Raytheon | 5,500 | 214,170 |
Textron | 9,410 | 54,013 |
Tyco International | 18,427 | 360,432 |
3,280,713 | ||
Materials—2.1% | ||
Freeport-McMoRan Copper & Gold | 12,900 | 491,619 |
Mosaic | 5,690 | 238,866 |
730,485 | ||
Technology—20.4% | ||
Akamai Technologies | 14,880 a | 288,672 |
Apple | 3,900 a | 409,968 |
Broadcom, Cl. A | 15,280 a | 305,294 |
Cisco Systems | 47,970 a | 804,457 |
EMC | 32,410 a | 369,474 |
Intel | 26,580 | 400,029 |
International Business Machines | 9,960 | 965,024 |
Juniper Networks | 25,070 a | 377,554 |
Lam Research | 13,300 a | 302,841 |
Microsoft | 44,040 | 809,015 |
Motorola | 67,130 | 283,960 |
National Semiconductor | 17,670 | 181,471 |
Nokia, ADR | 14,510 | 169,332 |
Oracle | 34,720 | 627,390 |
QUALCOMM | 15,740 | 612,443 |
Symantec | 20,440 a | 305,374 |
7,212,298 | ||
Telecommunication Services—2.1% | ||
AT & T | 29,950 | 754,740 |
Utilities—3.9% | ||
American Electric Power | 18,430 | 465,542 |
PG & E | 9,620 | 367,676 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued) | ||||
Common Stocks (continued) | Shares | Value ($) | ||
Utilities (continued) | ||||
Sempra Energy | 11,700 | 541,008 | ||
1,374,226 | ||||
Total Common Stocks | ||||
(cost $42,864,577) | 35,315,976 | |||
Other Investment—.4% | ||||
Registered Investment Company; | ||||
Dreyfus Institutional Preferred | ||||
Plus Money Market Fund | ||||
(cost $151,198) | 151,198 b | 151,198 | ||
Total Investments (cost $43,015,775) | 99.8% | 35,467,174 | ||
Cash and Receivables (Net) | .2% | 88,569 | ||
Net Assets | 100.0% | 35,555,743 | ||
ADR—American Depository Receipts | ||||
a | Non-income producing security. | |||
b | Investment in affiliated money market mutual fund. | |||
Portfolio Summary (Unaudited)† | ||||
Value (%) | Value (%) | |||
Technology | 20.4 | Industrial | 9.2 | |
Health Care | 14.8 | Utilities | 3.9 | |
Energy | 13.6 | Materials | 2.1 | |
Financial | 12.7 | Telecommunication Services | 2.1 | |
Consumer Staples | 10.4 | Money Market Investments | .4 | |
Consumer Discretionary | 10.2 | 99.8 | ||
† | Based on net assets. | |||
See notes to financial statements. |
10
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2009 (Unaudited)
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments: | |||
Unaffiliated issuers | 42,864,577 | 35,315,976 | |
Affiliated issuers | 151,198 | 151,198 | |
Cash | 94,411 | ||
Dividends and interest receivable | 76,563 | ||
Prepaid expenses | 17,522 | ||
35,655,670 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(d) | 16,115 | ||
Accrued expenses | 83,812 | ||
99,927 | |||
Net Assets ($) | 35,555,743 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 61,773,594 | ||
Accumulated undistributed investment income—net | 229,097 | ||
Accumulated net realized gain (loss) on investments | (18,898,347) | ||
Accumulated net unrealized appreciation | |||
(depreciation) on investments | (7,548,601) | ||
Net Assets ($) | 35,555,743 | ||
Net Asset Value Per Share | |||
Class A | Class C | Class I | |
Net Assets ($) | 10,118.89 | 10,118.68 | 35,535,505 |
Shares Outstanding | 485.437 | 485.437 | 1,702,370 |
Net Asset Value Per Share ($) | 20.84 | 20.84 | 20.87 |
See notes to financial statements. |
The Fund 11
STATEMENT OF OPERATIONS | |
Six Months Ended March 31, 2009 (Unaudited) | |
Investment Income ($): | |
Income: | |
Cash dividends (net of $5,774 foreign taxes withheld at source): | |
Unaffiliated issuers | 553,066 |
Affiliated issuers | 660 |
Total Income | 553,726 |
Expenses: | |
Investment advisory fee—Note 3(a) | 103,255 |
Accounting and administration fees—Note 3(a) | 22,500 |
Shareholder servicing costs—Note 3(c,d) | 47,357 |
Custodian fees—Note 3(d) | 21,297 |
Auditing fees | 16,158 |
Trustees’ fees and expenses—Note 3(e) | 6,957 |
Prospectus and shareholders’ reports | 6,922 |
Loan commitment fees—Note 2 | 6,016 |
Registration fees | 5,592 |
Legal fees | 5,143 |
Interest expense—Note 2 | 51 |
Miscellaneous | 9,732 |
Total Expenses | 250,980 |
Less—reduction in expenses due to undertaking—Note 3(a) | (60,274) |
Less—reduction in fees due to earnings credits—Note 1(b) | (192) |
Net Expenses | 190,514 |
Investment Income—Net | 363,212 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | (15,135,157) |
Net unrealized appreciation (depreciation) on investments | (3,133,705) |
Net Realized and Unrealized Gain (Loss) on Investments | (18,268,862) |
Net (Decrease) in Net Assets Resulting from Operations | (17,905,650) |
See notes to financial statements. |
12
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2009 | Year Ended | |
(Unaudited)a | September 30, 2008 | |
Operations ($): | ||
Investment income—net | 363,212 | 1,123,129 |
Net realized gain (loss) on investments | (15,135,157) | (2,660,809) |
Net unrealized appreciation | ||
(depreciation) on investments | (3,133,705) | (21,250,644) |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | (17,905,650) | (22,788,324) |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class I Shares | (375,152) | (1,382,840) |
Net realized gain on investments: | ||
Class I Shares | — | (9,312,016) |
Total Dividends | (375,152) | (10,694,856) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 10,000 | — |
Class C Shares | 10,000 | — |
Class I Shares | 2,163,083 | 5,624,260 |
Dividends reinvested: | ||
Class I Shares | 244,136 | 9,590,146 |
Cost of shares redeemed: | ||
Class I Shares | (8,587,096) | (44,326,241) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (6,159,877) | (29,111,835) |
Total Increase (Decrease) in Net Assets | (24,440,679) | (62,595,015) |
Net Assets ($): | ||
Beginning of Period | 59,996,422 | 122,591,437 |
End of Period | 35,555,743 | 59,996,422 |
Undistributed investment income—net | 229,097 | 241,037 |
The Fund 13
STATEMENT OF CHANGES IN NET ASSETS (continued) |
Six Months Ended | ||
March 31, 2009 | Year Ended | |
(Unaudited)a | September 30, 2008 | |
Capital Share Transactions: | ||
Class A | ||
Shares sold | 485 | — |
Class C | ||
Shares sold | 485 | — |
Class I | ||
Shares sold | 98,914 | 149,102 |
Shares issued for dividends reinvested | 10,992 | 250,056 |
Shares redeemed | (381,684) | (1,257,717) |
Net Increase (Decrease) in Shares Outstanding | (271,778) | (858,559) |
a | The fund commenced offering three classes of shares on March 31, 2009.The existing shares were redesignated Class I and the fund added 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, 2009 (Unaudited)a | ||
Class A | Class C | |
Shares | Shares | |
Per Share Data ($): | ||
Net asset value, beginning of period | 20.60 | 20.60 |
Investment Operations: | ||
Investment (loss)—netb,c | (.00) | (.00) |
Net realized and unrealized | ||
gain (loss) on investments | .24 | .24 |
Net asset value, end of period | 20.84 | 20.84 |
Total Return (%)d,e | 1.17 | 1.17 |
Ratios/Supplemental Data (%): | ||
Ratio of total expenses to average net assetsf | 1.55 | 2.31 |
Ratio of net expenses to average net assetsf | 1.15 | 1.90 |
Ratio of net investment (loss) | ||
to average net assetsf | (1.15) | (1.90) |
Portfolio Turnover Ratee | 57.76 | 57.76 |
Net Assets, end of period ($ x 1,000) | 10 | 10 |
a | From March 31, 2009 (commencement of initial offering) to March 31, 2009. |
b | Based on average shares outstanding at each month end. |
c | Amount represents less than $.01 per share. |
d | Exclusive of sales charge. |
e | Not annualized. |
f | Annualized. |
See notes to financial statements. |
The Fund 15
FINANCIAL HIGHLIGHTS (continued) |
Six Months Ended | ||||||
March 31, 2009 | Year Ended September 30, | |||||
Class I Sharesa | (Unaudited) | 2008 | 2007 | 2006 | 2005 | 2004 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 30.39 | 43.28 | 37.58 | 39.57 | 35.24 | 31.43 |
Investment Operations: | ||||||
Investment income—netb | .20 | .43 | .43 | .36 | .41 | .23 |
Net realized and unrealized | ||||||
gain (loss) on investments | (9.52) | (9.32)c | 7.01c | 3.22 | 4.28c | 3.92c |
Total from Investment Operations | (9.32) | (8.89) | 7.44 | 3.58 | 4.69 | 4.15 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.20) | (.53) | (.33) | (.39) | (.36) | (.34) |
Dividends from net realized | ||||||
gain on investments | — | (3.47) | (1.41) | (5.18) | — | — |
Total Distributions | (.20) | (4.00) | (1.74) | (5.57) | (.36) | (.34) |
Net asset value, end of period | 20.87 | 30.39 | 43.28 | 37.58 | 39.57 | 35.24 |
Total Return (%) | (30.73)d | (22.41) | 20.27 | 9.84e | 13.34 | 13.23e |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.22f | .84 | .80g | .99g | .85g | .84g |
Ratio of net expenses | ||||||
to average net assets | .92f | .84 | .80g | .90g | .85g | .83g |
Ratio of net investment income | ||||||
to average net assets | 1.76f | 1.17 | 1.05 | .98 | 1.10 | .67 |
Portfolio Turnover Rate | 57.76d | 61 | 59h | 103h | 85h | 66h |
Net Assets, end of period | ||||||
($ x 1,000) | 35,536 | 59,996 | 122,591 | 93,745 | 46,036 | 56,067 |
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 include 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, $0.02 for the year ended September 30, 2005 and $0.02 for the year ended September 30, 2004. |
d | Not annualized. |
e | Total return would have been lower in the absence of expense waivers. |
f | Annualized. |
g | For the period October 1, 2006 to September 19, 2007 and for the fiscal years ended September 30, 2004-2006, the ratios include the fund’s share of the The Boston Company Large Cap Core Portfolio’s (the Portfolio) allocated expenses. |
h | On September 19, 2007, the fund, which had owned 100% of the Portfolio on such date, withdrew entirely form 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.Portfolio turnover represents investment activity of both the fund and the Portfolio for the year.The amounts shown for 2004-2006 are ratios for the Portfolio. |
See notes to financial statements. |
16
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 fourteen series, including the fund.The fund’s investment objective is to achieve long-term growth of capital. Prior to December 1, 2008, The Boston Company Asset Management, LLC (“TBCAM”) a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), served as the fund’s investment adviser. After December 1, 2008,The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of BNY Mellon, serves as the fund’s investment adviser.
At a meeting of the Board of Trustees held on August 27, 2008, the Board approved, effective December 1, 2008, a proposal to change the names of the Trust and the fund from “Mellon Institutional Funds Investment Trust” and “The Boston Company Large Cap Core Fund” to “Dreyfus Investment Funds” and “Dreyfus/The Boston Company Large Cap Core Fund,” respectively.
At the Board meetings held on February 9-10, 2009, the Board of Trustees approved, effective March 31, 2009, the implementation of a multiple class structure for the fund. On March 31, 2009, existing shares were classified as Class I shares and the fund added Class A and Class C shares.
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 at net
The Fund 17
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
asset value per share only to institutional investors. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
As of March 31, 2009, MBC Investments Corp., an indirect subsidiary of BNY Mellon, held all of the outstanding 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 that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The fund’s financial statements are prepared in accordance with U.S. generally accepted accounting principles, which requires 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 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
18
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 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 fund adopted Statement of Financial Accounting Standards No. 157 “FairValue Measurements” (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements.
Various inputs are used in determining the value of the fund’s investments relating to FAS 157.These inputs are summarized in the three broad levels listed below.
Level 1—quoted prices in active markets for identical investments. Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The following is a summary of the inputs used as of March 31, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Quoted | Observable Unobservable | |||
Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in | ||||
Securities | 35,467,174 | — | — | 35,467,174 |
Other Financial | ||||
Instruments† | — | — | — | — |
Liabilities ($) | ||||
Other Financial | ||||
Instruments† | — | — | — | — |
† Other financial instruments include derivative instruments such as futures, forward currency exchange contracts, swap contracts and options contracts. Amounts shown represent unrealized appreciation (depreciation) at period end.
(b) Securities transactions and investment income: Securities trans-
actions 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.
20
(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 semi-annually and annually, respectively. Dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”).To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles.
(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, 2009, 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, 2008 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The tax character of distributions paid to shareholders during the fiscal year ended September 30, 2008 was as follows: ordinary income $4,956,185 and long-term capital gains $5,738,671.The tax character of current year distributions will be determined at the end of the current fiscal year.
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 2—Bank Lines of Credit:
The Trust entered into two separate agreements with The Bank of New York Mellon that enable the fund, and other funds in the Trust, to borrow, in the aggregate, (i) up to $35 million under a committed line of credit and (ii) up to $15 million under an uncommitted line of credit. In connection therewith, the fund has agreed to pay administrative and facility fees on its pro rata portion of the lines of credit. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowing.
The average daily amount of borrowings outstanding under the lines of credit during the period ended March 31, 2008, was approximately $12,000 with a related weighted average annualized interest rate of .85%.
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 .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 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 expense limitation and waiver are voluntary, not contractual, and may be terminated at any time. The reduction in expenses, pursuant to the undertaking, amounted to $60,274 during the period ended March 31, 2009.
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 ser-
22
vices 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 for the period ended March 31, 2009 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. During the period ended March 31, 2009, Class C shares were charged less than $1 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, 2009, Class A and Class C shares were charged less than $1 pursuant to the Shareholder Services Plan.
(d) 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, 2009 the fund was charged $441 pursuant to the transfer agency agreement.
The fund compensates The Bank of NewYork Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, under cash management agreements for performing cash management services related to fund subscriptions and redemptions. During the period ended March 31,
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
2009, the fund was charged $192 pursuant to the cash management agreements.These fees were offset by earnings credits 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, 2009, the fund was charged $21,297 pursuant to the custody agreement.
During the period ended March 31, 2009, the fund was charged $2,578 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 $14,466, custodian fees $23,250, chief compliance officer fees $2,578 and transfer agency per account fees $225, which are offset against an expense reimbursement currently in effect in the amount of $24,404.
(e) Effective December 1, 2008, each Trustee receives $45,000 per year, plus $6,000 for each joint Board meeting of The Dreyfus/Laurel Funds, Inc.,The Dreyfus /Laurel Funds Trust and The Dreyfus/Laurel Tax-Free Municipal Funds, (collectively, the “Dreyfus/Laurel Funds”) and the Trust attended, $2,000 for separate in-person committee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that are conducted by telephone and is reimbursed 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, the Chair of the compensation committee receives $900 per meeting. In the event that there is an in-person joint committee meeting of the Dreyfus/Laurel Funds, the Trust and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee, as applicable, will be allocated between the Dreyfus/Laurel Funds, the Trust and Dreyfus High Yield Strategies Fund.These fees and expenses are charged and allocated to each series based on net assets.
24
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended March 31, 2009, amounted to $24,764,166 and $30,400,896, respectively.
At March 31, 2009, accumulated net unrealized depreciation on investments was $7,548,601, consisting of $1,181,394 gross unrealized appreciation and $8,729,995 gross unrealized depreciation.
At March 31, 2009, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see Statement of Investments).
The Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.The application of FAS 161 is required for fiscal years and interim periods beginning after November 15, 2008.At this time, management is evaluating the implications of FAS 161 and its impact on the financial statements and the accompanying notes has not yet been determined.
NOTE 5—Change in Independent Registered Public Accounting Firm:
PricewaterhouseCoopers LLP (“PWC”), 300 Madison Avenue, New York, New York 10017, an independent registered public accounting firm, were the independent registered public accounting firm for the fund for the fiscal year ended September 30, 2008.At the meetings held on February 9-10, 2009, the Audit Committee and the Board of Trustees of theTrust engaged KPMG LLP to replace PWC as the independent registered public accounting firm for the Trust, effective upon the conclusion of the audit of the December 31, 2008 financial statements of the Trust.
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
During the funds’ past two fiscal years and any subsequent interim period: (i) no report on the funds’ financial statements contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles; and (ii) there were no “disagreements” (as such term is used in Item 304 of Regulation S-K) with PWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of PWC, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report.
26
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 and 10, 2009, 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.
Representatives of the Manager reminded the Board members that the Manager became the investment adviser of the fund, effective December 1, 2008, and that there were no changes to the portfolio management of the fund as a result of the appointment of the Manager as the fund’s investment adviser.
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. 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 Fund 27
NFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
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.
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 multi-cap core funds (the “Performance Group”) and to a larger universe of funds, consisting of all retail and institutional multi-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 above the Performance Group median for the two-, three, four- and ten-year periods ended December 31, 2008, below the Performance Group median for the one- and five-year periods ended December 31, 2008, above the Performance Universe medians for the one-, two-, three-, four- and five-year periods ended December 31, 2008 but below the Performance Universe median for the 10-year period ended December 31, 2008.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
28
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 blended advisory fee.The Board noted that 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 Manager’s representatives also reviewed the costs associated with distribution through intermediaries.The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided. The Board members considered the relevance of the fee information provided for the Similar Funds and the Similar Accounts to evaluate the appropriateness and reasonableness of the fund’s management fee. The Board acknowledged that differences in fees paid by the Similar Accounts seemed to be consistent with the services provided.
Analysis of Profitability and Economies of Scale. A representative of the Manager reminded the Board members that The Bank of New York Mellon Corporation, the parent company of the Manager, paid all of the expenses associated with the Manager becoming the fund’s investment adviser and the proxy campaign with respect to the Board members becoming the Trust’s Board members. Because the Manager only became the fund’s investment adviser effective December 1,
The Fund 29
NFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
2008, the Manager’s representatives were not able to provide a dollar amount of expenses allocated and profit received by the Manager, but a representative of the Manager did review the method to be used to determine such expenses and profit in the future.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 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 considered whether the fund would be able to participate in any economies of scale that the Manager may experience in the event that the fund attracts a large amount of assets but noted the decrease to the fund’s recent asset levels.The Board members discussed the renewal requirements for advisory agreements and their ability to review the management fee annually.
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 to be provided by the Manager are adequate and appropriate.
- The Board was generally satisfied with the fund’s relative performance.
30
- The Board concluded that the fee paid by the fund to the Manager was reasonable in light of the services to be provided, comparative performance, expense and advisory fee information and potential profits to be realized and benefits to be derived by the Manager from its relationship with the fund.
- The Board determined that because the Manager had become the investment adviser of the fund effective December 1,2008,economies of scale were not a factor at this time, but, to the extent that material economies of scale are not shared with the fund in the future, the Board would seek to do so in connection with future renewals.
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 and that the Management Agreement would be renewed through April 4, 2010.
The Fund 31
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 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 CEO Dear Shareholder: |
We present this semiannual report for Dreyfus/The Boston Company Small Cap Growth Fund, covering the six-month period from October 1, 2008, through March 31, 2009.
The reporting period has been one of the most challenging for the U.S. economy and virtually all sectors and capitalization ranges of the stock markets. A relatively mild economic downturn over the first several months of 2008 was severely exacerbated in mid-September 2008, when the bankruptcy of Lehman Brothers triggered a cascading global economic decline.As the credit crisis dried up the availability of funding for businesses and consumers, international trade activity slumped, commodity prices plummeted, the U.S. and global economies entered a period of intense inventory liquidation, and unemployment surged. On the heels of a –6.3% annualized U.S. economic growth rate in the fourth quarter of 2008, we expect another sharp decline for the first quarter of 2009. However, our Chief Economist anticipates that the U.S. recession may reach a trough around the third quarter of this year, followed by a slow recovery. Indeed, the U.S. government and monetary authorities have signaled their intent to do whatever it takes to forestall a depression or a deflationary spiral, including historically low interest rates, mortgage modification programs, massive monetary and fiscal stimulus and support for troubled financial institutions. Although times seem dire now, we believe it is always appropriate to maintain a long-term investment focus and to discuss any investment modifications with your financial adviser. Together, you can prepare for the risks that lie ahead and position your assets to perform in this current market downturn, and in the future.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund’s Portfolio Managers.
As always, we thank you for your continued confidence and support.
Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation April 15, 2009 |
2
DISCUSSION OF FUND PERFORMANCE
For the reporting period of October 1, 2008, through March 31, 2009, 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, 2009, Dreyfus/The Boston Company Small Cap Growth Fund produced a total return of –34.54%.1 In comparison, the fund’s benchmark, the Russell 2000 Growth Index (the “Index”), produced a total return of –34.51% for the same period.2
Stocks across all investment styles, market sectors and capitalization ranges fell sharply, particularly over the fourth quarter of 2008, due to intensifying financial and economic crises. The fund produced performance in line with its benchmark, primarily stemming from disappointments in the health care sector.
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 Russell 2000 Growth 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 characteristics, 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.
Financial Crisis and Recession Roiled Stock Markets
Stocks declined sharply in the midst of a global financial crisis and a deepening U.S. recession, especially over the reporting period’s second half. Slumping home values, rising unemployment and plunging consumer confidence produced one of the most severe economic downturns since the Great Depression. Meanwhile, an ongoing credit crunch
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
escalated into a global financial crisis, resulting in the bankruptcy of Lehman Brothers; the effective nationalization of American International Group, Fannie Mae and Freddie Mac; and the acquisitions of Merrill Lynch,Washington Mutual and Wachovia.
Despite aggressive efforts by monetary and government authorities to forestall further deterioration,risk-averse investors punished most stocks, seemingly regardless of their underlying business fundamentals. The effects of widespread selling pressure were magnified by highly leveraged institutional investors, who were forced to sell even their more credit-worthy holdings to raise cash for margin calls and redemption requests. Particularly severe market declines during the fourth quarter of 2008 were partly offset by a rally late in the first quarter of 2009, as investors looked forward to potentially better economic conditions.
Health Care Holdings Weighed on Performance
Although the health care sector traditionally has been considered a relatively defensive area during market downturns, small-cap biotechnology companies proved vulnerable over the past six months to budget cuts among the large pharmaceutical developers that are their primary customers. In addition, investors’ expectations that smaller biotechnology companies would be acquisition targets did not materialize during the reporting period.Consequently,Onyx Pharmaceuticals and Celera Corp. missed their earnings targets, and BioMarin Pharmaceutical declined sharply when a promising new product fell short of sales expectations. Medical equipment and supplies providers also disappointed as patients delayed elective surgeries, dampening sales and earnings of Wright Medical Group,Arthrocare, Conmed and Natus Medical. Finally, among health care providers, services provider Psychiatric Solutions suffered from lower-than-expected sales volumes.
The consumer staples sector detracted more mildly from the fund’s relative performance,as natural and organic food products manufacturer Hain Celestial was hurt when consumers turned to less expensive products.
Positive contributions to the fund’s performance during the reporting period came from underweighted exposure to the industrials group, which fared poorly for the benchmark.The fund also scored a number
4
of winning stock selections in the sector, where precision components maker II-IV, utilities contractor Quanta Services and transportation companies Werner Enterprises, Landstar System and UTI Worldwide held up better than market averages. The fund’s investments in the energy sector benefited from relatively light exposure to lagging exploration-and-production companies as oil prices plunged, with the exception of Concho Resources,which reported robust quarterly financial results. An underweighted position in the consumer discretionary sector helped the fund avoid the brunt of weakness resulting from sluggish consumer spending, while a focus on certain specialty retailers and restaurants that we regarded as well positioned fared relatively well, including Hibbett Sports, Aeropostale, Williams-Sonoma, Papa John’s International and Panera Bread.
Finding Opportunities in a Distressed Market
The economy has continued to struggle and the financial crisis has persisted, prompting us to maintain the fund’s generally defensive investment posture. However, toward the end of the reporting period, we began to see signs of potential improvement in the housing and banking markets. In addition, we believe that historically low interest rates, lower energy prices and massive government spending are likely to stimulate the U.S. economy over the longer term. Consequently, we have begun to take advantage of opportunities in industry groups and companies that, in our judgment, were punished too severely by investors and may be poised for gains in an eventual economic recovery.
April 15, 2009
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 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 Growth Fund from October 1, 2008 to March 31, 2009. 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, 2009 | |
Expenses paid per $1,000† | $4.41 |
Ending value (after expenses) | $654.60 |
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, 2009 | |
Expenses paid per $1,000† | $5.39 |
Ending value (after expenses) | $1,019.60 |
† Expenses are equal to the fund’s annualized expense ratio of 1.07%, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS March 31, 2009 (Unaudited) |
Common Stocks—96.7% | Shares | Value ($) |
Consumer Discretionary—13.4% | ||
Aeropostale | 42,200 a,b | 1,120,832 |
Bally Technologies | 64,028 b | 1,179,396 |
Carter’s | 119,490 b | 2,247,607 |
Chipotle Mexican Grill, Cl. B | 32,827 b | 1,881,315 |
Corinthian Colleges | 113,020 a,b | 2,198,239 |
Deckers Outdoor | 20,640 b | 1,094,746 |
Fossil | 73,070 b | 1,147,199 |
Hibbett Sports | 119,840 a,b | 2,303,325 |
Interactive Data | 67,730 | 1,683,768 |
K12 | 50,640 a,b | 703,896 |
Lincoln Educational Services | 35,190 a,b | 644,681 |
Lions Gate Entertainment | 260,950 a,b | 1,317,797 |
Lumber Liquidators | 29,170 a,b | 371,917 |
P.F. Chang’s China Bistro | 38,380 a,b | 878,134 |
Papa John’s International | 90,630 b | 2,072,708 |
Pool | 48,190 | 645,746 |
Texas Roadhouse, Cl. A | 247,980 a,b | 2,363,249 |
Tractor Supply | 25,940 a,b | 935,396 |
Wendy’s/Arby’s Group, Cl. A | 339,760 | 1,708,993 |
Williams-Sonoma | 100,660 a | 1,014,653 |
WMS Industries | 117,590 a,b | 2,458,807 |
29,972,404 | ||
Consumer Staples—5.2% | ||
Alberto-Culver | 96,870 | 2,190,231 |
Casey’s General Stores | 102,760 | 2,739,582 |
Central Garden & Pet | 75,232 a,b | 572,516 |
Hain Celestial Group | 102,330 a,b | 1,457,179 |
Nu Skin Enterprises, Cl. A | 184,410 | 1,934,461 |
Peet’s Coffee & Tea | 34,020 b | 735,512 |
Spartan Stores | 136,130 a | 2,097,763 |
11,727,244 | ||
Energy—7.2% | ||
Arena Resources | 129,420 b | 3,297,622 |
Concho Resources | 166,186 b | 4,252,700 |
Dril-Quip | 113,970 b | 3,498,879 |
Encore Acquisition | 55,200 b | 1,284,504 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Energy (continued) | ||
NATCO Group, Cl. A | 101,640 b | 1,924,045 |
Plains Exploration & Production | 113,470 b | 1,955,088 |
16,212,838 | ||
Exchange Traded Funds—.5% | ||
iShares Russell 2000 Growth Index Fund | 23,900 a | 1,098,922 |
Financial—7.2% | ||
Arch Capital Group | 41,720 b | 2,247,039 |
EZCORP, Cl. A | 51,470 b | 595,508 |
ProAssurance | 89,610 b | 4,177,618 |
Riskmetrics Group | 35,870 a,b | 512,582 |
RLI | 93,540 | 4,695,708 |
Tower Group | 44,140 | 1,087,168 |
Validus Holdings | 114,280 | 2,706,150 |
16,021,773 | ||
Health Care—26.4% | ||
Acorda Therapeutics | 77,280 a,b | 1,530,917 |
Alexion Pharmaceuticals | 85,720 a,b | 3,228,215 |
Align Technology | 131,930 a,b | 1,046,205 |
Alkermes | 76,700 b | 930,371 |
Alnylam Pharmaceuticals | 60,730 a,b | 1,156,299 |
Bio-Rad Laboratories, Cl. A | 19,150 b | 1,261,985 |
BioMarin Pharmaceutical | 83,860 a,b | 1,035,671 |
Bruker | 161,624 b | 995,604 |
Cadence Pharmaceuticals | 95,520 b | 895,978 |
CardioNet | 42,120 | 1,181,887 |
Catalyst Health Solutions | 97,820 b | 1,938,792 |
Celera | 105,180 b | 802,523 |
Chemed | 37,740 | 1,468,086 |
Emergency Medical Services, Cl. A | 35,778 a,b | 1,123,071 |
Enzon Pharmaceuticals | 194,310 a,b | 1,179,462 |
ev3 | 96,480 a,b | 685,008 |
Genomic Health | 23,610 b | 575,612 |
Haemonetics | 46,890 b | 2,582,701 |
Immucor | 95,160 b | 2,393,274 |
Integra LifeSciences Holdings | 26,940 a,b | 666,226 |
Kendle International | 66,530 a,b | 1,394,469 |
Martek Biosciences | 41,310 b | 753,907 |
8
Common Stocks (continued) | Shares | Value ($) |
Health Care (continued) | ||
Masimo | 52,940 b | 1,534,201 |
Medarex | 172,750 b | 886,207 |
MEDNAX | 41,260 b | 1,215,932 |
Myriad Genetics | 66,080 a,b | 3,004,658 |
NuVasive | 54,330 a,b | 1,704,875 |
Odyssey HealthCare | 2,050 b | 19,885 |
Onyx Pharmaceuticals | 74,710 b | 2,132,971 |
OSI Pharmaceuticals | 52,080 a,b | 1,992,581 |
Owens & Minor | 59,140 | 1,959,308 |
PharMerica | 37,820 b | 629,325 |
Phase Forward | 92,640 b | 1,184,866 |
PSS World Medical | 164,380 a,b | 2,358,853 |
Regeneron Pharmaceuticals | 59,140 b | 819,680 |
Resmed | 55,440 b | 1,959,250 |
Thermo Fisher Scientific | 65,180 b | 2,324,971 |
Thoratec | 45,350 b | 1,165,042 |
United Therapeutics | 18,330 a,b | 1,211,430 |
Varian | 21,860 b | 518,956 |
Volcano | 84,293 b | 1,226,463 |
West Pharmaceutical Services | 49,300 | 1,617,533 |
Wright Medical Group | 51,260 a,b | 667,918 |
58,961,168 | ||
Industrial—13.2% | ||
Administaff | 81,590 | 1,723,997 |
Argon ST | 36,030 b | 683,489 |
Clean Harbors | 31,720 b | 1,522,560 |
Cornell | 103,330 b | 1,691,512 |
EnergySolutions | 65,560 | 567,094 |
Exponent | 40,420 b | 1,023,839 |
Geo Group | 51,458 b | 681,818 |
Huron Consulting Group | 93,570 a,b | 3,970,175 |
ICF International | 47,940 b | 1,101,182 |
II-VI | 64,610 b | 1,110,000 |
Knight Transportation | 148,628 a | 2,253,200 |
Landstar System | 32,950 | 1,102,837 |
MSC Industrial Direct, Cl. A | 109,190 | 3,392,533 |
Orbital Sciences | 63,250 b | 752,043 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Industrial (continued) | ||
Quanta Services | 119,870 b | 2,571,212 |
Team | 80,880 b | 947,914 |
UTi Worldwide | 364,420 | 4,354,819 |
29,450,224 | ||
Materials—.5% | ||
Aurizon Mines | 253,407 b | 1,140,331 |
Technology—21.7% | ||
Atheros Communications | 75,160 a,b | 1,101,846 |
ATMI | 160,380 b | 2,474,663 |
BigBand Networks | 92,671 b | 606,995 |
CACI International, Cl. A | 28,900 b | 1,054,561 |
Ciena | 147,810 a,b | 1,149,962 |
Cogent | 134,070 b | 1,595,433 |
CyberSource | 115,880 b | 1,716,183 |
Diodes | 156,640 b | 1,661,950 |
DTS | 64,730 a,b | 1,557,404 |
FEI | 50,030 b | 771,963 |
FormFactor | 44,230 b | 797,025 |
Informatica | 120,810 b | 1,601,941 |
j2 Global Communications | 126,940 a,b | 2,778,717 |
Lam Research | 81,400 b | 1,853,478 |
Landauer | 11,670 | 591,436 |
ManTech International, Cl. A | 80,240 b | 3,362,056 |
Mellanox Technologies | 121,930 b | 1,015,677 |
Metavante Technologies | 214,002 b | 4,271,480 |
NETGEAR | 116,730 b | 1,406,596 |
Neutral Tandem | 50,595 b | 1,245,143 |
Novellus Systems | 146,160 b | 2,430,641 |
PMC-Sierra | 356,830 b | 2,276,575 |
Polycom | 195,380 b | 3,006,898 |
Riverbed Technology | 133,802 a,b | 1,750,130 |
SkillSoft, ADR | 353,570 b | 2,365,383 |
Sybase | 54,530 b | 1,651,714 |
Teradyne | 339,130 b | 1,485,389 |
ValueClick | 75,720 b | 644,377 |
Vishay Intertechnology | 105,600 b | 367,488 |
48,593,104 |
10
Common Stocks (continued) | Shares | Value ($) |
Utilities—1.4% | ||
Allete | 38,710 | 1,033,170 |
UniSource Energy | 76,510 a | 2,156,817 |
3,189,987 | ||
Total Common Stocks | ||
(cost $223,885,364) | 216,367,995 | |
Other Investment—3.6% | ||
Registered Investment Company; | ||
Dreyfus Institutional Preferred | ||
Plus Money Market Fund | ||
(cost $8,144,727) | 8,144,727 c | 8,144,727 |
Investment of Cash Collateral | ||
for Securities Loaned—19.3% | ||
Registered Investment Company; | ||
Dreyfus Institutional Cash Advantage Fund | ||
(cost $43,276,895) | 43,276,895 c | 43,276,895 |
Total Investments (cost $275,306,986) | 119.6% | 267,789,617 |
Liabilities, Less Cash and Receivables | (19.6%) | (43,887,033) |
Net Assets | 100.0% | 223,902,584 |
ADR—American Depository Receipts |
a All or a portion of these securities are on loan.At March 31, 2009, the total market value of the fund’s securities on |
loan is $41,687,555 and the total market value of the collateral held by the fund is $43,276,895. |
b Non-income producing security. |
c Investment in affiliated money market mutual fund. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Health Care | 26.4 | Financial | 7.2 |
Money Market Investments | 22.9 | Consumer Staples | 5.2 |
Technology | 21.7 | Utilities | 1.4 |
Consumer Discretionary | 13.4 | Exchange Traded Funds | .5 |
Industrial | 13.2 | Materials | .5 |
Energy | 7.2 | 119.6 | |
† Based on net assets. | |||
See notes to financial statements. |
The Fund 11
STATEMENT OF ASSETS AND LIABILITIES March 31, 2009 (Unaudited) |
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments (including | ||
securities on loan, valued at $41,687,555)—Note 1(b): | ||
Unaffiliated issuers | 223,885,364 | 216,367,995 |
Affiliated issuers | 51,421,622 | 51,421,622 |
Cash | 320,499 | |
Receivable for investment securities sold | 16,159,757 | |
Receivable for shares of Beneficial Interest subscribed | 316,734 | |
Dividends and interest receivable | 42,795 | |
Prepaid expenses | 27,911 | |
284,657,313 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(b) | 195,995 | |
Liability for securities on loan—Note 1(b) | 43,276,895 | |
Payable for investment securities purchased | 17,088,391 | |
Payable for shares of Beneficial Interest redeemed | 94,565 | |
Accrued expenses | 98,883 | |
60,754,729 | ||
Net Assets ($) | 223,902,584 | |
Composition of Net Assets ($): | ||
Paid-in capital | 335,064,525 | |
Accumulated Investment (loss)—net | (207,499) | |
Accumulated net realized gain (loss) on investments | (103,437,073) | |
Accumulated net unrealized appreciation | ||
(depreciation) on investments | (7,517,369) | |
Net Assets ($) | 223,902,584 | |
Shares Outstanding | ||
(unlimited number of $.001 par value shares of Beneficial Interest authorized) | 6,851,216 | |
Net Asset Value, offering and redemption price per share—Note 3(d) ($) | 32.68 | |
See notes to financial statements. |
12
STATEMENT OF OPERATIONS | |
Six Months Ended March 31, 2009 (Unaudited) | |
Investment Income ($): | |
Income: | |
Cash dividends: | |
Unaffiliated issuers | 595,831 |
Affiliated issuers | 19,190 |
Income from securities lending | 164,936 |
Total Income | 779,957 |
Expenses: | |
Investment advisory fee—Note 3(a) | 735,959 |
Shareholder servicing costs—Note 3(b) | 56,521 |
Custodian fees—Note 3(b) | 53,049 |
Prospectus and shareholders’ reports | 49,374 |
Professional fees | 31,875 |
Accounting and administration fees—Note 3(a) | 22,500 |
Trustees’ fees and expenses—Note 3(c) | 17,317 |
Registration fees | 5,265 |
Loan commitment fees—Note 2 | 724 |
Miscellaneous | 17,821 |
Total Expenses | 990,405 |
Less—reduction in fees due to | |
earnings credits—Note 1(b) | (2,949) |
Net Expenses | 987,456 |
Investment (Loss)—Net | (207,499) |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | (81,281,844) |
Net realized gain (loss) on financial futures | 555,185 |
Net Realized Gain (Loss) | (80,726,659) |
Net unrealized appreciation (depreciation) on investments | (1,421,641) |
Net Realized and Unrealized Gain (Loss) on Investments | (82,148,300) |
Net (Decrease) in Net Assets Resulting from Operations | (82,355,799) |
See notes to financial statements. |
The Fund 13
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2009 | Year Ended | |
(Unaudited) | September 30, 2008 | |
Operations ($): | ||
Investment (loss)—net | (207,499) | (393,276) |
Net realized gain (loss) on investments | (80,726,659) | (19,698,792) |
Net unrealized appreciation | ||
(depreciation) on investments | (1,421,641) | (18,454,914) |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | (82,355,799) | (38,546,982) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold | 109,316,005 | 126,620,420 |
Cost of shares redeemed | (35,764,019) | (42,357,582) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | 73,551,986 | 84,262,838 |
Total Increase (Decrease) in Net Assets | (8,803,813) | 45,715,856 |
Net Assets ($): | ||
Beginning of Period | 232,706,397 | 186,990,541 |
End of Period | 223,902,584 | 232,706,397 |
Undistributed investment (loss)—net | (207,499) | — |
Capital Share Transactions (Shares): | ||
Shares sold | 3,208,373 | 2,297,970 |
Shares redeemed | (1,021,382) | (781,112) |
Net Increase (Decrease) in Shares Outstanding | 2,186,991 | 1,516,858 |
See notes to financial statements. |
14
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||
March 31, 2009 | Year Ended September 30, | |||||
(Unaudited) | 2008 | 2007 | 2006 | 2005 | 2004a | |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 49.89 | 59.41 | 49.67 | 46.30 | 37.95 | 32.41 |
Investment Operations: | ||||||
Investment (loss)—netb | (.04) | (.11) | (.11) | (.14) | (.20) | (.33) |
Net realized and unrealized | ||||||
gain (loss) on investments | (17.17) | (9.41)c | 9.85c | 3.51 | 8.55 | 5.87c |
Total from | ||||||
Investment Operations | (17.21) | (9.52) | 9.74 | 3.37 | 8.35 | 5.54 |
Net asset value, end of period | 32.68 | 49.89 | 59.41 | 47.67 | 46.30 | 37.95 |
Total Return (%) | (34.54)d | (16.02) | 19.61 | 7.28e | 22.00e | 17.09e |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.08f | 1.01 | 1.09 | 1.38 | 1.41 | 1.37 |
Ratio of net expenses | ||||||
to average net assets | 1.07f | 1.01 | 1.09g | 1.10g | 1.17g | 1.18g |
Ratio of net investment (loss) | ||||||
to average net assets | (.23)f | (.20) | (.20) | (.30) | (.48) | (.87) |
Portfolio Turnover Rate | 141.12d | 207 | 175h | 166h | 135h | 153h |
Net Assets, end of period | ||||||
($ x 1,000) | 223,903 | 232,706 | 186,991 | 42,103 | 36,323 | 18,274 |
a | Prior to August 31, 2005, the fund offered two classes of shares: Institutional Class and Service Class.The financial |
highlights for periods prior to the year ended September 30, 2005, represent those of the Institutional Class. | |
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, $.01 for |
the year ended September 30, 2007 and $.06 for the year ended September 30, 2004. | |
d | Not annualized. |
e | Total return would have been lower in the absence of expense waivers. |
f | Annualized. |
g | For the period October 1, 2006 to September 19, 2007 and for the fiscal years ended September 30, 2004-2006, |
the ratios include the fund’s share of the The Boston Company Small Cap Growth Portfolio’s (the Portfolio) | |
allocated expenses. | |
h | On September 19, 2007, the fund, which had 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 investment activity of both the fund and the Portfolio for the year. The amount | |
shown for 2004-2006 are the ratios 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 a diversified open-end management investment company and operates as a series company currently offering fourteen series, including the fund.The fund’s investment objective is to seek long-term growth of capital. Prior to December 1, 2008,The Boston Company Asset Management LLC, a wholly owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), served as the fund’s investment advisor. Effective December 1, 2008, 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 subsidiar y of the Manager, is the distributor of the fund’s shares, which are sold without a sales charge.
