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 | 811-4906 |
Dreyfus State Municipal Bond 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: | 04/30 | |
Date of reporting period: | 10/31/09 |
FORM N-CSR |
Item 1. | Reports to Stockholders. |
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
21 | Statement of Assets and Liabilities |
22 | Statement of Operations |
23 | Statement of Changes in Net Assets |
26 | Financial Highlights |
31 | Notes to Financial Statements |
40 | Information About the Review and Approval of the Fund’s Management Agreement |
FOR MORE INFORMATION | |
Back Cover | |
Dreyfus State Municipal Bond Funds, Dreyfus Connecticut Fund |
The Fund |
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A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus State Municipal Bond Funds, Dreyfus Connecticut Fund, covering the six-month period from May 1, 2009, through October 31, 2009.
Reports of positive U.S. economic growth over the third quarter of 2009 may have signaled the end of the deep recession that technically began in December 2007. Signs that the economy finally has turned a corner include inventory rebuilding among manufacturers and improvements in home sales and prices, while massive government stimulus and favorable supply-and-demand influences have all supported the municipal bond rally in 2009.As expected, funds with the longest average durations and lower-quality portfolios have led the rebound, while AAA-rated and shorter-duration funds have rallied to a lesser extent.
As the financial markets currently appear poised to enter into a new phase, and as government intervention appears to be winding down (at least for the moment), the best strategy for your portfolio depends not only on your view of the economy’s direction,but on your current financial needs,future goals and attitudes toward risk.Your financial advisor can help you decide which investments have the potential to benefit from a recovery while guarding against the taxation and investment risks that may accompany policy changes and unexpected market developments.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
Sincerely,
Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation November 16, 2009 |
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2009, through October 31, 2009, as provided by James Welch, Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended October 31, 2009, the Class A, Class B, Class C, Class I and Class Z shares of Dreyfus Connecticut Fund, a series of Dreyfus State Municipal Bond Funds, produced total returns of 5.85%, 5.52%, 5.45%, 6.08% and 5.94%, respectively.1 In comparison, the Barclays Capital Municipal Bond Index (the “Index”), the fund’s benchmark Index, which is composed of bonds issued nationally and not solely within Connecticut, achieved a total return of 4.99% for the same period.2
Municipal bonds rallied strongly over the reporting period amid expectations of an economic recovery and stable credit markets. The fund’s returns were higher than its Index, primarily due to strong performance by the fund’s core, seasoned holdings of municipal bonds.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax and Connecticut state income tax without undue risk.To pursue its goal, the fund normally invests substantially all of its assets in municipal bonds that provide income exempt from federal income tax and from Connecticut state income tax.The fund invests at least 70% of its assets in investment-grade municipal bonds or the unrated equivalent as determined by Dreyfus.The fund may invest up to 30% of its assets in municipal bonds rated below investment grade or the unrated equivalent as determined by Dreyfus. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
We may buy and sell bonds based on credit quality, market outlook and yield potential. In selecting municipal bonds for investment, we may assess the current interest-rate environment and a municipal bond’s
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
potential volatility in different rate environments. We focus on bonds with the potential to offer attractive current income, typically looking for bonds that can provide consistently attractive current yields or that are trading at competitive market prices. A portion of the fund’s assets may be allocated to“discount”bonds,which are bonds that sell at a price below their face value, or to “premium” bonds, which are bonds that sell at a price above their face value.The fund’s allocation either to discount bonds or to premium bonds will change along with our changing views of the current interest-rate and market environments.We may also look to select bonds that are most likely to obtain attractive prices when sold.
Municipal Bonds Rebounded Sharply
In the wake of severe market declines stemming from a global financial crisis and recession, the municipal bond market staged an impressive rebound over the reporting period. The rally was fueled by changing investor sentiment, which began to improve in March 2009 as government and monetary authorities’ aggressive remedial measures—including historically low interest rates, injections of liquidity into the banking system, the rescues of major corporations and a massive economic stimulus program—seemed to gain traction. Additional evidence of economic stabilization later appeared, supporting a sustained rally through the reporting period’s end. Although most municipal bonds participated in the rally, gains were particularly strong among lower-quality issues that had been punished in the downturn.
Seasoned Holdings Supported Fund Returns
The fund’s core holdings of seasoned bonds produced competitive levels of income that bolstered the fund’s total return. Moreover, we strived to maintain a high level of credit quality.When making new purchases, we emphasized higher-rated bonds with maturities in the 15- to 20-year range, which offered most of the yield of longer-term securities but with less volatility. We generally favored bonds backed by dedicated revenue streams, including those from essential municipal services such as sewer and water facilities.
4
Connecticut has continued to struggle with fiscal pressures due to tax revenue shortfalls and greater demand for services in the recession. Most states have encountered similar problems, but Connecticut’s economy relies heavily on the financial services and insurance industries, which were impaired by the financial crisis and recession.
Supply-and-Demand Factors Appear Favorable
We have maintained a generally conservative investment posture.With short-term interest rates expected to remain low for some time, credit conditions may be the dominant influence on market sentiment over the foreseeable future.
Despite the lingering impacts of the recession on municipalities, technical factors have supported the market. The supply of newly issued municipal bonds has fallen significantly to date in 2009 compared to one year ago as the Build America Bonds program, part of the economic stimulus package, has diverted a substantial portion of new issuance to the taxable bond market. At the same time, demand for municipal bonds has intensified from investors concerned about the likelihood of higher income taxes.We expect this favorable supply-and-demand dynamic to persist into 2010.
November 16, 2009
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take | |
into consideration the maximum initial sales charge in the case of Class A shares or the | ||
applicable contingent deferred sales charges imposed on redemptions in the case of Class B and | ||
Class C shares. Had these charges been reflected, returns would have been lower. Each share class | ||
is subject to a different sales charge and distribution expense structure and will achieve different | ||
returns. Class Z and Class I shares are not subject to any initial or deferred sales charge. 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 for non-Connecticut residents, and some income | ||
may be subject to the federal alternative minimum tax (AMT) for certain investors. Capital | ||
gains, if any, are fully taxable. | ||
2 | SOURCE: LIPPER INC. — Reflects reinvestment of dividends and, where applicable, capital | |
gain distributions.The Barclays Capital Municipal Bond Index is a widely accepted, unmanaged | ||
total return performance benchmark for the long-term, investment-grade, tax-exempt bond market. | ||
Index returns do not reflect fees and expenses associated with operating a mutual fund. |
The Fund 5
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus State Municipal Bond Funds, Dreyfus Connecticut Fund from May 1, 2009 to October 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 October 31, 2009 | ||||||||||
Class A | Class B | Class C | Class I | Class Z | ||||||
Expenses paid per $1,000† | $ 4.67 | $ 7.77 | $ 8.60 | $ 3.74 | $ 3.22 | |||||
Ending value (after expenses) | $1,058.50 | $1,055.20 | $1,054.50 | $1,060.80 | $1,059.40 |
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 October 31, 2009 | ||||||||||
Class A | Class B | Class C | Class I | Class Z | ||||||
Expenses paid per $1,000† | $ 4.58 | $ 7.63 | $ 8.44 | $ 3.67 | $ 3.16 | |||||
Ending value (after expenses) | $1,020.67 | $1,017.64 | $1,016.84 | $1,021.58 | $1,022.08 |
† Expenses are equal to the fund’s annualized expense ratio of .90% for Class A, 1.50% for Class B, 1.66% for Class C, .72% for Class I and .62% for Class Z, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS | ||||||||
October 31, 2009 (Unaudited) | ||||||||
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments—98.2% | Rate (%) | Date | Amount ($) | Value ($) | ||||
Connecticut—73.9% | ||||||||
Connecticut, | ||||||||
General Airport Revenue | ||||||||
(Bradley International | ||||||||
Airport) (Insured; National | ||||||||
Public Finance Guarantee Corp.) | 5.25 | 10/1/13 | 5,530,000 | 5,739,587 | ||||
Connecticut, | ||||||||
General Airport Revenue | ||||||||
(Bradley International | ||||||||
Airport) (Insured; National | ||||||||
Public Finance Guarantee Corp.) | 5.25 | 10/1/16 | 4,470,000 | 4,568,474 | ||||
Connecticut, | ||||||||
General Airport Revenue | ||||||||
(Bradley International | ||||||||
Airport) (Insured; National | ||||||||
Public Finance Guarantee Corp.) | 5.25 | 10/1/17 | 2,275,000 | 2,314,403 | ||||
Connecticut, | ||||||||
GO | 5.25 | 12/15/10 | 2,550,000 | 2,687,266 | ||||
Connecticut, | ||||||||
GO | 5.00 | 12/15/22 | 4,855,000 | 5,322,731 | ||||
Connecticut, | ||||||||
GO | 5.00 | 4/15/24 | 2,500,000 | 2,753,050 | ||||
Connecticut, | ||||||||
GO | 5.00 | 11/1/27 | 2,000,000 | 2,187,120 | ||||
Connecticut, | ||||||||
GO | 5.00 | 11/1/28 | 3,000,000 | 3,268,740 | ||||
Connecticut, | ||||||||
GO (Insured; FSA) | 5.00 | 10/15/21 | 3,500,000 | 3,827,600 | ||||
Connecticut, | ||||||||
GO (Prerefunded) | 5.13 | 11/15/11 | 1,500,000 a | 1,632,705 | ||||
Connecticut, | ||||||||
Special Tax Obligation | ||||||||
(Transportation Infrastructure | ||||||||
Purposes) | 7.13 | 6/1/10 | 1,225,000 | 1,272,640 | ||||
Connecticut, | ||||||||
Special Tax Obligation | ||||||||
(Transportation Infrastructure | ||||||||
Purposes) (Insured; AMBAC) | 5.25 | 7/1/19 | 3,395,000 | 3,899,667 | ||||
Connecticut, | ||||||||
Special Tax Obligation | ||||||||
(Transportation Infrastructure | ||||||||
Purposes) (Insured; FSA) | 5.50 | 11/1/12 | 4,180,000 | 4,710,944 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Connecticut (continued) | ||||||||
Connecticut, | ||||||||
Special Tax Obligation | ||||||||
(Transportation Infrastructure | ||||||||
Purposes) (Insured; FSA) | 5.38 | 7/1/20 | 2,000,000 | 2,173,460 | ||||
Connecticut Development Authority, | ||||||||
Airport Facility Revenue | ||||||||
(Learjet Inc. Project) | 7.95 | 4/1/26 | 2,300,000 | 2,441,174 | ||||
Connecticut Development Authority, | ||||||||
First Mortgage Gross Revenue | ||||||||
(Church Homes Inc., | ||||||||
Congregational Avery | ||||||||
Heights Project) | 5.70 | 4/1/12 | 1,265,000 | 1,266,101 | ||||
Connecticut Development Authority, | ||||||||
First Mortgage Gross Revenue | ||||||||
(Church Homes Inc., | ||||||||
Congregational Avery | ||||||||
Heights Project) | 5.80 | 4/1/21 | 3,000,000 | 2,841,600 | ||||
Connecticut Development Authority, | ||||||||
First Mortgage Gross Revenue | ||||||||
(The Elim Park Baptist | ||||||||
Home, Inc. Project) | 5.38 | 12/1/11 | 1,765,000 | 1,813,290 | ||||
Connecticut Development Authority, | ||||||||
First Mortgage Gross Revenue | ||||||||
(The Elim Park Baptist | ||||||||
Home, Inc. Project) | 5.38 | 12/1/18 | 2,300,000 | 2,295,791 | ||||
Connecticut Development Authority, | ||||||||
First Mortgage Gross Revenue | ||||||||
(The Elim Park Baptist | ||||||||
Home, Inc. Project) | 5.75 | 12/1/23 | 1,000,000 | 970,850 | ||||
Connecticut Development Authority, | ||||||||
PCR (Connecticut Light and | ||||||||
Power Company Project) | 5.85 | 9/1/28 | 6,200,000 | 6,218,724 | ||||
Connecticut Development Authority, | ||||||||
PCR (Connecticut Light and | ||||||||
Power Company Project) | 5.95 | 9/1/28 | 4,445,000 | 4,483,983 | ||||
Connecticut Development Authority, | ||||||||
PCR (The United Illuminating | ||||||||
Company Project) | 5.75 | 2/1/12 | 1,250,000 | 1,315,500 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Connecticut (continued) | ||||||||
Connecticut Development Authority, | ||||||||
Revenue (Duncaster Project) | ||||||||
(Insured; Radian) | 5.50 | 8/1/11 | 1,645,000 | 1,689,431 | ||||
Connecticut Development Authority, | ||||||||
Solid Waste Disposal | ||||||||
Facility Revenue (PSEG | ||||||||
Power LLC Project) | 5.75 | 11/1/37 | 7,000,000 | 7,000,000 | ||||
Connecticut Development Authority, | ||||||||
Water Facilities Revenue (Aquarion | ||||||||
Water Company of Connecticut | ||||||||
Project) (Insured; XLCA) | 5.10 | 9/1/37 | 6,250,000 | 5,417,250 | ||||
Connecticut Development Authority, | ||||||||
Water Facilities Revenue | ||||||||
(Bridgeport Hydraulic | ||||||||
Company Project) | 6.15 | 4/1/35 | 1,000,000 | 1,001,140 | ||||
Connecticut Development Authority, | ||||||||
Water Facilities Revenue | ||||||||
(Bridgeport Hydraulic Company | ||||||||
Project) (Insured; AMBAC) | 6.15 | 4/1/35 | 2,750,000 | 2,753,135 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Danbury Hospital Issue) | ||||||||
(Insured; AMBAC) | 5.75 | 7/1/29 | 3,000,000 | 2,958,060 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Eastern Connecticut | ||||||||
Health Network Issue) | ||||||||
(Insured; Radian) | 5.13 | 7/1/30 | 500,000 | 433,095 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Fairfield University Issue) | 5.00 | 7/1/25 | 1,340,000 | 1,407,201 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Fairfield University Issue) | 5.00 | 7/1/27 | 1,420,000 | 1,481,813 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Fairfield University Issue) | 5.00 | 7/1/34 | 4,000,000 | 4,067,280 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Connecticut (continued) | ||||||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Greenwich Academy Issue) | ||||||||
(Insured; FSA) | 5.25 | 3/1/32 | 10,880,000 | 12,786,611 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Griffin Hospital Issue) | ||||||||
(Insured; Radian) | 5.00 | 7/1/23 | 1,280,000 | 1,115,072 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Hospital for Special Care | ||||||||
Issue) (Insured; Radian) | 5.25 | 7/1/32 | 3,500,000 | 2,988,160 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Loomis Chaffee School Issue) | ||||||||
(Insured; AMBAC) | 5.25 | 7/1/28 | 1,760,000 | 2,012,208 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Loomis Chaffee School Issue) | ||||||||
(Prerefunded) | 5.25 | 7/1/11 | 3,000,000 a | 3,253,410 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Loomis Chaffee School Issue) | ||||||||
(Prerefunded) | 5.50 | 7/1/11 | 2,150,000 a | 2,340,511 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Quinnipiac University Issue) | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.75 | 7/1/33 | 5,000,000 | 5,406,900 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Quinnipiac University Issue) | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.00 | 7/1/37 | 2,000,000 | 2,039,340 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Salisbury School Issue) | ||||||||
(Insured; Assured Guaranty) | 5.00 | 7/1/33 | 5,000,000 | 5,148,550 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(The William W. Backus | ||||||||
Hospital Issue) (Insured; FSA) | 5.25 | 7/1/23 | 2,000,000 | 2,100,700 |
10
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Connecticut (continued) | ||||||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Trinity College Issue) | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.00 | 7/1/22 | 1,000,000 | 1,012,380 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(University of Hartford Issue) | ||||||||