At a meeting of the Board of Trustees held on August 27, 2008, the Board approved, effective December 1, 2008, a proposal to change the names of the Trust and the fund from “Mellon Institutional Funds Investment Trust” and “The Boston Company Small Cap Growth Fund” to “Dreyfus Investment Funds” and “Dreyfus/The Boston Company Small Cap Growth Fund,” respectively.
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 fund’s financial statements are prepared in accordance with U.S. generally accepted accounting principles, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
(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
16
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 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 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 fund adopted Statement of Financial Accounting Standards No. 157 “FairValue Measurements” (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements.
Various inputs are used in determining the value of the fund’s investments relating to FAS 157.These inputs are summarized in the three broad levels listed below.
Level 1—quoted prices in active markets for identical investments. |
Level 2—other significant observable inputs (including quoted |
prices for similar securities, interest rates, prepayment speeds, |
credit risk, etc.). |
The Fund 17
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Quoted | Observable Unobservable | |||
Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in | ||||
Securities | 267,789,617 | — | — | 267,789,617 |
Other Financial | ||||
Instruments† | — | — | — | — |
Liabilities ($) | ||||
Other Financial | ||||
Instruments† | — | — | — | — |
† Other financial instruments include derivative instruments, such as futures, forward currency exchange contracts, swap contracts and options contracts.Amounts shown represent unrealized appreciation (depreciation) at period end.
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Investments in | |
Securities ($) | |
Balance as of 9/30/2008 | 7,349,961 |
Realized gain (loss) | — |
Change in unrealized appreciation (depreciation) | — |
Net purchases (sales) | (7,349,961) |
Transfers in and/or out of Level 3 | — |
Balance as of 3/31/2009 | — |
(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
18
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, 2009, The Bank of New York Mellon earned $54,979 from lending fund portfolio securities, pursuant to the securities lending agreement.
Until December 10, 2007, all cash collateral received by the fund and other series of the Trust in connection with the securities lending program was invested in the BlackRock Cash Strategies Fund LLC (the “BlackRock Fund”), a private investment fund not affiliated with the Trust or its investment adviser. On December 10, 2007, the BlackRock Fund announced that it was suspending investor withdrawal privileges due to conditions related to the credit markets and the adverse affect of such conditions on the liquidity of the BlackRock Fund’s portfolio
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
holdings. Commencing on December 11, 2007, all new cash collateral received in connection with the securities lending activity of the fund and other series of the Trust was invested by the securities lending agent in the Dreyfus Institutional Cash Advantage Fund (the “Dreyfus Fund”), an affiliated money market fund registered as an investment company under the Investment Company Act of 1940, as amended.To the extent that the BlackRock Fund agreed to permit withdrawals during the period December 11, 2007 through December 31, 2008, the securities lending agent effected such withdrawals and the cash proceeds from such withdrawals by the fund were reinvested in the shares of the Dreyfus Fund. As of January 22, 2009, the final withdrawal was reinvested in the shares of the Dreyfus Fund. Repayments of cash collateral during the period were made from the proceeds of redemptions of shares of the Dreyfus Fund.
(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 semi-annually 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”).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 U.S. generally accepted accounting principles.
(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.
20
As of and during the period ended March 31, 2009, 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, 2008 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $939,793 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to September 30, 2008. If not applied, the carryover expires in fiscal 2011.
NOTE 2—Bank Lines of Credit:
The Trust entered into two separate agreements with The Bank of New York Mellon that enable the fund, and other series in the Trust, to borrow, in the aggregate, (i) up to $35 million under a committed line of credit and (ii) up to $15 million under an uncommitted line of credit. In connection therewith, the fund has agreed to pay commitment fees on its pro rata portion of the lines of credit. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowing. During the period ended March 31, 2009, the fund did not borrow under the lines of credit.
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 .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
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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 for the period ended March 31, 2009 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, 2009, the fund was charged $7,922 pursuant to the transfer agency agreement.
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, 2009, the fund was charged $2,949 pursuant to the cash management agreements.These fees were offset by earnings credits 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, 2009, the fund was charged $53,049 pursuant to the custody agreement.
During the period ended March 31, 2009, the fund was charged $2,578 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 $153,517, custodian fees $36,900, chief compliance officer fees $2,578 and transfer agency per account fees $3,000.
(c) Effective December 1, 2008, each Trustee receives $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 and The Dreyfus/Laurel Tax-Free Municipal Funds, (collectively, the “Dreyfus/Laurel Funds”) attended, $2,000 for separate in-person com-
22
mittee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that are conducted by telephone and is reimbursed 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, the Chair of the compensation committee receives $900 per meeting. In the event that there is an in person joint committee meeting of the Trust, Dreyfus/Laurel Funds, the Trust and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee, as applicable, will be allocated between the Trust, Dreyfus/Laurel Funds and Dreyfus High Yield Strategies Fund.These fees and expenses are charged and allocated to each series based on net assets.
(d) A 2% redemption fee was charged and retained by the fund on certain shares redeemed within thirty days following the date of issuance, subject to exceptions, including redemptions made through the use of the fund’s exchange privilege. Effective December 1, 2008, the fund discontinued the redemption fee on shares.The fund reserves the right to reimpose a redemption fee in the future. From October 1, 2008 through December 1, 2008, there were no redemption fees charged and retained by the fund.
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, 2009, amounted to $340,966,926 and $264,736,248, respectively.
The fund may invest in financial futures contracts in order to gain exposure to or protect against changes in the market.The fund is exposed to market risk as a result of changes in the value of the underlying financial instruments.These investments require initial margin deposits with
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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. Investments in financial futures require the fund to “mark to market” on a daily basis, which reflects the change in market value of the contracts at the close of each day’s trading. Accordingly, variation margin payments are received or made to reflect daily unrealized gains or losses.When the contracts are closed, the fund recognizes a realized gain or loss. At March 31, 2009, there were no open financial futures contracts outstanding.
At March 31, 2009, accumulated net unrealized depreciation on investments was $7,517,369, consisting of $11,983,497 gross unrealized appreciation and $19,500,866 gross unrealized depreciation.
At March 31, 2009, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
The Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The application of FAS 161 is required for fiscal years and interim periods beginning after November 15, 2008. At this time, management is evaluating the implications of FAS 161 and its impact on the financial statements and the accompanying notes has not yet been determined.
24
NOTE 5—Change in Independent Registered Public Accounting Firm:
PricewaterhouseCoopers LLP (“PWC”), 300 Madison Avenue, New York, New York 10017, an independent registered public accounting firm, were the independent registered public accounting firm for the fund for the fiscal year ended September 30, 2008.At the meetings held on February 9-10, 2009, the Audit Committee and the Board of Trustees of theTrust engaged KPMG LLP to replace PWC as the independent registered public accounting firm for the Trust, effective upon the conclusion of the audit of the December 31, 2008 financial statements of the other series of the Trust.
During the funds’ past two fiscal years and any subsequent interim period: (i) no report on the funds’ financial statements contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles; and (ii) there were no “disagreements” (as such term is used in Item 304 of Regulation S-K) with PWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of PWC, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report.
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 and 10, 2009, 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.
Representatives of the Manager reminded the Board members that the Manager became the investment adviser of the fund, effective December 1, 2008, and that there were no changes to the portfolio management of the fund as a result of the appointment of the Manager as the fund’s investment adviser.
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. 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
26
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.
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 above the Performance Group and Performance Universe medians for the one-, two-, three-, four-, five-and ten-year periods ended December 31, 2008. 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. 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 is 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 members also were informed that the Lipper data presenting the fund’s “actual management fees” included fees paid by the fund, as calculated by
The Fund 27
NFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
Lipper, for administrative services provided by The Bank of NewYork Mellon, theTrust’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 blended advisory fee.The Board noted that 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 Manager’s representatives also reviewed the costs associated with distribution through intermediaries.The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided. The Board members considered the relevance of the fee information provided for the Similar Funds and the Similar Accounts to evaluate the appropriateness and reasonableness of the fund’s management fee. The Board acknowledged that differences in fees paid by the Similar Accounts seemed to be consistent with the services provided.
Analysis of Profitability and Economies of Scale. A representative of the Manager reminded the Board members that The Bank of New York Mellon Corporation, the parent company of the Manager, paid all of the expenses associated with the Manager becoming the fund’s investment adviser and the proxy campaign with respect to the Board members becoming the Trust’s Board members. Because the Manager
28
only became the fund’s investment adviser effective December 1, 2008, the Manager’s representatives were not able to provide a dollar amount of expenses allocated and profit received by the Manager, but a representative of the Manager did review the method to be used to determine such expenses and profit in the future.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 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 considered whether the fund would be able to participate in any economies of scale that the Manager may experience in the event that the fund attracts a large amount of assets but noted that the fund had been generally closed to new investors since July 2007 and also noted the decrease to the fund’s recent asset levels.The Board members discussed the renewal requirements for advisory agreements and their ability to review the management fee annually.
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 to be provided by the Manager are adequate and appropriate.
- The Board was satisfied with the fund’s relative performance.
The Fund 29
NFORMATION 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 to be provided, comparative performance, expense and advisory fee information and potential profits to be realized and benefits to be derived by the Manager from its relationship with the fund.
- The Board determined that because the Manager had become the investment adviser of the fund effective December 1,2008,economies of scale were not a factor at this time, but, to the extent that material economies of scale are not shared with the fund in the future, the Board would seek to do so in connection with future renewals.
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 and that the Management Agreement would be renewed through April 4, 2010.
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 CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
13 | Statement of Assets and Liabilities |
14 | Statement of Operations |
15 | Statement of Changes in Net Assets |
16 | Financial Highlights |
17 | Notes to Financial Statements |
27 | 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 Tax-Sensitive Equity Fund |
A LETTER FROM THE CEO Dear Shareholder: |
We present this semiannual report for Dreyfus/The Boston Company Small Cap Tax-Sensitive Equity Fund, covering the six-month period from October 1, 2008, through March 31, 2009.
The reporting period has been one of the most challenging for the U.S. economy and virtually all sectors and capitalization ranges of the stock markets. A relatively mild economic downturn over the first several months of 2008 was severely exacerbated in mid-September 2008, when the bankruptcy of Lehman Brothers triggered a cascading global economic decline.As the credit crisis dried up the availability of funding for businesses and consumers, international trade activity slumped, commodity prices plummeted, the U.S. and global economies entered a period of intense inventory liquidation, and unemployment surged.
On the heels of a –6.3% annualized U.S. economic growth rate in the fourth quarter of 2008, we expect another sharp decline for the first quarter of 2009. However, our Chief Economist anticipates that the U.S. recession may reach a trough around the third quarter of this year, followed by a slow recovery. Indeed, the U.S. government and monetary authorities have signaled their intent to do whatever it takes to forestall a depression or a deflationary spiral, including historically low interest rates, mortgage modification programs, massive monetary and fiscal stimulus and support for troubled financial institutions.Although times seem dire now, we believe it is always appropriate to maintain a long-term investment focus and to discuss any investment modifications with your financial adviser. Together, you can prepare for the risks that lie ahead and position your assets to perform in this current market downturn, and in the future.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund’s Portfolio Managers.
As always, we thank you for your continued confidence and support.
Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation April 15, 2009 |
2
DISCUSSION OF FUND PERFORMANCE
For the reporting period of October 1, 2008, through March 31, 2009, 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, 2009, Dreyfus/The Boston Company Small Cap Tax-Sensitive Equity Fund produced a total return of –34.76%.1 In comparison, the fund’s benchmark, the Russell 2000 Growth Index (“the Index”), produced a total return of –34.51% for the same period.2
Stocks across all investment styles, market sectors and capitalization ranges fell sharply, particularly over the fourth quarter of 2008, due to intensifying financial and economic crises. The fund produced performance in line with its benchmark, primarily stemming from disappointments in the health care sector.
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 high-quality, small-cap companies with attractive characteristics, such as strong business 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.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.
Financial Crisis and Recession Roiled Stock Markets
Stocks declined sharply in the midst of a global financial crisis and a deepening U.S. recession, especially over the reporting period’s sec-
The Fund |
3 |
DISCUSSION OF FUND PERFORMANCE (continued) |
ond half. Slumping home values, rising unemployment and plunging consumer confidence produced one of the most severe economic downturns since the Great Depression. Meanwhile, an ongoing credit crunch escalated into a global financial crisis, resulting in the failures of several major financial institutions.
Despite aggressive efforts by government authorities to forestall further deterioration, risk-averse investors punished most stocks, seemingly regardless of their underlying business fundamentals. The effects of widespread selling pressure were magnified by highly leveraged institutional investors, who were forced to sell even their more creditworthy holdings to raise cash for margin calls. Particularly severe market declines during the fourth quarter of 2008 were partly offset by a rally late in the first quarter of 2009, as investors looked forward to potentially better economic conditions.
Health Care Holdings Weighed on Performance
Although the health care sector traditionally has been considered a relatively defensive area during market downturns, small-cap biotechnology companies proved vulnerable over the past six months to budget cuts among the large pharmaceutical developers that are their primary customers. In addition, investors’ expectations that smaller biotechnology companies would be acquisition targets did not materialize during the reporting period.Consequently,Onyx Pharmaceuticals and Celera Corp. missed their earnings targets, and BioMarin Pharmaceutical declined sharply when a promising new product fell short of sales expectations. Medical equipment and supplies providers also disappointed as patients delayed elective surgeries, dampening sales and earnings of Wright Medical Group, Arthrocare, CONMED and Natus Medical. Finally, among health care providers, services provider Psychiatric Solutions suffered from lower-than-expected sales volumes.
The consumer staples sector detracted more mildly from the fund’s relative performance, as natural and organic food products manufacturer Hain Celestial Group was hurt when consumers turned to less expensive products.
Positive contributions to the fund’s performance during the reporting period came from underweighted exposure to the industrials group.The
4
fund also scored a number of winning stock selections in the sector, where precision components maker II-VI, utilities contractor Quanta Services, and transportation companies Werner Enterprises, Landstar System and UTi Worldwide held up better than market averages. The fund’s investments in the energy sector benefited from relatively light exposure to lagging exploration-and-production companies as oil prices plunged, with the exception of Concho Resources, which reported robust quarterly financial results.An underweighted position in the consumer discretionary sector helped the fund avoid the brunt of weakness resulting from sluggish consumer spending, while a focus on certain well-managed specialty retailers and restaurants fared relatively well, including Hibbett Sports, Aeropostale, Williams-Sonoma, Papa John’s International and Panera Bread.
Finding Opportunities in a Distressed Market
The economy has continued to struggle, and the financial crisis has persisted, prompting us to maintain the fund’s generally defensive investment posture. However, we have begun to see signs of potential improvement in the housing and banking markets. In addition, we believe that historically low interest rates, lower energy prices and massive government spending are likely to stimulate the U.S. economy over the longer term. Consequently, we have begun to take advantage of opportunities in industry groups and companies that, in our judgment, were punished too severely by investors and may be poised for gains in an eventual economic recovery.
April 15, 2009
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 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, 2008 to March 31, 2009. 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, 2009 | |
Expenses paid per $1,000† | $4.33 |
Ending value (after expenses) | $652.40 |
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, 2009 | |
Expenses paid per $1,000† | $5.29 |
Ending value (after expenses) | $1,019.70 |
† Expenses are equal to the fund’s annualized expense ratio of 1.05%, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS March 31, 2009 (Unaudited) |
Common Stocks—96.8% | Shares | Value ($) |
Consumer Discretionary—13.5% | ||
Aeropostale | 38,440 a,b | 1,020,966 |
Bally Technologies | 57,001 b | 1,049,958 |
Carter’s | 107,990 b | 2,031,292 |
Chipotle Mexican Grill, Cl. B | 29,722 b | 1,703,368 |
Corinthian Colleges | 100,970 a,b | 1,963,867 |
Deckers Outdoor | 18,510 b | 981,770 |
Fossil | 66,590 b | 1,045,463 |
Hibbett Sports | 109,267 a,b | 2,100,112 |
Interactive Data | 61,050 | 1,517,703 |
K12 | 40,412 a,b | 561,727 |
Lincoln Educational Services | 31,790 a,b | 582,393 |
Lions Gate Entertainment | 267,761 a,b | 1,352,193 |
Lumber Liquidators | 25,760 a,b | 328,440 |
P.F. Chang’s China Bistro | 34,440 a,b | 787,987 |
Papa John’s International | 81,260 b | 1,858,416 |
Pool | 42,850 | 574,190 |
Texas Roadhouse, Cl. A | 221,070 a,b | 2,106,797 |
Tractor Supply | 23,430 b | 844,886 |
Wendy’s/Arby’s Group, Cl. A | 307,450 | 1,546,474 |
Williams-Sonoma | 90,330 a | 910,526 |
WMS Industries | 104,697 a,b | 2,189,214 |
27,057,742 | ||
Consumer Staples—5.4% | ||
Alberto-Culver | 88,603 | 2,003,314 |
Casey’s General Stores | 96,900 | 2,583,354 |
Central Garden & Pet | 68,380 a,b | 520,372 |
Hain Celestial Group | 95,160 a,b | 1,355,078 |
Nu Skin Enterprises, Cl. A | 184,490 | 1,935,300 |
Peet’s Coffee & Tea | 30,640 b | 662,437 |
Spartan Stores | 121,201 | 1,867,707 |
10,927,562 |
The Fund |
7 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Energy—7.3% | ||
Arena Resources | 117,900 b | 3,004,092 |
Concho Resources | 151,387 b | 3,873,993 |
Dril-Quip | 102,110 b | 3,134,777 |
Encore Acquisition | 50,290 b | 1,170,248 |
NATCO Group, Cl. A | 91,075 b | 1,724,050 |
Plains Exploration & Production | 101,830 b | 1,754,531 |
14,661,691 | ||
Exchange Traded Funds—.6% | ||
iShares Russell 2000 Growth Index Fund | 25,810 a | 1,186,744 |
Financial—7.2% | ||
Arch Capital Group | 37,410 b | 2,014,903 |
EZCORP, Cl. A | 47,040 b | 544,253 |
ProAssurance | 81,310 b | 3,790,672 |
Riskmetrics Group | 32,350 a,b | 462,282 |
RLI | 86,120 a | 4,323,224 |
Tower Group | 40,240 | 991,111 |
Validus Holdings | 102,450 | 2,426,016 |
14,552,461 | ||
Health Care—26.3% | ||
Acorda Therapeutics | 75,860 b | 1,502,787 |
Alexion Pharmaceuticals | 79,340 a,b | 2,987,944 |
Align Technology | 121,350 a,b | 962,306 |
Alkermes | 68,320 b | 828,722 |
Alnylam Pharmaceuticals | 54,087 a,b | 1,029,817 |
Bio-Rad Laboratories, Cl. A | 17,045 b | 1,123,266 |
BioMarin Pharmaceutical | 76,740 a,b | 947,739 |
Bruker | 145,053 b | 893,526 |
Cadence Pharmaceuticals | 87,010 a,b | 816,154 |
CardioNet | 37,490 | 1,051,969 |
Catalyst Health Solutions | 91,830 b | 1,820,071 |
Celera | 100,510 b | 766,891 |
Chemed | 29,760 | 1,157,664 |
8
Common Stocks (continued) | Shares | Value ($) |
Health Care (continued) | ||
Emergency Medical Services, Cl. A | 32,598 b | 1,023,251 |
Enzon Pharmaceuticals | 188,110 a,b | 1,141,828 |
ev3 | 87,900 a,b | 624,090 |
Genomic Health | 21,250 b | 518,075 |
Haemonetics | 41,870 b | 2,306,200 |
Immucor | 84,930 b | 2,135,990 |
Integra LifeSciences Holdings | 25,405 a,b | 628,266 |
Kendle International | 61,920 a,b | 1,297,843 |
Martek Biosciences | 38,400 b | 700,800 |
Masimo | 47,090 b | 1,364,668 |
Medarex | 161,210 b | 827,007 |
MEDNAX | 31,890 b | 939,798 |
Myriad Genetics | 58,940 b | 2,680,002 |
NuVasive | 48,360 a,b | 1,517,537 |
Odyssey HealthCare | 1,510 b | 14,647 |
Onyx Pharmaceuticals | 66,580 b | 1,900,859 |
OSI Pharmaceuticals | 48,980 a,b | 1,873,975 |
Owens & Minor | 47,760 | 1,582,289 |
PharMerica | 33,680 b | 560,435 |
Phase Forward | 81,180 b | 1,038,292 |
PSS World Medical | 155,000 b | 2,224,250 |
Regeneron Pharmaceuticals | 57,780 b | 800,831 |
Resmed | 50,080 b | 1,769,827 |
Thermo Fisher Scientific | 52,400 a,b | 1,869,108 |
Thoratec | 40,370 b | 1,037,105 |
United Therapeutics | 17,270 a,b | 1,141,374 |
Varian | 20,560 b | 488,094 |
Volcano | 68,560 b | 997,548 |
West Pharmaceutical Services | 44,080 | 1,446,265 |
Wright Medical Group | 46,090 a,b | 600,553 |
52,939,663 |
The Fund |
9 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Industrial—13.0% | ||
Administaff | 73,140 | 1,545,448 |
Argon ST | 32,520 b | 616,904 |
Clean Harbors | 28,240 b | 1,355,520 |
Cornell | 96,610 b | 1,581,506 |
EnergySolutions | 58,840 | 508,966 |
Exponent | 36,500 b | 924,545 |
Geo Group | 45,808 b | 606,956 |
Huron Consulting Group | 84,880 a,b | 3,601,458 |
ICF International | 42,980 b | 987,251 |
II-VI | 58,460 b | 1,004,343 |
Knight Transportation | 137,646 a | 2,086,713 |
Landstar System | 29,330 | 981,675 |
MSC Industrial Direct, Cl. A | 88,760 a | 2,757,773 |
Orbital Sciences | 50,090 b | 595,570 |
Quanta Services | 108,290 a,b | 2,322,821 |
Team | 72,720 b | 852,278 |
UTi Worldwide | 318,560 | 3,806,792 |
26,136,519 | ||
Materials—.5% | ||
Aurizon Mines | 231,041 a,b | 1,039,685 |
Technology—21.6% | ||
Atheros Communications | 67,340 a,b | 987,204 |
ATMI | 126,550 b | 1,952,667 |
BigBand Networks | 95,160 b | 623,298 |
CACI International, Cl. A | 26,354 b | 961,657 |
Ciena | 132,040 a,b | 1,027,271 |
Cogent | 122,230 b | 1,454,537 |
CyberSource | 103,880 b | 1,538,463 |
Diodes | 143,290 b | 1,520,307 |
DTS | 58,170 a,b | 1,399,570 |
FEI | 45,570 b | 703,145 |
10
Common Stocks (continued) | Shares | Value ($) |
Technology (continued) | ||
FormFactor | 39,610 b | 713,772 |
Informatica | 108,190 b | 1,434,599 |
j2 Global Communications | 116,030 b | 2,539,897 |
Lam Research | 70,580 b | 1,607,107 |
Landauer | 10,460 | 530,113 |
ManTech International, Cl. A | 74,680 b | 3,129,092 |
Mellanox Technologies | 102,057 b | 850,135 |
Metavante Technologies | 194,892 b | 3,890,044 |
NETGEAR | 104,040 b | 1,253,682 |
Neutral Tandem | 46,097 b | 1,134,447 |
Novellus Systems | 130,890 b | 2,176,701 |
PMC-Sierra | 319,750 b | 2,040,005 |
Polycom | 170,380 b | 2,622,148 |
Riverbed Technology | 108,537 a,b | 1,419,664 |
SkillSoft, ADR | 319,410 b | 2,136,853 |
Sybase | 49,680 b | 1,504,807 |
Teradyne | 305,210 b | 1,336,820 |
ValueClick | 67,740 b | 576,467 |
Vishay Intertechnology | 94,940 b | 330,391 |
43,394,863 | ||
Utilities—1.4% | ||
Allete | 34,570 | 922,673 |
UniSource Energy | 64,550 a | 1,819,665 |
2,742,338 | ||
Total Common Stocks | ||
(cost $200,824,164) | 194,639,268 | |
Other Investment—3.1% | ||
Registered Investment Company; | ||
Dreyfus Institutional Preferred Plus Money Market Fund | ||
(cost $6,149,081) | 6,149,081 c | 6,149,081 |
The Fund |
11 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Investment of Cash Collateral | ||
for Securities Loaned—19.6% | Shares | Value ($) |
Registered Investment Company; | ||
Dreyfus Institutional Cash Advantage Fund | ||
(cost $39,297,001) | 39,297,001 c | 39,297,001 |
Total Investments (cost $246,270,246) | 119.5% | 240,085,350 |
Liabilities, Less Cash and Receivables | (19.5%) | (39,242,410) |
Net Assets | 100.0% | 200,842,940 |
ADR—American Depository Receipts |
a | All or a portion of these securities are on loan.At March 31, 2009, the total market value of the fund’s securities on loan is $38,137,908 and the total market value of the collateral held by the fund is $39,297,001. |
b | Non-income producing security. |
c | Investment in affiliated money market mutual fund. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Health Care | 26.3 | Financial | 7.2 |
Money Market Investments | 22.7 | Consumer Staples | 5.4 |
Technology | 21.6 | Utilities | 1.4 |
Consumer Discretionary | 13.5 | Exchange Traded Funds | .6 |
Industrial | 13.0 | Materials | .5 |
Energy | 7.3 | 119.5 | |
† Based on net assets. | |||
See notes to financial statements. |
12
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2009 (Unaudited)
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments (including | ||
securities on loan, valued at $38,137,908)—Note 1(b): | ||
Unaffiliated issuers | 200,824,164 | 194,639,268 |
Affiliated issuers | 45,446,082 | 45,446,082 |
Cash | 473,492 | |
Receivable for investment securities sold | 14,038,788 | |
Receivable for shares of Beneficial Interest subscribed | 405,971 | |
Dividends and interest receivable | 40,438 | |
Prepaid expenses | 39,523 | |
255,083,562 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(b) | 177,547 | |
Liability for securities on loan—Note 1(b) | 39,297,001 | |
Payable for investment securities purchased | 14,544,689 | |
Payable for shares of Beneficial Interest redeemed | 120,298 | |
Accrued expenses | 101,087 | |
54,240,622 | ||
Net Assets ($) | 200,842,940 | |
Composition of Net Assets ($): | ||
Paid-in capital | 324,395,797 | |
Accumulated Investment (loss)—net | (254,983) | |
Accumulated net realized gain (loss) on investments | (117,112,978) | |
Accumulated net unrealized appreciation | ||
(depreciation) on investments | (6,184,896) | |
Net Assets ($) | 200,842,940 | |
Shares Outstanding | ||
(unlimited number of $.001 par value shares of Beneficial Interest authorized) | 9,160,612 | |
Net Asset Value, offering and redemption price per share—Note 3(d) ($) | 21.92 | |
See notes to financial statements. |
The Fund |
13 |
STATEMENT OF OPERATIONS | |
Six Months Ended March 31, 2009 (Unaudited) | |
Investment Income ($): | |
Income: | |
Cash dividends: | |
Unaffiliated issuers | 635,711 |
Affiliated issuers | 18,875 |
Interest | 1,865 |
Income from securities lending | 195,014 |
Total Income | 851,465 |
Expenses: | |
Investment advisory fee—Note 3(a) | 840,708 |
Custodian fees—Note 3(b) | 67,890 |
Prospectus and shareholders’ reports | 57,989 |
Shareholder servicing costs—Note 3(b) | 42,000 |
Professional fees | 36,096 |
Accounting and administration fees—Note 3(a) | 22,500 |
Trustees’ fees and expenses—Note 3(c) | 20,493 |
Registration fees | 9,042 |
Loan commitment fees—Note 2 | 1,278 |
Miscellaneous | 10,838 |
Total Expenses | 1,108,834 |
Less—reduction in fees due to | |
earnings credits—Note 1(b) | (2,386) |
Net Expenses | 1,106,448 |
Investment (Loss)—Net | (254,983) |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | (93,057,982) |
Net realized gain (loss) on financial futures | 31,889 |
Net Realized Gain (Loss) | (93,026,093) |
Net unrealized appreciation (depreciation) on investments | (11,058,258) |
Net Realized and Unrealized Gain (Loss) on Investments | (104,084,351) |
Net (Decrease) in Net Assets Resulting from Operations | (104,339,334) |
See notes to financial statements. |
14
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2009 | Year Ended | |
(Unaudited) | September 30, 2008 | |
Operations ($): | ||
Investment (loss)—net | (254,983) | (590,010) |
Net realized gain (loss) on investments | (93,026,093) | (18,842,623) |
Net unrealized appreciation | ||
(depreciation) on investments | (11,058,258) | (34,260,173) |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | (104,339,334) | (53,692,806) |
Dividends to Shareholders from ($): | ||
Net Realized Gain on investments | — | (22,815,052) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold | 49,843,210 | 99,647,850 |
Dividend reinvested | — | 17,523,679 |
Cost of shares redeemed | (47,906,757) | (53,896,929) |
Increase (Decrease) in Net Assets | ||
from Beneficial Interest Transactions | 1,936,453 | 63,274,600 |
Total Increase (Decrease) in Net Assets | (102,402,881) | (13,233,258) |
Net Assets ($): | ||
Beginning of Period | 303,245,821 | 316,479,079 |
End of Period | 200,842,940 | 303,245,821 |
Accumulated investment (loss)—net | (254,983) | — |
Capital Share Transactions (Shares): | ||
Shares sold | 2,194,919 | 2,664,479 |
Shares issued for dividends reinvested | — | 452,107 |
Shares redeemed | (2,061,835) | (1,423,379) |
Net Increase (Decrease) in Shares Outstanding | 133,084 | 1,693,207 |
See notes to financial statements. |
The Fund |
15 |
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||
March 31, 2009 | Year Ended September 30, | |||||
(Unaudited) | 2008 | 2007 | 2006 | 2005 | 2004 | |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 33.59 | 43.15 | 42.27 | 42.35 | 34.71 | 29.58 |
Investment Operations: | ||||||
Investment (loss)—neta | (.03) | (.07) | (.07) | (.08) | (.10) | (.24) |
Net realized and unrealized | ||||||
gain (loss) on investments | (11.64) | (6.42)b | 8.07b | 3.08 | 7.74 | 5.37b |
Total from Investment | ||||||
Operations | (11.67) | (6.49) | 8.00 | 3.00 | 7.64 | 5.13 |
Dristributions: | ||||||
Dividends from net realized | ||||||
gains on investments | — | (3.07) | (7.12) | (3.08) | — | — |
Net asset value, end of period | 21.92 | 33.59 | 43.15 | 42.27 | 42.35 | 34.71 |
Total Return (%) | (34.76)c | (15.99) | 20.79 | 7.49 | 22.01 | 17.34 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.05d | .95 | .96 | .99 | .99 | 1.03 |
Ratio of net expenses | ||||||
to average net assets | 1.05d,e | .95 | .96 | .99 | .99 | 1.03 |
Ratio of net investment (loss) | ||||||
to average net assets | (.24)d | (.19) | (.17) | (.18) | (.26) | (.71) |
Portfolio Turnover Rate | 135.95c | 209 | 170 | 169 | 137 | 150 |
Net Assets, end of period | ||||||
($ x 1,000) | 200,843 303,246 | 316,479 | 160,552 | 160,035 | 120,372 |
a | Based on average shares outstanding at each month end. |
b | Amounts include litigation proceeds received by the fund of $.01 for the year ended September 30, 2008, $.04 for the year ended September 30, 2007 and $.03 for the year ended September 30, 2004. |
c | Not annualized. |
d | Annualized. |
e | Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements. |
16
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
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 as a series company currently offering fourteen 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. Prior to December 1, 2008, The Boston Company Asset Management, LLC (TBCAM), a wholly-owned subsidiary ofThe Bank of New York Mellon Corporation (“BNY Mellon”), served as the fund’s investment adviser. After December 1, 2008, 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, which are sold to the public without a sales charge.The Fund is closed to new investors.
At a meeting of the fund’s Board of Trustees held on August 27, 2008, the Board approved, effective December 1, 2008, a proposal to change the names of the Trust and the fund from “Mellon Institutional Funds InvestmentTrust” and “The Boston Company Small CapTax-Sensitive Equity Fund” to “Dreyfus Investment Funds” and “Dreyfus/The Boston Company Small Cap Tax-Sensitive Equity Fund,” respectively.
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 fund’s financial statements are prepared in accordance with U.S. generally accepted accounting principles, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
The Fund 17
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(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 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 ofTrustees. Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant ADRs and futures contracts. For other securities that are fair valued by the Board of 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 fund adopted Statement of Financial Accounting Standards No. 157 “FairValue Measurements” (“FAS 157”). FAS 157 establishes an author-
18
itative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements.
Various inputs are used in determining the value of the fund’s investments relating to FAS 157.These inputs are summarized in the three broad levels listed below.
Level 1—quoted prices in active markets for identical investments. Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including 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, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Quoted | Observable Unobservable | |||
Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investment in | ||||
Securities | 240,085,350 | — | — | 240,085,350 |
Other Financial | ||||
Instruments† | — | — | — | — |
Liabilities ($) | ||||
Other Financial | ||||
Instruments† | — | — | — | — |
† Other financial instruments include derivative instruments such as futures, forward currency exchange contracts, swap contracts and options contracts.Amounts shown represent unrealized appreciation (depreciation) at period end.
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The following is a reconciliation of the change in value of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Investments in Securities ($) | ||
Balance as of 9/30/2008 | 13,102,183 | |
Realized gain (loss) | — | |
Change in unrealized appreciation (depreciation) | — | |
Net purchases (sales) | (13,102,183) | |
Transfers in and/or out of Level 3 | — | |
Balance as of 3/31/2009 | — |
(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 and that 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
20
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, 2009,The Bank of NewYork Mellon earned $65,005 from lending fund portfolio securities, pursuant to the securities lending agreement.
Until December 10, 2007, all cash collateral received by the fund and other series of the Trust in connection with the securities lending program was invested in the Black Rock Cash Strategies Fund LLC (the “Black Rock Fund”), a private investment fund not affiliated with the Trust or its investment adviser. On December 10, 2007, the Black Rock Fund announced that it was suspending investor withdrawal privileges due to conditions related to the credit markets and the adverse affect of such conditions on the liquidity of the Black Rock Fund’s portfolio holdings. Commencing on December 11, 2007, all new cash collateral received in connection with the securities lending activity of the fund and other series of the Trust was invested by the securities lending agent in the Dreyfus Institutional Cash Advantage Fund (the “Dreyfus Fund”), an affiliated money market fund registered as an investment company under the Investment Company Act of 1940, as amended.To the extent that the Black Rock Fund agreed to permit withdrawals during the period December 11, 2007 through January 22, 2009, the securities lending agent effected such withdrawals and the cash proceeds from such withdrawals by the fund were reinvested in the shares of the Dreyfus Fund. As of January 22, 2009, the final withdrawal was reinvested in the Dreyfus Fund. Repayments of cash collateral during the period were made from the proceeds of redemptions of shares of the Dreyfus Fund.
(c) Affiliated issuers: Investments in other investment companies advised by the Manager are defined as “affiliated” in the Act.
The Fund |
21 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(d) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gains, if any, are normally declared and paid semi-annually 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”).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 U.S. generally accepted accounting principles.
(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, 2009, 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, 2008 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The tax character of distributions paid to shareholders during the fiscal year ended September 30, 2008 was as follows: ordinary income $9,849,655 and long-term capital gains $12,965,397.The tax character of current year distributions, if any, will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The Trust entered into two separate agreements with The Bank of New York Mellon, that enable the fund, and other funds in the Trust,
22
to borrow, in the aggregate, (i) up to $35 million under a committed line of credit and (ii) up to $15 million from an uncommitted line of credit. In connection therewith, the fund has agreed to pay commitment fees on its pro rata portion of the lines of credit. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowing. During the period ended March 31, 2009, the fund did not borrow under the lines of credit.
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 .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 for the period ended March 31, 2009 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, 2009 the fund was charged $4,178 pursuant to the transfer agency agreement.
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, 2009, the fund was charged $2,386 pursuant to the cash management agreements.These fees were offset by earnings credits pursuant to the cash management agreements.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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, 2009, the fund was charged $67,890 pursuant to the custody agreement.
During the period ended March 31, 2009, the fund was charged $2,578 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 $127,269, custodian fees $45,000, chief compliance officer fees $2,578 and transfer agency per account fees $2,700.
(c) Effective December 1, 2008, each Trustee receives $45,000 per year, plus $6,000 for each joint Board meeting ofThe Dreyfus/Laurel Funds, Inc.,The Dreyfus /Laurel FundsTrust andThe Dreyfus/LaurelTax-Free Municipal Funds, (collectively, the “Dreyfus/Laurel Funds”) and the Trust attended, $2,000 for separate in-person committee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that are conducted by telephone and is reimbursed 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, the Chair of the compensation committee receives $900 per meeting. In the event that there is an in-person joint committee meeting of the Dreyfus/Laurel Funds, the Trust and Dreyfus HighYield Strategies Fund, the $2,000 or $1,500 fee, as applicable, will be allocated between the Dreyfus/Laurel Funds, the Trust and Dreyfus HighYield Strategies Fund.These fees and expenses are charged and allocated to each series based on net assets.
(d) Prior to December 1, 2008 at which time the fee was eliminated, a 2% redemption fee was charged and retained by the fund on certain shares redeemed within thirty days following the date of issuance, subject to exceptions, including redemptions made through the use of the
24
fund’s exchange privilege. From October 1, 2008 to November 30, 2008, there were no redemption fees charged and retained by the fund. The Fund reserves the right to reimpose a redemption fee in the future.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended March 31, 2009, amounted to $302,601,994 and $296,011,583, respectively.
The fund may invest in financial futures contracts in order to gain exposure to or protect against changes in the market.The fund is exposed to market risk as a result of changes in the value of the underlying instru-ments.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 ofTrade on which the contract is traded and is subject to change. Investments in financial futures require the fund to “mark to market” on a daily basis, which reflects the change in the market value of the contract at the close of each day’s trading. Accordingly variation margin payments are received or made to reflect daily unrealized gains or losses.When the contracts are closed, the fund recognizes a realized gain or loss.At March 31, 2009, there are no open financial futures contracts outstanding.
At March 31, 2009, accumulated net unrealized depreciation on investments was $6,184,896, consisting of $11,967,076 gross unrealized appreciation and $18,151,972 gross unrealized depreciation.
At March 31, 2009, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
The Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires qualitative disclosures about objectives and strategies for using deriv-
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
atives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The application of FAS 161 is required for fiscal years and interim periods beginning after November 15, 2008. At this time, management is evaluating the implications of FAS 161 and its impact on the financial statements and the accompanying notes has not yet been determined.
NOTE 5—Change in Independent Registered Public Accounting Firm:
PricewaterhouseCoopers LLP (“PWC”), 300 Madison Avenue, New York, New York 10017, an independent registered public accounting firm, were the independent registered public accounting firm for the fund for the fiscal year ended September 30, 2008. At the meetings held on February 9-10, 2009, the Audit Committee and the Board of Trustees of the Trust engaged KPMG LLP to replace PWC as the independent registered public accounting firm for the Trust, effective upon the conclusion of the audit of the December 31, 2008 financial statements of other series of the Trust.
During the funds’ past two fiscal years and any subsequent interim period: (i) no report on the funds’ financial statements contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles; and (ii) there were no “disagreements” (as such term is used in Item 304 of Regulation S-K) with PWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of PWC, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report.
26
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 and 10, 2009, 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.
Representatives of the Manager reminded the Board members that the Manager became the investment adviser of the fund, effective December 1, 2008, and that there were no changes to the portfolio management of the fund as a result of the appointment of the Manager as the fund’s investment adviser.
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.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 Fund 27
NFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
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.
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 and mid-cap 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 above the Performance Group and Performance Universe medians for the one-, two-, three-, four-, five-and ten-year periods ended December 31, 2008. 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. 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 is currently limiting the fund’s total expense ratio to 1.10% of the fund’s average daily net assets and that such limitation is
28
voluntary and may be terminated at any time.The Board members also were informed that 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 blended advisory fee. The Board noted that the fund’s contractual and actual management fees were above the respective 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”).The Manager’s representatives reviewed the costs associated with distribution through intermediaries. The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided. The Board members considered the relevance of the fee information provided for the Similar Funds to evaluate the appropriateness and reasonableness of the fund’s management fee.
Analysis of Profitability and Economies of Scale. A representative of the Manager reminded the Board members that The Bank of New York Mellon Corporation, the parent company of the Manager, paid all of the expenses associated with the Manager becoming the fund’s investment adviser and the proxy campaign with respect to the Board members becoming the Trust’s Board members. Because the Manager only became the fund’s investment adviser effective December 1, 2008, the Manager’s representatives were not able to provide a dollar amount of expenses allocated and profit received by the Manager, but a representative of the Manager did review the method to be used to
The Fund 29
NFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
determine such expenses and profit in the future.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 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 considered whether the fund would be able to participate in any economies of scale that the Manager may experience but noted 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 discussed the renewal requirements for advisory agreements and their ability to review the management fee annually.
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 to be 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 to be provided, comparative performance, expense and advisory fee information and potential profits to be realized and benefits to be derived by the Manager from its relationship with the fund.
30
- The Board determined that because the Manager had become the investment adviser of the fund effective December 1,2008,economies of scale were not a factor at this time, but, to the extent that material economies of scale are not shared with the fund in the future, the Board would seek to do so in connection with future renewals.
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 and that the Management Agreement would be renewed through April 4, 2010.
The Fund 31
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 CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
13 | Statement of Assets and Liabilities |
14 | Statement of Operations |
15 | Statement of Changes in Net Assets |
16 | Financial Highlights |
17 | Notes to Financial Statements |
27 | Information About the Review and Approval of the Fund’s Investment Advisory Agreement |
FOR MORE INFORMATION | |
Back Cover |
Dreyfus/The Boston Company Small Cap Value Fund |
The Fund |
A LETTER FROM THE CEO Dear Shareholder: |
We present this semiannual report for Dreyfus/The Boston Company Small CapValue Fund, covering the six-month period from October 1, 2008, through March 31, 2009.
The reporting period has been one of the most challenging for the U.S. economy and virtually all sectors and capitalization ranges of the stock markets. A relatively mild economic downturn over the first several months of 2008 was severely exacerbated in mid-September 2008, when the bankruptcy of Lehman Brothers triggered a cascading global economic decline.As the credit crisis dried up the availability of funding for businesses and consumers, international trade activity slumped, commodity prices plummeted, the U.S. and global economies entered a period of intense inventory liquidation, and unemployment surged. On the heels of a –6.3% annualized U.S. economic growth rate in the fourth quarter of 2008, we expect another sharp decline for the first quarter of 2009. However, our Chief Economist anticipates that the U.S. recession may reach a trough around the third quarter of this year, followed by a slow recovery. Indeed, the U.S. government and monetary authorities have signaled their intent to do whatever it takes to forestall a depression or a deflationary spiral, including historically low interest rates, mortgage modification programs, massive monetary and fiscal stimulus and support for troubled financial institutions.Although times seem dire now, we believe it is always appropriate to maintain a long-term investment focus and to discuss any investment modifications with your financial adviser. Together, you can prepare for the risks that lie ahead and position your assets to perform in this current market downturn, and in the future.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund’s Portfolio Managers.
As always, we thank you for your continued confidence and support.
Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation April 15, 2009 |
2
DISCUSSION OF FUND PERFORMANCE
For the reporting period of October 1, 2008, through March 31, 2009, 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, 2009, Dreyfus/The Boston Company Small Cap Value Fund produced a total return of –33.50%.1 The fund’s benchmark, the Russell 2000 Value Index (the “Index”), achieved a total return of –39.64% for the same period.2
Stocks across all investment styles, market sectors and capitalization ranges fell sharply, particularly over the fourth quarter of 2008, due to intensifying financial and economic crises.The fund produced higher returns than its benchmark, primarily due to good security selections in the industrials sector.
The Fund’s Investment Approach
The fund seeks long-term growth of capital. The fund invests, under normal circumstances, at least 80% of its assets in equity securities of small-cap U.S. companies. The fund currently considers small-cap companies to be those with total market capitalizations, at the time of purchase, that are equal to or less than the total market capitalization of the largest company included in the Index.
We use fundamental research and qualitative analysis to select stocks among the portfolio candidates. We 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, fundamentals and catalyst. We focus primarily on individual stock selection to produce a diversified portfolio of companies that we believe are undervalued relative to expected business growth.
Financial Crisis and Recession Roiled Stock Markets
Stocks plummeted during the reporting period as a global credit crisis intensified and a U.S. recession deepened. Slumping housing markets,
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
rising unemployment, plunging consumer confidence and the failures of several major financial institutions exacerbated an ongoing economic slowdown, leading to indiscriminate selling pressure in equity markets over the first half of the reporting period. Market declines were magnified by highly leveraged institutional investors, who were forced to raise cash to meet margin calls. By the start of 2009, the markets appeared to begin to differentiate between fundamentally sound companies and those with less favorable characteristics. However, market averages continued to fall until March, when a strong rally offset a portion of the market’s previous weakness as investors looked forward to potentially better economic conditions.
Our “Bottom-Up” Process Cushioned Losses
The fund’s absolute performance suffered along with the overall market under these difficult conditions. However, our security selection process added value, enabling the fund to outperform its benchmark.
Most notably, the fund’s performance in the hard-hit industrials sector was bolstered by our focus on engineering and construction firms expected to benefit from massive infrastructure spending as part of the U.S. government’s stimulus package.As a result, heavy civil construction contractor Granite Construction produced a positive absolute return over the reporting period, while global construction firm Shaw Group held up better than most industrial stocks. We also established overweighted exposure to the aerospace-and-defense industry group, where aircraft components producer Triumph Group benefited from robust military spending. Commercial services provider Brinks, a long-term holding for the fund, fared relatively well due to strength in its home security business and a corporate restructuring.
The fund’s relative performance benefited from an underweighted position and strong stock selections in the financials sector. Relatively light exposure to commercial banks and real estate investment trusts helped shelter the fund from the brunt of turmoil in the banking and housing markets, respectively.With that said, the fund received positive contributions from First Horizon Bank National and Hancock Holdings, smaller banks that had little exposure to the credit crisis. In addition, the fund benefited from favorable timing in the purchase of
4
insurance provider Fidelity National at beaten-down prices in the wake of the banking crisis.
In the consumer discretionary sector, we took advantage of what we regarded as compelling valuations in homebuilder MDC Holdings in the midst of the housing slump. Automobile parts maker BorgWarner also fared relatively well as consumers attempted to extend the life of existing vehicles instead of buying new ones.
Disappointments during the reporting period included paper and packaging companiesTemple Inland, Packaging Corp. of America, Louisiana Pacific and Neenah Paper, which suffered from lower sales volumes. Electric utilities Hawaiian Electric, Portland General and El Paso Electric reported disappointing earnings, while natural gas supplier Nicor was hurt by lower commodity prices. Finally, drug developer KV Pharmaceutical lost value due to a product recall.
Finding Attractive Valuations in a Distressed Market
As of the reporting period’s end, our research has uncovered what we believe to be attractive valuations among fundamentally sound companies that may have been punished too severely in the downturn. We have found a number of such opportunities in the technology sector, which we expect to benefit from increased demand as corporations seek to increase productivity from smaller workforces. We also have identified several energy companies that could gain value if, as we expect, oil and gas prices rise from current levels due to long-term supply-and-demand dynamics.
April 15, 2009
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 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, 2008 to March 31, 2009. 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, 2009 | |
Expenses paid per $1,000† | $4.32 |
Ending value (after expenses) | $665.00 |
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, 2009 | |
Expenses paid per $1,000† | $ 5.54 |
Ending value (after expenses) | $1,019.45 |
† Expenses are equal to the fund’s annualized expense ratio of 1.04%, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS March 31, 2009 (Unaudited) |
Common Stocks—99.1% | Shares | Value ($) |
Consumer Discretionary—17.0% | ||
AH Belo, Cl. A | 121,666 | 119,233 |
Bebe Stores | 246,000 a | 1,640,820 |
BorgWarner | 115,090 | 2,336,327 |
Brink’s Home Security Holdings | 119,916 b | 2,710,102 |
Cavco Industries | 54,682 a,b | 1,290,495 |
Chico’s FAS | 247,340 b | 1,328,216 |
Children’s Place Retail Stores | 97,660 a,b | 2,137,777 |
Courier | 80,830 | 1,226,191 |
Dick’s Sporting Goods | 170,362 b | 2,431,066 |
Drew Industries | 198,780 a,b | 1,725,410 |
Ethan Allen Interiors | 118,750 a | 1,337,125 |
Gentex | 198,540 a | 1,977,458 |
Gymboree | 76,800 b | 1,639,680 |
Hibbett Sports | 68,710 a,b | 1,320,606 |
J Crew Group | 173,420 a,b | 2,285,676 |
JoS. A. Bank Clothiers | 67,790 b | 1,885,240 |
Lululemon Athletica | 118,446 a,b | 1,025,742 |
MDC Holdings | 115,590 | 3,599,473 |
Meredith | 97,640 a | 1,624,730 |
OfficeMax | 420,914 | 1,313,252 |
P.F. Chang’s China Bistro | 107,640 a,b | 2,462,803 |
Panera Bread, Cl. A | 63,350 a,b | 3,541,265 |
Ryland Group | 185,290 a | 3,086,931 |
Skechers USA, Cl. A | 64,770 b | 432,016 |
Timberland, Cl. A | 163,060 a,b | 1,946,936 |
Tractor Supply | 75,453 a,b | 2,720,835 |
Under Armour, Cl. A | 38,810 a,b | 637,648 |
Williams-Sonoma | 269,002 a | 2,711,540 |
Winnebago Industries | 26,650 | 141,512 |
52,636,105 | ||
Consumer Staples—7.4% | ||
BJ’s Wholesale Club | 129,520 a,b | 4,143,345 |
Casey’s General Stores | 176,494 | 4,705,330 |
Hain Celestial Group | 103,410 b | 1,472,558 |
Lancaster Colony | 32,332 | 1,341,131 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Consumer Staples (continued) | ||
Lance | 39,680 a | 826,138 |
Ralcorp Holdings | 68,390 b | 3,684,853 |
Whole Foods Market | 300,696 a | 5,051,693 |
Winn-Dixie Stores | 185,220 a,b | 1,770,703 |
22,995,751 | ||
Energy—5.7% | ||
Arena Resources | 154,630 b | 3,939,972 |
Comstock Resources | 51,080 b | 1,522,184 |
Dril-Quip | 103,523 b | 3,178,156 |
Frontier Oil | 123,750 | 1,582,763 |
Goodrich Petroleum | 42,980 a,b | 832,093 |
Lufkin Industries | 21,070 | 798,132 |
NATCO Group, Cl. A | 83,540 b | 1,581,412 |
Patterson-UTI Energy | 116,490 | 1,043,750 |
Unit | 149,600 b | 3,129,632 |
17,608,094 | ||
Exchange Traded Funds—1.4% | ||
iShares Russell 2000 Value Index Fund | 106,570 | 4,205,252 |
Financial—24.9% | ||
Acadia Realty Trust | 63,798 | 676,897 |
Alexandria Real Estate Equities | 22,770 | 828,828 |
Aspen Insurance Holdings | 136,210 | 3,059,277 |
BancorpSouth | 186,262 a | 3,881,700 |
BioMed Realty Trust | 112,440 | 761,219 |
City National | 159,627 a | 5,390,604 |
Cohen & Steers | 168,112 a | 1,876,130 |
Fidelity National Financial, Cl. A | 174,736 | 3,409,099 |
Financial Federal | 151,903 a | 3,217,306 |
First American | 133,450 | 3,537,760 |
First Horizon National | 376,433 a | 4,042,885 |
FirstMerit | 240,180 | 4,371,276 |
Flushing Financial | 44,190 | 266,024 |
Fulton Financial | 248,986 a | 1,650,777 |
Hancock Holding | 62,360 a | 1,950,621 |
Hanover Insurance Group | 104,240 | 3,004,197 |
Intervest Bancshares | 90,448 | 194,463 |
8
Common Stocks (continued) | Shares | Value ($) |
Financial (continued) | ||
Investment Technology Group | 176,451 b | 4,503,030 |
Jefferies Group | 283,068 | 3,906,338 |
LaSalle Hotel Properties | 174,230 a | 1,017,503 |
Lazard, Cl. A | 99,900 | 2,937,060 |
Mission West Properties | 134,780 | 862,592 |
NewAlliance Bancshares | 193,137 | 2,267,428 |
Old National Bancorp | 109,344 a | 1,221,372 |
Pacific Capital Bancorp | 255,368 a | 1,728,841 |
Piper Jaffray | 146,660 b | 3,782,361 |
ProAssurance | 42,068 b | 1,961,210 |
Redwood Trust | 170,586 a | 2,618,495 |
Southwest Bancorp | 122,497 | 1,149,022 |
Trustmark | 71,915 | 1,321,798 |
Urstadt Biddle Properties, Cl. A | 27,770 | 372,673 |
W.P. Carey & Co | 24,360 | 540,548 |
Washington Federal | 159,741 | 2,122,958 |
Washington Trust Bancorp | 39,970 | 649,513 |
Whitney Holding | 182,409 a | 2,088,583 |
77,170,388 | ||
Health Care—6.6% | ||
Air Methods | 117,830 a,b | 1,992,505 |
Analogic | 37,530 | 1,201,711 |
IPC The Hospitalist | 58,820 b | 1,119,345 |
Kensey Nash | 92,254 b | 1,962,243 |
Magellan Health Services | 131,150 b | 4,779,106 |
Medicis Pharmaceutical, Cl. A | 64,135 a | 793,350 |
MEDNAX | 80,793 b | 2,380,970 |
Odyssey HealthCare | 170,790 b | 1,656,663 |
Omnicell | 101,339 b | 792,471 |
RehabCare Group | 69,180 b | 1,206,499 |
Sepracor | 164,210 b | 2,407,319 |
20,292,182 | ||
Industrial—13.9% | ||
AGCO | 27,950 b | 547,820 |
American Ecology | 68,190 | 950,569 |
Brink’s | 106,820 | 2,826,457 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Industrial (continued) | ||
Ceradyne | 66,250 b | 1,201,112 |
Clean Harbors | 46,460 b | 2,230,080 |
Curtiss-Wright | 121,250 | 3,401,062 |
First Advantage, Cl. A | 118,531 b | 1,633,357 |
Granite Construction | 87,234 a | 3,269,530 |
Heartland Express | 371,220 | 5,497,768 |
Landstar System | 74,207 | 2,483,708 |
Marten Transport | 61,860 b | 1,155,545 |
McGrath Rentcorp | 100,220 | 1,579,467 |
Moog, Cl. A | 100,430 b | 2,296,834 |
Shaw Group | 88,909 b | 2,436,996 |
Simpson Manufacturing | 86,400 | 1,556,928 |
Team | 73,200 b | 857,904 |
Tetra Tech | 53,709 b | 1,094,589 |
Triumph Group | 67,940 a | 2,595,308 |
Waste Connections | 108,729 b | 2,794,335 |
Werner Enterprises | 169,946 a | 2,569,584 |
42,978,953 | ||
Materials—1.8% | ||
AMCOL International | 65,331 a | 969,512 |
H.B. Fuller | 38,550 | 501,150 |
Packaging Corp. of America | 252,820 | 3,291,716 |
Wausau Paper | 160,170 | 842,494 |
5,604,872 | ||
Technology—16.2% | ||
Airvana | 122,280 b | 715,338 |
Arris Group | 240,580 a,b | 1,773,075 |
Aspen Technology | 216,228 b | 1,511,434 |
Ciena | 248,310 a,b | 1,931,852 |
Comtech Telecommunications | 49,390 b | 1,223,390 |
Cray | 231,945 a,b | 811,807 |
Cymer | 95,010 a,b | 2,114,923 |
DealerTrack Holdings | 181,655 a,b | 2,379,680 |
Diebold | 97,550 | 2,082,692 |
Electronics for Imaging | 150,601 b | 1,475,890 |
10
Common Stocks (continued) | Shares | Value ($) |
Technology (continued) | ||
EPIQ Systems | 173,060 a,b | 3,120,272 |
F5 Networks | 103,510 a,b | 2,168,535 |
FEI | 161,160 b | 2,486,699 |
FormFactor | 141,820 b | 2,555,596 |
Harmonic | 208,317 b | 1,354,061 |
Informatica | 198,360 b | 2,630,254 |
Methode Electronics | 167,422 | 599,371 |
MKS Instruments | 155,050 b | 2,274,584 |
MTS Systems | 92,600 | 2,106,650 |
NIC | 223,610 a | 1,162,772 |
Semtech | 105,070 b | 1,402,685 |
Sonus Networks | 836,817 a,b | 1,313,803 |
SRA International, Cl. A | 196,650 b | 2,890,755 |
STEC | 164,510 a,b | 1,212,439 |
Sybase | 76,894 b | 2,329,119 |
Tech Data | 59,840 b | 1,303,315 |
Teradyne | 354,060 b | 1,550,783 |
Triquint Semiconductor | 640,970 b | 1,583,196 |
Ultra Clean Holdings | 204,640 b | 218,965 |
50,283,935 | ||
Utilities—4.2% | ||
El Paso Electric | 195,940 b | 2,760,795 |
Energen | 112,800 | 3,285,864 |
IDACORP | 109,940 a | 2,568,198 |
Nicor | 72,310 | 2,402,861 |
Portland General Electric | 115,400 | 2,029,886 |
13,047,604 | ||
Total Common Stocks | ||
(cost $400,427,307) | 306,823,136 | |
Other Investment—1.6% | ||
Registered Investment Company; | ||
Dreyfus Institutional Preferred | ||
Plus Money Market Fund | ||
(cost $4,798,220) | 4,798,220 c | 4,798,220 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Investment of Cash Collateral | ||
for Securities Loaned—22.5% | Shares | Value ($) |
Registered Investment Company; | ||
Dreyfus Institutional Cash Advantage Fund | ||
(cost $69,781,523) | 69,781,523 c | 69,781,523 |
Total Investments (cost $475,007,050) | 123.2% | 381,402,879 |
Liabilities, Less Cash and Receivables | (23.2%) | (71,901,946) |
Net Assets | 100.0% | 309,500,933 |
a All or a portion of these securities are on loan. At March 31, 2009, the total market value of the fund’s securities on |
loan is $67,974,426 and the total market value of the collateral held by the fund is $69,781,523. |
b Non-income producing security. |
c Investment in affiliated money market mutual fund. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Financial | 24.9 | Health Care | 6.6 |
Money Market Investments | 24.1 | Energy | 5.7 |
Consumer Discretionary | 17.0 | Utilities | 4.2 |
Technology | 16.2 | Materials | 1.8 |
Industrial | 13.9 | Exchange Traded Funds | 1.4 |
Consumer Staples | 7.4 | 123.2 | |
† Based on net assets. | |||
See notes to financial statements. |
12
STATEMENT OF ASSETS AND LIABILITIES March 31, 2009 (Unaudited) |
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments (including | ||
securities on loan, valued at $67,974,426)—Note 1(b): | ||
Unaffiliated issuers | 400,427,307 | 306,823,136 |
Affiliated issuers | 74,579,743 | 74,579,743 |
Cash | 411,643 | |
Receivable for investment securities sold | 5,921,967 | |
Dividends and interest receivable | 451,719 | |
Receivable for shares of Beneficial Interest subscribed | 19,324 | |
Prepaid expenses | 37,631 | |
388,245,163 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(b) | 244,490 | |
Liability for securities on loan—Note 1(b) | 69,781,523 | |
Payable for investment securities purchased | 8,279,501 | |
Payable for shares of Beneficial Interest redeemed | 204,346 | |
Accrued expenses | 234,370 | |
78,744,230 | ||
Net Assets ($) | 309,500,933 | |
Composition of Net Assets ($): | ||
Paid-in capital | 548,446,305 | |
Accumulated undistributed investment income—net | 423,362 | |
Accumulated net realized gain (loss) on investments | (145,764,563) | |
Accumulated net unrealized appreciation | ||
(depreciation) on investments | (93,604,171) | |
Net Assets ($) | 309,500,933 | |
Shares Outstanding | ||
(unlimited number of $.001 par value shares of Beneficial Interest authorized) | 23,608,313 | |
Net Asset Value, offering and redemption price per share—Note 3(d) ($) | 13.11 | |
See notes to financial statements. |
The Fund 13
STATEMENT OF OPERATIONS | |
Six Months Ended March 31, 2009 (Unaudited) | |
Investment Income ($): | |
Income: | |
Cash dividends: | |
Unaffiliated issuers | 3,357,205 |
Affiliated issuers | 23,044 |
Income from securities lending | 512,489 |
Total Income | 3,892,738 |
Expenses: | |
Investment advisory fee—Note 3(a) | 1,348,638 |
Shareholder servicing costs—Note 3(b) | 131,665 |
Prospectus and shareholders’ reports | 87,673 |
Custodian fees—Note 3(b) | 67,526 |
Professional fees | 46,513 |
Trustees’ fees and expenses—Note 3(c) | 34,052 |
Accounting and administration fees—Note 3(a) | 22,500 |
Registration fees | 8,892 |
Loan commitment fees—Note 2 | 3,347 |
Total Expenses | 1,750,806 |
Less—reduction in fees due to earnings credits—Note 1(b) | (1,169) |
Net Expenses | 1,749,637 |
Investment Income—Net | 2,143,101 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | (103,329,945) |
Net unrealized appreciation (depreciation) on investments | (65,945,930) |
Net Realized and Unrealized Gain (Loss) on Investments | (169,275,875) |
Net (Decrease) in Net Assets Resulting from Operations | (167,132,774) |
See notes to financial statements. |
14
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2009 | Year Ended | |
(Unaudited) | September 30, 2008 | |
Operations ($): | ||
Investment income—net | 2,143,101 | 5,430,317 |
Net realized gain (loss) on investments | (103,329,945) | (47,615,210) |
Net unrealized appreciation | ||
(depreciation) on investments | (65,945,930) | (75,258,363) |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | (167,132,774) | (117,443,256) |
Dividends to Shareholders from ($): | ||
Investment income—net | (2,284,705) | (5,742,158) |
Net realized gain on investments | — | (44,868,181) |
Total Dividends | (2,284,705) | (50,610,339) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold | 36,708,028 | 117,769,869 |
Dividends reinvested | 1,628,397 | 35,454,052 |
Cost of shares redeemed | (63,791,171) | (310,753,797) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (25,454,746) | (157,529,876) |
Total Increase (Decrease) in Net Assets | (194,872,225) | (325,583,471) |
Net Assets ($): | ||
Beginning of Period | 504,373,158 | 829,956,629 |
End of Period | 309,500,933 | 504,373,158 |
Undistributed investment income—net | 423,362 | 564,966 |
Capital Share Transactions (Shares): | ||
Shares sold | 2,690,247 | 5,531,668 |
Shares issued for dividends reinvested | 118,947 | 1,645,174 |
Shares redeemed | (4,614,843) | (14,613,617) |
Net Increase (Decrease) in Shares Outstanding | (1,805,649) | (7,436,775) |
See notes to financial statements. |
The Fund 15
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||
March 31, 2009 | Year Ended September 30, | |||||
(Unaudited) | 2008 | 2007 | 2006 | 2005 | 2004 | |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 19.85 | 25.26 | 23.70 | 22.55 | 21.91 | 18.49 |
Investment Operations: | ||||||
Investment income (loss)—neta | .09 | .18 | .16 | .09 | .02 | (.05) |
Net realized and unrealized | ||||||
gain (loss) on investments | (6.74) | (3.95) | 2.48 | 2.58 | 4.29 | 5.27 |
Total from Investment Operations | (6.65) | (3.77) | 2.64 | 2.67 | 4.31 | 5.22 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.09) | (.19) | (.09) | (.03) | — | — |
Dividends from net realized | ||||||
gain on investments | — | (1.45) | (.99) | (1.49) | (3.67) | (1.80) |
Total Distributions | (.09) | (1.64) | (1.08) | (1.52) | (3.67) | (1.80) |
Net asset value, end of period | 13.11 | 19.85 | 25.26 | 23.70 | 22.55 | 21.91 |
Total Return (%) | (33.50)b | (15.38) | 11.18 | 12.42 | 21.34 | 29.92 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.04c | .93 | .90 | .94 | 1.05 | 1.18 |
Ratio of net expenses | ||||||
to average net assets | 1.04c,d | .93 | .90e | .94e | 1.05e | 1.18e |
Ratio of net investment income | ||||||
(loss) to average net assets | 1.27c | .85 | .61 | .40 | .08 | (.24) |
Portfolio Turnover Rate | 35.95b | 73 | 67f | 60f | 70f | 123f |
Net Assets, end of period | ||||||
($ x 1,000) | 309,501 504,373 | 829,957 | 539,560 | 189,647 | 61,182 |
a | Based on average shares outstanding at each month end. |
b | Not annualized. |
c | Annualized. |
d | Expense waivers and/or reimbursements amounted to less than .01%. |
e | Includes the fund’s share of the The Boston Company Small Cap Value 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 the year.The amounts shown for 2004-2006 are | |
ratios for the Portfolio. | |
See notes to financial statements. |
16
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 fourteen series, including the fund. The fund’s investment objective seeks long-term growth of capital. Prior to December 1, 2008,The Boston Company Asset Management LLC., a wholly owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), served as the fund’s investment advisor. After December 1 2008, 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, which are sold without a sales charge.