(Insured; Radian) | 5.00 | 7/1/17 | 1,220,000 | 1,257,576 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(University of Hartford Issue) | ||||||||
(Insured; Radian) | 5.50 | 7/1/22 | 1,750,000 | 1,753,412 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(University of Hartford Issue) | ||||||||
(Insured; Radian) | 5.63 | 7/1/26 | 4,000,000 | 3,938,080 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(University of Hartford Issue) | ||||||||
(Insured; Radian) | 5.25 | 7/1/36 | 5,070,000 | 4,517,522 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Yale University Issue) | 5.13 | 7/1/27 | 5,400,000 | 5,406,102 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Yale University Issue) | 5.00 | 7/1/42 | 5,000,000 | 5,215,500 | ||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Yale-New Haven Hospital | ||||||||
Issue) (Insured; AMBAC) | 5.00 | 7/1/31 | 2,500,000 | 2,476,975 | ||||
Connecticut Higher Education | ||||||||
Supplemental Loan | ||||||||
Authority, Revenue (Family | ||||||||
Education Loan Program) | ||||||||
(Insured; AMBAC) | 5.63 | 11/15/11 | 330,000 | 337,494 | ||||
Connecticut Higher Education | ||||||||
Supplemental Loan Authority, | ||||||||
Senior Revenue (Connecticut | ||||||||
Family Education Loan Program) | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 4.50 | 11/15/20 | 1,740,000 | 1,662,413 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Connecticut (continued) | ||||||||
Connecticut Higher Education | ||||||||
Supplemental Loan Authority, | ||||||||
Senior Revenue (Connecticut | ||||||||
Family Education Loan Program) | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 4.80 | 11/15/22 | 3,405,000 | 3,257,802 | ||||
Connecticut Housing Finance | ||||||||
Authority, Revenue (Housing | ||||||||
Mortgage Finance Program) | 4.45 | 5/15/14 | 1,000,000 | 1,014,070 | ||||
Connecticut Housing Finance | ||||||||
Authority, Revenue (Housing | ||||||||
Mortgage Finance Program) | 5.00 | 11/15/21 | 3,190,000 | 3,251,503 | ||||
Connecticut Housing Finance | ||||||||
Authority, Revenue (Housing | ||||||||
Mortgage Finance Program) | 5.05 | 11/15/21 | 4,925,000 | 4,982,967 | ||||
Connecticut Housing Finance | ||||||||
Authority, Revenue (Housing | ||||||||
Mortgage Finance Program) | 5.10 | 11/15/27 | 5,000,000 | 5,122,450 | ||||
Connecticut Housing Finance | ||||||||
Authority, Revenue (Housing | ||||||||
Mortgage Finance Program) | 5.45 | 11/15/29 | 5,805,000 | 5,817,423 | ||||
Connecticut Housing Finance | ||||||||
Authority, Revenue (Housing | ||||||||
Mortgage Finance Program) | 5.00 | 11/15/35 | 2,475,000 | 2,317,689 | ||||
Connecticut Housing Finance | ||||||||
Authority, Revenue (Housing | ||||||||
Mortgage Finance Program) | 5.15 | 11/15/36 | 5,000,000 | 5,001,650 | ||||
Connecticut Housing Finance | ||||||||
Authority, Revenue (Housing | ||||||||
Mortgage Finance Program) | 5.15 | 5/15/38 | 5,790,000 | 5,797,411 | ||||
Connecticut Housing Finance | ||||||||
Authority, Revenue (Housing | ||||||||
Mortgage Finance Program) | 6.00 | 11/15/38 | 5,900,000 | 6,324,800 | ||||
Connecticut Housing Finance | ||||||||
Authority, Revenue (Housing | ||||||||
Mortgage Finance Program) | ||||||||
(Insured; AMBAC) | 5.10 | 11/15/33 | 2,500,000 | 2,469,225 | ||||
Connecticut Resources Recovery | ||||||||
Authority, Mid-Connecticut | ||||||||
System Subordinated | ||||||||
Revenue (Prerefunded) | 5.50 | 11/15/10 | 1,000,000 a | 1,051,340 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Connecticut (continued) | ||||||||
Connecticut Resources | ||||||||
Recovery Authority, RRR | ||||||||
(American Ref-Fuel | ||||||||
Company of Southeastern | ||||||||
Connecticut Project) | 5.50 | 11/15/15 | 1,000,000 | 962,610 | ||||
Connecticut Resources | ||||||||
Recovery Authority, RRR | ||||||||
(American Ref-Fuel | ||||||||
Company of Southeastern | ||||||||
Connecticut Project) | 5.50 | 11/15/15 | 3,250,000 | 3,128,482 | ||||
Eastern Connecticut Resource | ||||||||
Recovery Authority, Solid | ||||||||
Waste Revenue (Wheelabrator | ||||||||
Lisbon Project) | 5.50 | 1/1/14 | 3,870,000 | 3,873,406 | ||||
Eastern Connecticut Resource | ||||||||
Recovery Authority, Solid | ||||||||
Waste Revenue (Wheelabrator | ||||||||
Lisbon Project) | 5.50 | 1/1/20 | 7,000,000 | 6,977,880 | ||||
Fairfield, GO | 5.50 | 4/1/11 | 2,030,000 | 2,170,517 | ||||
Greater New Haven Water Pollution | ||||||||
Control Authority, Regional | ||||||||
Wastewater System Revenue | ||||||||
(Insured; FSA) | 5.00 | 11/15/37 | 1,800,000 | 1,824,804 | ||||
Greater New Haven Water Pollution | ||||||||
Control Authority, Regional | ||||||||
Wastewater System Revenue | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.00 | 11/15/30 | 5,000,000 | 5,080,600 | ||||
Greater New Haven Water Pollution | ||||||||
Control Authority, Regional | ||||||||
Wastewater System Revenue | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.00 | 8/15/35 | 2,000,000 | 2,009,260 | ||||
Greenwich Housing Authority, | ||||||||
MFHR (Greenwich Close | ||||||||
Apartments) | 6.25 | 9/1/17 | 4,115,000 | 4,198,946 | ||||
Hamden, GO (Insured; National | ||||||||
Public Finance Guarantee Corp.) | 5.25 | 8/15/14 | 5,000 | 5,782 | ||||
Hartford, | ||||||||
Parking System Revenue | ||||||||
(Prerefunded) | 6.40 | 7/1/10 | 1,000,000 a | 1,040,030 |
The Fund 13
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Connecticut (continued) | ||||||||
Hartford, | ||||||||
Parking System Revenue | ||||||||
(Prerefunded) | 6.50 | 7/1/10 | 1,500,000 a | 1,561,050 | ||||
Meriden, | ||||||||
GO (Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.00 | 8/1/16 | 2,090,000 | 2,408,934 | ||||
New Britain, | ||||||||
GO (Insured; Assured Guaranty) | 5.00 | 4/1/24 | 4,500,000 | 5,060,430 | ||||
New Haven, | ||||||||
GO (Insured; Assured Guaranty) | 5.00 | 3/1/29 | 1,000,000 | 1,034,630 | ||||
South Central Connecticut Regional | ||||||||
Water Authority, Water System | ||||||||
Revenue (Insured; National | ||||||||
Public Finance Guarantee Corp.) | 5.25 | 8/1/31 | 2,000,000 | 2,098,360 | ||||
Sprague, | ||||||||
EIR (International Paper | ||||||||
Company Project) | 5.70 | 10/1/21 | 1,350,000 | 1,318,032 | ||||
Stamford, | ||||||||
GO | 6.60 | 1/15/10 | 2,750,000 | 2,785,640 | ||||
University of Connecticut, | ||||||||
GO | 5.00 | 2/15/25 | 1,000,000 | 1,095,940 | ||||
University of Connecticut, | ||||||||
GO | 5.00 | 2/15/27 | 1,000,000 | 1,087,020 | ||||
University of Connecticut, | ||||||||
GO | 5.00 | 2/15/28 | 1,000,000 | 1,081,350 | ||||
University of Connecticut, | ||||||||
GO (Insured; FGIC) | ||||||||
(Prerefunded) | 5.75 | 3/1/10 | 1,850,000 a | 1,902,503 | ||||
University of Connecticut, | ||||||||
GO (Insured; FGIC) (Prerefunded) | 5.75 | 3/1/10 | 1,770,000 a | 1,820,233 | ||||
University of Connecticut, | ||||||||
GO (Insured; FGIC) | ||||||||
(Prerefunded) | 5.75 | 3/1/10 | 2,500,000 a | 2,570,950 | ||||
University of Connecticut, | ||||||||
GO (Insured; FSA) | 5.00 | 2/15/24 | 1,225,000 | 1,303,437 | ||||
University of Connecticut, | ||||||||
Special Obligation Student Fee | ||||||||
Revenue (Insured; FGIC) | ||||||||
(Prerefunded) | 5.75 | 11/15/10 | 2,500,000 a | 2,664,875 |
14
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Connecticut (continued) | ||||||||
University of Connecticut, | ||||||||
Special Obligation Student Fee | ||||||||
Revenue (Insured; FGIC) | ||||||||
(Prerefunded) | 6.00 | 11/15/10 | 2,425,000 a | 2,591,234 | ||||
University of Connecticut, | ||||||||
Special Obligation Student Fee | ||||||||
Revenue (Insured; FGIC) | ||||||||
(Prerefunded) | 6.00 | 11/15/10 | 2,000,000 a | 2,137,100 | ||||
U.S. Related—24.3% | ||||||||
Children’s Trust Fund of Puerto | ||||||||
Rico, Tobacco Settlement | ||||||||
Asset-Backed Bonds | 5.50 | 5/15/39 | 3,000,000 | 2,559,630 | ||||
Children’s Trust Fund of Puerto | ||||||||
Rico, Tobacco Settlement | ||||||||
Asset-Backed Bonds | 0.00 | 5/15/50 | 12,000,000 b | 432,000 | ||||
Children’s Trust Fund of Puerto | ||||||||
Rico, Tobacco Settlement | ||||||||
Asset-Backed Bonds | ||||||||
(Prerefunded) | 5.75 | 7/1/10 | 1,500,000 a | 1,552,815 | ||||
Children’s Trust Fund of Puerto | ||||||||
Rico, Tobacco Settlement | ||||||||
Asset-Backed Bonds | ||||||||
(Prerefunded) | 5.75 | 7/1/10 | 1,300,000 a | 1,345,773 | ||||
Children’s Trust Fund of Puerto | ||||||||
Rico, Tobacco Settlement | ||||||||
Asset-Backed Bonds | ||||||||
(Prerefunded) | 5.75 | 7/1/10 | 4,000,000 a | 4,140,840 | ||||
Children’s Trust Fund of Puerto | ||||||||
Rico, Tobacco Settlement | ||||||||
Asset-Backed Bonds | ||||||||
(Prerefunded) | 6.00 | 7/1/10 | 5,000,000 a | 5,184,400 | ||||
Government of Guam, | ||||||||
LOR (Section 30) | 5.63 | 12/1/29 | 1,000,000 | 1,009,520 | ||||
Guam Economic Development | ||||||||
Authority, Tobacco Settlement | ||||||||
Asset-Backed Bonds | 5.20 | 5/15/12 | 795,000 | 871,638 | ||||
Guam Economic Development | ||||||||
Authority, Tobacco Settlement | ||||||||
Asset-Backed Bonds | 5.45 | 5/15/16 | 1,445,000 | 1,675,232 |
The Fund 15
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
U.S. Related (continued) | ||||||||
Guam Economic Development | ||||||||
Authority, Tobacco Settlement | ||||||||
Asset-Backed Bonds (Prerefunded) | 5.00 | 5/15/11 | 55,000 a | 58,397 | ||||
Guam Waterworks Authority, | ||||||||
Water and Wastewater | ||||||||
System Revenue | 5.50 | 7/1/16 | 750,000 | 727,965 | ||||
Puerto Rico Aqueduct and Sewer | ||||||||
Authority, Senior Lien Revenue | 6.00 | 7/1/38 | 6,000,000 | 6,179,100 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | 5.25 | 7/1/25 | 1,500,000 | 1,480,980 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | 6.00 | 7/1/38 | 2,000,000 | 2,052,780 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | ||||||||
(Insured; FGIC) | 5.50 | 7/1/16 | 3,270,000 | 3,480,588 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | ||||||||
(Insured; FSA) | 5.25 | 7/1/12 | 2,600,000 | 2,772,666 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.50 | 7/1/13 | 8,000,000 | 8,543,200 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.25 | 7/1/14 | 4,925,000 | 5,178,145 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.65 | 7/1/15 | 3,000,000 | 3,217,230 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 6.00 | 7/1/15 | 2,000,000 | 2,179,820 |
16
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
U.S. Related (continued) | ||||||||
Puerto Rico Electric Power | ||||||||
Authority, Power Revenue | ||||||||
(Insured; FSA) (Prerefunded) | 5.25 | 7/1/10 | 8,000,000 a | 8,334,720 | ||||
Puerto Rico Highways and | ||||||||
Transportation Authority, | ||||||||
Highway Revenue | ||||||||
(Prerefunded) | 5.50 | 7/1/16 | 5,000,000 a | 5,944,750 | ||||
Puerto Rico Highways and | ||||||||
Transportation Authority, | ||||||||
Highway Revenue (Insured; | ||||||||
National Public Finance | ||||||||
Guarantee Corp.) | 5.50 | 7/1/13 | 4,590,000 | 4,901,661 | ||||
Puerto Rico Highways and | ||||||||
Transportation Authority, | ||||||||
Transportation Revenue | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.25 | 7/1/33 | 7,750,000 | 7,464,877 | ||||
Puerto Rico Infrastructure | ||||||||
Financing Authority, Special | ||||||||
Tax Revenue (Insured; AMBAC) | 0.00 | 7/1/35 | 5,500,000 b | 873,510 | ||||
Puerto Rico Sales Tax Financing | ||||||||
Corporation, Sales Tax Revenue | ||||||||
(First Subordinate Series) | 6.00 | 8/1/42 | 3,450,000 | 3,623,708 | ||||
Virgin Islands Public Finance | ||||||||
Authority, Revenue, Virgin | ||||||||
Islands Gross Receipts | ||||||||
Taxes Loan Note | 5.63 | 10/1/10 | 150,000 | 154,383 | ||||
Virgin Islands Public Finance | ||||||||
Authority, Revenue, Virgin | ||||||||
Islands Gross Receipts | ||||||||
Taxes Loan Note | 6.38 | 10/1/19 | 5,000,000 | 5,114,100 | ||||
Total Long-Term | ||||||||
Municipal Investments | ||||||||
(cost $360,717,050) | 368,239,514 |
The Fund 17
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Short-Term Municipal | Coupon | Maturity | Principal | |||||
Investment—.1% | Rate (%) | Date | Amount ($) | Value ($) | ||||
Connecticut; | ||||||||
Connecticut Health and Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(Wesleyan University Issue) | ||||||||
(Liquidity Facility; Bank of | ||||||||
America) (cost $200,000) | 0.20 | 11/1/09 | 200,000 c | 200,000 | ||||
Total Investments (cost $360,917,050) | 98.3% | 368,439,514 | ||||||
Cash and Receivables (Net) | 1.7% | 6,223,326 | ||||||
Net Assets | 100.0% | 374,662,840 |
a These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are |
collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on |
the municipal issue and to retire the bonds in full at the earliest refunding date. |
b Security issued with a zero coupon. Income is recognized through the accretion of discount. |
c Variable rate demand note—rate shown is the interest rate in effect at October 31, 2009. Maturity date represents |
the next demand date, or the ultimate maturity date if earlier. |
18
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 |
The Fund 19
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Combined Ratings (Unaudited) | ||||||||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† | |||||
AAA | Aaa | AAA | 48.9 | |||||||
AA | Aa | AA | 8.7 | |||||||
A | A | A | 12.3 | |||||||
BBB | Baa | BBB | 21.1 | |||||||
BB | Ba | BB | 2.0 | |||||||
F1 | MIG1/P1 | SP1/A1 | .1 | |||||||
Not Ratedd | Not Ratedd | Not Ratedd | 6.9 | |||||||
100.0 |
† | Based on total investments. | |
d | Securities which, while not rated by Fitch, Moody’s and Standard & Poor’s, have been determined by the Manager to | |
be of comparable quality to those rated securities in which the fund may invest. | ||
See notes to financial statements. |
20
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2009 (Unaudited)
Cost | Value | |||||||||
Assets ($): | ||||||||||
Investments in securities—See Statement of Investments | 360,917,050 | 368,439,514 | ||||||||
Cash | 1,565,974 | |||||||||
Interest receivable | 6,133,568 | |||||||||
Receivable for shares of Beneficial Interest subscribed | 162,549 | |||||||||
Prepaid expenses | 21,744 | |||||||||
376,323,349 | ||||||||||
Liabilities ($): | ||||||||||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 284,234 | |||||||||
Payable for shares of Beneficial Interest redeemed | 1,330,383 | |||||||||
Accrued expenses | 45,892 | |||||||||
1,660,509 | ||||||||||
Net Assets ($) | 374,662,840 | |||||||||
Composition of Net Assets ($): | ||||||||||
Paid-in capital | 370,528,693 | |||||||||
Accumulated undistributed investment income—net | 31,659 | |||||||||
Accumulated net realized gain (loss) on investments | (3,419,976) | |||||||||
Accumulated net unrealized appreciation | ||||||||||
(depreciation) on investments | 7,522,464 | |||||||||
Net Assets ($) | 374,662,840 | |||||||||
Net Asset Value Per Share | ||||||||||
Class A | Class B | Class C | Class I | Class Z | ||||||
Net Assets ($) | 245,914,569 | 1,818,232 | 17,151,815 | 11,427 | 109,766,797 | |||||
Shares Outstanding | 21,250,652 | 157,226 | 1,484,588 | 987 | 9,487,691 | |||||
Net Asset Value | ||||||||||
Per Share ($) | 11.57 | 11.56 | 11.55 | 11.58 | 11.57 | |||||
See notes to financial statements. |
The Fund 21
STATEMENT OF OPERATIONS Six Months Ended October 31, 2009 (Unaudited) |
Investment Income ($): | ||
Interest Income | 9,418,808 | |
Expenses: | ||
Management fee—Note 3(a) | 1,027,283 | |
Shareholder servicing costs—Note 3(c) | 455,962 | |
Distribution fees—Note 3(b) | 66,195 | |
Registration fees | 22,842 | |
Custodian fees—Note 3(c) | 22,252 | |
Professional fees | 20,939 | |
Prospectus and shareholders’ reports | 8,959 | |
Trustees’ fees and expenses—Note 3(d) | 6,778 | |
Loan commitment fees—Note 2 | 1,643 | |
Interest expense—Note 2 | 251 | |
Miscellaneous | 22,079 | |
Total Expenses | 1,655,183 | |
Less—reduction in fees due to earnings credits—Note 1(b) | (5,381) | |
Net Expenses | 1,649,802 | |
Investment Income—Net | 7,769,006 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | 14,324 | |
Net unrealized appreciation (depreciation) on investments | 13,350,804 | |
Net Realized and Unrealized Gain (Loss) on Investments | 13,365,128 | |
Net Increase in Net Assets Resulting from Operations | 21,134,134 | |
See notes to financial statements. |
22
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009a | |||
Operations ($): | ||||
Investment income—net | 7,769,006 | 15,661,569 | ||
Net realized gain (loss) on investments | 14,324 | (2,135,699) | ||
Net unrealized appreciation | ||||
(depreciation) on investments | 13,350,804 | (11,718,670) | ||
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 21,134,134 | 1,807,200 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (5,038,131) | (10,085,483) | ||
Class B Shares | (38,124) | (171,436) | ||
Class C Shares | (272,086) | (486,466) | ||
Class I Shares | (249) | (188) | ||
Class Z Shares | (2,388,757) | (4,871,651) | ||
Total Dividends | (7,737,347) | (15,615,224) | ||
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 9,926,021 | 24,296,028 | ||
Class B Shares | 1,362 | 100,216 | ||
Class C Shares | 2,415,556 | 5,146,558 | ||
Class I Shares | — | 10,000 | ||
Class Z Shares | 3,160,778 | 5,709,725 | ||
Dividends reinvested: | ||||
Class A Shares | 3,409,729 | 6,566,551 | ||
Class B Shares | 28,483 | 116,344 | ||
Class C Shares | 219,941 | 361,283 | ||
Class Z Shares | 1,759,121 | 3,508,351 |
The Fund 23
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009a | |||
Beneficial Interest Transactions ($) (continued): | ||||
Cost of shares redeemed: | ||||
Class A Shares | (14,350,828) | (31,975,790) | ||
Class B Shares | (1,112,233) | (4,672,055) | ||
Class C Shares | (1,093,102) | (2,649,986) | ||
Class Z Shares | (7,579,326) | (15,153,404) | ||
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | (3,214,498) | (8,636,179) | ||
Total Increase (Decrease) in Net Assets | 10,182,289 | (22,444,203) | ||
Net Assets ($): | ||||
Beginning of Period | 364,480,551 | 386,924,754 | ||
End of Period | 374,662,840 | 364,480,551 | ||
Undistributed investment income—net | 31,659 | — |
24
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009a | |||
Capital Share Transactions: | ||||
Class Ab | ||||
Shares sold | 870,271 | 2,194,351 | ||
Shares issued for dividends reinvested | 298,719 | 597,473 | ||
Shares redeemed | (1,258,463) | (2,950,744) | ||
Net Increase (Decrease) in Shares Outstanding | (89,473) | (158,920) | ||
Class Bb | ||||
Shares sold | 116 | 9,643 | ||
Shares issued for dividends reinvested | 2,502 | 10,546 | ||
Shares redeemed | (98,721) | (420,339) | ||
Net Increase (Decrease) in Shares Outstanding | (96,103) | (400,150) | ||
Class C | ||||
Shares sold | 212,152 | 466,286 | ||
Shares issued for dividends reinvested | 19,303 | 32,993 | ||
Shares redeemed | (97,154) | (245,261) | ||
Net Increase (Decrease) in Shares Outstanding | 134,301 | 254,018 | ||
Class I | ||||
Shares sold | — | 987 | ||
Class Z | ||||
Shares sold | 278,389 | 520,014 | ||
Shares issued for dividends reinvested | 154,224 | 319,081 | ||
Shares redeemed | (660,792) | (1,381,181) | ||
Net Increase (Decrease) in Shares Outstanding | (228,179) | (542,086) |
a | From December 15, 2008 (commencement of initial offering) to April 30, 2009 for Class I shares. | |
b | During the period ended October 31, 2009, 43,885 Class B shares representing $493,777, were automatically | |
converted to 43,846 Class A shares and during the period ended April 30, 2009, 223,279 Class B shares | ||
representing $2,499,362 were automatically converted to 223,086 Class A shares. | ||
See notes to financial statements. |
The Fund 25
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.16 | 11.55 | 11.87 | 11.78 | 12.11 | 11.90 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .24 | .47 | .48 | .49 | .51 | .51 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .41 | (.39) | (.30) | .09 | (.33) | .21 | ||||||
Total from Investment Operations | .65 | .08 | .18 | .58 | .18 | .72 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.24) | (.47) | (.48) | (.49) | (.51) | (.51) | ||||||
Dividends from net realized | ||||||||||||
gain on investments | — | — | (.02) | — | — | — | ||||||
Total Distributions | (.24) | (.47) | (.50) | (.49) | (.51) | (.51) | ||||||
Net asset value, end of period | 11.57 | 11.16 | 11.55 | 11.87 | 11.78 | 12.11 | ||||||
Total Return (%)b | 5.85c | .86 | 1.54 | 5.04 | 1.52 | 6.17 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .90d | .93 | 1.10 | 1.20 | 1.13 | 1.04 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 90d,e | .93e | 1.09 | 1.19 | 1.13e | 1.03 | ||||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | —d | .02 | .20 | .30 | .23 | .13 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 4.14d | 4.29 | 4.12 | 4.17 | 4.29 | 4.25 | ||||||
Portfolio Turnover Rate | 2.72c | 26.41 | 44.96 | 43.87 | 14.24 | 20.07 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 245,915 238,183 | 248,300 | 257,627 | 259,930 | 274,204 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
26
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class B Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.15 | 11.54 | 11.86 | 11.77 | 12.10 | 11.89 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .20 | .40 | .41 | .43 | .45 | .45 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .41 | (.38) | (.30) | .09 | (.33) | .21 | ||||||
Total from Investment Operations | .61 | .02 | .11 | .52 | .12 | .66 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.20) | (.41) | (.41) | (.43) | (.45) | (.45) | ||||||
Dividends from net realized | ||||||||||||
gain on investments | — | — | (.02) | — | — | — | ||||||
Total Distributions | (.20) | (.41) | (.43) | (.43) | (.45) | (.45) | ||||||
Net asset value, end of period | 11.56 | 11.15 | 11.54 | 11.86 | 11.77 | 12.10 | ||||||
Total Return (%)b | 5.52c | .26 | .97 | 4.50 | 1.00 | 5.63 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.50d | 1.52 | 1.66 | 1.72 | 1.66 | 1.56 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.50d,e | 1.52e | 1.65 | 1.71 | 1.66e | 1.55 | ||||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | —d | .02 | .20 | .30 | .23 | .13 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.54d | 3.68 | 3.56 | 3.66 | 3.76 | 3.73 | ||||||
Portfolio Turnover Rate | 2.72c | 26.41 | 44.96 | 43.87 | 14.24 | 20.07 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 1,818 | 2,825 | 7,541 | 17,314 | 24,853 | 32,919 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
The Fund 27
FINANCIAL HIGHLIGHTS (continued) |
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.14 | 11.53 | 11.85 | 11.76 | 12.09 | 11.88 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .19 | .39 | .39 | .40 | .42 | .42 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .41 | (.39) | (.30) | .09 | (.33) | .21 | ||||||
Total from Investment Operations | .60 | — | .09 | .49 | .09 | .63 | ||||||
Distributions: | ||||||||||||
Dividends from investment | ||||||||||||
income—net | (.19) | (.39) | (.39) | (.40) | (.42) | (.42) | ||||||
Dividends from net realized | ||||||||||||
gain on investments | — | — | (.02) | — | — | — | ||||||
Total Distributions | (.19) | (.39) | (.41) | (.40) | (.42) | (.42) | ||||||
Net asset value, end of period | 11.55 | 11.14 | 11.53 | 11.85 | 11.76 | 12.09 | ||||||
Total Return (%)b | 5.45c | .09 | .76 | 4.25 | .76 | 5.37 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.66d | 1.69 | 1.86 | 1.96 | 1.89 | 1.80 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.66d,e | 1.68 | 1.85 | 1.95 | 1.89e | 1.79 | ||||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | —d | .02 | .20 | .30 | .23 | .13 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.37d | 3.53 | 3.35 | 3.41 | 3.52 | 3.49 | ||||||
Portfolio Turnover Rate | 2.72c | 26.41 | 44.96 | 43.87 | 14.24 | 20.07 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 17,152 | 15,045 | 12,640 | 11,021 | 11,429 | 11,643 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
28
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
Class I Shares | (Unaudited) | April 30, 2009a | ||
Per Share Data ($): | ||||
Net asset value, | ||||
beginning of period | 11.16 | 10.13 | ||
Investment Operations: | ||||
Investment income—netb | .25 | .19 | ||
Net realized and unrealized | ||||
gain (loss) on investments | .42 | 1.03 | ||
Total from Investment Operations | .67 | 1.22 | ||
Distributions: | ||||
Dividends from investment | ||||
income—net | (.25) | (.19) | ||
Net asset value, end of period | 11.58 | 11.16 | ||
Total Return (%)c | 6.08 | 12.10 | ||
Ratios/Supplemental Data (%): | ||||
Ratio of total expenses to average net assetsd | .62 | .64 | ||
Ratio of net expenses to average net assetsd | .62e | .63 | ||
Ratio of interest and expense related to | ||||
floating rate notes issued to average net assets | —d | .02 | ||
Ratio of net investment income | ||||
to average net assetsd | 4.42 | 4.70 | ||
Portfolio Turnover Rate | 2.72c | 26.41 | ||
Net Assets, end of period ($ x 1,000) | 11 | 11 |
a | From December 15, 2008 (commencement of initial offering) to April 30, 2009. | |
b | Based on average shares outstanding at each month end. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
The Fund 29
FINANCIAL HIGHLIGHTS (continued) |
Six Months Ended | ||||||
October 31, 2009 | Year Ended April 30, | |||||
Class Z Shares | (Unaudited) | 2009 | 2008a | |||
Per Share Data ($): | ||||||
Net asset value, beginning of period | 11.16 | 11.55 | 11.79 | |||
Investment Operations: | ||||||
Investment income—netb | .25 | .49 | .46 | |||
Net realized and unrealized | ||||||
gain (loss) on investments | .41 | (.39) | (.22) | |||
Total from Investment Operations | .66 | .10 | .24 | |||
Distributions: | ||||||
Dividends from investment income—net | (.25) | (.49) | (.46) | |||
Dividends from net realized | ||||||
gain on investments | — | — | (.02) | |||
Total Distributions | (.25) | (.49) | (.48) | |||
Net asset value, end of period | 11.57 | 11.16 | 11.55 | |||
Total Return (%) | 5.94c | 1.03 | 2.04c | |||
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses to average net assets | .72d | .76 | .94d | |||
Ratio of net expenses to average net assets | .72d,e | .76e | .93d | |||
Ratio of interest and expense related to floating | ||||||
rate notes issued to average net assets | —d | .02 | .20 | |||
Ratio of net investment income | ||||||
to average net assets | 4.33d | 4.46 | 4.31d | |||
Portfolio Turnover Rate | 2.72c | 26.41 | 44.96 | |||
Net Assets, end of period ($ x 1,000) | 109,767 | 108,416 | 118,444 |
a As of the close of business on May 30, 2007 (commencement of initial offering) to April 30, 2008. |
b Based on average shares outstanding at each month end. |
c Not annualized. |
d Annualized. |
e Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements. |
30
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus State Municipal Bond Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a non-diversified open-end management investment company, and operates as a series company that offers nine series including the Dreyfus Connecticut Fund (the “fund”).The Trust’s investment objective is to maximize current income exempt from federal and, where applicable, state income taxes, without undue risk.The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares. The fund is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Class A, Class B, Class C, Class I and Class Z. Class A shares are subject to a sales charge imposed at the time of purchase. Class B shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class B share redemptions made within six years of purchase and automatically convert to Class A shares after six years. The fund does not offer Class B shares, except in connection with dividend reinvestment and permitted exchanges of Class B shares. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Class I shares are sold at net asset value per share only to institutional investors. Cla ss Z shares are sold at net asset value per share generally only to shareholders who received Class Z shares in exchange for their shares of a Dreyfus-managed Fund as a result of the reorganization of such fund and who continued to maintain accounts with the fund at the time of purchase. Class Z shares generally are not available for new accounts. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class) and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The Fund 31
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
As of October 31, 2009, MBC Investments Corp., an indirect subsidiary of BNY Mellon, held all of the outstanding Class I 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) has become the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The ASC has superseded all existing non-SEC accounting and reporting standards. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The fund enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued each business day by an independent pricing service (the “Service”) approved by the Board of Trustees. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration
32
of: yields or prices of municipal 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 securities exchange on which such securities are primarily traded or at the last sales price on the national securities market on each business day.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for |
identical investments. |
Level 2—other significant observable inputs (including quoted |
prices for similar investments, interest rates, prepayment speeds, |
credit risk, etc.). |
Level 3—significant unobservable inputs (including the fund’s own |
assumptions in determining the fair value of investments). |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The Fund 33
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The following is a summary of the inputs used as of October 31, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||||||
Level 1— | Significant | Significant | ||||||
Unadjusted | Observable | Unobservable | ||||||
Quoted Prices | Inputs | Inputs | Total | |||||
Assets ($) | ||||||||
Investments in Securities: | ||||||||
Municipal Bonds | — | 368,439,514 | — | 368,439,514 |
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gain and loss 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.
The fund follows an investment policy of investing primarily in municipal obligations of one state. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the fund.
(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
34
and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(d) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended October 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 April 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $2,537,351 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to April 30, 2009. If not applied, $244,621 of the carryover expires in fiscal 2011, $206,012 expires in fiscal 2012, $74,718 expires in fiscal 2014, $707,094 expires in fiscal 2016 and $1,304,906 expires in fiscal 2017.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2009 were as follows: tax exempt income $15,572,469 and ordinary income $42,755.The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participated with other Dreyfus-managed funds in a $145 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon (each, a “Facility”), each to be utilized primarily for temporary or emer-
The Fund 35
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
gency purposes, including the financing of redemptions. Effective October 14, 2009, the $145 million unsecured credit facility with Citibank, N.A., was increased to $215 million and the fund continues participation in the $300 million unsecured credit facility provided by The Bank of New York Mellon. In connection therewith, the fund has agreed to pay its pro rata portion of Facility fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing.
The average daily amount of borrowings outstanding under the Facilities during the period ended October 31, 2009, was approximately $16,500 with a related weighted average annualized interest rate of 1.52%.
NOTE 3-Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement with the Manager, the management fee is computed at the annual rate of .55% of the value of the fund’s average daily net assets and is payable monthly.
During the period ended October 31, 2009, the Distributor retained $6,564 from commissions earned on sales of the fund’s Class A shares and $400 and $561 from CDSCs on redemptions of the fund’s Class B and Class C shares, respectively.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class B and Class C shares pay the Distributor for distributing their shares at an annual rate of .50% of the value of the average daily net assets of Class B shares and .75% of the value of the average daily net assets of Class C shares. During the period ended October 31, 2009, Class B and Class C shares were charged $5,404 and $60,791, respectively, pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay the Distributor at an annual rate of .25% of the value of the average daily net assets of their shares for the provision of certain ser-
36
vices.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (a securities dealer, financial institution or other industry professional) in respect of these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2009, Class A, Class B and Class C shares were charged $305,387, $2,702, and $20,264, respectively, pursuant to the Shareholder Services Plan.