At a meeting of the Board of Trustees held on August 27, 2008, the Board approved, effective December 1, 2008, a proposal to change the names of the Trust and the fund from “Mellon Institutional Funds Investment Trust” and “The Boston Company Small CapValue Fund” to “Dreyfus Investment Funds” and “Dreyfus/The Boston Company Small Cap Value Fund,” respectively.
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 fund’s financial statements are prepared in accordance with U.S. generally accepted accounting principles, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
The Fund 17
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(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 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 ADRs and futures contracts. For other securities that are fair valued by the Board ofTrustees, 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.
The fund adopted Statement of Financial Accounting Standards No. 157 “FairValue Measurements” (“FAS 157”). FAS 157 establishes an author-
18
itative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements.
Various inputs are used in determining the value of the fund’s investments relating to FAS 157.These inputs are summarized in the three broad levels listed below.
Level 1—quoted prices in active markets for identical investments. |
Level 2—other significant observable inputs (including quoted |
prices for similar securities, interest rates, prepayment speeds, |
credit risk, etc.). |
Level 3—significant unobservable inputs (including 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, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Quoted | Observable Unobservable | |||
Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investment in | ||||
Securities | 381,402,879 | — | — | 381,402,879 |
Other Financial | ||||
Instruments† | — | — | — | — |
Liabilities ($) | ||||
Other Financial | ||||
Instruments† | — | — | — | — |
† Other financial instruments include derivative instruments, such as futures, forward currency exchange contracts, swap contracts and options contracts. Amounts shown represent unrealized appreciation (depreciation) at period end.
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Investments in | |
Securities ($) | |
Balance as of 9/30/2008 | 34,620,758 |
Realized gain (loss) | — |
Change in unrealized appreciation (depreciation) | — |
Net purchases (sales) | (34,620,758) |
Transfers in and/or out of Level 3 | — |
Balance as of 3/31/2009 | — |
(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
20
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, 2009,The Bank of New York Mellon earned $170,830 from lending fund portfolio securities, pursuant to the securities lending agreement.
Until December 10, 2007, all cash collateral received by the fund and other series of the Trust in connection with the securities lending program was invested in the BlackRock Cash Strategies Fund LLC (the “BlackRock Fund”), a private investment fund not affiliated with the Trust or its investment adviser. On December 10, 2007, the BlackRock Fund announced that it was suspending investor withdrawal privileges due to conditions related to the credit markets and the adverse affect of such conditions on the liquidity of the BlackRock Fund’s portfolio holdings. Commencing on December 11, 2007, all new cash collateral received in connection with the securities lending activity of the fund and other series of the Trust was invested by the securities lending agent in the Dreyfus Institutional Cash Advantage Fund (the “Dreyfus Fund”), an affiliated money market fund registered as an investment company under the Investment Company Act of 1940, as amended.To the extent that the BlackRock Fund agreed to permit withdrawals during the period December 11, 2007 through January 22, 2009, the securities lending agent effected such withdrawals and the cash proceeds from such withdrawals by the fund were reinvested in the shares of the Dreyfus Fund. As of January 22, 2009, the final withdrawal was reinvested in the shares of the Dreyfus Fund. Repayments of cash collateral during the period were made from the proceeds of redemptions of shares of the Dreyfus Fund.
(c) Affiliated issuers: Investments in other investment companies advised by the Manager are defined as “affiliated” in the Act.
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(d) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and dividends from net realized capital gains, if any, are normally declared and paid semi-annually 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”).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 U.S. generally accepted accounting principles.
(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, 2009, 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, 2008 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The tax character of distributions paid to shareholders during the fiscal year ended September 30, 2008 was as follows: ordinary income $16,161,957 and long-term capital gains $34,448,382.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 Trust entered into two separate agreements with The Bank of New York Mellon, that enable the fund, and other funds in the Trust, to borrow, in the aggregate, (i) up to $35 million under a committed
22
line of credit and (ii) up to $15 million under an uncommitted line of credit. In connection therewith, the fund has agreed to pay commitment fees on its pro rata portion of the lines of credit. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowing. During the period ended March 31, 2009, the fund did not borrow under the line of credit.
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 .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 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 for the period ended March 31, 2009 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, 2009, the fund was charged $2,073 pursuant to the transfer agency agreement.
The fund compensatesThe Bank of NewYork Mellon under cash management agreements for performing cash management services related to fund subscriptions and redemptions. During the period ended March 31,2009,the fund was charged $1,169 pursuant to the cash management agreements. These fees were offset by earnings credits pursuant to the cash management agreements.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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, 2009, the fund was charged $67,526 pursuant to the custody agreement.
During the period ended March 31, 2009, the fund was charged $2,578 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 $195,562, custodian fees $45,000, chief compliance officer fees $2,578 and transfer agency per account fees $1,350.
(c) Effective December 1, 2008, each Trustee receives $45,000 per year, plus $6,000 for each joint Board meeting ofThe Dreyfus/Laurel Funds, Inc.,The Dreyfus /Laurel FundsTrust andThe Dreyfus/LaurelTax-Free Municipal Funds, (collectively, the “Dreyfus/Laurel Funds”) and the Trust attended, $2,000 for separate in-person committee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that are conducted by telephone and is reimbursed 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, the Chair of the compensation committee receives $900 per meeting. In the event that there is an in person joint committee meeting of the Dreyfus/Laurel Funds, theTrust and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee, as applicable, will be allocated between the Dreyfus/Laurel Funds, the Trust and Dreyfus HighYield Strategies Fund.These fees and expenses are charged and allocated to each series based on net assets.
(d) Prior to December 1, 2008 at which time the fee was eliminated, a 2% redemption fee was charged and retained by the fund on certain shares redeemed within thirty days following the date of issuance, subject to exceptions, including redemptions made through the use of the fund’s exchange privilege. From October 1, 2008 to November 30,
24
2008, redemption fees charged and retained by the fund amounted to $15,644.The fund reserves the right to reimpose a redemption fee in the future.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended March 31, 2009, amounted to $126,738,431 and $138,126,028, respectively.
At March 31, 2009, accumulated net unrealized depreciation on investments was $93,604,171, consisting of $13,685,154 gross unrealized appreciation and $107,289,325 gross unrealized depreciation.
At March 31, 2009, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
The Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The application of FAS 161 is required for fiscal years and interim periods beginning after November 15, 2008. At this time, management is evaluating the implications of FAS 161 and its impact on the financial statements and the accompanying notes has not yet been determined.
NOTE 5—Change in Independent Registered Public Accounting Firm:
PricewaterhouseCoopers LLP (“PWC”), 300 Madison Avenue, New York, New York 10017, an independent registered public accounting firm, were the independent registered public accounting firm for the fund for the fiscal year ended September 30, 2008. At the meetings
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
held on February 9-10, 2009, the Audit Committee and the Board of Trustees of the Trust engaged KPMG LLP to replace PWC as the independent registered public accounting firm for the Trust, effective upon the conclusion of the audit of the December 31, 2008 financial statements of other series of the Trust.
During the funds’ past two fiscal years and any subsequent interim period: (i) no report on the funds’ financial statements contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles; and (ii) there were no “disagreements” (as such term is used in Item 304 of Regulation S-K) with PWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of PWC, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report.
26
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 and 10, 2009, 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.
Representatives of the Manager reminded the Board members that the Manager became the investment adviser of the fund, effective December 1, 2008, and that there were no changes to the portfolio management of the fund as a result of the appointment of the Manager as the fund’s investment adviser.
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.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 Fund 27
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
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.
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 value funds (the “Performance Group”) and to a larger universe of funds, consisting of all retail and institutional small-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 variously above, at and below the Performance Group medians for the one-, two-, three-, four-, and five-year periods ended December 31, 2008, below the Performance Universe median for the one-year period but above the Performance Universe median for the two-, three-, four- and five-year periods.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. [Noting that the fund’s expense ratio had not been affected for the most recent fiscal year,
28
a representative of the Manager informed the Board members that the Manager is currently limiting the fund’s total expense ratio to 1.25% of the fund’s average daily net assets and that such limitation is voluntary and may be terminated at any time.] The Board members also were informed that 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 blended advisory fee. The Board noted that the fund’s actual management fee was above the Expense Group and Expense Universe medians and the fund’s expense ratio was below the Expense Group and Expense Universe medians.
Representatives of the Manager reviewed with the Board members the fees paid to the Manager or its affiliates by mutual funds managed by the Manager or its affiliates with similar investment objectives, policies and strategies, and included in the same Lipper category as the fund (the “Similar Funds”), 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 Manager’s representatives also reviewed the costs associated with distribution through intermediaries. The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided.The Board members considered the relevance of the fee information provided for the Similar Funds and the Similar Accounts to evaluate the appropriateness and reasonableness of the fund’s management fee.The Board acknowledged that differences in fees paid by the Similar Accounts seemed to be consistent with the services provided.
The Fund 29
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
Analysis of Profitability and Economies of Scale. A representative of the Manager reminded the Board members that The Bank of New York Mellon Corporation, the parent company of the Manager, paid all of the expenses associated with the Manager becoming the fund’s investment adviser and the proxy campaign with respect to the Board members becoming the Trust’s Board members. Because the Manager only became the fund’s investment adviser effective December 1, 2008, the Manager’s representatives were not able to provide a dollar amount of expenses allocated and profit received by the Manager, but a representative of the Manager did review the method to be used to determine such expenses and profit in the future.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 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 considered whether the fund would be able to participate in any economies of scale that the Manager may experience in the event that the fund attracts a large amount of assets but noted that the fund has generally been closed to new investors since August 2006 and also noted the decrease to the fund’s recent asset levels.The Board members discussed the renewal requirements for advisory agreements and their ability to review the management fee annually.
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
30
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 to be provided by the Manager are adequate and appropriate.
- While the Board was satisfied with the fund’s relative performance as compared to the Performance Universe, it was somewhat con- cerned with the fund’s relative performance as compared to the Performance Group and determined to continue to monitor the fund’s performance.
- The Board concluded that the fee paid by the fund to the Manager was reasonable in light of the services to be provided, comparative performance, expense and advisory fee information and potential profits to be realized and benefits to be derived by the Manager from its relationship with the fund.
- The Board determined that because the Manager had become the investment adviser of the fund effective December 1,2008,economies of scale were not a factor at this time, but, to the extent that material economies of scale are not shared with the fund in the future, the Board would seek to do so in connection with future renewals.
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 and that the Management Agreement would be renewed through April 4, 2010.
The Fund 31
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 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 Value Fund II |
The Fund |
A LETTER FROM THE CEO Dear Shareholder: |
We present this semiannual report for Dreyfus/The Boston Company Small CapValue Fund II, covering the six-month period from October 1, 2008, through March 31, 2009.
The reporting period has been one of the most challenging for the U.S. economy and virtually all sectors and capitalization ranges of the stock markets. A relatively mild economic downturn over the first several months of 2008 was severely exacerbated in mid-September 2008, when the bankruptcy of Lehman Brothers triggered a cascading global economic decline.As the credit crisis dried up the availability of funding for businesses and consumers, international trade activity slumped, commodity prices plummeted, the U.S. and global economies entered a period of intense inventory liquidation, and unemployment surged. On the heels of a –6.3% annualized U.S. economic growth rate in the fourth quarter of 2008, we expect another sharp decline for the first quarter of 2009. However, our Chief Economist anticipates that the U.S. recession may reach a trough around the third quarter of this year, followed by a slow recovery. Indeed, the U.S. government and monetary authorities have signaled their intent to do whatever it takes to forestall a depression or a deflationary spiral, including historically low interest rates, mortgage modification programs, massive monetary and fiscal stimulus and support for troubled financial institutions.Although times seem dire now, we believe it is always appropriate to maintain a long-term investment focus and to discuss any investment modifications with your financial adviser.Together, you can prepare for the risks that lie ahead and position your assets to perform in this current market downturn, and in the future.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund’s Portfolio Managers.
As always, we thank you for your continued confidence and support.
Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation April 15, 2009 |
2
DISCUSSION OF FUND PERFORMANCE
For the reporting period of October 1, 2008, through March 31, 2009, as provided by Joseph M. Corrado, CFA, and Edward R.Walter, CFA, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended March 31, 2009, Dreyfus/The Boston Company Small Cap Value Fund II produced a total return of –32.97%.1 The fund’s benchmark, the Russell 2500 Value Index (the “Index”), achieved a total return of –37.12% for the same period.2
Stocks across all investment styles, market sectors and capitalization ranges fell sharply, particularly over the fourth quarter of 2008, due to intensifying financial and economic crises.The fund produced higher returns than its benchmark, primarily due to good security selections in the industrials sector.
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 small-cap U.S. companies. The fund currently considers small-cap companies to be those with total market capitalizations, at the time of purchase, that are equal to or less than the total market capitalization of the largest company included in the Index.
We use fundamental research and qualitative analysis to select stocks among the portfolio candidates. We look for companies with strong competitive positions, high quality management and financial strength.We focus primarily on individual stock selection to produce a diversified portfolio of companies that we believe are undervalued relative to expected business growth.
Financial Crisis and Recession Roiled Stock Markets
Stocks plummeted during the reporting period as a global credit crisis intensified and a U.S. recession deepened. Slumping housing markets, rising unemployment, plunging consumer confidence and the failures of several major financial institutions led to indiscriminate selling pressure
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
in equity markets over the first half of the reporting period. Market declines were magnified by highly leveraged institutional investors, which were forced to unwind their positions due to margin calls and redemption requests. By the start of 2009, the markets appeared to begin to differentiate between fundamentally sound companies and those with less favorable characteristics. However, market averages continued to fall until March, when a strong rally offset a portion of the market’s previous weakness.
Our Bottom-Up Approach Cushioned Losses
The fund’s absolute performance suffered along with the overall market under these difficult conditions. However, our security selection process enabled the fund to outperform its benchmark.
Most notably, the fund’s performance in the hard-hit industrials sector was bolstered by our focus on engineering and construction firms expected to benefit from massive infrastructure spending as part of the U.S. government’s stimulus package.As a result, heavy civil construction contractor Granite Construction and industrial engineering and construction firm URS Corporation produced positive absolute returns over the reporting period. Commercial services provider Brinks fared relatively well due to strength in its home security business and a corporate restructuring. In the road and rail segment, trucking and logistics company Heartland Express and Werner Enterprises held up relatively well, buoying the segment.
The fund also benefited from strong stock selections in the financials sector. Strong stock selection within the commercial banks segment helped shelter the fund from turmoil in the banking sector. With that said, the fund received positive contributions from City National, a smaller regional bank that had little exposure to the credit crisis.Similarly, regional investment firms Raymond James, Lazard, and Investment Technology Group appeared poised to fill the voids left by the struggles of their larger counterparts. The fund also benefited from favorable timing in the purchase of insurance provider Fidelity National Financial.
In the consumer discretionary sector, well-managed restaurant chain, Panera Bread fared well as consumers sought less expensive dining alternatives. Automobile parts seller O’Reilly Automotive held up
4
well as consumers attempted to extend the life of existing vehicles instead of buying new ones. We also took advantage of what we regarded as compelling valuations in homebuilder MDC Holdings in the midst of the housing slump. Favorable timing in the purchase of media company DreamWorks Animation SKG and retailer Bed Bath & Beyond also bolstered the fund’s results.
Disappointments during the reporting period included packaging companies Temple Inland and Louisiana Pacific, which suffered from lower sales volumes and as a result were sold by the fund. Electric utilities Hawaiian Electric and Black-Hills Corp., which was sold during the reporting period, reported disappointing earnings. Finally, drug developer KV Pharmaceutical, which was also sold during the reporting period, lost value due to a product recall.
Finding Attractive Valuations in a Distressed Market
As of the reporting period’s end, our research has uncovered what we believe to be attractive valuations among fundamentally sound companies that may have been punished too severely in the downturn. We have found a number of such opportunities in the technology sector, which we expect to benefit from increased demand as corporations seek to increase productivity from smaller workforces. We also have identified several energy companies that could gain value if, as we expect, oil and gas prices rise from current levels due to long-term supply-and-demand dynamics. Finally, certain consumer staples stocks appear attractive at current valuations.
April 15, 2009
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 at any time. | |
2 | SOURCE: LIPPER INC. — Reflects the reinvestment of dividends and, where applicable, |
capital gain distributions.The Russell 2500 Value Index is a widely accepted, unmanaged index, | |
which measures the performance of those Russell 2500 companies with lower price-to-book ratios | |
and lower forecasted growth value. |
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 Value Fund II from October 1, 2008 to March 31, 2009. 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, 2009 | |
Expenses paid per $1,000† | $4.16 |
Ending value (after expenses) | $670.30 |
COMPARING YOUR FUND’S EXPENSES |
WITH THOSE OF OTHER FUNDS (Unaudited) |
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment | |
assuming a hypothetical 5% annualized return for the six months ended March 31, 2009 | |
Expenses paid per $1,000† | $5.04 |
Ending value (after expenses) | $1,019.95 |
† Expenses are equal to the fund’s annualized expense ratio of 1.00%, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS March 31, 2009 (Unaudited) |
Common Stocks—97.9% | Shares | Value ($) |
Consumer Discretionary—14.7% | ||
American Eagle Outfitters | 11,290 | 138,190 |
Bed Bath & Beyond | 2,800 a,b | 69,300 |
BorgWarner | 5,190 | 105,357 |
Brink’s Home Security Holdings | 6,480 b | 146,448 |
Dick’s Sporting Goods | 7,274 b | 103,800 |
DreamWorks Animation SKG, Cl. A | 1,650 b | 35,706 |
Gentex | 10,870 | 108,265 |
Genuine Parts | 2,370 | 70,768 |
Gymboree | 3,450 b | 73,657 |
J Crew Group | 7,410 a,b | 97,664 |
JoS. A. Bank Clothiers | 800 a,b | 22,248 |
MDC Holdings | 5,800 | 180,612 |
Meredith | 4,250 | 70,720 |
O’Reilly Automotive | 3,130 b | 109,581 |
OfficeMax | 12,470 | 38,906 |
Panera Bread, Cl. A | 2,760 a,b | 154,284 |
Ryland Group | 8,360 | 139,278 |
Thor Industries | 4,350 a | 67,947 |
Toll Brothers | 4,660 b | 84,626 |
Tractor Supply | 3,400 b | 122,604 |
Williams-Sonoma | 12,150 a | 122,472 |
2,062,433 | ||
Consumer Staples—7.0% | ||
BJ’s Wholesale Club | 5,730 b | 183,303 |
Casey’s General Stores | 4,440 | 118,370 |
Corn Products International | 3,820 | 80,984 |
Ralcorp Holdings | 7,010 b | 377,699 |
Whole Foods Market | 13,102 a | 220,114 |
980,470 | ||
Energy—7.1% | ||
Arena Resources | 5,520 b | 140,650 |
Cabot Oil & Gas | 3,662 | 86,313 |
CNX Gas | 5,384 b | 127,655 |
Comstock Resources | 2,000 b | 59,600 |
Concho Resources | 4,790 b | 122,576 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Energy (continued) | ||
Dril-Quip | 4,050 b | 124,335 |
Frontier Oil | 5,530 | 70,729 |
Patterson-UTI Energy | 5,270 | 47,219 |
Tidewater | 1,850 | 68,691 |
Unit | 6,700 b | 140,164 |
987,932 | ||
Exchange Traded Funds—.4% | ||
iShares Russell 2000 Value Index Fund | 1,490 | 58,795 |
Financial—25.1% | ||
Alexandria Real Estate Equities | 2,000 a | 72,800 |
Aspen Insurance Holdings | 6,340 | 142,396 |
BancorpSouth | 9,150 | 190,686 |
BioMed Realty Trust | 5,070 | 34,324 |
BOK Financial | 2,551 | 88,137 |
City National | 8,493 a | 286,809 |
Commerce Bancshares | 5,828 | 211,556 |
Cullen/Frost Bankers | 3,487 | 163,680 |
Fidelity National Financial, Cl. A | 16,213 | 316,316 |
First American | 6,410 | 169,929 |
First Horizon National | 17,107 a | 183,729 |
FirstMerit | 11,360 | 206,752 |
Fulton Financial | 11,117 | 73,706 |
Hanover Insurance Group | 4,690 | 135,166 |
Health Care | 4,956 | 151,604 |
Host Hotels & Resorts | 9,230 | 36,182 |
Investment Technology Group | 5,005 b | 127,728 |
Jefferies Group | 18,830 | 259,854 |
LaSalle Hotel Properties | 4,690 a | 27,390 |
Lazard, Cl. A | 4,502 | 132,359 |
NewAlliance Bancshares | 7,077 | 83,084 |
ProAssurance | 790 b | 36,830 |
Raymond James Financial | 6,190 a | 121,943 |
RenaissanceRe Holdings | 1,460 | 72,182 |
Washington Federal | 7,120 | 94,625 |
Whitney Holding | 8,420 a | 96,409 |
3,516,176 |
8
Common Stocks (continued) | Shares | Value ($) |
Health Care—6.3% | ||
Beckman Coulter | 1,870 | 95,389 |
Bio-Rad Laboratories, Cl. A | 1,070 b | 70,513 |
Cerner | 2,000 a,b | 87,940 |
Magellan Health Services | 4,290 b | 156,328 |
Medicis Pharmaceutical, Cl. A | 2,860 a | 35,378 |
MEDNAX | 4,990 b | 147,055 |
PerkinElmer | 8,020 | 102,415 |
Schein Henry | 870 b | 34,809 |
Sepracor | 4,122 b | 60,429 |
Universal Health Services, Cl. B | 2,330 | 89,332 |
879,588 | ||
Industrial—13.7% | ||
AGCO | 1,270 b | 24,892 |
Brink’s | 6,480 | 171,461 |
Ceradyne | 887 b | 16,081 |
Clean Harbors | 2,092 b | 100,416 |
Corrections Corp. of America | 11,220 b | 143,728 |
Curtiss-Wright | 7,380 | 207,009 |
Dun & Bradstreet | 970 | 74,690 |
Granite Construction | 3,970 a | 148,796 |
Heartland Express | 10,010 | 148,248 |
KBR | 2,982 | 41,181 |
Landstar System | 3,250 | 108,777 |
Shaw Group | 3,886 b | 106,515 |
Spirit Aerosystems Holdings, Cl. A | 5,510 b | 54,935 |
Triumph Group | 2,050 | 78,310 |
URS | 4,510 b | 182,249 |
Waste Connections | 8,380 b | 215,366 |
Werner Enterprises | 6,604 | 99,852 |
1,922,506 | ||
Materials—1.6% | ||
FMC | 800 | 34,512 |
Packaging Corp. of America | 10,050 | 130,851 |
Reliance Steel & Aluminum | 2,050 | 53,976 |
219,339 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Technology—14.0% | ||
Akamai Technologies | 6,170 b | 119,698 |
Arris Group | 10,580 b | 77,975 |
Comtech Telecommunications | 2,190 a,b | 54,246 |
Cymer | 4,120 b | 91,711 |
Diebold | 4,390 | 93,726 |
F5 Networks | 4,660 b | 97,627 |
Hewitt Associates, Cl. A | 5,230 b | 155,645 |
Informatica | 7,850 b | 104,091 |
Ingram Micro, Cl. A | 4,530 b | 57,259 |
Lam Research | 3,590 b | 81,744 |
McAfee | 3,140 b | 105,190 |
Microchip Technology | 4,750 a | 100,652 |
MKS Instruments | 5,870 b | 86,113 |
Novellus Systems | 9,120 b | 151,666 |
SRA International, Cl. A | 7,690 b | 113,043 |
Sybase | 3,305 b | 100,108 |
Synopsys | 7,741 b | 160,471 |
Teradyne | 16,650 b | 72,927 |
Varian Semiconductor | ||
Equipment Associates | 6,080 b | 131,693 |
1,955,585 | ||
Telecommunication Services—.7% | ||
Telephone & Data Systems | 3,850 | 102,064 |
Utilities—7.3% | ||
AGL Resources | 6,750 | 179,077 |
Atmos Energy | 7,580 | 175,250 |
Energen | 5,066 | 147,573 |
EQT | 3,060 | 95,870 |
IDACORP | 4,620 a | 107,923 |
Nicor | 1,040 | 34,559 |
Portland General Electric | 4,470 | 78,627 |
UGI | 8,380 | 197,852 |
1,016,731 | ||
Total Common Stocks | ||
(cost $15,094,761) | 13,701,619 |
10
Other Investment—2.0% | Shares | Value ($) |
Registered Investment Company; | ||
Dreyfus Institutional Preferred | ||
Plus Money Market Fund | ||
(cost $285,255) | 285,255 c | 285,255 |
Investment of Cash Collateral | ||
for Securities Loaned—12.1% | ||
Registered Investment Company; | ||
Dreyfus Institutional Cash Advantage Fund | ||
(cost $1,693,035) | 1,693,035 c | 1,693,035 |
Total Investments (cost $17,073,051) | 112.0% | 15,679,909 |
Liabilities, Less Cash and Receivables | (12.0%) | (1,686,051) |
Net Assets | 100.0% | 13,993,858 |
a All or a portion of these securities are on loan.At March 31, 2009, the total market value of the fund’s securities on |
loan is $1,672,492 and the total market value of the collateral held by the fund is $1,693,035. |
b Non-income producing security. |
c Investment in affiliated money market mutual fund. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Financial | 25.1 | Consumer Staples | 7.0 |
Consumer Discretionary | 14.7 | Health Care | 6.3 |
Money Market Investments | 14.1 | Materials | 1.6 |
Technology | 14.0 | Telecommunication Services | .7 |
Industrial | 13.7 | Exchange Traded Funds | .4 |
Utilities | 7.3 | ||
Energy | 7.1 | 112.0 | |
† Based on net assets. | |||
See notes to financial statements. |
The Fund 11
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2009 (Unaudited)
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments (including | ||
securities on loan, valued at $1,672,492)—Note 1(b): | ||
Unaffiliated issuers | 15,094,761 | 13,701,619 |
Affiliated issuers | 1,978,290 | 1,978,290 |
Cash | 50,355 | |
Receivable for investment securities sold | 146,339 | |
Dividends and interest receivable | 17,463 | |
Prepaid expenses | 9,237 | |
15,903,303 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(b) | 12,921 | |
Liability for securities on loan—Note 1(b) | 1,693,035 | |
Payable for investment securities purchased | 181,676 | |
Accrued expenses | 21,813 | |
1,909,445 | ||
Net Assets ($) | 13,993,858 | |
Composition of Net Assets ($): | ||
Paid-in capital | 17,988,606 | |
Accumulated undistributed investment income—net | 19,153 | |
Accumulated net realized gain (loss) on investments | (2,620,759) | |
Accumulated net unrealized appreciation | ||
(depreciation) on investments | (1,393,142) | |
Net Assets ($) | 13,993,858 | |
Shares Outstanding | ||
(unlimited number of $.001 par value shares of Beneficial Interest authorized) | 1,294,780 | |
Net Asset Value, offering and redemption price per share—Note 3(d) ($) | 10.81 | |
See notes to financial statements. |
12
STATEMENT OF OPERATIONS | |
Six Months Ended March 31, 2009 (Unaudited) | |
Investment Income ($): | |
Income: | |
Cash dividends: | |
Unaffiliated issuers | 83,904 |
Affiliated issuers | 405 |
Income from securities lending | 6,785 |
Total Income | 91,094 |
Expenses: | |
Investment advisory fee—Note 3(a) | 35,148 |
Custodian fees—Note 3(b) | 21,679 |
Accounting and administration fee—Note 3(a) | 16,500 |
Auditing fees | 13,570 |
Prospectus and shareholders’ reports | 6,554 |
Registration fees | 5,536 |
Trustees’ fees and expenses—Note 3(c) | 2,305 |
Shareholder servicing costs—Note 3(b) | 1,869 |
Legal fees | 1,423 |
Loan commitment fees—Note 2 | 1,098 |
Interest expense—Note 2 | 6 |
Miscellaneous | 6,079 |
Total Expenses | 111,767 |
Less—expense reimbursement from The Dreyfus | |
Corporation due to undertaking—Note 3(a) | (64,830) |
Less—reduction in fees due to | |
earnings credits—Note 1(b) | (28) |
Net Expenses | 46,909 |
Investment Income—Net | 44,185 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | (1,950,906) |
Net unrealized appreciation (depreciation) on investments | (871,143) |
Net Realized and Unrealized Gain (Loss) on Investments | (2,822,049) |
Net (Decrease) in Net Assets Resulting from Operations | (2,777,864) |
See notes to financial statements. |
The Fund 13
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2009 | Year Ended | |
(Unaudited) | September 30, 2008 | |
Operations ($): | ||
Investment income—net | 44,185 | 62,068 |
Net realized gain (loss) on investments | (1,950,906) | (599,394) |
Net unrealized appreciation | ||
(depreciation) on investments | (871,143) | (331,012) |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | (2,777,864) | (868,338) |
Dividends to Shareholders from ($): | ||
Investment income—net | (41,243) | (51,007) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold | 12,706,530 | 1,662,211 |
Dividends reinvested | 41,243 | 51,007 |
Cost of shares redeemed | (2,136,662) | (152,230) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | 10,611,111 | 1,560,988 |
Total Increase (Decrease) in Net Assets | 7,792,004 | 641,643 |
Net Assets ($): | ||
Beginning of Period | 6,201,854 | 5,560,211 |
End of Period | 13,993,858 | 6,201,854 |
Undistributed investment income—net | 19,153 | 16,211 |
Capital Share Transactions (Shares): | ||
Shares sold | 1,110,367 | 96,108 |
Shares issued for dividends reinvested | 3,379 | 3,023 |
Shares redeemed | (199,888) | (9,057) |
Net Increase (Decrease) in Shares Outstanding | 913,858 | 90,074 |
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, 2009 | Year Ended September 30, | ||
(Unaudited) | 2008 | 2007a | |
Per Share Data ($): | |||
Net asset value, beginning of period | 16.28 | 19.12 | 20.00 |
Investment Operations: | |||
Investment income—netb | .05 | .18 | .02 |
Net realized and unrealized | |||
gain (loss) on investments | (5.41) | (2.87) | (.90) |
Total from Investment Operations | (5.36) | (2.69) | (.88) |
Distributions: | |||
Dividends from investment income—net | (.11) | .15 | — |
Net asset value, end of period | 10.81 | 16.28 | 19.12 |
Total Return (%) | (32.97)c | (14.10) | (4.40)c |
Ratios/Supplemental Data (%): | |||
Ratio of total expenses to average net assets | 2.39d | 2.96 | 6.85d |
Ratio of net expenses to average net assets | 1.00d | 1.00 | 1.00d |
Ratio of net investment income | |||
to average net assets | .94d | 1.03 | .59d |
Portfolio Turnover Rate | 37.86c | 73 | 18c |
Net Assets, end of period ($ x 1,000) | 13,993 | 6,202 | 5,560 |
a | From July 23, 2007 (commencement of initial offering) to September 30, 2007. |
b | Based on average shares outstanding at each month end. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
The Fund 15
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus/The Boston Company Small Cap Value Fund II (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 fourteen series, including the fund.The fund’s investment objective seeks long-term growth of capital. Prior to December 1, 2008, The Boston Company Asset Management LLC., a wholly owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), served as the fund’s investment advisor. After December 1 2008, 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, which are sold without a sales charge.