Under the Shareholder Services Plan, Class Z shares reimburse the Distributor an amount not to exceed an annual rate of .25% of the value of Class Z shares’ average daily net assets for certain allocated expenses of providing personal services and/or maintaining shareholder accounts.The services provided may include personal services relating to shareholders accounts, such as answering shareholder inquiries regarding Class Z shares and providing reports and other information, and services related to the maintenance of shareholder accounts. During the period ended October 31, 2009, Class Z shares were charged $33,122 pursuant to the Shareholder Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the fund. During the period ended October 31, 2009, the fund was charged $50,028 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of NewYork Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2009, the fund was charged $5,381 pursuant to the cash management
The Fund 37
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
agreement, which is included in Shareholder servicing costs in the Statement of Operations. These fees were offset by earnings credits pursuant to the cash management agreement.
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 October 31, 2009, the fund was charged $22,252 pursuant to the custody agreement.
During the period ended October 31, 2009, the fund was charged $3,341 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $177,045, Rule 12b-1 distribution plan fees $11,751, shareholder services plan fees $62,813 custodian fees $10,988, chief compliance officer fees $3,897 and transfer agency per account fees $17,740.
(d) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended October 31, 2009, amounted to $10,402,381 and $9,895,500, respectively.
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The fund held no derivatives during the period ended October 31,2009, these disclosures did not impact the notes to the financial statements.
38
At October 31, 2009, accumulated net unrealized appreciation on investments was $7,522,464, consisting of $14,471,541 gross unrealized appreciation and $6,949,077 gross unrealized depreciation.
At October 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).
NOTE 5—Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
The Fund 39
INFORMATION ABOUT THE REVIEW AND APPROVAL |
OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the Board of Trustees held on July 21, 2009, the Board considered the re-approval for an annual period of the fund’s Management Agreement, pursuant to which the Manager provides the fund with investment advisory and administrative services. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager.
Analysis of Nature, Extent and Quality of Services Provided to the Fund.The Board members considered information previously provided to them in a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus fund complex, and representatives of the Manager confirmed that there had been no material changes in this information.The Board also discussed the nature, extent and quality of the services provided to the fund pursuant to its Management Agreement. The Manager’s representatives reviewed the fund’s distribution of accounts and the relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services in each distribution channel, including those of the fund.The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements.The Board members also considered the Manager’s extensive administrative, accounting and compliance infrastructure.The Board also considered the Manager’s brokerage policies and practices and the standards applied in seeking best execution.
40
Comparative Analysis of the Fund’s Performance, Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of comparable funds (the “Performance Group”) and to a broader group of 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 yield performance for the past ten one-year periods ended May 31 (2000-2009) was above or equal to the Performance Group median for each reported time period except the one-year periods ended May 31, 2000, 2002 and 2003, when it was below the median, and that the fund’s yield performance was above the Performance Universe median for each reported time period.The Board members also noted that the fund’s total return performance for various periods ended May 31, 2009 was above or equal to the Performance Group median for the one- and five-year periods, and below the median for the two-, three-, four- and ten-year periods. The Board members noted that the fund’s total return performance was above the Performance Universe median for each reported time period. The Manager also provided a comparison of the fund’s calendar year total returns to the returns of its Lipper category average for the prior ten years, and the Board members noted that the fund outperformed its Lipper category average in nine of the past ten calendar years.
The Board members also discussed the fund’s contractual and actual management fee and total expense ratio as compared to a comparable group of funds (the “Expense Group”) that was composed of the same funds included in the Performance Group and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper. The Board noted that the fund’s contractual management fee was
The Fund 41
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
above the Expense Group median, and that the fund’s actual management fee and total expense ratio were above the Expense Group and Expense Universe medians.
Representatives of the Manager informed the Board members that there were no mutual funds, separate accounts or wrap fee accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex. The Board members also had been informed that the methodology also had been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of a fund. The Board members evaluated the profitability analysis in light of the re levant circumstances for the fund, and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders.The Board members also considered potential benefits to the Manager and its affiliates from acting as investment adviser to the fund and noted that there were no soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and
42
that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It was also noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
- The Board concluded that the nature, extent and quality of the services provided by the Manager to the fund are adequate and appropriate.
- The Board was generally satisfied with the fund’s performance.
- The Board concluded that the fee paid to the Manager by the fund was reasonable in light of the services provided, comparative perfor- mance and expense and management fee information, costs of the services provided, and profits to be realized and benefits derived or to be derived by the Manager from its relationship with the fund.
- The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in con- nection with the management fee rate charged to the fund, and that, to the extent in the future it were to be determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with the information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
The Fund 43
NOTES
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
16 | Statement of Assets and Liabilities |
17 | Statement of Operations |
18 | Statement of Changes in Net Assets |
20 | Financial Highlights |
23 | Notes to Financial Statements |
31 | Information About the Review and Approval of the Fund’s Management Agreement |
FOR MORE INFORMATION | |
Back Cover | |
Dreyfus State Municipal Bond Funds, Dreyfus Maryland Fund |
The Fund |
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A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus State Municipal Bond Funds,Dreyfus Maryland Fund,covering the six-month period from May 1, 2009, through October 31, 2009.
Reports of positive U.S. economic growth over the third quarter of 2009 may have signaled the end of the deep recession that technically began in December 2007. Signs that the economy finally has turned a corner include inventory rebuilding among manufacturers and improvements in home sales and prices, while massive government stimulus and favorable supply-and-demand influences have all supported the municipal bond rally in 2009.As expected, funds with the longest average durations and lower-quality portfolios have led the rebound, while AAA-rated and shorter-duration funds have rallied to a lesser extent.
As the financial markets currently appear poised to enter into a new phase, and as government intervention appears to be winding down (at least for the moment), the best strategy for your portfolio depends not only on your view of the economy’s direction,but on your current financial needs, future goals and attitudes toward risk.Your financial advisor can help you decide which investments have the potential to benefit from a recovery while guarding against the taxation and investment risks that may accompany policy changes and unexpected market developments.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
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Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation November 16, 2009 |
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2009, through October 31, 2009, as provided by Joseph P. Darcy, Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended October 31, 2009, Class A, Class B and Class C shares of Dreyfus Maryland Fund, a series of Dreyfus State Municipal Bond Funds, produced total returns of 7.10%, 6.66% and 6.59%,respectively.1 In comparison,the Barclays Capital Municipal Bond Index (the “Index”), the fund’s benchmark Index, which is composed of bonds issued nationally and not solely within Maryland, achieved a total return of 4.99% for the same period.2
Municipal bonds rallied strongly over the reporting period amid expectations of better economic times and stable credit markets.The fund’s returns were higher than its Index, primarily due to strong performance by the fund’s core, seasoned holdings of municipal bonds.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax and Maryland state income tax without undue risk. To pursue its goal, the fund normally invests substantially all of its assets in municipal bonds that provide income exempt from federal income tax and Maryland state income tax. The fund invests at least 70% of its assets in investment-grade municipal bonds or the unrated equivalent as determined by Dreyfus.The fund may invest up to 30% of its assets in municipal bonds rated below investment grade or the unrated equivalent as determined by Dreyfus. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
We may buy and sell bonds based on credit quality, market outlook and yield potential. In selecting municipal bonds for investment, we may assess the current interest-rate environment and a municipal bond’s
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
potential volatility in different rate environments. We focus on bonds with the potential to offer attractive current income, typically looking for bonds that can provide consistently attractive current yields or that are trading at competitive market prices. A portion of the fund’s assets may be allocated to“discount”bonds,which are bonds that sell at a price below their face value or to “premium” bonds, which are bonds that sell at a price above their face value.The fund’s allocation either to discount bonds or to premium bonds will change along with our changing views of the current interest-rate and market environment.We may also look to select bonds that are most likely to obtain attractive prices when sold.
Municipal Bonds Rebounded Sharply
In the wake of severe market declines stemming from a global financial crisis and recession, the municipal bond market staged an impressive rebound over the reporting period. The rally was fueled by changing investor sentiment, which began to improve in March 2009 as government and monetary authorities’ aggressive remedial measures—including historically low interest rates, injections of liquidity into the banking system, the rescues of major corporations and a massive economic stimulus program—seemed to gain traction. Additional evidence of economic stabilization later appeared, supporting a sustained rally through the reporting period’s end. Although most municipal bonds participated in the rally, gains were particularly strong among lower-quality issues that had been punished in the downturn.
Seasoned Holdings Supported Fund Returns
The fund’s core holdings of seasoned bonds produced competitive levels of income that bolstered the fund’s total return. Moreover, we strived to maintain a high level of credit quality.When making new purchases, we generally emphasized higher-rated bonds with maturities in the 15- to 20-year range, which offered most of the yield of longer-term securities but with less volatility.We generally favored bonds backed by dedicated revenue streams, including those from essential municipal services such as sewer and water facilities.
4
Like most other states, Maryland has continued to struggle with fiscal pressures due to tax revenue shortfalls and greater demand for services in the recession.The state has attempted to bridge its budget gap with spending cuts, transfers from reserve funds and payments from the federal economic stimulus program.
Supply-and-Demand Factors Appear Favorable
We have maintained a generally conservative investment posture.With short-term interest rates expected to remain low for some time, credit conditions may be the dominant influence on market sentiment over the foreseeable future.
Despite the lingering impacts of the recession on municipalities, technical factors have supported the market. The supply of newly issued municipal bonds has fallen significantly to date in 2009 compared to one year ago as the Build America Bonds program, part of the economic stimulus package, has diverted a substantial portion of new issuance to the taxable bond market.At the same time, demand for municipal bonds has intensified from investors concerned about the likelihood of higher income taxes.We expect this favorable supply-and-demand dynamic to persist into 2010.
November 16, 2009
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take into | |
consideration the maximum initial sales charge in the case of Class A shares or the applicable | ||
contingent deferred sales charges imposed on redemptions in the case of Class B and Class C | ||
shares. Had these charges been reflected, returns would have been lower. Past performance is no | ||
guarantee of future results. Each share class is subject to a different sales charge and distribution | ||
expense structure and will achieve different returns. 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 for non-Maryland residents, and some income | ||
may be subject to the federal alternative minimum tax (AMT) for certain investors. Capital gains, | ||
if any, are fully taxable. | ||
2 | SOURCE: LIPPER INC. — Reflects reinvestment of dividends and, where applicable, capital | |
gain distributions.The Barclays Capital Municipal Bond Index is a widely accepted, unmanaged | ||
total return performance benchmark for the long-term, investment-grade, tax-exempt bond market. | ||
Index returns do not reflect fees and expenses associated with operating a mutual fund. |
The Fund 5
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus State Municipal Bond Funds, Dreyfus Maryland Fund from May 1, 2009 to October 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 October 31, 2009 | ||||||
Class A | Class B | Class C | ||||
Expenses paid per $1,000† | $ 4.91 | $ 7.92 | $ 8.90 | |||
Ending value (after expenses) | $1,071.00 | $1,066.60 | $1,065.90 |
COMPARING YOUR FUND’S EXPENSES |
WITH THOSE OF OTHER FUNDS (Unaudited) |
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment | ||||||
assuming a hypothetical 5% annualized return for the six months ended October 31, 2009 | ||||||
Class A | Class B | Class C | ||||
Expenses paid per $1,000† | $ 4.79 | $ 7.73 | $ 8.69 | |||
Ending value (after expenses) | $1,020.47 | $1,017.54 | $1,016.59 |
† Expenses are equal to the fund’s annualized expense ratio of .94% for Class A, 1.52% for Class B and 1.71% for Class C, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS | ||||||||
October 31, 2009 (Unaudited) | ||||||||
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments—97.5% | Rate (%) | Date | Amount ($) | Value ($) | ||||
Maryland—87.3% | ||||||||
Anne Arundel County, | ||||||||
EDR (Anne Arundel Community | ||||||||
College Project) | 5.00 | 9/1/17 | 2,255,000 | 2,348,109 | ||||
Baltimore, | ||||||||
Port Facilities Revenue | ||||||||
(Consolidated Coal Sales | ||||||||
Company Project) | 6.50 | 12/1/10 | 4,090,000 | 4,109,550 | ||||
Baltimore, | ||||||||
Project Revenue (Wastewater | ||||||||
Projects) (Insured; National | ||||||||
Public Finance Guarantee Corp.) | 5.00 | 7/1/22 | 630,000 | 663,491 | ||||
Baltimore, | ||||||||
Subordinate Project Revenue | ||||||||
(Water Projects) | 5.75 | 7/1/39 | 750,000 | 792,360 | ||||
Frederick County, | ||||||||
Educational Facilities Revenue | ||||||||
(Mount Saint Mary’s University) | 4.50 | 9/1/25 | 3,000,000 | 2,505,990 | ||||
Gaithersburg, | ||||||||
Hospital Facilities | ||||||||
Improvement Revenue (Shady | ||||||||
Grove Adventist Hospital) | ||||||||
(Insured; FSA) | 6.50 | 9/1/12 | 5,645,000 | 6,202,444 | ||||
Harford County, | ||||||||
MFHR (Affinity Old Post | ||||||||
Apartments Projects) | ||||||||
(Collateralized; GMNA) | 5.00 | 11/20/25 | 1,460,000 | 1,458,671 | ||||
Howard County, | ||||||||
COP | 8.15 | 2/15/20 | 605,000 | 846,383 | ||||
Howard County, | ||||||||
GO (Metropolitan District | ||||||||
Project) | 5.25 | 8/15/19 | 1,545,000 | 1,620,411 | ||||
Hyattsville, | ||||||||
Special Obligation Revenue | ||||||||
(University Town | ||||||||
Center Project) | 5.75 | 7/1/34 | 3,000,000 | 2,424,870 | ||||
Maryland, | ||||||||
GO (State and Local | ||||||||
Facilities Loan) | 5.00 | 8/1/16 | 5,000,000 | 5,453,000 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Maryland (continued) | ||||||||
Maryland Community Development | ||||||||
Administration, Department of | ||||||||
Housing and Community | ||||||||
Development (Single Family | ||||||||
Program) | 4.95 | 4/1/15 | 3,980,000 | 4,044,914 | ||||
Maryland Community Development | ||||||||
Administration, Department of | ||||||||
Housing and Community | ||||||||
Development, Housing Revenue | 5.95 | 7/1/23 | 1,050,000 | 1,050,567 | ||||
Maryland Community Development | ||||||||
Administration, Department of | ||||||||
Housing and Community | ||||||||
Development, Housing Revenue | ||||||||
(Collateralized; GNMA) | 5.05 | 7/1/47 | 2,550,000 | 2,326,926 | ||||
Maryland Community Development | ||||||||
Administration, Department of | ||||||||
Housing and Community | ||||||||
Development, Residential | ||||||||
Revenue | 5.38 | 9/1/22 | 2,080,000 | 2,091,752 | ||||
Maryland Community Development | ||||||||
Administration, Department of | ||||||||
Housing and Community | ||||||||
Development, Residential | ||||||||
Revenue | 4.80 | 9/1/32 | 3,000,000 | 2,857,050 | ||||
Maryland Community Development | ||||||||
Administration, Department of | ||||||||
Housing and Community | ||||||||
Development, Residential | ||||||||
Revenue | 4.85 | 9/1/37 | 2,970,000 | 2,773,950 | ||||
Maryland Community Development | ||||||||
Administration, Department of | ||||||||
Housing and Community | ||||||||
Development, Residential | ||||||||
Revenue | 4.95 | 9/1/38 | 1,245,000 | 1,215,033 | ||||
Maryland Community Development | ||||||||
Administration, Department of | ||||||||
Housing and Community | ||||||||
Development, Residential | ||||||||
Revenue | 4.85 | 9/1/47 | 4,175,000 | 3,826,137 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Maryland (continued) | ||||||||
Maryland Economic Development | ||||||||
Corporation, LR (Maryland | ||||||||
Aviation Administration | ||||||||
Facilities) (Insured; FSA) | 5.50 | 6/1/16 | 3,120,000 | 3,295,063 | ||||
Maryland Economic Development | ||||||||
Corporation, LR (Maryland | ||||||||
Aviation Administration | ||||||||
Facilities) (Insured; FSA) | 5.50 | 6/1/18 | 2,535,000 | 2,643,042 | ||||
Maryland Economic Development | ||||||||
Corporation, LR (Maryland | ||||||||
Aviation Administration | ||||||||
Facilities) (Insured; FSA) | 5.38 | 6/1/19 | 9,530,000 | 9,856,784 | ||||
Maryland Economic Development | ||||||||
Corporation, LR | ||||||||
(Montgomery County | ||||||||
Wayne Avenue Parking | ||||||||
Garage Project) | 5.25 | 9/15/16 | 2,940,000 | 3,240,556 | ||||
Maryland Economic Development | ||||||||
Corporation, PCR (Potomac | ||||||||
Electric Project) | 6.20 | 9/1/22 | 2,500,000 | 2,833,125 | ||||
Maryland Economic Development | ||||||||
Corporation, Senior Student | ||||||||
Housing Revenue (Morgan State | ||||||||
University Project) | 6.00 | 7/1/22 | 2,950,000 | 2,744,267 | ||||
Maryland Economic Development | ||||||||
Corporation, Senior Student | ||||||||
Housing Revenue (Towson | ||||||||
University Project) | 5.00 | 7/1/39 | 1,000,000 | 837,990 | ||||
Maryland Economic Development | ||||||||
Corporation, Student Housing | ||||||||
Revenue (University of | ||||||||
Maryland, College Park | ||||||||
Projects) | 5.75 | 6/1/33 | 1,000,000 | 1,006,000 | ||||
Maryland Economic Development | ||||||||
Corporation, Student Housing | ||||||||
Revenue (University Village at | ||||||||
Sheppard Pratt) | ||||||||
(Insured; ACA) | 5.88 | 7/1/21 | 1,750,000 | 1,558,672 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |||||
Maryland (continued) | |||||||||
Maryland Economic Development | |||||||||
Corporation, Student Housing | |||||||||
Revenue (University Village at | |||||||||
Sheppard Pratt) (Insured; ACA) | 6.00 | 7/1/33 | 1,750,000 | 1,446,042 | |||||
Maryland Health and Higher | |||||||||
Educational Facilities | |||||||||
Authority, Revenue (Anne | |||||||||
Arundel Health System Issue) | 6.75 | 7/1/39 | 2,500,000 | 2,844,325 | |||||
Maryland Health and Higher | |||||||||
Educational Facilities | |||||||||
Authority, Revenue (Peninsula | |||||||||
Regional Medical Center Issue) | 5.00 | 7/1/36 | 3,350,000 | 3,355,427 | |||||
Maryland Health and Higher | |||||||||
Educational Facilities | |||||||||
Authority, Revenue (University | |||||||||
of Maryland Medical System | |||||||||
Issue) (Insured; National | |||||||||
Public Finance Guarantee Corp.) | 7.00 | 7/1/22 | 4,560,000 | 5,235,473 | |||||
Maryland Health and Higher | |||||||||
Educational Facilities | |||||||||
Authority, Revenue (University | |||||||||
of Maryland Medical System | |||||||||
Issue) (Prerefunded) | 6.00 | 7/1/12 | 2,000,000 | a | 2,255,100 | ||||
Maryland Health and Higher | |||||||||
Educational Facilities | |||||||||
Authority, Revenue (University | |||||||||
of Maryland Medical System | |||||||||
Issue) (Prerefunded) | 6.00 | 7/1/12 | 3,000,000 | a | 3,382,650 | ||||
Maryland Health and Higher | |||||||||
Educational Facilities | |||||||||
Authority, Revenue (Upper | |||||||||
Chesapeake Hospitals Issue) | 6.00 | 1/1/38 | 3,005,000 | 3,130,639 | |||||
Maryland Health and Higher | |||||||||
Educational Facilities | |||||||||
Authority, Revenue (Washington | |||||||||
Christian Academy Issue) | 5.25 | 7/1/18 | 500,000 | 341,205 | |||||
Maryland Health and Higher | |||||||||
Educational Facilities | |||||||||
Authority, Revenue (Washington | |||||||||
Christian Academy Issue) | 5.50 | 7/1/38 | 3,540,000 | 1,805,188 |
10
Long-Term Municipal | Coupon | Maturity | Principal | ||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |||||
Maryland (continued) | |||||||||
Maryland Health and Higher | |||||||||
Educational Facilities | |||||||||
Authority, Revenue (Washington | |||||||||
County Hospital Issue) | 5.75 | 1/1/38 | 2,500,000 | 2,462,050 | |||||
Maryland Industrial Development | |||||||||
Financing Authority, EDR | |||||||||
(Medical Waste Associates | |||||||||
Limited Partnership Facility) | 8.75 | 11/15/10 | 630,000 | 570,181 | |||||
Maryland Industrial Development | |||||||||
Financing Authority, EDR | |||||||||
(Our Lady of Good Counsel | |||||||||
High School Facility) | 6.00 | 5/1/35 | 1,600,000 | 1,410,960 | |||||
Montgomery County, | |||||||||
Consolidated Public | |||||||||
Improvement GO | 5.25 | 10/1/15 | 2,000,000 | 2,179,320 | |||||
Montgomery County, | |||||||||
Special Obligation Revenue | |||||||||
(West Germantown | |||||||||
Development District) | |||||||||
(Insured; Radian) | 5.38 | 7/1/20 | 500,000 | 488,660 | |||||
Montgomery County, | |||||||||
Special Obligation Revenue | |||||||||
(West Germantown Development | |||||||||
District) (Insured; Radian) | 5.50 | 7/1/27 | 2,975,000 | 2,792,484 | |||||
Montgomery County Housing | |||||||||
Opportunities Commission, SFMR | 0.00 | 7/1/28 | 41,025,000 | b | 14,535,158 | ||||
Montgomery County Housing | |||||||||
Opportunities Commission, SFMR | 0.00 | 7/1/33 | 3,060,000 | b | 773,874 | ||||
Montgomery County Housing | |||||||||
Opportunities Commission, SFMR | 5.00 | 7/1/36 | 1,940,000 | 1,897,921 | |||||
Northeast Waste Disposal | |||||||||
Authority, RRR (Hartford | |||||||||
County Resource Recovery | |||||||||
Facility) (Insured; AMBAC) | 5.25 | 3/15/13 | 1,400,000 | 1,440,166 | |||||
Northeast Waste Disposal | |||||||||
Authority, RRR | |||||||||
(Hartford County Resource | |||||||||
Recovery Facility) | |||||||||
(Insured; AMBAC) | 5.25 | 3/15/14 | 1,220,000 | 1,247,413 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Maryland (continued) | ||||||||
Northeast Waste Disposal | ||||||||
Authority, Solid Waste Revenue | ||||||||
(Montgomery County Solid | ||||||||
Waste Disposal System) | ||||||||
(Insured; AMBAC) | 5.50 | 4/1/15 | 7,000,000 | 7,364,910 | ||||
Northeast Waste Disposal | ||||||||
Authority, Solid Waste Revenue | ||||||||
(Montgomery County Solid | ||||||||
Waste Disposal System) | ||||||||
(Insured; AMBAC) | 5.50 | 4/1/16 | 8,000,000 | 8,335,520 | ||||
Prince Georges County, | ||||||||
Special Obligation Revenue | ||||||||
(National Harbor Project) | 5.20 | 7/1/34 | 4,000,000 | 3,254,760 | ||||
Washington Metropolitan Area | ||||||||
Transit Authority, Gross | ||||||||
Transit Revenue | 5.25 | 7/1/29 | 1,750,000 | 1,871,713 | ||||
Washington Suburban Sanitary | ||||||||
District, General Construction | ||||||||
Revenue | 5.00 | 6/1/15 | 2,500,000 | 2,679,625 | ||||
U.S. Related—10.2% | ||||||||
Guam Waterworks Authority, | ||||||||
Water and Wastewater System | ||||||||
Revenue | 6.00 | 7/1/25 | 1,000,000 | 1,004,660 | ||||
Puerto Rico Aqueduct and Sewer | ||||||||
Authority, Senior Lien Revenue | 6.00 | 7/1/44 | 1,000,000 | 1,022,260 | ||||
Puerto Rico Aqueduct and Sewer | ||||||||
Authority, Senior Lien Revenue | ||||||||
(Insured; Assured Guaranty) | 5.00 | 7/1/28 | 2,000,000 | 2,018,080 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | 5.25 | 7/1/26 | 2,000,000 | 1,969,300 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | 5.00 | 7/1/28 | 1,830,000 | 1,730,027 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | 6.00 | 7/1/38 | 1,000,000 | 1,026,390 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | ||||||||
(Insured; FSA) | 5.13 | 7/1/30 | 100,000 | 100,391 | ||||
Puerto Rico Electric Power | ||||||||
Authority, Power Revenue | 5.50 | 7/1/38 | 2,500,000 | 2,515,200 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
U.S. Related (continued) | ||||||||
Puerto Rico Electric Power | ||||||||
Authority, Power Revenue | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.25 | 7/1/30 | 1,110,000 | 1,141,080 | ||||
Puerto Rico Infrastructure | ||||||||
Financing Authority, Special | ||||||||
Tax Revenue | 5.00 | 7/1/25 | 1,250,000 | 1,173,588 | ||||
Puerto Rico Sales Tax Financing | ||||||||
Corporation, Sales Tax Revenue | ||||||||
(First Subordinate Series) | 6.00 | 8/1/42 | 2,500,000 | 2,625,875 | ||||
Puerto Rico Sales Tax Financing | ||||||||
Corporation, Sales Tax Revenue | ||||||||
(First Subordinate Series) | 6.50 | 8/1/44 | 1,500,000 | 1,626,990 | ||||
Total Long-Term Municipal Investments | ||||||||
(cost $171,844,096) | 171,681,712 | |||||||
Short-Term Municipal | ||||||||
Investment—.3% | ||||||||
Maryland; | ||||||||
Westminster, | ||||||||
EDR (Carroll Lutheran Village, | ||||||||
Inc.) (LOC; Citizens Bank of | ||||||||
Pennslyvania) | ||||||||
(cost $500,000) | 0.60 | 11/1/09 | 500,000 c | 500,000 | ||||
Total Investments (cost $172,344,096) | 97.8% | 172,181,712 | ||||||
Cash and Receivables (Net) | 2.2% | 3,837,835 | ||||||
Net Assets | 100.0% | 176,019,547 |
a These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are |
collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on |
the municipal issue and to retire the bonds in full at the earliest refunding date. |
b Security issued with a zero coupon. Income is recognized through the accretion of discount. |
c Variable rate demand note—rate shown is the interest rate in effect at October 31, 2009. Maturity date represents |
the next demand date, or the ultimate maturity date if earlier. |
The Fund 13
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 |
14
Summary of Combined Ratings (Unaudited) | ||||||||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† | |||||
AAA | Aaa | AAA | 34.8 | |||||||
AA | Aa | AA | 29.9 | |||||||
A | A | A | 15.6 | |||||||
BBB | Baa | BBB | 9.8 | |||||||
BB | Ba | BB | 2.2 | |||||||
F1 | MIG1/P1 | SP1/A1 | .3 | |||||||
Not Ratedd | Not Ratedd | Not Ratedd | 7.4 | |||||||
100.0 |
† | Based on total investments. | |
d | Securities which, while not rated by Fitch, Moody’s and Standard & Poor’s, have been determined by the Manager to | |
be of comparable quality to those rated securities in which the fund may invest. | ||
See notes to financial statements. |
The Fund 15
STATEMENT OF ASSETS AND LIABILITIES |
October 31, 2009 (Unaudited) |
Cost | Value | |||||
Assets ($): | ||||||
Investments in securities—See Statement of Investments | 172,344,096 | 172,181,712 | ||||
Cash | 1,831,111 | |||||
Interest receivable | 2,438,774 | |||||
Receivable for shares of Beneficial Interest subscribed | 72,890 | |||||
Prepaid expenses | 12,851 | |||||
176,537,338 | ||||||
Liabilities ($): | ||||||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 142,737 | |||||
Payable for shares of Beneficial Interest redeemed | 339,651 | |||||
Accrued expenses | 35,403 | |||||
517,791 | ||||||
Net Assets ($) | 176,019,547 | |||||
Composition of Net Assets ($): | ||||||
Paid-in capital | 186,296,076 | |||||
Accumulated undistributed investment income—net | 16,837 | |||||
Accumulated net realized gain (loss) on investments | (10,130,982) | |||||
Accumulated net unrealized appreciation | ||||||
(depreciation) on investments | (162,384) | |||||
Net Assets ($) | 176,019,547 | |||||
Net Asset Value Per Share | ||||||
Class A | Class B | Class C | ||||
Net Assets ($) | 170,064,434 | 1,936,063 | 4,019,050 | |||
Shares Outstanding | 14,381,127 | 163,772 | 339,657 | |||
Net Asset Value Per Share ($) | 11.83 | 11.82 | 11.83 | |||
See notes to financial statements. |
16
STATEMENT OF OPERATIONS |
Six Months Ended October 31, 2009 (Unaudited) |
Investment Income ($): | ||
Interest Income | 4,628,052 | |
Expenses: | ||
Management fee—Note 3(a) | 478,976 | |
Shareholder servicing costs—Note 3(c) | 272,475 | |
Distribution fees—Note 3(b) | 20,289 | |
Professional fees | 19,656 | |
Registration fees | 13,174 | |
Custodian fees—Note 3(c) | 11,479 | |
Prospectus and shareholders’ reports | 5,778 | |
Trustees’ fees and expenses—Note 3(d) | 4,483 | |
Loan commitment fees—Note 2 | 794 | |
Interest expense—Note 2 | 99 | |
Miscellaneous | 13,086 | |
Total Expenses | 840,289 | |
Less—reduction in fees due to earnings credits—Note 1(b) | (2,827) | |
Net Expenses | 837,462 | |
Investment Income—Net | 3,790,590 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | (580,612) | |
Net unrealized appreciation (depreciation) on investments | 8,565,825 | |
Net Realized and Unrealized Gain (Loss) on Investments | 7,985,213 | |
Net Increase in Net Assets Resulting from Operations | 11,775,803 | |
See notes to financial statements. |
The Fund 17
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009 | |||
Operations ($): | ||||
Investment income—net | 3,790,590 | 7,980,340 | ||
Net realized gain (loss) on investments | (580,612) | (758,594) | ||
Net unrealized appreciation | ||||
(depreciation) on investments | 8,565,825 | (8,239,720) | ||
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 11,775,803 | (1,017,974) | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (3,660,736) | (7,562,666) | ||
Class B Shares | (44,780) | (260,414) | ||
Class C Shares | (68,237) | (132,435) | ||
Total Dividends | (3,773,753) | (7,955,515) | ||
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 5,749,057 | 14,290,950 | ||
Class B Shares | 221,381 | 8,571 | ||
Class C Shares | 364,530 | 656,031 | ||
Dividends reinvested: | ||||
Class A Shares | 2,775,871 | 5,616,480 | ||
Class B Shares | 30,161 | 188,452 | ||
Class C Shares | 43,143 | 81,142 | ||
Cost of shares redeemed: | ||||
Class A Shares | (8,491,037) | (27,549,459) | ||
Class B Shares | (2,063,619) | (6,321,781) | ||
Class C Shares | (260,463) | (595,040) | ||
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | (1,630,976) | (13,624,654) | ||
Total Increase (Decrease) in Net Assets | 6,371,074 | (22,598,143) | ||
Net Assets ($): | ||||
Beginning of Period | 169,648,473 | 192,246,616 | ||
End of Period | 176,019,547 | 169,648,473 | ||
Undistributed investment income—net | 16,837 | — |
18
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009 | |||
Capital Share Transactions: | ||||
Class Aa | ||||
Shares sold | 499,593 | 1,271,267 | ||
Shares issued for dividends reinvested | 238,809 | 501,572 | ||
Shares redeemed | (733,811) | (2,461,276) | ||
Net Increase (Decrease) in Shares Outstanding | 4,591 | (688,437) | ||
Class Ba | ||||
Shares sold | 19,244 | 756 | ||
Shares issued for dividends reinvested | 2,604 | 16,732 | ||
Shares redeemed | (180,416) | (562,458) | ||
Net Increase (Decrease) in Shares Outstanding | (158,568) | (544,970) | ||
Class C | ||||
Shares sold | 31,206 | 58,449 | ||
Shares issued for dividends reinvested | 3,712 | 7,245 | ||
Shares redeemed | (22,569) | (51,977) | ||
Net Increase (Decrease) in Shares Outstanding | 12,349 | 13,717 |
a | During the period ended October 31, 2009, 111,527 Class B shares representing $1,269,210 were automatically | |
converted to 111,536 Class A shares and during the period ended April 30, 2009, 340,610 Class B shares | ||
representing $3,827,101 were automatically converted to 340,732 Class A shares. | ||
See notes to financial statements. |
The Fund 19
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.29 | 11.83 | 12.24 | 12.12 | 12.36 | 12.12 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .26 | .51 | .49 | .48 | .48 | .48 | ||||||
Net realized and unrealized gain | ||||||||||||
(loss) on investments | .53 | (.54) | (.41) | .12 | (.24) | .24 | ||||||
Total from Investment Operations | .79 | (.03) | .08 | .60 | .24 | .72 | ||||||
Distributions: | ||||||||||||
Dividends from investment | ||||||||||||
income—net | (.25) | (.51) | (.49) | (.48) | (.48) | (.48) | ||||||
Dividends from net realized gain | ||||||||||||
on investments | — | — | — | — | (.00)b | — | ||||||
Total Distributions | (.25) | (.51) | (.49) | (.48) | (.48) | (.48) | ||||||
Net asset value, end of period | 11.83 | 11.29 | 11.83 | 12.24 | 12.12 | 12.36 | ||||||
Total Return (%)c | 7.10d | (.13) | .67 | 5.04 | 1.96 | 6.03 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .94e | .95 | .93 | .91 | .91 | .93 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | .94e,f | .94 | .92 | .91f | .91f | .93f | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 4.38 | 4.54 | 4.07 | 3.94 | 3.87 | 3.90 | ||||||
Portfolio Turnover Rate | 6.80d | 14.86 | 17.25 | 5.67 | 14.38 | 4.33 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 170,064 162,311 | 178,268 | 186,327 | 192,953 | 202,323 |
a | Based on average shares outstanding at each month end. | |
b | Amount represents less than $.01 per share. | |
c | Exclusive of sales charge. | |
d | Not annualized. | |
e | Annualized. | |
f | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
20
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class B Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.29 | 11.84 | 12.24 | 12.12 | 12.36 | 12.12 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .21 | .44 | .41 | .42 | .41 | .42 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .54 | (.54) | (.38) | .12 | (.24) | .24 | ||||||
Total from Investment Operations | .75 | (.10) | .03 | .54 | .17 | .66 | ||||||
Distributions: | ||||||||||||
Dividends from investment | ||||||||||||
income—net | (.22) | (.45) | (.43) | (.42) | (.41) | (.42) | ||||||
Dividends from net realized gain | ||||||||||||
on investments | — | — | — | — | (.00)b | — | ||||||
Total Distributions | (.22) | (.45) | (.43) | (.42) | (.41) | (.42) | ||||||
Net asset value, end of period | 11.82 | 11.29 | 11.84 | 12.24 | 12.12 | 12.36 | ||||||
Total Return (%)c | 6.66d | (.76) | .22 | 4.51 | 1.43 | 5.49 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.53e | 1.50 | 1.46 | 1.41 | 1.42 | 1.43 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.52e | 1.50f | 1.45 | 1.41f | 1.42f | 1.43f | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.78e | 3.94 | 3.53 | 3.43 | 3.35 | 3.40 | ||||||
Portfolio Turnover Rate | 6.80d | 14.86 | 17.25 | 5.67 | 14.38 | 4.33 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 1,936 | 3,640 | 10,266 | 21,524 | 29,140 | 37,811 |
a | Based on average shares outstanding at each month end. | |
b | Amount represents less than $.01 per share. | |
c | Exclusive of sales charge. | |
d | Not annualized. | |
e | Annualized. | |
f | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
The Fund 21
FINANCIAL HIGHLIGHTS (continued) |
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.30 | 11.84 | 12.25 | 12.12 | 12.37 | 12.12 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .21 | .42 | .39 | .39 | .38 | .39 | ||||||
Net realized and unrealized gain | ||||||||||||
(loss) on investments | .53 | (.54) | (.41) | .13 | (.25) | .25 | ||||||
Total from Investment Operations | .74 | (.12) | (.02) | .52 | .13 | .64 | ||||||
Distributions: | ||||||||||||
Dividends from investment | ||||||||||||
income—net | (.21) | (.42) | (.39) | (.39) | (.38) | (.39) | ||||||