At a meeting of the Board of Trustees held on August 27, 2008, the Board approved, effective December 1, 2008, a proposal to change the names of the Trust and the fund from “Mellon Institutional Funds Investment Trust” and “The Boston Company Small Cap Value II Fund” to “Dreyfus Investment Funds” and “Dreyfus/The Boston Company Small Cap Value II Fund,” respectively.
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 fund’s financial statements are prepared in accordance with U.S. generally accepted accounting principles, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities are valued at the last sales price on the securities exchange or national securities market on
16
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 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 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.
The fund adopted Statement of Financial Accounting Standards No. 157 “FairValue Measurements” (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements.
The Fund 17
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Various inputs are used in determining the value of the fund’s investments relating to FAS 157.These inputs are summarized in the three broad levels listed below.
Level 1—quoted prices in active markets for identical investments. |
Level 2—other significant observable inputs (including quoted |
prices for similar securities, interest rates, prepayment speeds, credit |
risk, etc.). |
Level 3—significant unobservable inputs (including 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, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Quoted | Observable Unobservable | |||
Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investment in | ||||
Securities | 15,679,909 | — | — | 15,679,909 |
Other Financial | ||||
Instruments† | — | — | — | — |
Liabilities ($) | ||||
Other Financial | ||||
Instruments† | — | — | — | — |
† Other financial instruments include derivative instruments, such as futures, forward currency exchange contracts, swap contracts and options contracts. Amounts shown represent unrealized appreciation (depreciation) at period end.
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Investments in | |
Securities ($) | |
Balance as of 9/30/2008 | 49,090 |
Realized gain (loss) | — |
Change in unrealized appreciation (depreciation) | — |
Net purchases (sales) | (49,090) |
Transfers in and/or out of Level 3 | — |
Balance as of 3/31/2009 | — |
18
(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, 2009, The Bank of New York Mellon earned $2,262 from lending fund portfolio securities, pursuant to the securities lending agreement.
Until December 10, 2007, all cash collateral received by the fund and other series of the Trust in connection with the securities lending program was invested in the BlackRock Cash Strategies Fund LLC (the “BlackRock Fund”), a private investment fund not affiliated with the Trust or its investment adviser. On December 10, 2007, the
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
BlackRock Fund announced that it was suspending investor withdrawal privileges due to conditions related to the credit markets and the adverse affect of such conditions on the liquidity of the BlackRock Fund’s portfolio holdings. Commencing on December 11, 2007, all new cash collateral received in connection with the securities lending activity of the fund and other series of the Trust was invested by the securities lending agent in the Dreyfus Institutional Cash Advantage Fund (the “Dreyfus Fund”), an affiliated money market fund registered as an investment company under the Investment Company Act of 1940, as amended.To the extent that the BlackRock Fund agreed to permit withdrawals during the period December 11, 2007 through January 22, 2009, the securities lending agent effected such withdrawals and the cash proceeds from such withdrawals by the fund were reinvested in the shares of the Dreyfus Fund. As of January 22, 2009, the final withdrawal was reinvested in the shares of the Dreyfus Fund. Repayments of cash collateral during the period were made from the proceeds of redemptions of shares of the Dreyfus Fund.
(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 semi-annually 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”).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 U.S. generally accepted accounting principles.
(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, 2009, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the two-year period ended September 30, 2008 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $96,916 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to September 30, 2008. If not applied the carryover expires in fiscal 2016.
The tax character of distributions paid to shareholders during the fiscal year ended September 30, 2008 was as follows: ordinary income $51,007.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 Trust entered into two separate agreements with The Bank of New York Mellon, that enable the fund, and other funds in the Trust, to borrow, in the aggregate, (i) up to $35 million from a committed line of credit and (ii) up to $15 million under an uncommitted line of credit. In connection therewith, the fund commitment fees on its pro rata portion of the lines of credit. Interest is charged to the fund based on prevailing markets rates in effect at the time of borrowing.
The average daily amount of borrowings outstanding under the line of credit during the period ended March 31, 2008, was approximately $1,500 with a related weighted average annualized interest rate of .81%.
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 (“Agreement”) with the Manager, the investment advisory fee is computed at the annual rate of .75% 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 1.00% of the value of the fund’s average daily net assets.The expense reimbursement, pursuant to the undertaking, amounted to $64,830 during the period ended March 31, 2009.
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 $16,500 for the period ended March 31, 2009 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, 2009, the fund was charged $47 pursuant to the transfer agency agreement.
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, 2009, the fund was charged $28 pursuant to the cash management agreements. These fees were offset by earnings credits 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, 2009, the fund was charged $21,679 pursuant to the custody agreement.
22
During the period ended March 31, 2009, the fund was charged $2,578 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 $8,294, custodian fees $21,000, chief compliance officer fees $2,578 and transfer agency per account fees $30, which are offset against an expense reimbursement currently in effect in the amount of $18,981.
(c) Effective December 1, 2008, each Trustee receives $45,000 per year, plus $6,000 for each joint Board meeting of The Dreyfus/Laurel Funds, Inc.,The Dreyfus/Laurel Funds Trust and The Dreyfus/Laurel Tax-Free Municipal Funds, (collectively, the “Dreyfus/Laurel Funds”) and the Trust attended, $2,000 for separate in-person committee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that are conducted by telephone and is reimbursed 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, the Chair of the compensation committee receives $900 per meeting. In the event that there is an in person joint committee meeting of the Dreyfus/Laurel Funds, the Trust and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee, as applicable, will be allocated between the Dreyfus/Laurel Funds, the Trust and Dreyfus HighYield Strategies Fund.These fees and expenses are charged and allocated to each series based on net assets.
(d) Prior to December 1, 2008 at which time the fee was eliminated, a 2% redemption fee was charged and retained by the fund on certain shares redeemed within thirty days following the date of issuance, subject to exceptions, including redemptions made through the use of the
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
fund’s exchange privilege. From October 1, 2008 to November 30, 2008, there were no redemption fees charged and retained by the fund. The fund reserves the right to reimpose a redemption fee in the future.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended March 31, 2009, amounted to $14,283,360 and $3,870,047, respectively.
At March 31, 2009, accumulated net unrealized depreciation on investments was $1,393,142, consisting of $459,502 gross unrealized appreciation and $1,852,644 gross unrealized depreciation.
At March 31, 2009, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
The Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The application of FAS 161 is required for fiscal years and interim periods beginning after November 15, 2008. At this time, management is evaluating the implications of FAS 161 and its impact on the financial statements and the accompanying notes has not yet been determined.
NOTE 5—Change in Independent Registered Public Accounting Firm:
PricewaterhouseCoopers LLP (“PWC”), 300 Madison Avenue, New York, New York 10017, an independent registered public accounting firm, were the independent registered public accounting firm for the fund for the fiscal year ended September 30, 2008. At the meetings
24
held on February 9-10, 2009, the Audit Committee and the Board of Trustees of the Trust engaged KPMG LLP to replace PWC as the independent registered public accounting firm for the Trust, effective upon the conclusion of the audit of the December 31, 2008 financial statements of other series of the Trust.
During the funds’ past two fiscal years and any subsequent interim period: (i) no report on the funds’ financial statements contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles; and (ii) there were no “disagreements” (as such term is used in Item 304 of Regulation S-K) with PWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of PWC, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report.
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 and 10, 2009, 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.
Representatives of the Manager reminded the Board members that the Manager became the investment adviser of the fund, effective December 1, 2008, and that there were no changes to the portfolio management of the fund as a result of the appointment of the Manager as the fund’s investment adviser.
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. 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 meet-
26
ing 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.
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 value funds (the “Performance Group”) and to a larger universe of funds, consisting of all retail and institutional small-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 Universe medians for the one-year period ended December 31, 2008. 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. A representative of the Manager noted that the Manager had voluntarily agreed to waive certain expenses of the fund, limiting the fund’s total expense ratio (excluding brokerage commissions, taxes and extraordinary expenses) to 1.00% of the fund’s average daily net assets. The Board members noted that the fund’s contractual management fee was below 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, 2008.The Board members also were informed that the
The Fund 27
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
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 New York 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 blended advisory fee.The Board noted that the fund’s expense ratio, taking into account the limitation on expenses, 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 Manager’s representatives also reviewed the costs associated with distribution through intermediaries.The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided. The Board members considered the relevance of the fee information provided for the Similar Funds and the Similar Accounts to evaluate the appropriateness and reasonableness of the fund’s management fee. The Board acknowledged that differences in fees paid by the Similar Accounts seemed to be consistent with the services provided.
Analysis of Profitability and Economies of Scale. A representative of the Manager reminded the Board members that The Bank of New York Mellon Corporation, the parent company of the Manager, paid all of the expenses associated with the Manager becoming the fund’s investment adviser and the proxy campaign with respect to the Board members becoming the Trust’s Board members. Because the Manager only became the fund’s investment adviser effective December 1,
28
2008, the Manager’s representatives were not able to provide a dollar amount of expenses allocated and profit received by the Manager, but a representative of the Manager did review the method to be used to determine such expenses and profit in the future.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 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 considered whether the fund would be able to participate in any economies of scale that the Manager may experience in the event that the fund attracts a large amount of assets. The Board members discussed the renewal requirements for advisory agreements and their ability to review the management fee annually.
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 to be provided by the Manager are adequate and appropriate.
- The Board was somewhat concerned with the fund’s total return performance and determined to continue to monitor the fund’s performance.
- The Board concluded, taking into account the expense limitation, that the fee paid by the fund to the Manager was reasonable in light of the considerations described above.
The Fund 29
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
- The Board determined that because the Manager had become the investment adviser of the fund effective December 1,2008,economies of scale were not a factor at this time, but, to the extent that material economies of scale are not shared with the fund in the future, the Board would seek to do so in connection with future renewals.
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 and that the Management Agreement would be renewed through April 4, 2010.
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 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 |
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/Mid Cap Growth Fund |
A LETTER FROM THE CEO Dear Shareholder: |
We present this semiannual report for Dreyfus/The Boston Company Small/Mid Cap Growth Fund, covering the six-month period from October 1, 2008, through March 31, 2009.
The reporting period has been one of the most challenging for the U.S. economy and virtually all sectors and capitalization ranges of the stock markets. A relatively mild economic downturn over the first several months of 2008 was severely exacerbated in mid-September 2008, when the bankruptcy of Lehman Brothers triggered a cascading global economic decline.As the credit crisis dried up the availability of funding for businesses and consumers, international trade activity slumped, commodity prices plummeted, the U.S. and global economies entered a period of intense inventory liquidation, and unemployment surged.
On the heels of a –6.3% annualized U.S. economic growth rate in the fourth quarter of 2008, we expect another sharp decline for the first quarter of 2009. However, our Chief Economist anticipates that the U.S. recession may reach a trough around the third quarter of this year, followed by a slow recovery. Indeed, the U.S. government and monetary authorities have signaled their intent to do whatever it takes to forestall a depression or a deflationary spiral, including historically low interest rates, mortgage modification programs, massive monetary and fiscal stimulus and support for troubled financial institutions.Although times seem dire now, we believe it is always appropriate to maintain a long-term investment focus and to discuss any investment modifications with your financial adviser.Together, you can prepare for the risks that lie ahead and position your assets to perform in this current market downturn, and in the future.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund’s Portfolio Managers.
As always, we thank you for your continued confidence and support.
Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation April 15, 2009 |
2
DISCUSSION OF FUND PERFORMANCE
For the reporting period of October 1, 2008, through March 31, 2009, 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, 2009, Dreyfus/The Boston Company Small/Mid Cap Growth Fund’s Class I shares produced a total return of –29.74%.1 On March 31, 2009, the fund also began offering Class A and Class C shares. In comparison, the fund’s benchmark, the Russell 2500 Growth Index (the “Index”), produced a total return of –32.09% for the same period.2
Stocks across all investment styles, market sectors and capitalization ranges fell sharply, particularly over the fourth quarter of 2008, due to intensifying financial and economic crises.The fund produced modestly better returns than its benchmark, primarily due to fees and expenses that are not reflected in the Index’s return.
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 mid-cap 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.
Financial Crisis and Recession Roiled Stock Markets
Stocks declined sharply in the midst of a global financial crisis and a deepening U.S. recession, especially over the reporting period’s second half. Slumping home values, rising unemployment and plunging consumer confidence produced one of the most severe economic downturns since the Great Depression. Meanwhile, an ongoing credit crunch
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
escalated into a global financial crisis, resulting in the failures of several major financial institutions.
Despite aggressive efforts by government authorities to forestall further deterioration, risk-averse investors punished most stocks, seemingly regardless of their underlying fundamentals. The effects of widespread selling pressure were magnified by highly leveraged institutional investors, who were forced to raise cash for margin calls. Particularly severe market declines during the fourth quarter of 2008 were partly offset by a rally late in the first quarter of 2009, as investors looked forward to potentially better economic conditions.
Stock Selections Produced Mixed Results
Some of the more positive contributions to the fund’s performance during the reporting period came from the energy sector, where we emphasized natural gas exploration-and-production companies, such as CNX Gas,Arena Resources and Continental Resources, as demand for their services remained relatively strong despite slumping commodity prices. Drilling equipment provider FMC Technologies also supported the fund’s performance.
The fund had solid stock selections in the hard-hit financials sector, where we maintained underweighted exposure to real estate and capital markets companies, and insurance companies ProAssurance and RLI Corp. held up relatively well. Investments in the technology sector benefited from gains in electrical equipment maker Cogent, which announced a major new distribution partnership.The fund also benefited from strong relative performance in IT Services companies Cognizant Technology Solutions and Metavante Technologies during the reporting period. Finally, in the industrials sector, strong stock selections included gas filtration specialist Pall Corp., transportation company Landstar Systems and professional services firm Dun & Bradstreet.
Although the health care sector traditionally has been considered a relatively defensive area during market downturns, small and midcap life sciences companies proved vulnerable over the past six months to budget cuts among the large pharmaceutical developers that are their primary customers. In addition, investors’ expectations that smaller health care companies would be acquisition targets did not materialize. Consequently, research contractor Parexel International, life sciences tool & equipment provider Thermo Fisher Scientific and drug development
4
services company Covance missed their earnings targets. Medical equipment and supplies providers Wright Medical Group and Conmed also disappointed as patients delayed elective surgeries. Biotechnology firm Onyx Pharmaceuticals missed its earnings target, and BioMarin Pharmaceutical declined sharply when a promising new product fell short of sales expectations. Finally, services provider Psychiatric Solutions suffered from lower-than-expected sales.
The materials sector detracted more mildly from the fund’s relative performance, as Packaging Corp. of America lost approximately half its value due to a heavy debt load and reduced sales.
Finding Opportunities in a Distressed Market
The economy has continued to struggle and the financial crisis has persisted, prompting us to maintain the fund’s generally defensive investment posture. However, we have begun to see signs of potential improvement in the housing and banking markets. In addition, we believe that historically low interest rates, lower energy prices and massive government spending are likely to stimulate the U.S. economy over the longer term. Consequently, we have begun to take advantage of opportunities in industry groups and companies that, in our judgment, were punished too severely by investors and may be poised for gains in an eventual economic recovery.
April 15, 2009
Effective 3/31/2009, the fund adopted a multiple class structure.The fund’s existing shares were reclassified as Class I shares and Class A and Class C have been added.
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take into |
consideration the maximum initial sales charges 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. Return figure provided reflects the absorption of certain | |
fund expenses by The Dreyfus Corporation. Had these expenses not been absorbed, the fund’s | |
return would have been lower.This waiver is voluntary and may be terminated at any time. | |
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, 2008 to March 31, 2009. 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, 2009† | ||||
Class A | Class C | Class I | ||
Expenses paid per $1,000†† | $ .03 | $ .05 | $ 4.24 | |
Ending value (after expenses) | $1,007.20 | $1,007.20 | $702.60 |
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, 2009††† | |||
Class A | Class C | Class I | |
Expenses paid per $1,000†††† | $ 6.29 | $ 10.05 | $ 5.04 |
Ending value (after expenses) | $1,018.70 | $1,014.96 | $1,019.95 |
† | From March 31, 2009 (commencement of initial offering) to March 31, 2009 for Class A and Class C shares. |
†† | Expenses are equal to the fund’s annualized expense ratio of 1.25% for Class A and 2.00% for Class C, |
multiplied by the average account value over the period, multiplied by 1/365 (to reflect the actual days in the | |
period). Expenses are equal to the fund’s annualized expense ratio of 1.00% for Class I, multiplied by the average | |
account value over the period, multiplied by 182/365 (to reflect the one-half year period). | |
††† | Please note that while Class A and Class C shares commenced operations on March 31, 2009, the Hypothetical |
expenses paid during the period reflect projected activity for the full six months period for purposes of | |
comparability. This projection assumes that annualized expense ratios were in effect during the period | |
October 1, 2008 to March 31, 2009. | |
†††† | Expenses are equal to the fund’s annualized expense ratio of 1.25% for Class A, 2.00% for Class C and |
1.00% for Class I, multiplied by the average account value over the period, multiplied by 182/365 (to reflect | |
one-half year period). |
6
STATEMENT OF INVESTMENTS March 31, 2009 (Unaudited) |
Common Stocks—97.1% | Shares | Value ($) |
Consumer Discretionary—16.7% | ||
Aeropostale | 16,110 a | 427,882 |
Bed Bath & Beyond | 66,660 a,b | 1,649,835 |
Carter’s | 46,470 a | 874,101 |
Chipotle Mexican Grill, Cl. B | 12,752 a | 730,817 |
DeVry | 18,630 | 897,593 |
Gentex | 76,300 | 759,948 |
Guess? | 58,750 | 1,238,450 |
Interactive Data | 34,860 | 866,620 |
ITT Educational Services | 5,570 a,b | 676,309 |
Lions Gate Entertainment | 79,528 a,b | 401,616 |
O’Reilly Automotive | 15,230 a | 533,202 |
P.F. Chang’s China Bistro | 14,210 a,b | 325,125 |
PetSmart | 92,120 | 1,930,835 |
Sherwin-Williams | 16,270 | 845,552 |
Wendy’s/Arby’s Group, Cl. A | 99,430 | 500,133 |
WMS Industries | 46,060 a,b | 963,115 |
13,621,133 | ||
Consumer Staples—4.7% | ||
Alberto-Culver | 37,340 | 844,257 |
Casey’s General Stores | 38,930 | 1,037,874 |
Church & Dwight | 7,820 | 408,439 |
Estee Lauder, Cl. A | 37,650 | 928,073 |
Hain Celestial Group | 38,880 a | 553,651 |
Mead Johnson Nutrition, Cl. A | 2,650 a | 76,506 |
3,848,800 | ||
Energy—9.3% | ||
Arena Resources | 52,830 a | 1,346,108 |
CNX Gas | 46,692 a,b | 1,107,067 |
Concho Resources | 40,010 a | 1,023,856 |
Continental Resources | 26,102 a,b | 553,623 |
Dril-Quip | 37,070 a | 1,138,049 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Energy (continued) | ||
FMC Technologies | 32,160 a | 1,008,859 |
NATCO Group, Cl. A | 37,470 a | 709,307 |
Plains Exploration & Production | 41,930 a | 722,454 |
7,609,323 | ||
Exchange Traded Funds—1.2% | ||
iShares Russell 2000 Growth Index Fund | 21,770 | 1,000,985 |
Financial—8.4% | ||
Arch Capital Group | 14,750 a | 794,435 |
IntercontinentalExchange | 8,590 a | 639,697 |
Plum Creek Timber | 29,250 b | 850,298 |
ProAssurance | 36,750 a | 1,713,285 |
RLI | 37,570 b | 1,886,014 |
Validus Holdings | 40,410 | 956,909 |
6,840,638 | ||
Health Care—21.3% | ||
Alexion Pharmaceuticals | 27,890 a,b | 1,050,337 |
Alkermes | 29,600 a | 359,048 |
Alnylam Pharmaceuticals | 35,243 a,b | 671,027 |
AmerisourceBergen | 25,040 | 817,806 |
Beckman Coulter | 10,110 | 515,711 |
Bio-Rad Laboratories, Cl. A | 7,390 a | 487,001 |
BioMarin Pharmaceutical | 30,320 a,b | 374,452 |
Cephalon | 9,440 a,b | 642,864 |
Emergency Medical Services, Cl. A | 13,099 a,b | 411,178 |
Haemonetics | 12,980 a | 714,938 |
Hologic | 47,750 a | 625,047 |
Immucor | 28,740 a | 722,811 |
Integra LifeSciences Holdings | 10,200 a,b | 252,246 |
Martek Biosciences | 15,680 a | 286,160 |
Masimo | 20,660 a | 598,727 |
MEDNAX | 14,160 a | 417,295 |
Myriad Genetics | 25,670 a | 1,167,215 |
8
Common Stocks (continued) | Shares | Value ($) |
Health Care (continued) | ||
NuVasive | 16,070 a,b | 504,277 |
Onyx Pharmaceuticals | 28,820 a | 822,811 |
OSI Pharmaceuticals | 14,920 a,b | 570,839 |
PSS World Medical | 62,290 a,b | 893,862 |
Regeneron Pharmaceuticals | 17,610 a | 244,075 |
Resmed | 21,570 a,b | 762,284 |
Thermo Fisher Scientific | 22,840 a | 814,703 |
United Therapeutics | 6,550 a | 432,890 |
Varian | 7,730 a | 183,510 |
Vertex Pharmaceuticals | 27,170 a,b | 780,594 |
Volcano | 28,413 a | 413,409 |
West Pharmaceutical Services | 15,750 b | 516,758 |
Wright Medical Group | 19,740 a | 257,212 |
17,311,087 | ||
Industrial—13.2% | ||
Alliant Techsystems | 9,140 a | 612,197 |
Clean Harbors | 12,360 a | 593,280 |
Covanta Holding | 45,182 a | 591,432 |
Dun & Bradstreet | 35,930 | 2,766,610 |
Flowserve | 12,940 | 726,193 |
Knight Transportation | 59,710 b | 905,204 |
Landstar System | 12,750 | 426,742 |
MSC Industrial Direct, Cl. A | 36,600 b | 1,137,162 |
Orbital Sciences | 20,490 a | 243,626 |
Pall | 31,360 | 640,685 |
Quanta Services | 46,630 a | 1,000,214 |
UTi Worldwide | 94,670 | 1,131,306 |
10,774,651 | ||
Technology—20.5% | ||
Akamai Technologies | 82,070 a | 1,592,158 |
Analog Devices | 42,230 | 813,772 |
Atheros Communications | 27,720 a | 406,375 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Technology (continued) | ||
BMC Software | 18,900 a | 623,700 |
CACI International, Cl. A | 11,010 a | 401,755 |
Cogent | 51,060 a | 607,614 |
Cognizant Technology Solutions, Cl. A | 71,000 a | 1,476,090 |
FLIR Systems | 37,070 a | 759,194 |
FormFactor | 15,610 a | 281,292 |
Global Payments | 28,030 | 936,482 |
Informatica | 42,640 a | 565,406 |
j2 Global Communications | 48,760 a,b | 1,067,356 |
Lam Research | 23,770 a | 541,243 |
ManTech International, Cl. A | 31,550 a | 1,321,945 |
Metavante Technologies | 73,184 a | 1,460,753 |
Novellus Systems | 51,590 a | 857,942 |
PMC-Sierra | 131,570 a | 839,417 |
Polycom | 74,180 a | 1,141,630 |
Sybase | 21,000 a | 636,090 |
ValueClick | 26,790 a | 227,983 |
Vishay Intertechnology | 38,030 a | 132,344 |
16,690,541 | ||
Utilities—1.8% | ||
EQT | 18,800 | 589,004 |
UniSource Energy | 30,870 | 870,225 |
1,459,229 | ||
Total Common Stocks | ||
(cost $82,800,043) | 79,156,387 | |
Other Investment—4.0% | ||
Registered Investment Company; | ||
Dreyfus Institutional Preferred | ||
Plus Money Market Fund | ||
(cost $3,284,944) | 3,284,944 c | 3,284,944 |
10
Investment of Cash Collateral | ||
for Securities Loaned—13.1% | Shares | Value ($) |
Registered Investment Company; | ||
Dreyfus Institutional Cash Advantage Fund | ||
(cost $10,713,835) | 10,713,835 c | 10,713,835 |
Total Investments (cost $96,798,822) | 114.2% | 93,155,166 |
Liabilities, Less Cash and Receivables | (14.2%) | (11,571,316) |
Net Assets | 100.0% | 81,583,850 |
a Non-income producing security. |
b All or a portion of these securities are on loan. At March 31, 2009, the total market value of the fund’s securities on |
loan is $10,468,204 and the total market value of the collateral held by the fund is $10,713,835. |
c Investment in affiliated money market mutual fund. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Health Care | 21.3 | Financial | 8.4 |
Technology | 20.5 | Consumer Staples | 4.7 |
Money Market Investments | 17.1 | Utilities | 1.8 |
Consumer Discretionary | 16.7 | Exchange Traded Funds | 1.2 |
Industrial | 13.2 | ||
Energy | 9.3 | 114.2 | |
† Based on net assets. | |||
See notes to financial statements. |
The Fund 11
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2009 (Unaudited)
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments (including | |||
securities on loan, valued at $10,468,204)—Note 1(b): | |||
Unaffiliated issuers | 82,800,043 | 79,156,387 | |
Affiliated issuers | 13,998,779 | 13,998,779 | |
Cash | 184,950 | ||
Receivable for investment securities sold | 1,638,241 | ||
Receivable for shares of Beneficial Interest subscribed | 89,929 | ||
Dividends and interest receivable | 26,022 | ||
Prepaid expenses | 29,966 | ||
95,124,274 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(d) | 54,018 | ||
Liability for securities on loan—Note 1(b) | 10,713,835 | ||
Payable for investment securities purchased | 2,594,846 | ||
Payable for shares of Beneficial Interest redeemed | 82,307 | ||
Accrued expenses | 95,418 | ||
13,540,424 | |||
Net Assets ($) | 81,583,850 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 120,129,293 | ||
Accumulated undistributed investment income—net | 34,307 | ||
Accumulated net realized gain (loss) on investments | (34,936,094) | ||
Accumulated net unrealized appreciation | |||
(depreciation) on investments | (3,643,656) | ||
Net Assets ($) | 81,583,850 | ||
Net Asset Value Per Share | |||
Class A | Class C | Class I | |
Net Assets ($) | 10,068 | 10,067 | 81,563,715 |
Shares Outstanding | 1,196 | 1,196 | 9,694,112 |
Net Asset Value Per Share ($) | 8.42 | 8.42 | 8.41 |
See notes to financial statements. |
12
STATEMENT OF OPERATIONS | |
Six Months Ended March 31, 2009 (Unaudited) | |
Investment Income ($): | |
Income: | |
Cash dividends: | |
Unaffiliated issuers | 357,789 |
Affiliated issuers | 7,849 |
Income from securities lending | 49,231 |
Total Income | 414,869 |
Expenses: | |
Investment advisory fee—Note 3(a) | 228,093 |
Accounting and Administration fees—Note 3(a) | 16,500 |
Prospectus and shareholders’ reports | 53,638 |
Shareholder servicing costs—Note 3(c,d) | 47,146 |
Custodian fees—Note 3(d) | 30,153 |
Professional fees | 18,929 |
Registration fees | 9,323 |
Trustees’ fees and expenses—Note 3(e) | 7,116 |
Loan commitment fees—Note 2 | 449 |
Miscellaneous | 7,677 |
Total Expenses | 419,024 |
Less—reduction in expenses due to undertaking—Note 3(a) | (38,216) |
Less—reduction in fees due to earnings credits—Note 1(b) | (246) |
Net Expenses | 380,562 |
Investment Income—Net | 34,307 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | (29,401,335) |
Net unrealized appreciation (depreciation) on investments | 833,855 |
Net Realized and Unrealized Gain (Loss) on Investments | (28,567,480) |
Net (Decrease) in Net Assets Resulting from Operations | (28,533,173) |
See notes to financial statements. |
The Fund 13
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2009 | Year Ended | |
(Unaudited)a | September 30, 2008 | |
Operations ($): | ||
Investment income (loss)—net | 34,307 | (77,773) |
Net realized gain (loss) on investments | (29,401,335) | (3,875,369) |
Net unrealized appreciation | ||
(depreciation) on investments | 833,855 | (7,270,337) |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | (28,533,173) | (11,223,479) |
Dividends to Shareholders from ($): | ||
Invesment income—net: | ||
Class I shares | — | (17,315) |
Net realized gain on investments: | ||
Class I shares | — | (5,326,461) |
Total Dividends | — | (5,343,776) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 10,000 | 94,722,212 |
Class C Shares | 10,000 | — |
Class I Shares | 31,586,178 | — |
Dividends reinvested: | ||
Class I Shares | — | 5,250,865 |
Cost of shares redeemed: | ||
Class I Shares | (11,756,393) | (15,570,888) |
Increase (Decrease) in Net Assets | ||
from Beneficial Interest Transactions | 19,849,785 | 84,402,189 |
Total Increase (Decrease) in Net Assets | (8,683,388) | 67,834,934 |
Net Assets ($): | ||
Beginning of period | 90,267,238 | 22,432,304 |
End of Period | 81,583,850 | 90,267,238 |
Undistributed investment income—net | 34,307 | — |
14
Six Months Ended | ||
March 31, 2009 | Year Ended | |
(Unaudited)a | September 30, 2008 | |
Capital Share Transactions: | ||
Class A | ||
Shares sold | 1,196 | — |
Class C | ||
Shares sold | 1,196 | — |
Class I | ||
Shares sold | 3,481,651 | 7,051,939 |
Shares issued for dividends reinvested | — | 371,086 |
Shares redeemed | (1,330,802) | (1,150,203) |
Net Increase (Decrease) in Shares Outstanding | 2,150,849 | 6,272,822 |
a The fund changed to a multiple class fund on March 31, 2009.The existing shares were redesignated as Class I shares and the fund commenced initial offering of Class A and Class C shares.