Dividends from net realized gain | ||||||||||||
on investments | — | — | — | — | (.00)b | — | ||||||
Total Distributions | (.21) | (.42) | (.39) | (.39) | (.38) | (.39) | ||||||
Net asset value, end of period | 11.83 | 11.30 | 11.84 | 12.25 | 12.12 | 12.37 | ||||||
Total Return (%)c | 6.59d | (.90) | (.12) | 4.33 | 1.09 | 5.31 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.71e | 1.73 | 1.72 | 1.67 | 1.69 | 1.69 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.71e,f | 1.73f | 1.71 | 1.67f | 1.69f | 1.69f | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.59e | 3.76 | 3.28 | 3.18 | 3.10 | 3.14 | ||||||
Portfolio Turnover Rate | 6.80d | 14.86 | 17.25 | 5.67 | 14.38 | 4.33 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 4,019 | 3,698 | 3,713 | 4,025 | 4,702 | 5,650 |
a | Based on average shares outstanding at each month end. | |
b | Amount represents less than $.01 per share. | |
c | Exclusive of sales charge. | |
d | Not annualized. | |
e | Annualized. | |
f | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
22
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus State Municipal Bond Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a non-diversified open-end management investment company and operates as a series company that offers nine series including the Dreyfus Maryland Fund (the “fund”).The Trust’s investment objective is to maximize current income exempt from federal and, where applicable, state income taxes, without undue risk.The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary ofThe Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager is the distributor of the fund’s shares. The fund is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Class A, Class B and Class C. Class A shares are subject to a sales charge imposed at the time of purchase. Class B shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class B share redemptions made within six years of purchase and automatically convert to Class A shares after six years.The fund does not offer Class B shares, except in connection with dividend reinvestment and permitted exchanges of Class B shares. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Other differences between the classes include the services offered to and the expenses borne by each class, t he allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The Trust accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) has become the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The ASC has superseded all existing non-SEC accounting and reporting standards. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The fund enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued each business day by an independent pricing service (the “Service”) approved by the Board ofTrustees. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of:yields or prices of municipal securities of comparable quality,coupon, maturity and type; indications as to values from dealers; and general mar-
24
ket conditions. Options and financial futures on municipal and U.S.Treasury securities are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market on each business day.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements. These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The following is a summary of the inputs used as of October 31, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||||||
Level 1— | Significant | Significant | ||||||
Unadjusted | Observable | Unobservable | ||||||
Quoted Prices | Inputs | Inputs | Total | |||||
Assets ($) | ||||||||
Investments in | ||||||||
Securities: | ||||||||
Municipal Bonds | — | 172,181,712 | — | 172,181,712 |
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gain and loss 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.
The fund follows an investment policy of investing primarily in municipal obligations of one state. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the fund.
(c) Dividends to shareholders: It is the policy of the fund to declare dividends daily from investment income-net. Such dividends are paid monthly. Dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”).To the extent that net realized capital gains can be offset by capital loss carry-
26
overs, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(d) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended October 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 April 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $9,441,868 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to April 30, 2009. If not applied, $60,748 of the carryover expires in fiscal 2011, $1,838,009 expires in fiscal 2012, $6,917,527 expires in fiscal 2013 and $625,584 expires in fiscal 2017.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2009 was as follows: tax exempt income $7,953,257 and ordinary income $2,258.The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participated with other Dreyfus-managed funds in a $145 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Mellon (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. Effective October 14, 2009, the $145 million unsecured credit facility with Citibank, N.A., was increased to $215 million and the fund continues participation in the $300 million unsecured credit facility provided by The Bank of NewYork Mellon. In connection therewith, the fund has agreed to pay its pro rata portion of Facility fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing.
The average amount of borrowings outstanding under the Facilities during the period ended October 31, 2009, was approximately $6,500 with a related weighted average annualized interest rate of 1.52%.
NOTE 3—Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement with the Manager, the management fee is computed at the annual rate of .55% of the value of the fund’s average daily net assets and is payable monthly.
During the period ended October 31, 2009, the Distributor retained $6,783 from commissions earned on sales of the fund’s Class A shares and $2,438 and $244 from CDSCs on redemptions of the fund’s Class B and Class C shares, respectively.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class B and Class C shares pay the Distributor for distributing their shares at an annual rate of .50% of the value of the average daily net assets of Class B shares and .75% of the value of the average daily net assets of Class C shares. During the period ended October 31, 2009, Class B and Class C shares were charged $5,954 and $14,335, respectively, pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund
28
and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (a securities dealer, financial institution or other industry professional) in respect of these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2009, Class A, Class B and Class C shares were charged $209,961, $2,977 and $4,778, respectively, pursuant to the Shareholder Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the fund. During the period ended October 31, 2009, the fund was charged $26,957 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of NewYork Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2009, the fund was charged $2,827 pursuant to the cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations. These fees were offset by earnings credits pursuant to the cash management agreement.
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 October 31, 2009, the fund was charged $11,479 pursuant to the custody agreement.
During the period ended October 31, 2009, the fund was charged $3,341 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $82,691, Rule 12b-1 distribution plan fees $3,397, shareholder services plan fees $37,587, custodian fees $5,645, chief compliance officer fees $3,897, and transfer agency per account fees $9,520.
The Fund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(d) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended October 31, 2009, amounted to $11,388,689 and $12,650,078, respectively.
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The fund held no derivatives during the period ended October 31,2009. These disclosures did not impact the notes to the financial statements.
At October 31, 2009 accumulated net unrealized depreciation on investments was $162,384, consisting of $5,668,660 gross unrealized appreciation and $5,831,044 gross unrealized depreciation.
At October 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).
NOTE 5—Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
30
INFORMATION ABOUT THE REVIEW AND APPROVAL |
OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the Board of Trustees held on July 21, 2009, the Board considered the re-approval for an annual period of the fund’s Management Agreement, pursuant to which the Manager provides the fund with investment advisory and administrative services. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager.
Analysis of Nature, Extent and Quality of Services Provided to the Fund. The Board members considered information previously provided to them in a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus fund complex, and representatives of the Manager confirmed that there had been no material changes in this information.The Board also discussed the nature, extent and quality of the services provided to the fund pursuant to its Management Agreement.The Manager’s representatives reviewed the fund’s distribution of accounts and the relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services in each distribution channel, including those of the fund.The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements.The Board members also considered the Manager’s extensive administrative, accounting and compliance infrastructure.The Board also considered the Manager’s brokerage policies and practices and the standards applied in seeking best execution.
The Fund 31
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
Comparative Analysis of the Fund’s Performance, Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of comparable funds (the “Performance Group”) and to a broader group of 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 yield performance for the past ten one-year periods ended May 31 (2000-2009) was above the Performance Group median for each reported time period except the one-year periods ended May 31, 2003, 2004, 2005 and 20 06, when it was below the median, and that the fund’s yield performance was above the Performance Universe median for each reported time period.The Board members also noted that the fund’s total return performance for various periods ended May 31, 2009 was below the Performance Group median for each reported time period, and equal to or above the Performance Universe median for each reported time period except the ten-year period, when it was below the median.The Manager also provided a comparison of the fund’s calendar year total returns to the returns of its Lipper category average for the prior ten years, and the Board members noted that the fund outperformed its Lipper category average in seven of the past ten calendar years.The Board members discussed with the representatives of the Manager the reasons for the fund’s underperformance compared to the Performance Group medians for the applicable periods, and the Manager’s efforts to improve perfor-mance.The Board members also rece ived a presentation from one of the fund’s portfolio managers during which he discussed the fund’s investment strategy and the factors that affected the fund’s performance.
The Board members also discussed the fund’s contractual and actual management fee and total expense ratio as compared to a comparable group of funds (the “Expense Group”) that was composed of the same funds included in the Performance Group and a broader group of
32
funds (the “Expense Universe”), each selected and provided by Lipper. The Board noted that the fund’s contractual management fee was above the Expense Group median, and that the fund’s actual management fee and total expense ratio were above the Expense Group and Expense Universe medians.
Representatives of the Manager informed the Board members that there were no mutual funds, separate accounts or wrap fee accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex. The Board members also had been informed that the methodology also had been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of a fund. The Board members evaluated the profitability analysis in light of the re levant circumstances for the fund, and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders.The Board members also considered potential benefits to the Manager and its affiliates from acting as investment adviser to the fund and noted that there were no soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including
The Fund 33
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It was also noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
- The Board concluded that the nature, extent and quality of the services provided by the Manager to the fund are adequate and appropriate.
- The Board was generally satisfied with the fund’s overall perfor- mance and with the Manager’s efforts to improve performance as discussed at the meeting.
- The Board concluded that the fee paid to the Manager by the fund was reasonable in light of the services provided, comparative perfor- mance and expense and management fee information, costs of the services provided, and profits to be realized and benefits derived or to be derived by the Manager from its relationship with the fund.
- The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in con- nection with the management fee rate charged to the fund, and that, to the extent in the future it were to be determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with the information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
34
NOTES
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
19 | Statement of Assets and Liabilities |
20 | Statement of Operations |
21 | Statement of Changes in Net Assets |
24 | Financial Highlights |
28 | Notes to Financial Statements |
37 | Information About the Review and Approval of the Fund’s Management Agreement |
FOR MORE INFORMATION | |
Back Cover | |
Dreyfus State Municipal Bond Funds, Dreyfus Massachusetts Fund |
The Fund |
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A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus State Municipal Bond Funds, Dreyfus Massachusetts Fund, covering the six-month period from May 1, 2009, through October 31, 2009.
Reports of positive U.S. economic growth over the third quarter of 2009 may have signaled the end of the deep recession that technically began in December 2007. Signs that the economy finally has turned a corner include inventory rebuilding among manufacturers and improvements in home sales and prices, while massive government stimulus and favorable supply-and-demand influences have all supported the municipal bond rally in 2009.As expected, funds with the longest average durations and lower-quality portfolios have led the rebound, while AAA-rated and shorter-duration funds have rallied to a lesser extent.
As the financial markets currently appear poised to enter into a new phase, and as government intervention appears to be winding down (at least for the moment), the best strategy for your portfolio depends not only on your view of the economy’s direction,but on your current financial needs,future goals and attitudes toward risk.Your financial advisor can help you decide which investments have the potential to benefit from a recovery while guarding against the taxation and investment risks that may accompany policy changes and unexpected market developments.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
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Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation November 16, 2009 |
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2009, through October 31, 2009, as provided by James Welch, Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended October 31, 2009, the Class A, Class B, Class C and Class Z shares of Dreyfus Massachusetts Fund, a series of Dreyfus State Municipal Bond Funds, produced total returns of 5.78%, 5.42%, 5.37% and 5.89%, respectively.1 In comparison, the Barclays Capital Municipal Bond Index (the “Index”), the fund’s benchmark Index, which is composed of bonds issued nationally and not solely within Massachusetts, achieved a total return of 4.99% for the same period.2
Municipal bonds rallied strongly over the reporting period amid expectations of an economic recovery and stable credit markets. The fund’s returns were higher than its Index, primarily due to strong performance by the fund’s core, seasoned holdings of municipal bonds.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax and Massachusetts state income tax without undue risk. To pursue its goal, the fund normally invests substantially all of its assets in municipal bonds that provide income exempt from federal income tax and from Massachusetts state income tax.The fund invests at least 70% of its assets in investment-grade municipal bonds or the unrated equivalent as determined by Dreyfus.The fund may invest up to 30% of its assets in municipal bonds rated below investment grade or the unrated equivalent as determined by Dreyfus. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
We may buy and sell bonds based on credit quality, market outlook and yield potential. In selecting municipal bonds for investment, we may assess the current interest-rate environment and a municipal bond’s
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
potential volatility in different rate environments. We focus on bonds with the potential to offer attractive current income, typically looking for bonds that can provide consistently attractive current yields or that are trading at competitive market prices. A portion of the fund’s assets may be allocated to“discount”bonds,which are bonds that sell at a price below their face value, or to “premium” bonds, which are bonds that sell at a price above their face value.The fund’s allocation either to discount bonds or to premium bonds will change along with our changing views of the current interest-rate and market environments.We may also look to select bonds that are most likely to obtain attractive prices when sold.
Municipal Bonds Rebounded Sharply
In the wake of severe market declines stemming from a global financial crisis and recession, the municipal bond market staged an impressive rebound over the reporting period. The rally was fueled by changing investor sentiment, which began to improve in March 2009 as government and monetary authorities’ aggressive remedial measures—including historically low interest rates, injections of liquidity into the banking system, the rescues of major corporations and a massive economic stimulus program—seemed to gain traction. Additional evidence of economic stabilization later appeared, supporting a sustained rally through the reporting period’s end. Although most municipal bonds participated in the rally, gains were particularly strong among lower-quality issues that had been punished in the downturn.
Seasoned Holdings Supported Fund Returns
The fund’s core holdings of seasoned bonds produced competitive levels of income that bolstered the fund’s total return. Moreover, we strived to maintain a high level of credit quality.When making new purchases, we emphasized higher-rated bonds with maturities in the 15- to 20-year range, which offered most of the yield of longer-term securities but with less volatility. We generally favored bonds backed by dedicated revenue streams, including those from essential municipal services such as sewer and water facilities.
4
Like most other states, Massachusetts has continued to struggle with fiscal pressures due to tax revenue shortfalls and greater demand for services in the recession.The state has attempted to bridge its budget gaps with spending cuts, transfers from reserve funds and targeted adjustments to certain taxes and fees.
Supply-and-Demand Factors Appear Favorable
We have maintained a generally conservative investment posture.With short-term interest rates expected to remain low for some time, credit conditions may be the dominant influence on market sentiment over the foreseeable future.
Despite the lingering impacts of the recession on municipalities, technical factors have supported the market. The supply of newly issued municipal bonds has fallen significantly to date in 2009 compared to one year ago as the Build America Bonds program, part of the economic stimulus package, has diverted a substantial portion of new issuance to the taxable bond market.At the same time, demand for municipal bonds has intensified from investors concerned about the likelihood of higher income taxes.We expect this favorable supply-and-demand dynamic to persist into 2010.
November 16, 2009
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take into | |
consideration the maximum initial sales charge in the case of Class A shares or the applicable | ||
contingent deferred sales charges imposed on redemptions in the case of Class B and Class C | ||
shares. Had these charges been reflected, returns would have been lower. Class Z is not subject to | ||
any initial or deferred sales charge. Past performance is no guarantee of future results. Each share | ||
class is subject to a different sales charge and distribution expense structure and will achieve | ||
different returns. 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 for non-Massachusetts residents, and some income may be subject to the federal | ||
alternative minimum tax (AMT) for certain investors. Capital gains, if any, are fully taxable. | ||
2 | SOURCE: LIPPER INC. — Reflects reinvestment of dividends and, where applicable, capital | |
gain distributions.The Barclays Capital Municipal Bond Index is a widely accepted, unmanaged | ||
total return performance benchmark for the long-term, investment-grade, tax-exempt bond market. | ||
Index returns do not reflect fees and expenses associated with operating a mutual fund. |
The Fund 5
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus State Municipal Bond Funds, Dreyfus Massachusetts Fund from May 1, 2009 to October 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 October 31, 2009 | ||||||||
Class A | Class B | Class C | Class Z | |||||
Expenses paid per $1,000† | $ 4.88 | $ 8.08 | $ 8.75 | $ 3.74 | ||||
Ending value (after expenses) | $1,057.80 | $1,054.20 | $1,053.70 | $1,058.90 |
COMPARING YOUR FUND’S EXPENSES |
WITH THOSE OF OTHER FUNDS (Unaudited) |
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment | ||||||||
assuming a hypothetical 5% annualized return for the six months ended October 31, 2009 | ||||||||
Class A | Class B | Class C | Class Z | |||||
Expenses paid per $1,000† | $ 4.79 | $ 7.93 | $ 8.59 | $ 3.67 | ||||
Ending value (after expenses) | $1,020.47 | $1,017.34 | $1,016.69 | $1,021.58 |
† Expenses are equal to the fund’s annualized expense ratio of .94% for Class A, 1.56% for Class B, 1.69% for Class C and .72% for Class Z, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS | ||||||||
October 31, 2009 (Unaudited) | ||||||||
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments—97.7% | Rate (%) | Date | Amount ($) | Value ($) | ||||
Massachusetts—87.7% | ||||||||
Bellingham, | ||||||||
GO (Insured; AMBAC) | 5.00 | 3/1/17 | 1,945,000 | 2,064,073 | ||||
Bellingham, | ||||||||
GO (Insured; AMBAC) | 5.00 | 3/1/18 | 2,040,000 | 2,146,672 | ||||
Bellingham, | ||||||||
GO (Insured; AMBAC) | 5.00 | 3/1/19 | 2,140,000 | 2,251,901 | ||||
Bellingham, | ||||||||
GO (Insured; AMBAC) | 5.00 | 3/1/20 | 2,245,000 | 2,362,391 | ||||
Boston, | ||||||||
Convention Center Loan, | ||||||||
Special Obligation Bonds | ||||||||
(Insured; AMBAC) | 5.00 | 5/1/16 | 1,750,000 | 1,890,910 | ||||
Boston Housing Authority, | ||||||||
Capital Program Revenue | ||||||||
(Insured; FSA) | 5.00 | 4/1/24 | 1,900,000 | 2,024,127 | ||||
Boston Industrial Development | ||||||||
Financing Authority, | ||||||||
Sewage Facility Revenue | ||||||||
(Harbor Electric Energy | ||||||||
Company Project) | 7.38 | 5/15/15 | 1,305,000 | 1,309,215 | ||||
Boston Water and Sewer Commission, | ||||||||
Revenue | 5.00 | 11/1/20 | 2,000,000 | 2,162,800 | ||||
Brookline, | ||||||||
GO | 5.25 | 4/1/20 | 3,860,000 | 3,931,178 | ||||
Holliston, | ||||||||
GO (Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.25 | 4/1/20 | 1,655,000 | 1,793,888 | ||||
Holyoke, | ||||||||
Gas and Electric Department | ||||||||
Revenue (Insured; National | ||||||||
Public Finance Guarantee Corp.) | 5.38 | 12/1/15 | 1,245,000 | 1,304,548 | ||||
Hopkinton, | ||||||||
GO | 5.00 | 9/1/17 | 1,735,000 | 1,869,341 | ||||
Hopkinton, | ||||||||
GO | 5.00 | 9/1/18 | 1,735,000 | 1,849,614 | ||||
Hopkinton, | ||||||||
GO | 5.00 | 9/1/19 | 1,735,000 | 1,849,614 | ||||
Hopkinton, | ||||||||
GO | 5.00 | 9/1/20 | 1,735,000 | 1,849,614 | ||||
Marblehead, | ||||||||
GO | 5.00 | 8/15/23 | 1,835,000 | 1,954,202 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Massachusetts (continued) | ||||||||
Marblehead, | ||||||||
GO | 5.00 | 8/15/24 | 1,925,000 | 2,043,676 | ||||
Massachusetts, | ||||||||
GO | 5.25 | 8/1/22 | 2,650,000 | 3,071,748 | ||||
Massachusetts, | ||||||||
GO | 0.87 | 11/1/25 | 5,000,000 a | 4,222,500 | ||||
Massachusetts, | ||||||||
GO (Insured; AMBAC) | 6.00 | 8/1/10 | 1,500,000 | 1,562,535 | ||||
Massachusetts, | ||||||||
GO (Insured; FSA) | 5.25 | 9/1/23 | 1,000,000 | 1,160,720 | ||||
Massachusetts, | ||||||||
Special Obligation Dedicated | ||||||||
Tax Revenue (Insured; National | ||||||||
Public Finance Guarantee Corp.) | 5.50 | 1/1/23 | 3,000,000 | 3,358,920 | ||||
Massachusetts Bay Transportation | ||||||||
Authority, Assessment Revenue | 5.00 | 7/1/21 | 2,400,000 | 2,618,760 | ||||
Massachusetts Bay Transportation | ||||||||
Authority, Assessment Revenue | 5.25 | 7/1/34 | 2,500,000 | 2,669,275 | ||||
Massachusetts Bay Transportation | ||||||||
Authority, GO (General | ||||||||
Transportation Systems) | 6.20 | 3/1/16 | 2,055,000 | 2,350,673 | ||||
Massachusetts Bay Transportation | ||||||||
Authority, GO (General | ||||||||
Transportation Systems) | 7.00 | 3/1/21 | 1,000,000 | 1,209,890 | ||||
Massachusetts Bay Transportation | ||||||||
Authority, Senior Sales | ||||||||
Tax Revenue | 5.00 | 7/1/21 | 1,000,000 | 1,136,990 | ||||
Massachusetts Bay Transportation | ||||||||
Authority, Senior Sales Tax | ||||||||
Revenue (Insured; National | ||||||||
Public Finance Guarantee Corp.) | 5.50 | 7/1/27 | 3,000,000 | 3,574,500 | ||||
Massachusetts College Building | ||||||||
Authority, Project Revenue | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 0.00 | 5/1/26 | 5,385,000 b | 2,634,234 | ||||
Massachusetts Development Finance | ||||||||
Agency, Higher Education | ||||||||
Revenue (Emerson College Issue) | 5.00 | 1/1/22 | 1,000,000 | 1,004,120 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Massachusetts (continued) | ||||||||
Massachusetts Development Finance | ||||||||
Agency, Revenue (Assumption | ||||||||
College Issue) (Insured; Radian) | 6.00 | 3/1/30 | 1,905,000 | 1,906,448 | ||||
Massachusetts Development Finance | ||||||||
Agency, Revenue (Landmark | ||||||||
School Issue) (Insured; Radian) | 5.25 | 6/1/29 | 1,100,000 | 913,759 | ||||
Massachusetts Development Finance | ||||||||
Agency, Revenue (Massachusetts | ||||||||
College of Pharmacy and Allied | ||||||||
Health Sciences Issue) | ||||||||
(Prerefunded) | 6.75 | 1/1/10 | 2,000,000 c | 2,041,940 | ||||
Massachusetts Development Finance | ||||||||
Agency, Revenue (Mount Holyoke | ||||||||
College Issue) | 5.25 | 7/1/31 | 4,000,000 | 4,050,040 | ||||
Massachusetts Development Finance | ||||||||
Agency, Revenue (Neville | ||||||||
Communities Home, Inc. | ||||||||
Project) (Collateralized; GNMA) | 5.75 | 6/20/22 | 600,000 | 647,424 | ||||
Massachusetts Development Finance | ||||||||
Agency, Revenue (Neville | ||||||||
Communities Home, Inc. | ||||||||
Project) (Collateralized; GNMA) | 6.00 | 6/20/44 | 1,500,000 | 1,578,690 | ||||
Massachusetts Development Finance | ||||||||
Agency, Revenue (Wheelock | ||||||||
College Issue) | 5.25 | 10/1/37 | 2,500,000 | 2,262,975 | ||||
Massachusetts Development | ||||||||
Finance Agency, RRR | ||||||||
(Ogden Haverhill Project) | 5.50 | 12/1/19 | 1,200,000 | 1,070,448 | ||||
Massachusetts Development Finance | ||||||||
Agency, RRR (SEMASS System) | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.63 | 1/1/14 | 2,000,000 | 2,068,240 | ||||
Massachusetts Development Finance | ||||||||
Agency, SWDR (Dominion Energy | ||||||||
Brayton Point Issue) | 5.00 | 2/1/36 | 2,000,000 | 1,751,400 | ||||
Massachusetts Educational | ||||||||
Financing Authority, Education | ||||||||
Loan Revenue (Insured; AMBAC) | 5.70 | 7/1/11 | 125,000 | 125,240 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Massachusetts (continued) | ||||||||
Massachusetts Educational | ||||||||
Financing Authority, | ||||||||
Education Loan Revenue | ||||||||
(Insured; AMBAC) | 5.00 | 1/1/13 | 1,440,000 | 1,453,910 | ||||
Massachusetts Educational | ||||||||
Financing Authority, Education | ||||||||
Loan Revenue (Insured; AMBAC) | 5.85 | 7/1/14 | 95,000 | 95,162 | ||||
Massachusetts Educational | ||||||||
Financing Authority, Education | ||||||||
Loan Revenue (Insured; AMBAC) | 4.70 | 1/1/27 | 10,000,000 | 8,984,200 | ||||
Massachusetts Educational | ||||||||
Financing Authority, Education | ||||||||
Loan Revenue (Insured; | ||||||||
Assured Guaranty) | 6.13 | 1/1/22 | 2,500,000 | 2,653,150 | ||||
Massachusetts Educational | ||||||||
Financing Authority, Education | ||||||||
Loan Revenue (Insured; | ||||||||
National Public Finance | ||||||||
Guarantee Corp.) | 5.13 | 12/1/14 | 360,000 | 360,349 | ||||
Massachusetts Health and | ||||||||
Educational Facilities | ||||||||
Authority, Healthcare System | ||||||||
Revenue (Covenant Health | ||||||||
Systems Obligated | ||||||||
Group Issue) | 6.50 | 7/1/17 | 1,175,000 | 1,237,628 | ||||
Massachusetts Health and | ||||||||
Educational Facilities | ||||||||
Authority, Healthcare System | ||||||||
Revenue (Covenant Health | ||||||||
Systems Obligated Group Issue) | 6.00 | 7/1/22 | 4,030,000 | 4,165,408 | ||||
Massachusetts Health and | ||||||||
Educational Facilities | ||||||||
Authority, Healthcare System | ||||||||
Revenue (Covenant Health | ||||||||
Systems Obligated Group Issue) | ||||||||
(Prerefunded) | 6.00 | 1/1/12 | 1,070,000 c | 1,195,853 | ||||
Massachusetts Health and | ||||||||
Educational Facilities | ||||||||
Authority, Healthcare System | ||||||||
Revenue (Covenant Health | ||||||||
Systems Obligated Group Issue) | ||||||||
(Prerefunded) | 6.50 | 1/1/12 | 310,000 c | 349,779 |
10
Long-Term Municipal | Coupon | Maturity | Principal | ||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |||||
Massachusetts (continued) | |||||||||
Massachusetts Health and | |||||||||
Educational Facilities | |||||||||
Authority, Revenue (Boston | |||||||||
Medical Center Issue) | 5.75 | 7/1/31 | 2,000,000 | 1,932,580 | |||||
Massachusetts Health and | |||||||||
Educational Facilities | |||||||||
Authority, Revenue (Community | |||||||||
Colleges Program Issue) | |||||||||
(Insured; AMBAC) | 5.25 | 10/1/26 | 2,845,000 | 2,877,518 | |||||
Massachusetts Health and | |||||||||
Educational Facilities | |||||||||
Authority, Revenue | |||||||||
(Dana-Farber Cancer | |||||||||
Institute Issue) | 5.25 | 12/1/27 | 1,000,000 | 1,053,860 | |||||
Massachusetts Health and | |||||||||
Educational Facilities | |||||||||
Authority, Revenue (Hallmark | |||||||||
Health System Issue) | |||||||||
(Insured; FSA) | 5.25 | 7/1/10 | 2,055,000 | 2,071,440 | |||||
Massachusetts Health and | |||||||||
Educational Facilities | |||||||||
Authority, Revenue (Harvard | |||||||||
University Issue) | 5.00 | 7/15/22 | 2,945,000 | 3,071,458 | |||||
Massachusetts Health and | |||||||||
Educational Facilities | |||||||||
Authority, Revenue | |||||||||
(Harvard University | |||||||||
Issue) (Prerefunded) | 6.00 | 7/1/10 | 2,500,000 | c | 2,620,425 | ||||
Massachusetts Health and | |||||||||
Educational Facilities | |||||||||
Authority, Revenue | |||||||||
(Massachusetts Institute of | |||||||||
Technology Issue) | 5.25 | 7/1/33 | 4,000,000 | 4,685,680 | |||||
Massachusetts Health and | |||||||||
Educational Facilities | |||||||||
Authority, Revenue | |||||||||
(Milford-Whitinsville Regional | |||||||||
Hospital Issue) (Prerefunded) | 6.50 | 7/15/12 | 2,250,000 | c | 2,579,355 | ||||
Massachusetts Health and | |||||||||
Educational Facilities | |||||||||
Authority, Revenue (Partners | |||||||||
HealthCare System Issue) | 6.00 | 7/1/16 | 1,520,000 | 1,629,683 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Massachusetts (continued) | ||||||||
Massachusetts Health and | ||||||||
Educational Facilities | ||||||||
Authority, Revenue (Partners | ||||||||
HealthCare System Issue) | 6.00 | 7/1/17 | 45,000 | 48,247 | ||||
Massachusetts Health and | ||||||||
Educational Facilities | ||||||||
Authority, Revenue (Partners | ||||||||
HealthCare System Issue) | 5.75 | 7/1/32 | 60,000 | 61,756 | ||||
Massachusetts Health and | ||||||||
Educational Facilities | ||||||||
Authority, Revenue (Partners | ||||||||
HealthCare System Issue) | 5.00 | 7/1/47 | 4,950,000 | 4,982,571 | ||||
Massachusetts Health and | ||||||||
Educational Facilities | ||||||||
Authority, Revenue (Partners | ||||||||
HealthCare System Issue) | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.13 | 7/1/11 | 1,000,000 | 1,003,200 | ||||