See notes to financial statements. |
The Fund 15
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||
March 31, 2009 (Unaudited)a | ||
Class A | Class C | |
Shares | Shares | |
Per Share Data ($): | ||
Net asset value, beginning of period | 8.36 | 8.36 |
Investment Operations: | ||
Investment (loss)—netb | (.00)c | (.00)c |
Net realized and unrealized | ||
gain (loss) on investments | .06 | .06 |
Net asset value, end of period | 8.42 | 8.42 |
Total Return (%)d,e | .72 | .72 |
Ratios/Supplemental Data (%): | ||
Ratio of total expenses to average net assetsf | 1.35 | 2.10 |
Ratio of net expenses to average net assetsf | 1.25 | 2.00 |
Ratio of net investment (loss) | ||
to average net assetsf | (1.12) | (1.89) |
Portfolio Turnover Ratee | 136.69 | 136.69 |
Net Assets, end of period ($ x 1,000) | 10 | 10 |
a | From March 31, 2009 (commencement of initial offering) to March 31, 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, 2009 | Year Ended September 30, | |||||
Class I Shares | (Unaudited)a | 2008 | 2007 | 2006 | 2005 | 2004 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 11.97 | 17.66 | 14.92 | 13.84 | 11.26 | 9.48 |
Investment Operations: | ||||||
Investment income (loss)—netb | .00c | (.02) | .01 | (.02) | (.04) | (.08) |
Net realized and unrealized | ||||||
gain (loss) on investments | (3.56) | (1.93)d | 3.74d | 1.10 | 2.62 | 1.86d |
Total from | ||||||
Investment income—net | (3.56) | (1.95) | 3.75 | 1.08 | 2.58 | 1.78 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | — | (.01) | — | — | — | — |
Dividends from net realized | ||||||
gain on investments | — | (3.73) | (1.01) | — | — | — |
Total Distributions | — | (3.74) | (1.01) | — | — | — |
Net asset value, end of period | 8.41 | 11.97 | 17.66 | 14.92 | 13.84 | 11.26 |
Total Return (%) | (29.74)e (14.32)f | 26.31f | 7.80f,g | 22.91f | 18.78f | |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.10h | 1.11 | 1.23 | 1.29 | 1.38 | 1.33 |
Ratio of net expenses | ||||||
to average net assets | 1.00h | 1.00 | 1.00 | 1.00 | 1.00 | .98 |
Ratio of net investment income | ||||||
(loss) to average net assets | .09h | (.15) | .07 | (.16) | (.32) | (.69) |
Portfolio Turnover Rate | 136.69e | 201 | 180 | 161 | 167 | 157 |
Net Assets, end of period | ||||||
($ x 1,000) | 81,564 | 90,267 | 22,432 | 20,389 | 19,709 | 19,222 |
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 | Amount include litigation proceeds received by the Fund of $.01 for the year ended September 30, 2008, $.19 for the year ended September 30, 2007 and $.03 for the year ended September 30, 2004. |
e | Not annualized. |
f | Total return would have been lower in the absence of expense waivers. |
g | 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 7.77%. |
h | Annualized. |
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 fourteen series, including the fund.The fund’s investment objective is to achieve long-term growth of capital. Prior to December 1, 2008, The Boston Company Asset Management, LLC (“TBCAM”), a wholly-owned subsidiary ofThe Bank of NewYork Mellon Corporation (“BNY Mellon”), served as the fund’s investment adviser. Effective December 1, 2008,The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of BNY Mellon, serves as the fund’s investment adviser.
At a meeting of the Board of Trustees held on August 27, 2008, the Board approved, effective December 1, 2008, a proposal to change the names of the Trust and the fund from “Mellon Institutional Funds Investment Trust” and “The Boston Company Small/Mid Cap Growth Fund” to “Dreyfus Investment Funds” and “Dreyfus/The Boston Company Small/Mid Cap Growth Fund,” respectively.
At the Board meetings held on February 9-10, 2009, the Board of Trustees approved, effective March 31, 2009, the implementation of a multiple class structure for the fund. On March 31, 2009, existing shares were classified as Class I shares and the fund added Class A and Class C shares.
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 and Class I shares are sold at net asset value per share only to institutional investors. Other differ-
18
ences 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, 2009, MBC Investments Corp., an indirect subsidiary of BNY Mellon, held all of the outstanding 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 that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The fund’s financial statements are prepared in accordance with U.S. generally accepted accounting principles, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
(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 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
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
market on which the security is principally traded (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Directors. Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant ADRs and futures contracts. For other securities that are fair valued by the Board of Directors, certain factors may be considered such as: fundamental analytical data, the 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. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. Forward currency exchange contracts are valued at the forward rate. Financial futures are valued at the last sales price.
The fund adopted Statement of Financial Accounting Standards No. 157 “FairValue Measurements” (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements.
Various inputs are used in determining the value of the fund’s investments relating to FAS 157.These inputs are summarized in the three broad levels listed below.
Level 1—quoted prices in active markets for identical investments. Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including 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, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Quoted | Observable Unobservable | |||
Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investment in | ||||
Securities | 93,155,166 | — | — | 93,155,166 |
Other Financial | ||||
Instruments† | — | — | — | — |
Liabilities ($) | ||||
Other Financial | ||||
Instruments† | — | — | — | — |
† Other financial instruments include derivative instruments such as futures, forward currency exchange contracts, swap contracts and options contracts. Amounts shown represent unrealized appreciation (depreciation) at period end.
The following is a reconciliation of the change in value of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Investments in | |
Securities ($) | |
Balance as of 9/30/2008 | 243,478 |
Realized gain (loss) | — |
Change in unrealized appreciation (depreciation) | — |
Net purchases (sales) | (243,478) |
Transfers in and/or out of Level 3 | — |
Balance as of 3/31/2009 | — |
(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 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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 and that 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, 2009, The Bank of New York Mellon earned $16,410 from lending fund portfolio securities, pursuant to the securities lending agreement.
Until December 10, 2007, all cash collateral received by the fund and other series of the Trust in connection with the securities lending program was invested in the BlackRock Cash Strategies Fund LLC (the “BlackRock Fund”), a private investment fund not affiliated with the Trust or its investment adviser. On December 10, 2007, the BlackRock Fund announced that it was suspending investor withdrawal privileges due to conditions related to the credit markets and the adverse affect of such conditions on the liquidity of the BlackRock Fund’s portfolio holdings. Commencing on December 11, 2007, all new cash collateral received in connection with the securities lending activity of the fund and other series of the Trust was invested by the securities lending agent in the Dreyfus Institutional Cash Advantage
22
Fund (the “Dreyfus Fund”), an affiliated money market fund registered as an investment company under the Investment Company Act of 1940, as amended.To the extent that the BlackRock Fund agreed to permit withdrawals during the period December 11, 2007 through January 22, 2009, the securities lending agent effected such withdrawals and the cash proceeds from such withdrawals by the fund were reinvested in the shares of the Dreyfus Fund. As of January 22, 2009, the final withdrawal was reinvested in the Dreyfus Fund. Repayments of cash collateral during the period were made from the proceeds of redemptions of shares of the Dreyfus Fund.
(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 semi-annually 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”).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 U.S. generally accepted accounting principles.
(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, 2009, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Each of the tax years in the three-year period ended September 30, 2008 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The tax character of distributions paid to shareholders during the fiscal year ended September 30, 2008 was as follows: ordinary income $3,337,115 and long-term capital gains $2,006,661.The tax character of current year distributions, if any, will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The Trust entered into two separate agreements with The Bank of New York Mellon that enable the fund, and other funds in the Trust, to borrow, in the aggregate, (i) up to $35 million under a committed line of credit and (ii) up to $15 million under an uncommitted line of credit. In connection therewith, the fund has agreed to pay administrative and Facility fees on its pro rata portion of the lines of credit. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowing. During the period ended March 31, 2009, the fund did not borrow under the lines of credit.
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 .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, and extraordinary expenses) do not exceed 1.00% of the value of the fund’s average daily net assets.The expense limitation and waiver are voluntary, not contractual, and may be terminated at any time.The reduction in expenses, pursuant to the undertaking, amounted to $38,216 during the period ended March 31, 2009.
24
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 $16,500 for the period ended March 31, 2009 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, 2009, Class C shares were charged less than $1 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, 2009, Class A and Class C shares were charged less than $1 pursuant to the Shareholder Services Plan.
(d) 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, 2009 the fund was charged $418 pursuant to the transfer agency agreement.
The fund compensates The Bank of New York Mellon under cash management agreements for performing cash management services
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
related to fund subscriptions and redemptions. During the period ended March 31, 2009, the fund was charged $246 pursuant to the cash management agreements.These fees were offset by earnings credits 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, 2009, the fund was charged $30,153 pursuant to the custody agreement.
During the period ended March 31, 2009, the fund was charged $2,578 for services performed by the Chief Compliance Officer.These charges appear under the Miscellaneous heading on the Statement of Operations.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: investment advisory fees $39,065, custodian fees $22,500, chief compliance officer fees $2,578 and transfer agency per account fees $261, which are offset against an expense reimbursement currently in effect in the amount of $10,386.
(e) Effective December 1, 2008, each Trustee receives $45,000 per year, plus $6,000 for each joint Board meeting ofThe Dreyfus/Laurel Funds, Inc.,The Dreyfus/Laurel Funds Trust and The Dreyfus/Laurel Tax-Free Municipal Funds, (collectively, the “Dreyfus/Laurel Funds”) and the Trust attended, $2,000 for separate in-person committee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that are conducted by telephone and is reimbursed 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, the Chair of the compensation committee receives $900 per meeting. In the event that there is an in-person joint committee meeting of the Dreyfus/Laurel Funds, theTrust and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee, as
26
applicable, will be allocated between the Dreyfus/Laurel Funds, the Trust and Dreyfus HighYield Strategies Fund.These fees and expenses are charged and allocated to each series based on net assets.
(g) Prior to December 1, 2008 at which time the fee was eliminated, a 2% redemption fee was charged and retained by the fund on certain shares redeemed within thirty days following the date of issuance, subject to exceptions, including redemptions made through the use of the fund’s exchange privilege. From October 1, 2008 to November 30, 2008, there were no redemption fees charged and retained by the fund. The fund reserves the right to reimpose a redemption fee in the future.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended March 31, 2009, amounted to $126,108,178 and $105,954,090, respectively.
At March 31, 2009, accumulated net unrealized depreciation on investments was $3,643,656, consisting of $3,949,922 gross unrealized appreciation and $7,593,578 gross unrealized depreciation.
At March 31, 2009, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
The Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The application of FAS 161 is required for fiscal years and interim periods beginning after November 15, 2008. At this time, management is evaluating the implications of FAS 161 and its impact on the financial statements and the accompanying notes has not yet been determined.
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 5—Change in Independent Registered Public Accounting Firm:
PricewaterhouseCoopers LLP (“PWC”), 300 Madison Avenue, New York, New York 10017, an independent registered public accounting firm, were the independent registered public accounting firm for the fund for the fiscal year ended September 30, 2008. At the meetings held on February 9-10, 2009, the Audit Committee and the Board of Trustees of the Trust engaged KPMG LLP to replace PWC as the independent registered public accounting firm for the Trust, effective upon the conclusion of the audit of the December 31, 2008 financial statements of other series of the Trust.
During the funds’ past two fiscal years and any subsequent interim period: (i) no report on the funds’ financial statements contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles; and (ii) there were no “disagreements” (as such term is used in Item 304 of Regulation S-K) with PWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of PWC, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report.
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 and 10, 2009, 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.
Representatives of the Manager reminded the Board members that the Manager became the investment adviser of the fund, effective December 1, 2008, and that there were no changes to the portfolio management of the fund as a result of the appointment of the Manager as the fund’s investment adviser.
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. 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
The Fund 29
NFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
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.
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 above the Performance Group and Performance Universe medians for the one-, two-, three-, four-, five- and ten-year periods ended December 31, 2008. 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.A representative of the Manager informed the Board members that the Manager is currently limiting the fund’s total expense ratio to 1.00% of the fund’s average daily net assets and that such limitation is voluntary and may be terminated at any time. The Board members also were informed that 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 New York Mellon, the Trust’s administrator. Such reporting was necessary, according to Lipper, to allow the Board to
30
compare the fund’s advisory fees to those peers that include administrative fees within a blended advisory fee.The Board noted that the fund’s actual management fee and expense ratio were each below the respective Expense Group and Expense Universe medians, with and without the expense limitation in place.
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 Manager’s representatives also reviewed the costs associated with distribution through intermediaries.The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided. The Board members considered the relevance of the fee information provided for the Similar Funds and the Similar Accounts to evaluate the appropriateness and reasonableness of the fund’s management fee.The Board acknowledged that differences in fees paid by the Similar Accounts seemed to be consistent with the services provided.
Analysis of Profitability and Economies of Scale. A representative of the Manager reminded the Board members that The Bank of New York Mellon Corporation, the parent company of the Manager, paid all of the expenses associated with the Manager becoming the fund’s investment adviser and the proxy campaign with respect to the Board members becoming the Trust’s Board members. Because the Manager only became the fund’s investment adviser effective December 1, 2008, the Manager’s representatives were not able to provide a dollar amount of expenses allocated and profit received by the Manager, but
The Fund 31
NFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
a representative of the Manager did review the method to be used to determine such expenses and profit in the future.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 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 considered whether the fund would be able to participate in any economies of scale that the Manager may experience in the event that the fund attracts a large amount of assets. The Board members discussed the renewal requirements for advisory agreements and their ability to review the management fee annually.
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 to be 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 to be provided, comparative performance, expense and advisory fee information and potential profits to be realized and benefits to be derived by the Manager from its relationship with the fund.
32
- The Board determined that because the Manager had become the investment adviser of the fund effective December 1,2008,economies of scale were not a factor at this time, but, to the extent that material economies of scale are not shared with the fund in the future, the Board would seek to do so in connection with future renewals.
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 and that the Management Agreement would be renewed through April 4, 2010.
The Fund 33
The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
18 | Statement of Assets and Liabilities |
19 | Statement of Operations |
20 | Statement of Changes in Net Assets |
22 | Financial Highlights |
24 | Notes to Financial Statements |
33 | 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 CEO
Dear Shareholder:
We present this semiannual report for Dreyfus/Standish Intermediate Tax Exempt Bond Fund, covering the six-month period from October 1, 2008, through March 31, 2009.
The reporting period has been one of the most challenging for the U.S. economy and financial markets, including many areas of the municipal bond markets. An economic downturn was severely exacerbated in mid-September 2008, when the bankruptcy of Lehman Brothers triggered a cascading global economic decline.As the credit crisis dried up the availability of funding for businesses and consumers, international trade activity slumped, commodity prices plummeted, the U.S. and global economies entered a period of intense inventory liquidation, and unemployment surged.
On the heels of a –6.3% annualized U.S. economic growth rate in the fourth quarter of 2008, we expect another sharp decline for the first quarter of 2009. However, our Chief Economist anticipates that the U.S. recession may reach a trough around the third quarter of this year, followed by a slow recovery. Indeed, the U.S. government and monetary authorities have signaled their intent to do whatever it takes to forestall a depression or a deflationary spiral, including historically low interest rates, mortgage modification programs and massive monetary and fiscal stimulus and support for state and local municipalities. Although times seem dire now, we believe it is always appropriate to maintain a long-term investment focus and to discuss any investment modifications with your financial adviser.Together, you can prepare for the risks that lie ahead and position your assets to perform in this current market downturn, and in the future.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund’s Portfolio Managers.
As always, we thank you for your continued confidence and support.
Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation April 15, 2009 |
2
DISCUSSION OF FUND PERFORMANCE
For the period of October 1, 2008, through March 31, 2009, as provided by Christine Todd, CFA, and Steven Harvey, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended March 31, 2009, Dreyfus/Standish Intermediate Tax Exempt Bond Fund’s Class I shares produced a total return of 3.18%.1 On March 31, 2009, the fund also began offering Class A and Class C shares. In comparison, the fund’s benchmark, the Barclays Capital 3-, 5-, 7-, 10-Year Municipal Bond Index (the “Index”), provided a total return of 5.95% for the reporting period.2
A financial crisis and economic slowdown produced heightened market volatility, particularly during the fourth quarter of 2008. The fund produced lower returns than its benchmark, primarily due to its underweighted position in escrowed municipal bonds, which fared relatively well amid a “flight to quality” despite relatively low yields.
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, based on their apparent relative values.
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
Municipal Bonds: Caught in the Credit Crisis
An intensifying credit crisis and a severe recession roiled most financial markets, including municipal bonds, during the reporting period. Slumping home values, rising unemployment and plunging consumer confidence contributed to one of the worst recessions since the Great Depression, putting pressure on the fiscal conditions of most states and municipalities. Meanwhile, an ongoing credit crunch escalated into a global financial crisis that punished several large financial institutions, including major municipal bond insurers and dealers.
Municipal bonds were adversely affected by widespread selling pressure, causing yield differences between municipal bonds and U.S. Treasury securities to move toward historically wide levels.Volatility was particularly severe over the fourth quarter of 2008, after the bankruptcy of investment bank Lehman Brothers sent shockwaves through the global banking system.
Municipal bonds regained a portion of their previous losses during the first quarter of 2009, as monetary and government authorities staged massive interventions to shore up the credit markets, a federal economic stimulus program sent aid to the states, and investors took advantage of attractive values among bonds from fundamentally sound issuers.
Focus on Quality Supported Fund Returns
As newly cautious investors fled riskier assets in the wake of the Lehman Brothers bankruptcy, they flocked to traditionally safe havens such as escrowed municipal bonds, securities for which funds have been set aside for redemption at the earliest opportunity. Because escrowed bonds offered relatively meager current yields, the fund maintained an underweight position in them, which detracted from the fund’s relative total return performance over the fourth quarter of 2008. Conversely, we had identified what we regarded as attractive relative values among revenue bonds from local issuers, which lagged market averages during the flight to quality. On a more positive note, our focus on intermediate-term bonds helped shelter the fund from heightened volatility affecting longer-term securities.
Market conditions changed markedly in 2009, and the fund’s underweighted exposure to escrowed municipal bonds and overweighted
4
position in local revenue bonds began to contribute positively to its relative performance. However, it was not enough to fully offset earlier weakness for the reporting period overall.
When purchasing new securities, we focused mainly on municipal bonds backed by revenues from essential services, such as water and sewer facilities, which historically have performed well in economic downturns. Although we also invested in general obligation bonds backed by tax receipts, we tended to avoid some of the harder-hit state and local governments, such as California and the city of New York, respectively. After yield differences had steepened along the market’s maturity range to wider-than-average levels, we increased the fund’s emphasis on longer-term, callable bonds that we expect to benefit as yield differences moderate.
Staying Cautious in a Volatile Market
As of the reporting period’s end, the U.S. economy has remained weak, and the financial crisis has persisted. Consequently, we intend to remain vigilant regarding the credit quality of the fund’s holdings. We have attempted to upgrade the fund’s overall credit quality, emphasizing AA-rated and AAA-rated securities, and we have continued to favor essential-services revenue bonds over general obligation bonds. In our view, these are prudent strategies in today’s challenging market environment.
April 15, 2009
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 figure provided reflects the | |
absorption of certain fund expenses by The Dreyfus Corporation pursuant to an undertaking, | |
which is voluntary and temporary, not contractual, and can be terminated at any time without | |
notice. Had these expenses not been absorbed, the fund’s return 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. | |
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 Intermediate Tax Exempt Bond Fund from October 1, 2008 to March 31, 2009. 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, 2009† | ||||
Class A | Class C | Class I | ||
Expenses paid per $1,000†† | $ .02 | $ .04 | $ 2.28 | |
Ending value (after expenses) | $1,001.90 | $1,001.90 | $1,031.80 |
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, 2009††† | |||
Class A | Class C | Class I | |
Expenses paid per $1,000†††† | $ 4.03 | $ 7.90 | $ 2.27 |
Ending value (after expenses) | $1,020.94 | $1,017.10 | $1,022.69 |
† | From March 31, 2009 (commencement of initial offering) to March 31, 2009 for Class A and Class C shares. |
†† | Expenses are equal to the fund’s annualized expense ratio of .80% for Class A and 1.57% for Class C, |
multiplied by the average account value over the period, multiplied by 1/365 (to reflect the actual days in the | |
period). Expenses are equal to the fund’s annualized expense ratio of .45% for Class I, multiplied by the average | |
account value over the period, multiplied by 182/365 (to reflect the one-half year period). | |
††† | Please note that while Class A and Class C shares commenced operations on March 31, 2009, the Hypothetical |
expenses paid during the period reflect projected activity for the full six months period for purposes of | |
comparability. This projection assumes that annualized expense ratios were in effect during the period October 1, | |
2008 to March 31, 2009. | |
†††† | Expenses are equal to the fund’s annualized expense ratio of .80% for Class A, 1.57% for Class C and .45% |
for Class I , multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one- | |
half year period). |
6
STATEMENT OF INVESTMENTS | |||||
March 31, 2009 (Unaudited) | |||||
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments—98.6% | Rate (%) | Date | Amount ($) | Value ($) | |
Alaska—1.1% | |||||
Alaska Student Loan Corporation, | |||||
Education Loan Revenue | 5.25 | 6/1/14 | 1,000,000 | 1,011,370 | |
Northern Tobacco Securitization | |||||
Corporation, Tobacco | |||||
Settlement Asset-Backed Bonds | 4.75 | 6/1/15 | 140,000 | a | 140,972 |
California—6.9% | |||||
California, | |||||
GO | 5.00 | 10/1/11 | 70,000 | 72,969 | |
California, | |||||
GO (Insured; AMBAC) | 6.00 | 4/1/16 | 1,000,000 | 1,105,190 | |
California, | |||||
GO (Insured; AMBAC) | 6.00 | 2/1/17 | 1,000,000 | 1,104,700 | |
California Housing Finance Agency, | |||||
Home Mortgage Revenue | |||||
(Insured; FGIC) | 4.60 | 2/1/41 | 1,500,000 | 1,091,085 | |
California Housing Finance Agency, | |||||
Home Mortgage Revenue | |||||
(Insured; FSA) | 5.13 | 8/1/18 | 1,250,000 | 1,207,725 | |
Golden State Tobacco | |||||
Securitization Corporation, | |||||
Enhanced Tobacco Settlement | |||||
Asset-Backed Bonds | |||||
(Insured; AMBAC) | 5.00 | 6/1/20 | 500,000 | 463,535 | |
Golden State Tobacco | |||||
Securitization Corporation, | |||||
Enhanced Tobacco Settlement | |||||
Asset-Backed Bonds | |||||
(Insured; AMBAC) | 0/4.60 | 6/1/23 | 750,000 | b | 550,493 |
Golden State Tobacco | |||||
Securitization Corporation, | |||||
Tobacco Settlement | |||||
Asset-Backed Bonds | 4.50 | 6/1/27 | 1,225,000 | 906,843 | |
Tobacco Securitization Authority | |||||
of Southern California, | |||||
Tobacco Settlement | |||||
Asset-Backed Bonds (San Diego | |||||
County Tobacco Asset | |||||
Securitization Corporation) | 4.75 | 6/1/25 | 910,000 | 666,757 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Colorado—4.8% | ||||
Colorado Housing and Finance | ||||
Authority, Single Family Program | ||||
Senior and Subordinate Bonds | 6.80 | 2/1/31 | 1,165,000 | 1,187,589 |
Colorado Housing and Finance | ||||
Authority, Single Family | ||||
Program Senior and Subordinate | ||||
Bonds (Collateralized; FHA) | 6.60 | 8/1/32 | 815,000 | 846,109 |
Douglas County School District | ||||
Number Re.1, GO (Insured; | ||||
MBIA, Inc.) | 7.00 | 12/15/12 | 625,000 | 738,431 |
Platte River Power Authority, | ||||
Power Revenue (Insured; FSA) | 5.00 | 6/1/13 | 2,000,000 c | 2,233,320 |
Connecticut—.4% | ||||
Mohegan Tribe of Indians of | ||||
Connecticut, Gaming Authority | ||||
Priority Distribution Payment | ||||
Public Improvement Revenue | 5.38 | 1/1/11 | 500,000 | 425,505 |
District of Columbia—.0% | ||||
District of Columbia, | ||||
GO (Insured; MBIA, Inc.) | 5.75 | 6/1/10 | 10,000 | 10,575 |
Florida—10.1% | ||||
Broward County School Board, | ||||
COP (Master Lease Purchase | ||||
Agreement) (Insured; FGIC) | 5.00 | 7/1/13 | 1,000,000 | 1,053,650 |
Citizens Property Insurance | ||||
Corporation, High-Risk Account | ||||
Senior Secured Revenue | ||||
(Insured; MBIA, Inc.) | 5.00 | 3/1/14 | 1,000,000 | 1,002,330 |
Citizens Property Insurance | ||||
Corporation, High-Risk Account | ||||
Senior Secured Revenue | ||||
(Insured; MBIA, Inc.) | 5.00 | 3/1/15 | 2,000,000 | 1,996,880 |
Florida Housing Finance | ||||
Corporation, Homeowner | ||||
Mortgage Revenue (Insured; FSA) | 5.75 | 1/1/17 | 15,000 | 15,303 |
Florida Hurricane Catastrophe Fund | ||||
Finance Corporation, Revenue | 5.25 | 7/1/12 | 1,000,000 | 1,041,080 |
Hillsborough County, | ||||
Capacity Assessment Special | ||||
Assessment Revenue | ||||
(Insured; FGIC) | 5.00 | 3/1/13 | 1,000,000 | 1,013,970 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Florida (continued) | ||||
Miami-Dade County, | ||||
Water and Sewer System | ||||
Revenue (Insured; FSA) | 5.25 | 10/1/19 | 3,000,000 | 3,235,380 |
Pasco County, | ||||
Solid Waste Disposal and | ||||
Resource Recovery System | ||||
Revenue (Insured; AMBAC) | 6.00 | 4/1/10 | 1,000,000 | 1,050,920 |
Hawaii—2.0% | ||||
Hawaii, | ||||
Harbor System Revenue | ||||
(Insured; FSA) | 5.00 | 1/1/14 | 1,000,000 | 1,023,250 |
Honolulu City and County Board of | ||||
Water Supply, Water System | ||||
Revenue (Insured; MBIA, Inc.) | 5.00 | 7/1/14 | 1,000,000 | 1,000,150 |
Illinois—4.0% | ||||
Bourbonnais, | ||||
Industrial Project Revenue | ||||
(Olivet Nazarene University | ||||
Project) (Insured; Radian) | 5.00 | 11/1/15 | 1,000,000 | 947,000 |
Chicago, | ||||
GO (Insured; FSA) | 5.50 | 1/1/19 | 2,000,000 | 2,288,780 |
Cook County Community High School | ||||
District Number 219, GO School | ||||
Bonds (Insured; FGIC) | 7.88 | 12/1/14 | 100,000 | 130,510 |
Cook County Community High School | ||||
District Number 219, GO School | ||||
Bonds (Insured; FGIC) | 7.88 | 12/1/14 | 650,000 | 822,016 |
Indiana—.5% | ||||
Indiana Health Facility Financing | ||||
Authority, Revenue (Ascension | ||||
Health Subordinate Credit Group) | 5.00 | 11/1/11 | 500,000 | 523,510 |
Kentucky—1.4% | ||||
Louisville and Jefferson County | ||||
Regional Airport Authority, | ||||
Airport System Revenue | ||||
(Insured; FSA) | 5.50 | 7/1/11 | 1,355,000 | 1,403,428 |
Louisiana—3.0% | ||||
Louisiana Citizens Property Insurance | ||||
Corporation, Assessment | ||||
Revenue (Insured; AMBAC) | 5.25 | 6/1/10 | 2,000,000 | 2,017,860 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Louisiana (continued) | ||||
New Orleans Aviation Board, | ||||
Revenue (Passenger Facility | ||||
Charge Projects) (Insured; FSA) | 5.00 | 1/1/11 | 1,060,000 | 1,081,815 |
Massachusetts—1.9% | ||||
Massachusetts Health and | ||||
Educational Facilities | ||||
Authority, Revenue (Lahey | ||||
Clinic Medical Center Issue) | ||||
(Insured; FGIC) | 5.00 | 8/15/14 | 1,000,000 | 991,180 |
Massachusetts Housing Finance | ||||
Agency, Housing Revenue | 3.90 | 12/1/17 | 1,000,000 | 1,000,000 |
Michigan—4.0% | ||||
Detroit, | ||||
Sewage Disposal System Second | ||||
Lien Revenue (Insured; MBIA, Inc.) | 5.00 | 7/1/13 | 1,000,000 | 1,035,310 |
Detroit, | ||||
Sewage Disposal System Senior | ||||
Lien Revenue (Insured; FSA) | 5.25 | 7/1/19 | 1,000,000 | 1,037,250 |
Detroit School District, | ||||
School Building and Site | ||||
Improvement Bonds (Insured; FSA) | 5.00 | 5/1/14 | 1,000,000 | 1,058,520 |
Michigan Hospital Finance | ||||
Authority, HR (Sparrow | ||||
Obligated Group) | 5.25 | 11/15/10 | 1,000,000 | 1,025,270 |
Nevada—1.0% | ||||
Clark County, | ||||
Airport System Subordinate | ||||
Lien Revenue (Insured; FGIC) | 5.25 | 7/1/12 | 1,000,000 | 1,024,040 |
New Jersey—1.7% | ||||
Gloucester County Improvement | ||||
Authority, Solid Waste Resource | ||||
Recovery Revenue (Waste | ||||
Management, Inc. Project) | 6.85 | 12/1/09 | 500,000 | 501,595 |
New Jersey Health Care Facilities | ||||
Financing Authority, Revenue | ||||
(Jersey City Medical Center | ||||
Issue) (Insured; AMBAC) | 4.80 | 8/1/21 | 10,000 | 10,011 |
New Jersey Transportation | ||||
Trust Fund Authority | ||||
(Transportation System) | 5.00 | 12/15/16 | 1,000,000 | 1,069,390 |
10
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
New Jersey (continued) | ||||
Tobacco Settlement Financing | ||||
Corporation of New Jersey, | ||||
Tobacco Settlement | ||||
Asset-Backed Bonds | 4.50 | 6/1/23 | 250,000 | 183,238 |
New Mexico—.5% | ||||
Jicarilla, | ||||
Apache Nation Revenue | 5.00 | 9/1/13 | 500,000 | 528,460 |
New York—8.6% | ||||
Metropolitan Transportation | ||||
Authority, Transportation | ||||
Revenue | 5.25 | 11/15/14 | 1,000,000 | 1,079,250 |
Nassau County, | ||||
General Improvement Bonds | ||||
(Insured; FGIC) | 6.00 | 7/1/10 | 25,000 | 26,587 |
New York City Industrial | ||||
Development Agency, Special | ||||
Facility Revenue (Terminal One | ||||
Group Association, L.P. Project) | 5.50 | 1/1/14 | 1,000,000 | 954,280 |
New York City Municipal Water | ||||
Finance Authority, Water and | ||||
Sewer System Second General | ||||
Resolution Revenue | 5.00 | 6/15/19 | 3,000,000 | 3,231,360 |
New York State Dormitory | ||||
Authority, Third General | ||||
Resolution Revenue (State | ||||
University Educational | ||||
Facilities Issue) | 5.25 | 5/15/12 | 2,000,000 | 2,112,180 |
Port Authority of New York and New | ||||
Jersey (Consolidated Bonds, | ||||
139th Series) (Insured; FGIC) | 5.00 | 10/1/13 | 1,000,000 | 1,071,630 |
Tobacco Settlement Funding | ||||
Corporation, Asset-Backed | ||||
Revenue (State Contingency | ||||
Contract Secured) | 5.25 | 6/1/13 | 440,000 | 440,607 |
North Carolina—1.9% | ||||
North Carolina Medical Care | ||||
Commission, Health Care | ||||
Facilities Revenue (Cape Fear | ||||
Valley Health System) | ||||
(Insured; AMBAC) | 5.00 | 10/1/12 | 750,000 | 760,200 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
North Carolina (continued) | ||||
Raleigh-Durham Airport Authority, | ||||
Airport Revenue (Insured; FGIC) | 5.00 | 5/1/14 | 1,190,000 | 1,230,210 |
Ohio—4.6% | ||||
Buckeye Tobacco Settlement | ||||
Financing Authority, Tobacco | ||||
Settlement Asset-Backed Bonds | 5.13 | 6/1/24 | 2,400,000 | 1,719,624 |
Cleveland, | ||||
Waterworks Improvement First | ||||
Mortgage Revenue (Insured; | ||||
MBIA, Inc.) | 5.50 | 1/1/13 | 1,500,000 | 1,547,250 |
Franklin County, | ||||
Revenue (Trinity Health | ||||
Credit Group) | 5.00 | 6/1/14 | 1,340,000 | 1,397,151 |
Ohio Housing Finance Agency, | ||||
Residential Mortgage Revenue | ||||
(Mortgage-Backed Securities | ||||
Program) (Collateralized; GNMA) | 5.35 | 9/1/18 | 140,000 | 142,117 |
Pennsylvania—1.1% | ||||
Pennsylvania, | ||||
GO (Insured; FSA) | 5.00 | 9/1/15 | 1,000,000 | 1,126,760 |
Rhode Island—.1% | ||||
Rhode Island Housing and | ||||
Mortgage Finance Corporation, | ||||
Homeownership | ||||
Opportunity Bonds | 4.95 | 10/1/16 | 115,000 | 115,661 |
Texas—21.4% | ||||
Austin Independent School | ||||
District, Unlimited Tax Bonds | ||||
(Permanent School Fund | ||||
Guarantee Program) | 5.00 | 8/1/16 | 1,000,000 | 1,146,540 |
Cypress-Fairbanks Independent | ||||
School District, Unlimited Tax | ||||
Bonds (Permanent School Fund | ||||
Guarantee Program) | 5.00 | 2/15/16 | 1,135,000 | 1,295,262 |
Dallas Independent School | ||||
District, Unlimited Tax School | ||||
Building Bonds (Permament | ||||
School Fund Guarantee Program) | 5.25 | 2/15/16 | 3,000,000 | 3,464,190 |
Fort Bend County, | ||||
Limited Tax Bonds | ||||
(Insured; MBIA, Inc.) | 5.00 | 3/1/14 | 1,000,000 | 1,114,330 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Texas (continued) | ||||
Harris County, | ||||
Toll Road Unlimited Tax and | ||||
Subordinate Lien Revenue | ||||
(Insured; FGIC) | 6.00 | 8/1/12 | 1,000,000 | 1,140,770 |
Harris County Health Facilities | ||||
Development Corporation, HR | ||||
(Memorial Hospital System | ||||
Project) (Insured; MBIA, Inc.) | 6.00 | 6/1/13 | 1,000,000 | 1,040,240 |
Lubbock County, | ||||
GO (Insured; FSA) | 4.50 | 2/15/21 | 1,000,000 | 1,031,460 |
Magnolia Independent School | ||||
District, Unlimited Tax | ||||
Schoolhouse Bonds (Permanent | ||||
School Fund Guarantee Program) | 5.00 | 8/15/18 | 1,000,000 | 1,130,620 |
Midlothian Development Authority, | ||||
Tax Increment Contract Revenue | ||||
(Insured; Radian) | 5.00 | 11/15/13 | 530,000 | 509,669 |
Pasadena Independent School | ||||
District, Unlimited Tax School | ||||
Building Bonds (Permanent | ||||
School Fund Guarantee Program) | 5.00 | 2/15/15 | 1,360,000 | 1,546,021 |
SA Energy Acquisition Public | ||||
Facility Corporation, Gas | ||||
Supply Revenue | 5.25 | 8/1/14 | 1,000,000 | 893,400 |
San Antonio, | ||||
Airport System Revenue | ||||
(Insured; FSA) | 5.00 | 7/1/13 | 1,000,000 | 1,019,660 |
San Antonio, | ||||
General Improvement Bonds | 5.00 | 2/1/15 | 1,000,000 | 1,132,040 |
San Manuel Entertainment | ||||
Authority, Public Improvement | ||||
Revenue | 4.50 | 12/1/16 | 1,000,000 | 788,220 |
Spring Independent School | ||||
District, Unlimited Tax | ||||
Schoolhouse Bonds (Permanent | ||||
School Fund Guarantee Program) | 5.00 | 8/15/21 | 1,000,000 | 1,099,880 |
Stafford Economic Development | ||||
Corporation, Sales Tax Revenue | ||||
(Insured; FGIC) | 6.00 | 9/1/15 | 525,000 | 583,795 |
Texas, | ||||
GO (College Student Loan) | 5.00 | 8/1/17 | 1,000,000 | 1,037,530 |
The Fund 13
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Texas (continued) | |||||
Texas Municipal Gas Acquisition | |||||
and Supply Corporation I, Gas | |||||
Supply Revenue | 5.00 | 12/15/11 | 1,000,000 | 902,130 | |
Texas Municipal Power Agency, | |||||
Revenue (Insured; MBIA, Inc.) | 0.00 | 9/1/16 | 10,000 | d | 7,906 |
Texas Transportation Commission, | |||||
State Highway Fund | |||||
First Tier Revenue | 5.00 | 4/1/16 | 1,000,000 | c | 1,136,590 |
Utah—1.1% | |||||
Intermountain Power Agency, | |||||
Power Supply Revenue (Insured; | |||||
MBIA, Inc.) | 6.50 | 7/1/10 | 1,000,000 | 1,058,670 | |
Utah Housing Finance Agency, | |||||
SMFR (Collateralized; FHA) | 5.40 | 7/1/20 | 95,000 | 95,317 | |
Washington—7.0% | |||||
Energy Northwest, | |||||
Electric Revenue (Columbia | |||||
Generating Station) | 5.50 | 7/1/15 | 1,000,000 | 1,126,890 | |
Energy Northwest, | |||||
Electric Revenue (Project One) | 5.00 | 7/1/11 | 1,000,000 | 1,074,360 | |
Energy Northwest, | |||||
Electric Revenue (Project Three) | 5.00 | 7/1/15 | 1,000,000 | 1,101,180 | |
NJB Properties, | |||||
LR (King County, | |||||
Washington Project) | 5.00 | 12/1/14 | 1,000,000 | 1,126,670 | |
Port of Seattle, | |||||
Revenue (Insured; AMBAC) | 5.00 | 10/1/14 | 2,000,000 | 2,015,100 | |
Tobacco Settlement Authority, | |||||
Tobacco Settlement | |||||
Asset-Backed Bonds | 6.50 | 6/1/26 | 890,000 | 810,888 | |
Wisconsin—.0% | |||||
Wisconsin, | |||||
Transportation Revenue | 5.50 | 7/1/10 | 15,000 | 15,863 | |
Wyoming—2.1% | |||||
Sweetwater County Improvement | |||||
Projects Joint Powers Board, | |||||
LR (Insured; MBIA, Inc.) | 5.00 | 12/15/09 | 1,120,000 | 1,148,022 | |
Wyoming Community Development | |||||
Authority, Housing Revenue | 5.50 | 12/1/17 | 1,000,000 | 1,037,020 |
14
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
U.S. Related—7.4% | ||||
Puerto Rico Electric Power | ||||
Authority, Power Revenue | ||||
(Insured; XLCA) | 5.50 | 7/1/16 | 500,000 | 496,420 |
Puerto Rico Government Development | ||||
Bank, Senior Notes | 5.25 | 1/1/15 | 600,000 | 558,570 |
Puerto Rico Government Development | ||||
Bank, Senior Notes | 5.00 | 12/1/15 | 1,000,000 | 934,880 |
Puerto Rico Highways and | ||||
Transportation Authority, | ||||
Highway Revenue | 5.00 | 7/1/16 | 1,000,000 | 919,700 |
Puerto Rico Public Buildings | ||||
Authority, Government | ||||
Facilities Revenue | 5.00 | 7/1/12 | 1,000,000 | 966,060 |
Puerto Rico Public Buildings | ||||
Authority, Government | ||||
Facilities Revenue | 5.75 | 7/1/16 | 2,000,000 | 1,925,300 |
Puerto Rico Public Buildings | ||||
Authority, Government | ||||
Facilities Revenue | 5.25 | 7/1/17 | 2,000,000 | 1,836,680 |
Total Long-Term Municipal Investments | ||||
(cost $104,595,775) | 102,097,974 | |||
Short-Term Municipal | ||||
Investment—.2% | ||||
Wells Fargo National Tax-Free | ||||
Money Market Fund | ||||
(cost $252,520) | 252,520 | 252,520 | ||
Total Investments (cost $104,848,295) | 98.8% | 102,350,494 | ||
Cash and Receivables (Net) | 1.2% | 1,214,967 | ||
Net Assets | 100.0% | 103,565,461 |
a This security is prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are |
collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on |
the municipal issue and to retire the bonds in full at the earliest refunding date. |
b Zero coupon until a specified date at which time the stated coupon rate becomes effective until maturity. |
c Denotes all or part of security segregated as collateral for delayed securities, futures and swaps contracts. |
d Security issued with a zero coupon. Income is recognized through the accretion of discount. |
The Fund 15
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Abbreviations | |||
ABAG | Association of Bay Area Governments | ACA | American Capital Access |
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company |
AMBAC | American Municipal Bond | ||
Assurance Corporation | ARRN | Adjustable Rate Receipt Notes | |
BAN | Bond Anticipation Notes | BIGI | Bond Investors Guaranty Insurance |
BPA | Bond Purchase Agreement | CGIC | Capital Guaranty Insurance Company |
CIC | Continental Insurance Company | CIFG | CDC Ixis Financial Guaranty |
CMAC | Capital Markets Assurance Corporation | COP | Certificate of Participation |
CP | Commercial Paper | EDR | Economic Development Revenue |
EIR | Environmental Improvement Revenue | FGIC | Financial Guaranty Insurance |
Company | |||
FHA | Federal Housing Administration | FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage | FNMA | Federal National |
Corporation | Mortgage Association | ||
FSA | Financial Security Assurance | GAN | Grant Anticipation Notes |
GIC | Guaranteed Investment Contract | GNMA | Government National |
Mortgage Association | |||
GO | General Obligation | HR | Hospital Revenue |
IDB | Industrial Development Board | IDC | Industrial Development Corporation |
IDR | Industrial Development Revenue | LOC | Letter of Credit |
LOR | Limited Obligation Revenue | LR | Lease Revenue |
MFHR | Multi-Family Housing Revenue | MFMR | Multi-Family Mortgage Revenue |
PCR | Pollution Control Revenue | PILOT | Payment in Lieu of Taxes |
RAC | Revenue Anticipation Certificates | RAN | Revenue Anticipation Notes |
RAW | Revenue Anticipation Warrants | RRR | Resources Recovery Revenue |
SAAN | State Aid Anticipation Notes | SBPA | Standby Bond Purchase Agreement |
SFHR | Single Family Housing Revenue | SFMR | Single Family Mortgage Revenue |
SONYMA | State of New York Mortgage Agency | SWDR | Solid Waste Disposal Revenue |
TAN | Tax Anticipation Notes | TAW | Tax Anticipation Warrants |
TRAN | Tax and Revenue Anticipation Notes | XLCA | XL Capital Assurance |
16
Summary of Combined Ratings (Unaudited) | |||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† |
AAA | Aaa | AAA | 37.6 | ||
AA | Aa | AA | 36.2 | ||
A | A | A | 13.1 | ||
BBB | Baa | BBB | 12.4 | ||
B | B | B | .4 | ||
Not Ratede | Not Ratede | Not Ratede | .3 | ||
100.0 |
† | Based on total investments. |
e | 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. |
The Fund 17
STATEMENT OF ASSETS AND LIABILITIES March 31, 2009 (Unaudited) |
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments | 104,848,295 | 102,350,494 | |
Interest receivable | 1,457,080 | ||
Receivable for shares of Beneficial Interest subscribed | 8,793 | ||
Prepaid expenses | 30,044 | ||
103,846,411 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(d) | 59,632 | ||
Cash overdraft due to Custodian | 27,755 | ||
Payable for shares of Beneficial Interest redeemed | 144,500 | ||
Accrued expenses | 49,063 | ||
280,950 | |||
Net Assets ($) | 103,565,461 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 105,893,715 | ||
Accumulated undistributed investment income—net | 26,102 | ||
Accumulated net realized gain (loss) on investments | 143,445 | ||
Accumulated net unrealized appreciation | |||
(depreciation) on investments | (2,497,801) | ||
Net Assets ($) | 103,565,461 | ||
Net Asset Value Per Share | |||
Class A | Class C | Class I | |
Net Assets ($) | 10,019 | 10,019 | 103,545,423 |
Shares Outstanding | 474.61 | 474.61 | 4,904,404 |
Net Asset Value Per Share ($) | 21.11 | 21.11 | 21.11 |
See notes to financial statements. |
18
STATEMENT OF OPERATIONS Six Months Ended March 31, 2009 (Unaudited) |
Investment Income ($): | |
Interest Income | 2,688,418 |
Expenses: | |
Investment advisory fee—Note 3(a) | 252,860 |
Shareholder servicing costs—Note 3(c,d) | 37,045 |
Professional fees | 30,605 |
Accounting and administration fees—Note 3(a) | 22,500 |
Custodian fees—Note 3(d) | 15,604 |
Registration fees | 11,131 |
Trustees’ fees and expenses—Note 3(e) | 9,410 |
Prospectus and shareholders’ reports | 7,923 |
Loan commitment fees—Note 2 | 401 |
Miscellaneous | 14,688 |
Total Expenses | 402,167 |
Less—reduction in investment advisory fee due to undertaking—Note 3(a) | (118,761) |
Less—reduction in fees due to earnings credits—Note 1(b) | (217) |
Net Expenses | 283,189 |
Investment Income—Net | 2,405,229 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | 444,415 |
Net unrealized appreciation (depreciation) on investments | 1,182,458 |
Net Realized and Unrealized Gain (Loss) on Investments | 1,626,873 |
Net Increase in Net Assets Resulting from Operations | 4,032,102 |
See notes to financial statements. |
The Fund 19
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2009 | Year Ended | |
(Unaudited)a | September 30, 2008 | |
Operations ($): | ||
Investment income—net | 2,405,229 | 6,744,730 |
Net realized gain (loss) on investments | 444,415 | (49,260) |
Net unrealized appreciation | ||
(depreciation) on investments | 1,182,458 | (4,510,206) |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 4,032,102 | 2,185,264 |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class A Shares | (1) | — |
Class C Shares | (1) | — |
Class I Shares | (2,393,114) | (6,744,730) |
Total Dividends | (2,393,116) | (6,744,730) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 10,000 | — |
Class C Shares | 10,000 | — |
Class I Shares | 14,016,689 | 67,575,113 |
Dividends reinvested: | ||
Class I Shares | 2,009,585 | 5,959,932 |
Cost of shares redeemed: | ||
Class I Shares | (56,069,134) | (128,505,996) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (40,022,860) | (54,970,951) |
Total Increase (Decrease) in Net Assets | (38,383,874) | (59,530,417) |
Net Assets ($): | ||
Beginning of Period | 141,949,335 | 201,479,752 |
End of Period | 103,565,461 | 141,949,335 |
Undistributed investment income—net | 26,102 | 13,989 |
20
Six Months Ended | ||
March 31, 2009 | Year Ended | |
(Unaudited)a | September 30, 2008 | |
Capital Share Transactions: | ||
Class A | ||
Shares sold | 475 | — |
Class C | ||
Shares sold | 475 | — |
Class I | ||
Shares sold | 673,964 | 3,123,689 |
Shares issued for dividends reinvested | 95,680 | 276,664 |
Shares redeemed | (2,673,712) | (5,920,990) |
Net Increase (Decrease) in Shares Outstanding | (1,904,068) | (2,520,637) |
a | The fund changed to a three 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. |
The Fund 21
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, 2009 (Unaudited)a | ||
Class A | Class C | |
Shares | Shares | |
Per Share Data ($): | ||
Net asset value, beginning of period | 21.07 | 21.07 |
Investment Operations: | ||
Investment income—netb,c | .00 | .00 |
Net realized and unrealized | ||
gain (loss) on investments | .04 | .04 |
Total from Investment Operations | .04 | .04 |
Distributions: | ||
Dividends from Investment income—netc | (.00) | (.00) |
Net asset value, end of period | 21.11 | 21.11 |
Total Return (%)d,e | .19 | .19 |
Ratios/Supplemental Data (%): | ||
Ratio of total expenses to average net assetsf | 3.10 | 3.83 |
Ratio of net expenses to average net assetsf | .80 | 1.53 |
Ratio of net investment income | ||
to average net assetsf | 3.50 | 2.77 |
Portfolio Turnover Ratee | 9.18 | 9.18 |
Net Assets, end of period ($ x 1,000) | 10 | 10 |
a | From March 31, 2009 (commencement of initial offering) to March 31, 2009. |
b | Based on average shares outstanding at each month end. |
c | Amount represents less than $.01 per share. |
d | Exclusive of sales charge. |
e | Not annualized. |
f | Annualized. |
See notes to financial statements. |
22
Six Months Ended | ||||||
March 31, 2009 | Year Ended September 30, | |||||
Class I Shares | (Unaudited)a | 2008 | 2007 | 2006 | 2005 | 2004 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 20.85 | 21.60 | 21.69 | 21.71 | 22.05 | 22.78 |
Investment Operations: | ||||||
Investment income—netb | .40 | .79 | .78 | .78 | .77 | .69 |
Net realized and unrealized | ||||||
gain (loss) on investments | .26 | (.75) | (.09) | (.02) | (.29) | (.08) |
Total from Investment Operations | .66 | .04 | .69 | .76 | .48 | .61 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.40) | (.79) | (.78) | (.78) | (.77) | (.71) |
Dividends from net realized | ||||||
gain on investments | — | — | — | — | (.05) | (63) |
Total Distributions | (.40) | (.79) | (.78) | (.78) | (.82) | (1.34) |
Net asset value, end of period | 21.11 | 20.85 | 21.60 | 21.69 | 21.71 | 22.05 |
Total Return (%) | 3.18c | .12d | 3.26d | 3.58d | 2.18d | 2.76d |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | .64e | .60 | .59 | .63 | .62 | .68 |
Ratio of net expenses | ||||||
to average net assets | .45e | .45 | .45 | .45 | .45 | .50 |
Ratio of net investment income | ||||||
to average net assets | 3.83e | 3.63 | 3.63 | 3.61 | 3.50 | 3.16 |
Portfolio Turnover Rate | 9.18c | 34 | 10 | 29 | 35 | 72 |
Net Assets, end of period | ||||||
($ x 1,000) | 103,545 | 141,949 | 201,480 | 127,927 | 109,314 | 111,887 |
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 | Total return would have been lower in the absence of expense waivers. |
e | Annualized. |
See notes to financial statements. |
The Fund 23
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 fourteen 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. Prior to December 1, 2008, Standish Mellon Asset Management Company LLC, a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), served as the fund’s investment adviser. Effective December 1, 2008, The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of BNY Mellon, serves as the fund’s investment adviser.
At a meeting of the fund’s Board of Trustees held on August 27, 2008, the Board approved, effective December 1, 2008, a proposal to change the names of the Trust and the fund from “Mellon Institutional Funds Investment Trust” and “Standish Mellon Intermediate Tax Exempt Bond Fund” to “Dreyfus Investment Funds” and “Dreyfus/Standish Intermediate Tax Exempt Bond Fund,” respectively.
At the Board meetings held on February 9-10, 2009, the Board of Trustees approved, effective March 31, 2009, the implementation of a multiple class structure for the fund. On March 31, 2009, existing shares classified redesignated as Class I shares and the fund added Class A and Class C shares.
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 shares $.001 per value 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
24
redeemed within one year of purchase and Class I shares are sold at net asset value per share only to institutional investors. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
As of March 31, 2009, MBC Investments Corp., an indirect subsidiary of BNY Mellon, held all of the outstanding 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 that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The fund’s financial statements are prepared in accordance with U.S. generally accepted accounting principles, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
(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. Options and financial futures on municipal and U.S.Treasury securities are valued at the last sales price on the securi-
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
ties exchange on which such securities are primarily traded or at the last sales price on the national securities market on each business day.
The fund adopted Statement of Financial Accounting Standards No. 157 “FairValue Measurements” (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements.
Various inputs are used in determining the value of the fund’s investments relating to FAS 157.These inputs are summarized in the three broad levels listed below.
Level 1—quoted prices in active markets for identical investments. |
Level 2—other significant observable inputs (including quoted |
prices for similar securities, interest rates, prepayment speeds, |
credit risk, etc.). |
Level 3—significant unobservable inputs (including the fund’s own |
assumptions in determining the fair value of investments). |
The inputs or methodology used for valuing securities are not necessar ily an indication of the risk associated with investing in those securities
The following is a summary of the inputs used as of March 31, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Quoted | Observable Unobservable | |||
Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in | ||||
Securities | — | 102,350,494 | — | 102,350,494 |
Other Financial | ||||
Instruments† | — | — | — | — |
Liabilities ($) | ||||
Other Financial | ||||
Instruments† | — | — | — | — |
† Other financial instruments include derivative instruments, such as futures, forward currency exchange contracts, swap contracts and options contracts. Amounts shown represent unrealized appreciation (depreciation) at period end.
26
(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 and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles.
(d) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended March 31, 2009, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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, 2008 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $300,969 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to September 30, 2008. If not applied, $25,970 of the carryover expires in fiscal 2013, $86,973 expires in fiscal 2014, $138,767 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, 2008 was as follows: tax exempt income $6,744,730. 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 Trust entered into two separate agreements with The Bank of New York Mellon that enable the fund, and other funds in the Trust, to borrow, in the aggregate, (i) up to $35 million from a committed line of credit and (ii) up to $15 million from an uncommitted line of credit. In connection therewith, the fund has agreed to pay administrative and facility fees on its pro rata portion of the lines of credit. Interest is charged to the fund based on prerating market rates in effect at the time of borrowing. During the period ended March 31, 2009, the fund did not borrow under the lines of credit.
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.
28
The Manager currently is limiting the fund’s operating expenses or assuming all or part of the expenses of the fund (excluding Rule 12b-1 fees, shareholder services fees, taxes, interest, brokerage commissions, acquired fund fees and extraordinary expenses), not to exceed an annual rate of .55% of the value of the fund’s average daily net assets of Class A and Class C shares. The Manager currently is limiting the fund’s operating expenses or assuming all or part of the expenses of the fund, not to exceed an annual rate of .45% of the value of the fund’s average daily net assets of Class I shares. The expense limitation and waiver are voluntary, not contractual, and may be terminated at any time.The reduction in the management fee, pursuant to the undertaking, amounted to $118,761 during the year ended March 31, 2009.
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 for the period ended March 31, 2009 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. During the period ended March 31, 2009, Class C shares were charged less than $1 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 indus-
The Fund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
try professional) in respect of these services.The Distributor determines the amounts to be paid to Service Agents. During the period ended March 31, 2009, Class A and Class C shares were charged less than $1 pursuant to the Shareholder Services Plan.
(d) 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, 2009 the fund was charged $3,515 pursuant to the transfer agency agreement.
The fund compensates The Bank of New York Mellon, subsidiary of BNY Mellon and an affiliate of Dreyfus, under a cash management agreements for performing cash management services related to fund subscriptions and redemptions. During the period ended March 31, 2009, the fund was charged $217 pursuant to the cash management agreements.These fees were offset by earnings credits 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, 2009, the fund was charged $15,604 pursuant to the custody agreement.
During the period ended March 31, 2009, the fund was charged $2,578 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 $36,553, custodian fees $22,543, chief compliance officer fees $2,578 and transfer agency per account fees $8,470, which are offset against an expense reimbursement currently in effect in the amount of $10,512.
(e) Effective December 1, 2008, Each Trustee receives $45,000 per year, plus $6,000 for each joint Board meeting of The Dreyfus/Laurel Funds, Inc.,The Dreyfus /Laurel Funds Trust and The Dreyfus/Laurel Tax-Free Municipal Funds, (collectively, the “Dreyfus/Laurel Funds”)
30
and theTrust attended, $2,000 for separate in-person committee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that are conducted by telephone and is reimbursed 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, the Chair of the compensation committee receives $900 per meeting. In the event that there is an in person joint committee meeting of the Dreyfus/Laurel Funds, the Trust and Dreyfus HighYield Strategies Fund, the $2,000 or $1,500 fee, as applicable, will be allocated between the Dreyfus/Laurel Funds, theTrust and Dreyfus HighYield Strategies Fund.These fees and expenses are charged and allocated to each series based on net assets.
(e) Prior to December 1, 2008, at which time the fee was eliminated, a 2% redemption fee was charged and retained by the fund on certain shares redeemed within thirty days following the date of issuance, subject to exceptions, including redemptions made through the use of the fund’s exchange privilege. From October 1, 2008 to November 30, 2008, there were no redemption fees charged and retained by the fund. The fund reserves the right to reimpose a redemption fee in the future.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended March 31, 2009, amounted to $11,198,961 and $49,751,112, respectively.
At March 31, 2009, accumulated net unrealized depreciation on investments was $2,497,801, consisting of $1,751,091 gross unrealized appreciation and $4,248,892 gross unrealized depreciation.
At March 31, 2009, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
The Fund 31
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The application of FAS 161 is required for fiscal years and interim periods beginning after November 15, 2008. At this time, management is evaluating the implications of FAS 161 and its impact on the financial statements and the accompanying notes has not yet been determined.
NOTE 5—Change in Independent Registered Public Accounting Firm:
PricewaterhouseCoopers LLP (“PWC”), 300 Madison Avenue, New York, New York 10017, an independent registered public accounting firm, were the independent registered public accounting firm for the fund for the fiscal year ended September 30, 2008.At the meetings held on February 9-10, 2009, the Audit Committee and the Board of Trustees of theTrust engaged KPMG LLP to replace PWC as the independent registered public accounting firm for the Trust, effective upon the conclusion of the audit of the December 31, 2008 financial statements of other services of the Trust.
During the funds’ past two fiscal years and any subsequent interim period: (i) no report on the funds’ financial statements contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles; and (ii) there were no “disagreements” (as such term is used in Item 304 of Regulation S-K) with PWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of PWC, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report.
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 and 10, 2009, 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.
Representatives of the Manager reminded the Board members that the Manager became the investment adviser of the fund, effective December 1, 2008, and that there were no changes to the portfolio management of the fund as a result of the appointment of the Manager as the fund’s investment adviser.
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. 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 Fund 33
NFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
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.
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 one-, two-, three-, four-, five-and ten-year periods ended December 31, 2008. The Board members also noted that the fund’s yield performance was below the Performance Group median for six of the ten one-year periods ended December 31st, including each of the one-year periods ended December 31st from 2004 to 2008.The Board noted that the fund’s yield performance was above the Performance Universe medians for each one-year period ended December 31st since 1999, except 2004 and 1999, when the fund’s yield performance was below the Performance Universe medians. The Manager also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.
34
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.A representative of the Manager informed the Board members that the Manager is currently limiting the fund’s total expense ratio (excluding brokerage commissions, taxes and other extraordinary expenses) to 0.45% of the fund’s average daily net assets and that such limitation is voluntary and may be terminated at any time.The Board members also were informed that 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 New York 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 blended advisory fee.The Board noted that the fund’s contractual management fee was below the Expense Group median and that, with the expense limitation, 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 Manager’s representatives reviewed the costs associated with distribution through intermediaries. The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided.
The Fund 35
NFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
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. A representative of the Manager reminded the Board members that The Bank of New York Mellon Corporation, the parent company of the Manager, paid all of the expenses associated with the Manager becoming the fund’s investment adviser and the proxy campaign with respect to the Board members becoming the Trust’s Board members. Because the Manager only became the fund’s investment adviser effective December 1, 2008, the Manager’s representatives were not able to provide a dollar amount of expenses allocated and profit received by the Manager, but a representative of the Manager did review the method to be used to determine such expenses and profit in the future. 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 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. The Board also considered whether the fund would be able to participate in any economies of scale that the Manager may experience in the event that the fund attracts a large amount of assets, noting the decrease in the fund’s recent asset levels. The Board members discussed the renewal requirements for advisory agreements and their ability to review the management fee annually.
36
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 to be 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 voluntary waiver of a portion of expenses by the Manager, that the fee paid by the fund to the Manager was reasonable in light of the services to be provided, comparative performance, expense and advisory fee information and potential profits to be realized and benefits to be derived by the Manager from its relationship with the fund.
- The Board determined that because the Manager had become the investment adviser of the fund effective December 1,2008,economies of scale were not a factor at this time, but, to the extent that material economies of scale are not shared with the fund in the future, the Board would seek to do so in connection with future renewals.
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 and that the Management Agreement would be renewed through April 4, 2010.
The Fund 37
Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.dreyfus.com and sign up for Dreyfus eCommunications. It’s simple and only takes a few minutes.
The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Contents | |
THE FUND | |
2 | A Letter from the 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 |
FOR MORE INFORMATION | |
Back Cover |
The Fund |
Dreyfus/Newton International Equity Fund |
A LETTER FROM THE CEO Dear Shareholder: |
We present this semiannual report for Dreyfus/Newton International Equity Fund that covers the six-month period from October 1, 2008, through March 31, 2009.
The reporting period has been one of the most challenging for the U.S. economy, which has undoubtedly affected the global financial markets. The bankruptcy of Lehman Brothers in mid-September 2008 triggered a cascading global economic decline that affected both industrialized and emerging economies throughout the world.As the credit crisis dried up the availability of funding for businesses and consumers, international trade activity slumped, commodity prices plummeted, investors de-leveraged their portfolios, companies liquidated inventories, unemployment surged and corporate earnings sagged.
On the heels of a –6.3% annualized U.S. economic growth rate in the fourth quarter of 2008, we expect another sharp decline for the first quarter of 2009. However, our Chief Economist anticipates that the U.S. recession may reach a trough around the third quarter of this year, followed by a slow recovery. Indeed, an unprecedented and concerted worldwide effort has signaled that most developed markets are intent to do whatever it takes to forestall the economic slowdown, including interest-rate reductions by the ECB, the U.K and Japan, as well as massive monetary and fiscal stimulus and support for troubled financial institutions. Although times seem dire now, we believe it is always appropriate to maintain a long-term investment focus and to discuss any investment modifications with your financial adviser. Together, you can prepare for the risks that lie ahead and position your assets to perform in this current market downturn, and in the future. For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund’s Portfolio Manager.
Thank you for your continued confidence and support.
Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation April 15, 2009 |
2
DISCUSSION OF FUND PERFORMANCE
For the period of October 1, 2008, through March 31, 2009, 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, 2009, Dreyfus/Newton International Equity Fund’s Class A shares produced a total return of –30.09%, Class C shares returned –30.47%, and Class I shares returned –30.13%.1 In comparison, the fund’s benchmark, the Morgan Stanley Capital International Europe,Australasia, Far East Index (the “Index”), produced a total return of –31.11% for the same period.2
International equities fell sharply during the reporting period due to a global economic slowdown and an intensifying financial crisis.While we are never satisfied with negative absolute returns, especially of this magnitude, we nonetheless are pleased that the fund produced higher returns than its benchmark, largely due to our stock selection strategy and because it avoided holding some of the weakest performers in the Index.
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 (typically global) themes are based primarily on observable economic, industrial, or social trends that Newton believes will positively affect certain markets, industries or companies. They identify areas of investment opportunity and risk. Such themes currently include all change, which asserts that the bursting of the credit bubble heralds a number of structural changes in economies and financial markets (and provides the rationale for the Fund’s underweight exposure to the financial sector). Elsewhere, the networked world theme identifies the opportunities inherent in the growth of information technology networks around the world.
Zero Weight Positions Helped the Fund’s Relative Performance
The financial sector derived the most outperformance for the fund against the Index over the reporting period. This sector actually con-
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
tributed more than half of the fund’s outperformance. Not owning HSBC helped the fund to do better than the Index. Prior to the reporting period, HSBC had held a superior capital position, maintained a conservative balance sheet, was run by respected management, had a good mix of businesses, and was trading at a high valuation. Eventually, though, the bank was forced to raise capital, and this led to a sharp fall in its share price. Similar examples of stocks that we avoided in the financial sector were Royal Bank of Scotland PLC, BNP Paribas and ING Groep.
Good Stock Selection Kept the Fund Afloat
One of the best stock picks in the financial sector was Credicorp Ltd., the largest bank in Peru,well known for being properly capitalized.Loans are a very small percent on their books and even though a very small percentage of the population has banked, the bank has grown sequentially without having to go too far down the quality scale. A little too expensive now — we have trimmed the position during the reporting period as a result of the holding’s stock price.The Fund also benefited from its exposure to gold miners,with South Africa’s Gold Fields Ltd.and Australia’s Newcrest Mining Ltd. performing particularly well over the period. In the energy sector, the second-greatest contributor to the fund was a natural gas company based in the U.K.,Venture Production PLC, which is currently enjoying a takeover from another U.K. company, Centrica. Japan’s second largest mobile wireless telephone company, KDDI, which has strong cash flows and a robust balance sheet, also made a very positive contribution. Secom, an owner and maintainer of security systems such as burglar alarms, was another strong performer.
On the other hand, the weight in the materials sector was most affected by the sharp reduction in demand from Asia, in particular China, and also from concerns of capital positions of many stocks within the sector. In this economic environment, we have favored companies which have strong balance sheets, modest levels of debt and an attractive commodity mix.
Investment Observations in Japan
During the first half of the reporting period, the significant repatriation of assets by Japanese retail investors and this was supportive of the yen. Among holdings to benefit from the strength of the yen during the period were Nippon Telegraph & Telephone and Bank of Yokohama. We reduced the holding of Bank of Yokohama towards the end of
4
the reporting period on concerns that the bank might need to raise additional capital.
We did see some significant underperformance from Japanese holdings over the second half of the reporting period.Our concern is that Japanese exporters face challenging conditions and so the initial bounce that we’ve enjoyed as a result of the weakness in currency may be something more difficult to sustain on an ongoing fundamental basis. Although we have some export-orientated stocks in the portfolio, such as Shin-Etsu Chemical, we are cautious about the extent of such exposure.
Thematic Approach at Work in a Turbulent Economic Environment
We broadly believe that our thematic framework has given us a good perspective on the train of events that has unfolded over the last several years. We should expect further widespread recapitalizations and/or nationalization of banks during 2009. It is clear that most investment decisions hinge on the depth and duration of what is now almost certain to be a global recession.
As noted above, we have been employing a new theme to address the prevailing conditions in global credit and financial markets: the all change theme.This term encapsulates our belief that recent events may not be simply part of the normal ebb and flow of economic activity, but rather may represent a structural break with the recent past. At its broadest, this theme focuses on our belief that we have moved from an era defined by leverage to one defined by thrift.
April 15, 2009
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take into consideration the maximum initial sales charges 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, 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. Return figures provided reflects the absorption of certain fund expenses by Newton. Had these expenses not been absorbed, returns would have been lower.This waiver is voluntary and may be terminated 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.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, 2008 to March 31, 2009. 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, 2009 | |||
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 5.30 | $ 8.45 | $ 4.79 |
Ending value (after expenses) | $699.10 | $695.30 | $698.70 |
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, 2009 | |||
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 6.29 | $ 10.05 | $ 5.69 |
Ending value (after expenses) | $1,018.70 | $1,014.96 | $1,019.30 |
† Expenses are equal to the fund’s annualized expense ratio of 1.25% for Class A, 2.00% for Class C and 1.13% |
for Class I, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half |
year period). |
6
STATEMENT OF INVESTMENTS March 31, 2009 (Unaudited) |
Common Stocks—92.9% | Shares | Value ($) |
Australia—4.0% | ||
Newcrest Mining | 109,961 | 2,493,790 |
QBE Insurance Group | 105,232 | 1,414,957 |
Telstra | 873,179 | 1,949,454 |
5,858,201 | ||
Austria—.8% | ||
Strabag | 62,842 | 1,234,848 |
Brazil—5.2% | ||
Cia de Bebidas das Americas (AmBev), ADR | 39,045 | 1,864,399 |
Cia Vale do Rio Doce, Cl. A, ADR | 144,610 | 1,631,201 |
Petroleo Brasileiro, ADR | 69,428 | 1,700,986 |
Tele Norte Leste Participacoes, ADR | 178,884 | 2,475,755 |
7,672,341 | ||
China—.1% | ||
Harbin Power Equipment, Cl. H | 228,000 | 148,334 |
France—6.4% | ||
Air Liquide | 17,491 | 1,423,248 |
Alstom | 21,478 | 1,112,466 |
GDF SUEZ | 25,376 | 871,524 |
Thales | 70,139 | 2,659,555 |
Total | 68,298 | 3,395,981 |
9,462,774 | ||
Germany—6.4% | ||
Bayer | 36,587 | 1,749,946 |
Deutsche Boerse | 14,341 | 864,648 |
Deutsche Telekom | 213,678 | 2,654,403 |
Fresenius Medical Care & Co | 38,609 | 1,500,922 |
K+S | 57,514 | 2,669,117 |
9,439,036 | ||
Hong Kong—1.6% | ||
Huabao International Holdings | 2,775,000 | 2,295,411 |
Ireland—1.1% | ||
CRH | 75,209 | 1,636,738 |
Japan—19.9% | ||
Bank of Yokohama | 295,000 | 1,267,399 |
Daiwa Securities Group | 213,000 | 942,785 |
Denso | 55,500 | 1,121,295 |
East Japan Railway | 24,344 | 1,266,571 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Japan (continued) | ||
Japan Tobacco | 1,495 | 3,992,586 |
KDDI | 389 | 1,835,611 |
Mitsubishi | 101,000 | 1,343,843 |
Nintendo | 7,900 | 2,317,346 |
Nippon Telegraph & Telephone | 41,000 | 1,557,233 |
Nissan Motor | 496,200 | 1,792,642 |
Nissin Foods Holdings | 27,900 | 819,365 |
NTT Urban Development | 1,722 | 1,383,524 |
Rohm | 44,000 | 2,204,450 |
Sawai Pharmaceutical | 10,900 | 506,335 |
Secom | 34,200 | 1,265,981 |
Seven & I Holdings | 57,200 | 1,262,902 |
Shimamura | 23,500 | 1,252,335 |
Shin-Etsu Chemical | 24,500 | 1,202,496 |
Takeda Pharmaceutical | 60,500 | 2,098,065 |
29,432,764 | ||
Malaysia—1.3% | ||
Telekom Malaysia | 2,027,500 | 1,966,078 |
Netherlands—2.9% | ||
Koninklijke Ahold | 256,866 | 2,815,503 |
Unilever | 73,364 | 1,447,454 |
4,262,957 | ||
Norway—1.9% | ||
StatoilHydro | 108,024 | 1,911,261 |
Subsea 7 | 129,148 a | 828,291 |
2,739,552 | ||
Peru—1.0% | ||
Credicorp | 31,913 | 1,494,805 |
Singapore—2.3% | ||
DBS Group Holdings | 199,000 | 1,115,845 |
Jardine Matheson Holdings | 127,200 | 2,316,561 |
3,432,406 | ||
South Africa—1.4% | ||
Gold Fields | 184,036 b | 2,030,273 |
South Korea—.5% | ||
LG Telecom | 109,087 | 665,970 |
8
Common Stocks (continued) | Shares | Value ($) |
Spain—.9% | ||
Acciona | 13,379 | 1,376,704 |
Switzerland—15.1% | ||
ABB | 104,797 a | 1,462,905 |
Actelion | 44,125 a | 2,013,787 |
Bank Sarasin & Cie, Cl. B | 10,710 | 225,340 |
Credit Suisse Group | 51,177 | 1,558,284 |
Lonza Group | 14,973 | 1,479,805 |
Nestle | 89,873 | 3,038,138 |
Novartis | 78,273 | 2,962,313 |
Roche Holding | 35,910 | 4,927,648 |
Syngenta | 10,899 | 2,196,460 |
Verwalt & Privat-Bank | 3,304 | 193,602 |
Zurich Financial Services | 14,178 | 2,243,220 |
22,301,502 | ||
Taiwan—.6% | ||
HTC | 69,000 | 854,218 |
Thailand—.7% | ||
Bangkok Bank | 464,100 | 989,480 |
United Kingdom—18.8% | ||
Admiral Group | 74,741 | 915,308 |
BAE Systems | 513,032 | 2,462,324 |
BG Group | 57,136 | 864,902 |
British American Tobacco | 112,191 | 2,596,552 |
Cable & Wireless | 1,723,968 | 3,450,706 |
GlaxoSmithKline | 154,557 | 2,411,696 |
ICAP | 151,922 | 663,217 |
Prudential | 305,301 | 1,476,260 |
Royal Dutch Shell, Cl. B | 85,218 | 1,872,023 |
Smith & Nephew | 210,016 | 1,301,789 |
Standard Chartered | 182,552 | 2,269,655 |
Tesco | 220,582 | 1,055,213 |
Venture Production | 133,234 | 1,527,448 |
Vodafone Group | 2,800,095 | 4,931,725 |
27,798,818 | ||
Total Common Stocks | ||
(cost $154,696,497) | 137,093,210 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Preferred Stocks—.9% | Shares | Value ($) |
Luxembourg | ||
Millicom International Cellular | ||
(cost $1,777,375) | 34,714 | 1,305,038 |
Other Investment—7.6% | ||
Registered Investment Company; | ||
Dreyfus Institutional Preferred Plus Money Market Fund | ||
(cost $11,179,099) | 11,179,099 c | 11,179,099 |
Total Investments (cost $167,652,971) | 101.4% | 149,577,347 |
Liabilities, Less Cash and Receivables | (1.4%) | (1,992,639) |
Net Assets | 100.0% | 147,584,708 |
ADR—American Depository Receipts a Non-income producing security. b Purchased on a delayed delivery basis. c Investment in affiliated money market mutual fund. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Telecommunications Services | 15.5 | Energy | 8.2 |
Health Care | 14.2 | Money Market Investment | 7.6 |
Financials | 12.9 | Information Technology | 3.6 |
Consumer Staples | 12.8 | Consumer Discretionary | 2.8 |
Materials | 11.9 | Utilities | 1.5 |
Industrials | 10.4 | 101.4 |
† Based on net assets. See notes to financial statements. |
10
STATEMENT OF ASSETS AND LIABILITIES March 31, 2009 (Unaudited) |
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments: | ||
Unaffiliated issuers | 156,473,872 | 138,398,248 |
Affiliated issuers | 11,179,099 | 11,179,099 |
Cash | 50,000 | |
Cash denominated in foreign currencies | 17,753 | 17,604 |
Receivable for shares of Beneficial Interest subscribed | 2,972,863 | |
Receivable for investment securities sold | 2,324,497 | |
Unrealized appreciation on forward | ||
currency exchange contracts—Note 4 | 1,507,715 | |
Dividends and interest receivable | 920,156 | |
Prepaid expenses | 33,312 | |
157,403,494 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 134,166 | |
Payable for investment securities purchased | 7,550,984 | |
Unrealized depreciation on forward | ||
currency exchange contracts—Note 4 | 2,107,342 | |
Payable for shares of Beneficial Interest redeemed | 6,146 | |
Interest payable—Note 2 | 688 | |
Accrued expenses | 19,460 | |
9,818,786 | ||
Net Assets ($) | 147,584,708 | |
Composition of Net Assets ($): | ||
Paid-in capital | 185,745,279 | |
Accumulated undistributed investment income—net | 733,704 | |
Accumulated net realized gain (loss) on investments | (20,204,105) | |
Accumulated net unrealized appreciation (depreciation) | ||
on investments and foreign currency transactions | (18,690,170) | |
Net Assets ($) | 147,584,708 |
The Fund 11
Net Asset Value Per Share | |||
Class A | Class C | Class I | |
Net Assets ($) | 9,559,774 | 606,290 | 137,418,644 |
Shares Outstanding | 782,337 | 49,920 | 11,240,920 |
Net Asset Value Per Share ($) | 12.22 | 12.15 | 12.22 |
See notes to financial statements.
STATEMENT OF OPERATIONS Six Months Ended March 31, 2009 (Unaudited) |
Investment Income ($): | |
Income: | |
Cash dividends (net of $78,844 foreign taxes withheld at source): | |
Unaffiliated issuers | 1,421,985 |
Affiliated issuers | 15,647 |
Total Income | 1,437,632 |
Expenses: | |
Investment advisory fee—Note 3(a) | 369,921 |
Custodian fees—Note 3(c) | 87,504 |
Shareholder servicing costs—Note 3(c) | 32,207 |
Accounting and Administration fees—Note 3(a) | 30,000 |
Professional fees | 19,697 |
Registration fees | 17,009 |
Prospectus and shareholders’ reports | 14,277 |
Trustees’ fees and expenses—Note 3(d) | 3,594 |
Distribution fees—Note 3(b) | 1,798 |
Interest expense—Note 2 | 1,313 |
Loan commitment fees—Note 2 | 500 |
Miscellaneous | 9,325 |
Total Expenses | 587,145 |
Less—reduction in investment advisory fees due to undertaking—Note 3(a) | (54,395) |
Less—reduction in fees due to earnings credits—Note 1(c) | (1,700) |
Net Expenses | 531,050 |
Investment Income—Net | 906,582 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments and foreign currency transactions | (20,554,788) |
Net realized gain (loss) on forward currency exchange contracts | 554,821 |
Net Realized Gain (Loss) | (19,999,967) |
Net unrealized appreciation (depreciation) on | |
investments and foreign currency transactions | (6,826,888) |
Net Realized and Unrealized Gain (Loss) on Investments | (26,826,855) |
Net (Decrease) in Net Assets Resulting from Operations | (25,920,273) |
See notes to financial statements. |
12
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
March 31, 2009 | Year Ended | |
(Unaudited)a | September 30, 2008b | |
Operations ($): | ||
Investment income—net | 906,582 | 668,211 |
Net realized gain (loss) on investments | (19,999,967) | 3,571,177 |
Net unrealized appreciation | ||
(depreciation) on investments | (6,826,888) | (20,814,461) |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | (25,920,273) | (16,575,073) |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class A Shares | (33,245) | (1,082) |
Class C Shares | (1,652) | (733) |
Class I Shares | (437,376) | (708,426) |
Class R Shares | — | (37) |
Net realized gain on investments: | ||
Class A Shares | (232,715) | — |
Class C Shares | (11,569) | — |
Class I Shares | (2,501,575) | (3,740,815) |
Total Dividends | (3,218,132) | (4,451,093) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 8,510,290 | 5,173,646 |
Class C Shares | 444,711 | 475,874 |
Class I Shares | 135,027,039 | 33,433,744 |
Class R Shares | — | 10,000 |
Dividends reinvested: | ||
Class A Shares | 226,249 | 1,027 |
Class C Shares | 12,586 | 678 |
Class I Shares | 1,718,037 | 788,804 |
Cost of shares redeemed: | ||
Class A Shares | (1,524,061) | (59,133) |
Class C Shares | (78,258) | — |
Class I Shares | (34,204,818) | (1,335,835) |
Class R Shares | (5,738) | — |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | 110,126,037 | 38,488,805 |
Total Increase (Decrease) in Net Assets | 80,987,632 | 17,462,639 |
Net Assets ($): | ||
Beginning of Period | 66,597,076 | 49,134,437 |
End of Period | 147,584,708 | 66,597,076 |
Undistributed investment income—net | 733,704 | 299,395 |
The Fund 13
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||
March 31, 2009 | Year Ended | |
(Unaudited)a | September 30, 2008b | |
Capital Share Transactions: | ||
Class A | ||
Shares sold | 641,260 | 245,534 |
Shares issued for dividends reinvested | 16,881 | 44 |
Shares redeemed | (118,480) | (2,902) |
Net Increase (Decrease) in Shares Outstanding | 539,661 | 242,676 |
Class C | ||
Shares sold | 32,945 | 21,942 |
Shares issued for dividends reinvested | 942 | 29 |
Shares redeemed | (5,938) | — |
Net Increase (Decrease) in Shares Outstanding | 27,949 | 21,971 |
Class I | ||
Shares sold | 10,427,373 | 1,600,217 |
Shares issued for dividends reinvested | 128,212 | 31,890 |
Shares redeemed | (2,706,868) | (63,981) |
Net Increase (Decrease) in Shares Outstanding | 7,848,717 | 1,568,126 |
Class R | ||
Shares sold | — | 428 |
Shares redeemed | (428) | — |
Net Increase (Decrease) in Shares Outstanding | (428) | 428 |
a | Effective close of business on December 3, 2008, the fund no longer offers Class R shares. |
b | The fund commenced offering four classes of shares on March 31, 2008. The existing shares were redesignated |
Class I shares and the fund added Class A, Class C and Class R 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 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, 2009 | Year Ended | |
Class A Shares | (Unaudited) | September 30, 2008a |
Per Share Data ($): | ||
Net asset value, beginning of period | 18.18 | 23.37 |
Investment Operations: | ||
Investment income—netb | .11 | .14 |
Net realized and unrealized | ||
gain (loss) on investments | (5.53) | (5.20) |
Total from Investment Operations | (5.42) | (5.06) |
Distributions: | ||
Dividends from investment income—net | (.07) | (.13) |
Dividends from net realized gain on investments | (.47) | — |
Total Distributions | (.54) | (.13) |
Net asset value, end of period | 12.22 | 18.18 |
Total Return (%)c,d | (30.09) | (21.78)e |
Ratios/Supplemental Data (%): | ||
Ratio of total expenses to average net assetsf | 1.35 | 2.35 |
Ratio of net expenses to average net assetsf | 1.25 | 1.40 |
Ratio of net investment income to average net assetsf | 1.68 | 1.61 |
Portfolio Turnover Rated | 76.48 | 105 |
Net Assets, end of period ($ x 1,000) | 9,560 | 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 Total return would have been lower in the absence of expense waivers. f Annualized. See notes to financial statements. |
The Fund 15
FINANCIAL HIGHLIGHTS (continued) |
Six Months Ended | ||
March 31, 2009 | Year Ended | |
Class C Shares | (Unaudited) | September 30, 2008a |
Per Share Data ($): | ||
Net asset value, beginning of period | 18.14 | 23.37 |
Investment Operations: | ||
Investment income—netb | .05 | .05 |
Net realized and unrealized | ||
gain (loss) on investments | (5.50) | (5.15) |
Total from Investment Operations | (5.45) | (5.10) |
Distributions: | ||
Dividends from investment income—net | (.07) | (.13) |
Dividends from net realized gain on investments | (.47) | — |
Total Distributions | (.54) | (.13) |
Net asset value, end of period | 12.15 | 18.14 |
Total Return (%)c,d | (30.47) | (21.95)e |
Ratios/Supplemental Data (%): | ||
Ratio of total expenses to average net assetsf | 3.29 | 6.42 |
Ratio of net expenses to average net assetsf | 2.00 | 2.15 |
Ratio of net investment income to average net assetsf | .84 | .49 |
Portfolio Turnover Rated | 76.48 | 105 |
Net Assets, end of period ($ x 1,000) | 606 | 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 Total return would have been lower in the absence of expense waivers. f Annualized. See notes to financial statements. |
16
Six Months Ended | ||||
March 31, 2009 | Year Ended September 30, | |||
Class I Shares | (Unaudited) | 2008a | 2007 | 2006b |
Per Share Data ($): | ||||
Net asset value, beginning of period | 18.21 | 26.94 | 21.51 | 20.00 |
Investment Operations: | ||||
Investment income—netc | .12 | .31 | .35 | .27 |
Net realized and unrealized | ||||
gain (loss) on investments | (5.56) | (6.64) | 5.41 | 1.54 |
Total from Investment Operations | (5.44) | (6.33) | 5.76 | 1.81 |
Distributions: | ||||
Dividends from investment income—net | (.08) | (.35) | (.20) | (.30) |
Dividends from net realized | ||||
gain on investments | (.47) | (2.05) | (.13) | — |
Total Distributions | (.55) | (2.40) | (.33) | (.30) |
Net asset value, end of period | 12.22 | 18.21 | 26.94 | 21.51 |
Total Return (%) | (30.13)d | (25.80)e | 26.92e | 9.15d,e |
Ratios/Supplemental Data (%): | ||||
Ratio of total expenses to average net assets | 1.25f | 1.59 | 1.36 | 1.53f |
Ratio of net expenses to average net assets | 1.13f | 1.15 | 1.15 | 1.15f |
Ratio of net investment income | ||||
to average net assets | 1.99f | 1.33 | 1.45 | 1.63f |
Portfolio Turnover Rate | 76.48d | 105 | 87 | 84d |
Net Assets, end of period ($ x 1,000) | 137,419 | 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 Total return would have been lower in the absence of expense waivers. f Annualized. See notes to financial statements. |
The Fund 17
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 a diversified open-end management investment company and operates as a series company currently offering fourteen series, including the fund.The fund’s investment objective is to achieve long-term growth of capital. Prior to December 1, 2008, Newton Capital Management Limited (“Newton”), an indirect wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), served as the fund’s investment advisor. Effective December 1, 2008, The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of BNY Mellon, serves as the fund’s investment adviser. Newton serves as the fund’s sub-investment advisor.
At a meeting of the fund’s Board of Trustees held on August 27, 2008, the Board approved, effective December 1, 2008, a proposal to change the names of the Trust and the fund from “Mellon Institutional Funds Investment Trust” and “Newton International Equity Fund” to “Dreyfus Investment Funds” and “Dreyfus/Newton International Equity Fund,” respectively.
Effective close of business on December 3, 2008, the fund no longer offers Class R shares.
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 at net asset value per share
18
only to institutional investors. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each 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.
The fund’s financial statements are prepared in accordance with U.S. generally accepted accounting principles, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
(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 official closing pric es 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
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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 contracts. For other securities that are fair valued by the Board ofTrustees, 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. Investment s denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. Forward currency exchange contracts are valued at the forward rate.
The fund adopted Statement of Financial Accounting Standards No. 157 “FairValue Measurements” (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements.
Various inputs are used in determining the value of the fund’s investments relating to FAS 157.These inputs are summarized in the three broad levels listed below.
Level 1—quoted prices in active markets for identical investments. Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3—significant unobservable inputs (including 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, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Quoted | Observable Unobservable | |||
Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in | ||||
Securities | 103,934,485 | 45,642,862 | — | 149,577,347 |
Other Financial | ||||
Instruments† | — | 1,507,715 | — | 1,507,715 |
Liabilities ($) | ||||
Other Financial | ||||
Instruments† | — | (2,107,342) | — | (2,107,342) |
† Other financial instruments include derivative instruments, such as futures, forward currency exchange contracts, swap contracts and options contracts. Amounts shown represent unrealized appreciation (depreciation) at period end. |
(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 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
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
The fund has arrangements with the custodian and cash management bank whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset custody and cash management fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
Investing in foreign markets may involve special risks and considerations not typically associated with investing in the U.S. These risks include revaluation of currencies, high rates of inflation, repatriation restrictions on income and capital, and adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls and delayed settlements, and their prices may be more volatile than those of comparable securities in the U.S.
(d) Affiliated issuers: Investments in other investment companies advised by Dreyfus are defined as “affiliated” in the Act.
(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 semi-annually 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”).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 U.S. generally accepted accounting principles.
(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
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, 2009, 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, 2008 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The tax character of distributions paid to shareholders during the fiscal year ended September 30, 2008 was as follows: ordinary income $2,291,606 and long-term capital gains $2,159,487.The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
TheTrust entered into two separate agreements withThe Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, that enable the fund, and other series in the Trust, to borrow, in the aggregate, (i) up to $35 million from a committed line of credit and (ii) up to $15 million from an uncommitted line of credit. In connection therewith, the fund has agreed to pay administrative and Facility fees on its pro rata portion of the lines of credit. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowing.
The average daily amount of borrowings outstanding under the lines of credit during the period ended March 31, 2009, was approximately $335,200 with a related weighted average annualized interest rate of .79%.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 3—Investment Advisory Fee, Sub-Investment Advisory Fee and Other Transactions With Affiliates:
(a) Pursuant to an investment advisory agreement (“Agreement”) with Dreyfus, 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. Dreyfus has agreed 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%. This arrangement is temporary and may be terminated or changed at any time.The reduction in investment advisory fee, pursuant to the undertaking, amounted to $54,395 during the period ended March 31, 2009.
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 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 $30,000 for the period ended March 31, 2009 for administration and fund accounting services.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class C and Class R 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 and .25% of the value of the average daily net assets of Class R shares. During the period ended March 31, 2009, Class C and Class R shares were charged $1,796 and $2, respectively, pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A, Class C and Class R 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,
24
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, 2009, Class A, Class C and Class R shares were charged $8,665, $598 and $2, respectively, pursuant to the Shareholder Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the fund. During the period ended March 31, 2009, the fund was charged $7,605 pursuant to the transfer agency agreement.
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, 2009, the fund was charged $1,700 pursuant to the cash management agreements.These fees were offset by earnings credits 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, 2009, the fund was charged $87,504 pursuant to the custody agreement.
During the period ended March 31, 2009, the fund was charged $2,578 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 $87,918, Rule 12b-1 distribution plan fees $1,370, shareholder services plan fees $29,177, custodian fees $30,000, chief compliance officer fees $2,578 and transfer agency per account fees $5,195, which are offset against an expense reimbursement currently in effect in the amount of $22,072.
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(d) Effective December 1, 2008, eachTrustee receives $45,000 per year, plus $6,000 for each joint Board meeting ofThe Dreyfus/Laurel Funds, Inc.,The Dreyfus/Laurel Funds Trust and The Dreyfus/Laurel Tax-Free Municipal Funds, (collectively, the “Dreyfus/Laurel Funds”) and the Trust attended, $2,000 for separate in-person committee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that are conducted by telephone and is reimbursed 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, the Chair of the compensation committee receives $900 per meeting. In the event that there is an in person joint committee meeting of the Dreyfus/Laurel Funds, theTrust and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee, as applicable, will be allocated between the Dreyfus/Laurel Funds, the Trust and Dreyfus HighYield Strategies Fund.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, 2009, redemption fees charged and retained by the fund amounted to $8,205.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities and forward currency exchange contracts, during the period ended March 31, 2009, amounted to $171,286,999 and $69,339,754, respectively.
The fund enters into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings and to settle foreign currency transac-tions.When executing forward currency exchange contracts, the fund is obligated to buy or sell a foreign currency at a specified rate on a
26
certain date in the future. With respect to sales of forward currency exchange contracts, the fund would incur a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed.The fund realizes a gain if the value of the contract decreases between those dates. With respect to purchases of forward currency exchange contracts, the fund would incur a loss if the value of the contract decreases between the date the forward contract is opened and the date the forward contract is closed. The fund realizes a gain if the value of the contract increases between those dates. The fund is also exposed to credit risk associated with counterparty nonperformance on these forward currency exchange contracts which is typically limited to the unrealized gain on each open contract. The following summarizes open forward currency exchange contracts at March 31, 2009:
Foreign | Unrealized | |||
Forward Currency | Currency | Appreciation | ||
Exchange Contracts | Amounts | Cost ($) | Value ($) (Depreciation) ($) | |
Purchases: | ||||
Australian Dollar, | ||||
Expiring 4/1/2009 | 356,573 | 247,835 | 247,944 | 109 |
Australian Dollar, | ||||
Expiring 4/15/2009 | 499,000 | 322,105 | 346,558 | 24,453 |
Australian Dollar, | ||||
Expiring 4/15/2009 | 3,192,000 | 2,074,800 | 2,216,862 | 142,062 |
Australian Dollar, | ||||
Expiring 6/15/2009 | 858,000 | 549,120 | 593,628 | 44,508 |
British Pound, | ||||
Expiring 4/15/2009 | 756,993 | 1,126,098 | 1,086,199 | (39,899) |
British Pound, | ||||
Expiring 4/15/2009 | 2,041,000 | 3,004,352 | 2,928,604 | (75,748) |
British Pound, | ||||
Expiring 4/15/2009 | 3,285,000 | 4,764,820 | 4,713,603 | (51,217) |
British Pound, | ||||
Expiring 6/15/2009 | 1,360,000 | 1,935,280 | 1,951,901 | 16,621 |
Euro, | ||||
Expiring 4/15/2009 | 1,216,000 | 1,711,206 | 1,615,475 | (95,731) |
Euro, | ||||
Expiring 6/15/2009 | 1,044,062 | 1,463,040 | 1,387,279 | (75,761) |
Euro, | ||||
Expiring 6/15/2009 | 1,073,761 | 1,503,759 | 1,426,741 | (77,018) |
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Foreign | Unrealized | |||
Forward Currency | Currency | Appreciation | ||
Exchange Contracts | Amounts | Cost ($) | Value ($) (Depreciation) ($) | |
Purchases (continued): | ||||
Euro, | ||||
Expiring 6/15/2009 | 364,748 | 476,784 | 484,652 | 7,868 |
Euro, | ||||
Expiring 7/15/2009 | 1,092,053 | 1,541,000 | 1,451,237 | (89,763) |
Hong Kong Dollar, | ||||
Expiring 4/1/2009 | 3,577,309 | 461,541 | 461,552 | 11 |
Hong Kong Dollar, | ||||
Expiring 4/2/2009 | 591,662 | 76,336 | 76,338 | 2 |
Japanese Yen, | ||||
Expiring 4/1/2009 | 123,223,146 | 1,257,028 | 1,244,867 | (12,161) |
Japanese Yen, | ||||
Expiring 4/15/2009 | 111,199,325 | 1,216,750 | 1,123,617 | (93,133) |
Japanese Yen, | ||||
Expiring 4/15/2009 | 113,022,181 | 1,217,500 | 1,142,037 | (75,463) |
Japanese Yen, | ||||
Expiring 4/15/2009 | 67,269,215 | 723,710 | 679,724 | (43,986) |
Japanese Yen, | ||||
Expiring 4/15/2009 | 47,129,845 | 520,771 | 476,225 | (44,546) |
Japanese Yen, | ||||
Expiring 4/15/2009 | 29,033,030 | 320,807 | 293,365 | (27,442) |
Japanese Yen, | ||||
Expiring 4/15/2009 | 82,469,012 | 921,015 | 833,311 | (87,704) |
Japanese Yen, | ||||
Expiring 4/15/2009 | 125,905,449 | 1,429,671 | 1,272,216 | (157,455) |
Japanese Yen, | ||||
Expiring 6/15/2009 | 49,899,307 | 540,036 | 504,726 | (35,310) |
Norwegian Krone, | ||||
Expiring 8/14/2009 | 14,311,440 | 2,037,750 | 2,122,087 | 84,337 |
Singapore Dollar, | ||||
Expiring 4/1/2009 | 1,307,104 | 864,037 | 859,400 | (4,637) |
South African Rand, | ||||
Expiring 4/2/2009 | 851,212 | 89,118 | 89,861 | 743 |
Swiss Franc, | ||||
Expiring 4/15/2009 | 2,191,840 | 1,974,630 | 1,926,127 | (48,503) |
Swiss Franc, | ||||
Expiring 4/15/2009 | 3,105,757 | 2,797,952 | 2,729,252 | (68,700) |
Swiss Franc, | ||||
Expiring 4/15/2009 | 673,097 | 588,750 | 591,499 | 2,749 |
Swiss Franc, | ||||
Expiring 4/15/2009 | 511,279 | 447,300 | 449,297 | 1,997 |
Swiss Franc, | ||||
Expiring 6/15/2009 | 1,600,000 | 1,431,016 | 1,408,001 | (23,015) |
28
Foreign | Unrealized | |||
Forward Currency | Currency | Appreciation | ||
Exchange Contracts | Amounts | Proceeds ($) | Value ($) (Depreciation) ($) | |
Sales: | ||||
Australian Dollar, | ||||
Expiring 4/15/2009 | 2,981,000 | 1,974,631 | 2,070,321 | (95,690) |
Australian Dollar, | ||||
Expiring 4/15/2009 | 710,000 | 447,300 | 493,099 | (45,799) |
Australian Dollar, | ||||
Expiring 6/15/2009 | 858,000 | 540,036 | 593,628 | (53,592) |
British Pound, | ||||
Expiring 4/1/2009 | 978,810 | 1,386,973 | 1,404,439 | (17,466) |
British Pound, | ||||
Expiring 4/15/2009 | 1,666,000 | 2,797,953 | 2,390,521 | 407,432 |
British Pound, | ||||
Expiring 4/15/2009 | 775,000 | 1,216,750 | 1,112,037 | 104,713 |
British Pound, | ||||
Expiring 4/15/2009 | 375,000 | 588,750 | 538,083 | 50,667 |
British Pound, | ||||
Expiring 4/15/2009 | 756,993 | 1,174,000 | 1,086,199 | 87,801 |
British Pound, | ||||
Expiring 4/15/2009 | 494,000 | 723,710 | 708,834 | 14,876 |
British Pound, | ||||
Expiring 4/15/2009 | 350,000 | 520,772 | 502,210 | 18,562 |
British Pound, | ||||
Expiring 4/15/2009 | 633,000 | 921,015 | 908,283 | 12,732 |
British Pound, | ||||
Expiring 4/15/2009 | 1,033,000 | 1,429,672 | 1,482,238 | (52,566) |
British Pound, | ||||
Expiring 6/15/2009 | 1,016,000 | 1,463,040 | 1,458,185 | 4,855 |
British Pound, | ||||
Expiring 6/15/2009 | 344,000 | 476,784 | 493,716 | (16,932) |
British Pound, | ||||
Expiring 7/15/2009 | 1,266,000 | 1,843,701 | 1,817,362 | 26,339 |
British Pound, | ||||
Expiring 8/14/2009 | 1,430,000 | 2,037,750 | 2,053,318 | (15,568) |
Euro, | ||||
Expiring 4/15/2009 | 974,000 | 1,217,500 | 1,293,974 | (76,474) |
Euro, | ||||
Expiring 4/15/2009 | 242,000 | 320,807 | 321,501 | (694) |
Euro, | ||||
Expiring 6/15/2009 | 1,086,573 | 1,431,016 | 1,443,764 | (12,748) |
Euro, | ||||
Expiring 6/15/2009 | 1,505,582 | 1,935,280 | 2,000,515 | (65,235) |
The Fund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Foreign | Unrealized | |||
Forward Currency | Currency | Appreciation | ||
Exchange Contracts | Amounts | Proceeds ($) | Value ($) (Depreciation) ($) | |
Sales (continued): | ||||
Euro, | ||||
Expiring 7/15/2009 | 1,188,881 | 1,541,000 | 1,579,913 | (38,913) |
Japanese Yen, | ||||
Expiring 4/3/2009 | 9,652,480 | 98,185 | 97,515 | 670 |
Japanese Yen, | ||||
Expiring 4/15/2009 | 156,404,230 | 1,711,206 | 1,580,392 | 130,814 |
Japanese Yen, | ||||
Expiring 4/15/2009 | 450,751,932 | 4,764,819 | 4,554,639 | 210,180 |
Japanese Yen, | ||||
Expiring 6/15/2009 | 52,621,826 | 549,120 | 532,264 | 16,856 |
Swiss Franc, | ||||
Expiring 4/15/2009 | 379,307 | 322,105 | 333,325 | (11,220) |
Swiss Franc, | ||||
Expiring 4/15/2009 | 2,539,076 | 2,074,800 | 2,231,269 | (156,469) |
Swiss Franc, | ||||
Expiring 4/15/2009 | 3,670,049 | 3,004,352 | 3,225,136 | (220,784) |
Swiss Franc, | ||||
Expiring 6/15/2009 | 1,600,000 | 1,503,759 | 1,408,001 | 95,758 |
Total | (599,627) |
At March 31, 2009, accumulated net unrealized depreciation on investments was $18,075,624, consisting of $1,446,621 gross unrealized appreciation and $19,522,245 gross unrealized depreciation.
At March 31, 2009, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
The Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements.The application of FAS 161 is required for fiscal years and interim periods beginning after November 15, 2008.At this time, management is evaluating the implications of FAS 161 and its impact on the financial statements and the accompanying notes has not yet been determined.
30
NOTE 5—Change in Independent Registered Public Accounting Firm:
PricewaterhouseCoopers LLP (“PWC”), 300 Madison Avenue, New York, New York 10017, an independent registered public accounting firm, were the independent registered public accounting firm for the fund for the fiscal year ended September 30, 2008. At the meetings held on February 9-10, 2009, the Audit Committee and the Board of Trustees of the Trust engaged KPMG LLP to replace PWC as the independent registered public accounting firm for the Trust, effective upon the conclusion of the audit of the December 31, 2008 financial statements of other series of the Trust.
During the funds’ past two fiscal years and any subsequent interim period: (i) no report on the funds’ financial statements contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles; and (ii) there were no “disagreements” (as such term is used in Item 304 of Regulation S-K) with PWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of PWC, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report.
The Fund 31
NOTES
Item 2. | Code of Ethics. |
Not applicable. | |
Item 3. | Audit Committee Financial Expert. |
Not applicable. | |
Item 4. | Principal Accountant Fees and Services. |
Not applicable. | |
Item 5. | Audit Committee of Listed Registrants. |
Not applicable. | |
Item 6. | Investments. |
(a) | Not applicable. |
Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management |
Investment Companies. | |
Not applicable. | |
Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
Not applicable. | |
Item 9. | Purchases of Equity Securities by Closed-End Management Investment Companies and |
Affiliated Purchasers. | |
Not applicable. [CLOSED END FUNDS ONLY] | |
Item 10. | Submission of Matters to a Vote of Security Holders. |
There have been no material changes to the procedures applicable to Item 10. | |
Item 11. | Controls and Procedures. |
(a) The Registrant's principal executive and principal financial officers have concluded, based on their evaluation of the Registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the Registrant's disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
3
(b) There were no changes to the Registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
Item 12. | Exhibits. |
(a)(1) | Not applicable. |
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(a)(3) Not applicable.
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940.
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/ J. David Officer |
J. David Officer, | |
President | |
Date: | May 28, 2009 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: | /s/ J. David Officer |
J. David Officer, | |
President | |
Date: | May 28, 2009 |
By: | /s/ James Windels |
James Windels, | |
Treasurer | |
Date: | May 28, 2009 |
5
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