Massachusetts Health and | ||||||||
Educational Facilities Authority, | ||||||||
Revenue (Partners HealthCare | ||||||||
System Issue) (Prerefunded) | 5.75 | 7/1/11 | 1,290,000 c | 1,411,918 | ||||
Massachusetts Health and | ||||||||
Educational Facilities | ||||||||
Authority, Revenue | ||||||||
(Springfield College Issue) | ||||||||
(Insured; Radian) | 5.13 | 10/15/23 | 1,100,000 | 1,068,485 | ||||
Massachusetts Health and | ||||||||
Educational Facilities | ||||||||
Authority, Revenue (Tufts | ||||||||
University Issue) | 5.50 | 8/15/18 | 1,625,000 | 1,900,535 | ||||
Massachusetts Health and | ||||||||
Educational Facilities | ||||||||
Authority, Revenue (Tufts | ||||||||
University Issue) | 5.38 | 8/15/38 | 3,000,000 | 3,219,060 | ||||
Massachusetts Health and | ||||||||
Educational Facilities | ||||||||
Authority, Revenue (UMass | ||||||||
Memorial Issue) | 5.25 | 7/1/25 | 1,895,000 | 1,822,440 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Massachusetts (continued) | ||||||||
Massachusetts Health and | ||||||||
Educational Facilities | ||||||||
Authority, Revenue (UMass | ||||||||
Memorial Issue) | 5.00 | 7/1/33 | 1,070,000 | 941,718 | ||||
Massachusetts Housing Finance | ||||||||
Agency, Housing Development | ||||||||
Revenue (Insured; National | ||||||||
Public Finance Guarantee Corp.) | 5.40 | 6/1/20 | 345,000 | 346,342 | ||||
Massachusetts Housing Finance | ||||||||
Agency, Housing Revenue | 5.00 | 12/1/24 | 1,160,000 | 1,164,663 | ||||
Massachusetts Housing Finance | ||||||||
Agency, Housing Revenue | 5.00 | 12/1/26 | 1,200,000 | 1,190,148 | ||||
Massachusetts Housing Finance | ||||||||
Agency, Housing Revenue | 5.00 | 12/1/28 | 2,000,000 | 1,978,100 | ||||
Massachusetts Housing Finance | ||||||||
Agency, Housing Revenue | 5.00 | 6/1/30 | 1,295,000 | 1,302,317 | ||||
Massachusetts Housing Finance | ||||||||
Agency, Housing Revenue | 5.25 | 12/1/33 | 1,350,000 | 1,296,486 | ||||
Massachusetts Housing Finance | ||||||||
Agency, Housing Revenue | 5.10 | 6/1/37 | 3,000,000 | 2,826,450 | ||||
Massachusetts Housing Finance | ||||||||
Agency, Housing Revenue | 5.10 | 12/1/37 | 2,130,000 | 2,005,842 | ||||
Massachusetts Housing Finance | ||||||||
Agency, Housing Revenue | 5.20 | 12/1/37 | 2,000,000 | 1,967,980 | ||||
Massachusetts Housing Finance | ||||||||
Agency, Rental Housing | ||||||||
Mortgage Revenue | ||||||||
(Insured; AMBAC) | 5.70 | 7/1/20 | 1,195,000 | 1,200,521 | ||||
Massachusetts Housing Finance | ||||||||
Agency, SFHR | 4.75 | 12/1/30 | 1,315,000 | 1,249,382 | ||||
Massachusetts Industrial Finance | ||||||||
Agency, RRR (Ogden | ||||||||
Haverhill Project) | 5.60 | 12/1/19 | 2,500,000 | 2,239,625 | ||||
Massachusetts Industrial Finance | ||||||||
Agency, Water Treatment | ||||||||
Revenue (Massachusetts- | ||||||||
American Hingham Project) | 6.95 | 12/1/35 | 2,790,000 | 2,642,186 |
The Fund 13
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Massachusetts (continued) | ||||||||
Massachusetts Municipal Wholesale | ||||||||
Electric Company, Power Supply | ||||||||
Project Revenue (Nuclear | ||||||||
Project Number 4 Issue) | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.25 | 7/1/14 | 2,000,000 | 2,104,540 | ||||
Massachusetts Water Pollution | ||||||||
Abatement Trust (Pool Program) | 5.38 | 8/1/27 | 3,065,000 | 3,099,512 | ||||
Massachusetts Water Pollution | ||||||||
Abatement Trust, State | ||||||||
Revolving Fund Bonds | 5.00 | 8/1/27 | 1,535,000 | 1,679,275 | ||||
Massachusetts Water Resources | ||||||||
Authority, General Revenue | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.25 | 8/1/21 | 1,500,000 | 1,662,735 | ||||
Massachusetts Water Resources | ||||||||
Authority, General Revenue | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.25 | 8/1/26 | 2,000,000 | 2,166,500 | ||||
Massachusetts Water Resources | ||||||||
Authority, General Revenue | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | ||||||||
(Prerefunded) | 5.20 | 8/1/11 | 1,000,000 c | 1,084,350 | ||||
Medford, | ||||||||
GO (Insured; AMBAC) | 5.00 | 3/15/19 | 1,155,000 | 1,207,010 | ||||
Narragansett Regional School | ||||||||
District, GO (Insured; AMBAC) | ||||||||
(Prerefunded) | 6.50 | 6/1/10 | 1,205,000 c | 1,258,526 | ||||
Pittsfield, | ||||||||
GO (Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.13 | 4/15/22 | 1,500,000 | 1,563,225 | ||||
Sandwich, | ||||||||
GO (Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.00 | 7/15/19 | 1,000,000 | 1,077,620 | ||||
Triton Regional School District, | ||||||||
GO (Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.25 | 4/1/19 | 1,420,000 | 1,502,033 | ||||
Triton Regional School District, | ||||||||
GO (Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.25 | 4/1/20 | 1,420,000 | 1,502,033 |
14
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Massachusetts (continued) | ||||||||
Westfield, | ||||||||
GO (Insured; FGIC) | ||||||||
(Prerefunded) | 6.50 | 5/1/10 | 1,750,000 c | 1,821,470 | ||||
U.S. Related—10.0% | ||||||||
Children’s Trust Fund of Puerto | ||||||||
Rico, Tobacco Settlement | ||||||||
Asset-Backed Bonds | 5.38 | 5/15/33 | 1,880,000 | 1,794,272 | ||||
Children’s Trust Fund of Puerto | ||||||||
Rico, Tobacco Settlement | ||||||||
Asset-Backed Bonds | 5.50 | 5/15/39 | 1,245,000 | 1,062,246 | ||||
Children’s Trust Fund of Puerto | ||||||||
Rico, Tobacco Settlement | ||||||||
Asset-Backed Bonds | 0.00 | 5/15/50 | 5,000,000 b | 180,000 | ||||
Children’s Trust Fund of Puerto | ||||||||
Rico, Tobacco Settlement | ||||||||
Asset-Backed Bonds | ||||||||
(Prerefunded) | 5.75 | 7/1/10 | 2,000,000 c | 2,070,420 | ||||
Puerto Rico Aqueduct and Sewer | ||||||||
Authority, Senior Lien Revenue | 6.00 | 7/1/38 | 2,000,000 | 2,059,700 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | 5.25 | 7/1/25 | 1,500,000 | 1,480,980 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | ||||||||
(Insured; FSA) | 5.25 | 7/1/14 | 1,000,000 | 1,090,250 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 6.00 | 7/1/27 | 1,000,000 | 1,041,720 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | ||||||||
(Insured; XLCA) | 5.25 | 7/1/17 | 1,460,000 | 1,511,115 | ||||
Puerto Rico Infrastructure | ||||||||
Financing Authority, Special | ||||||||
Tax Revenue (Insured; AMBAC) | 0.00 | 7/1/35 | 6,840,000 b | 1,086,329 | ||||
Puerto Rico Infrastructure | ||||||||
Financing Authority, Special | ||||||||
Tax Revenue (Insured; FGIC) | 5.50 | 7/1/19 | 1,225,000 | 1,248,826 | ||||
Puerto Rico Public Buildings | ||||||||
Authority, Guaranteed | ||||||||
Government Facilities Revenue | 5.75 | 7/1/22 | 1,900,000 | 1,995,931 |
The Fund 15
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
U.S. Related (continued) | ||||||||
Puerto Rico Public Buildings | ||||||||
Authority, Guaranteed | ||||||||
Government Facilities Revenue | ||||||||
(Insured; AMBAC) | 6.25 | 7/1/15 | 1,100,000 | 1,300,464 | ||||
Puerto Rico Sales Tax Financing | ||||||||
Corporation, Sales Tax Revenue | ||||||||
(First Subordinate Series) | 6.00 | 8/1/42 | 2,000,000 | 2,100,700 | ||||
Virgin Islands Public Finance | ||||||||
Authority, Revenue, Virgin | ||||||||
Islands Gross Receipts Taxes | ||||||||
Loan Note | 5.63 | 10/1/10 | 250,000 | 257,305 | ||||
Virgin Islands Water and Power | ||||||||
Authority, Electric System | ||||||||
Revenue (Insured; Radian) | 5.13 | 7/1/11 | 1,000,000 | 1,007,220 | ||||
Total Long-Term Municipal Investments | ||||||||
(cost $205,149,590) | 207,552,950 | |||||||
Short-Term Municipal | ||||||||
Investment—.7% | ||||||||
U.S. Related; | ||||||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO Notes, | ||||||||
Refunding (Insured; FSA and | ||||||||
Liquidity Facility; Dexia | ||||||||
Credit Locale) | ||||||||
(cost $1,500,000) | 0.15 | 11/1/09 | 1,500,000 d | 1,500,000 | ||||
Total Investments (cost $206,649,590) | 98.4% | 209,052,950 | ||||||
Cash and Receivables (Net) | 1.6% | 3,339,821 | ||||||
Net Assets | 100.0% | 212,392,771 |
a Variable rate security—interest rate subject to periodic change. |
b Security issued with a zero coupon. Income is recognized through the accretion of discount. |
c These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are |
collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on |
the municipal issue and to retire the bonds in full at the earliest refunding date. |
d Variable rate demand note—rate shown is the interest rate in effect at October 31, 2009. Maturity date represents |
the next demand date, or the ultimate maturity date if earlier. |
16
Summary of Abbreviations | ||||||
ABAG | Association of Bay Area Governments | ACA | American Capital Access | |||
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company | |||
AMBAC | American Municipal Bond | |||||
Assurance Corporation | ARRN | Adjustable Rate Receipt Notes | ||||
BAN | Bond Anticipation Notes | 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 |
The Fund 17
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Combined Ratings (Unaudited) | ||||||||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† | |||||
AAA | Aaa | AAA | 43.0 | |||||||
AA | Aa | AA | 29.6 | |||||||
A | A | A | 12.5 | |||||||
BBB | Baa | BBB | 12.4 | |||||||
F1 | MIG1/P1 | SP1/A1 | .7 | |||||||
Not Ratede | Not Ratede | Not Ratede | 1.8 | |||||||
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. |
18
STATEMENT OF ASSETS AND LIABILITIES |
October 31, 2009 (Unaudited) |
Cost | Value | |||||||
Assets ($): | ||||||||
Investments in securities—See Statement of Investments | 206,649,590 | 209,052,950 | ||||||
Cash | 385,273 | |||||||
Interest receivable | 3,141,955 | |||||||
Receivable for shares of Beneficial Interest subscribed | 60,378 | |||||||
Prepaid expenses | 17,526 | |||||||
212,658,082 | ||||||||
Liabilities ($): | ||||||||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 133,809 | |||||||
Payable for shares of Beneficial Interest redeemed | 89,035 | |||||||
Accrued expenses | 42,467 | |||||||
265,311 | ||||||||
Net Assets ($) | 212,392,771 | |||||||
Composition of Net Assets ($): | ||||||||
Paid-in capital | 209,743,536 | |||||||
Accumulated undistributed investment income—net | 18,364 | |||||||
Accumulated net realized gain (loss) on investments | 227,511 | |||||||
Accumulated net unrealized appreciation (depreciation) on | ||||||||
investments | 2,403,360 | |||||||
Net Assets ($) | 212,392,771 | |||||||
Net Asset Value Per Share | ||||||||
Class A | Class B | Class C | Class Z | |||||
Net Assets ($) | 41,398,099 | 841,173 | 3,292,568 | 166,860,931 | ||||
Shares Outstanding | 3,659,470 | 74,447 | 290,813 | 14,751,512 | ||||
Net Asset Value Per Share ($) | 11.31 | 11.30 | 11.32 | 11.31 | ||||
See notes to financial statements. |
The Fund 19
STATEMENT OF OPERATIONS |
Six Months Ended October 31, 2009 (Unaudited) |
Investment Income ($): | ||
Interest Income | 5,232,454 | |
Expenses: | ||
Management fee—Note 3(a) | 578,584 | |
Shareholder servicing costs—Note 3(c) | 158,058 | |
Registration fees | 17,952 | |
Professional fees | 16,908 | |
Distribution fees—Note 3(b) | 14,693 | |
Custodian fees—Note 3(c) | 14,052 | |
Prospectus and shareholders’ reports | 5,708 | |
Trustees’ fees and expenses—Note 3(d) | 1,162 | |
Loan commitment fees—Note 2 | 938 | |
Interest expense—Note 2 | 249 | |
Miscellaneous | 18,906 | |
Total Expenses | 827,210 | |
Less—reduction in fees | ||
due to earnings credits—Note 1(b) | (3,583) | |
Net Expenses | 823,627 | |
Investment Income—Net | 4,408,827 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | (47,849) | |
Net unrealized appreciation (depreciation) on investments | 7,646,085 | |
Net Realized and Unrealized Gain (Loss) on Investments | 7,598,236 | |
Net Increase in Net Assets Resulting from Operations | 12,007,063 | |
See notes to financial statements. |
20
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009 | |||
Operations ($): | ||||
Investment income—net | 4,408,827 | 9,217,460 | ||
Net realized gain (loss) on investments | (47,849) | 238,903 | ||
Net unrealized appreciation | ||||
(depreciation) on investments | 7,646,085 | (8,038,122) | ||
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 12,007,063 | 1,418,241 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (818,606) | (1,696,116) | ||
Class B Shares | (16,988) | (78,062) | ||
Class C Shares | (52,874) | (107,043) | ||
Class Z Shares | (3,501,995) | (7,303,300) | ||
Net realized gain on investments: | ||||
Class A Shares | — | (87,155) | ||
Class B Shares | — | (4,679) | ||
Class C Shares | — | (6,842) | ||
Class Z Shares | — | (364,974) | ||
Total Dividends | (4,390,463) | (9,648,171) | ||
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 2,223,532 | 4,565,171 | ||
Class B Shares | 5,326 | 22,074 | ||
Class C Shares | 205,070 | 277,843 | ||
Class Z Shares | 3,610,823 | 3,984,708 |
The Fund 21
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009 | |||
Beneficial Interest Transactions ($) (continued): | ||||
Dividends reinvested: | ||||
Class A Shares | 615,086 | 1,306,030 | ||
Class B Shares | 11,448 | 52,656 | ||
Class C Shares | 38,609 | 81,527 | ||
Class Z Shares | 2,668,761 | 5,840,614 | ||
Cost of shares redeemed: | ||||
Class A Shares | (1,986,092) | (9,411,963) | ||
Class B Shares | (616,038) | (1,468,581) | ||
Class C Shares | (227,613) | (412,212) | ||
Class Z Shares | (5,812,635) | (20,622,503) | ||
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | 736,277 | (15,784,636) | ||
Total Increase (Decrease) in Net Assets | 8,352,877 | (24,014,566) | ||
Net Assets ($): | ||||
Beginning of Period | 204,039,894 | 228,054,460 | ||
End of Period | 212,392,771 | 204,039,894 | ||
Undistributed investment income—net | 18,364 | — |
22
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009 | |||
Capital Share Transactions: | ||||
Class Aa | ||||
Shares sold | 200,267 | 419,840 | ||
Shares issued for dividends reinvested | 55,106 | 121,378 | ||
Shares redeemed | (178,877) | (872,312) | ||
Net Increase (Decrease) in Shares Outstanding | 76,496 | (331,094) | ||
Class Ba | ||||
Shares sold | 489 | 1,957 | ||
Shares issued for dividends reinvested | 1,029 | 4,896 | ||
Shares redeemed | (55,891) | (136,131) | ||
Net Increase (Decrease) in Shares Outstanding | (54,373) | (129,278) | ||
Class C | ||||
Shares sold | 18,116 | 25,764 | ||
Shares issued for dividends reinvested | 3,458 | 7,584 | ||
Shares redeemed | (20,524) | (36,980) | ||
Net Increase (Decrease) in Shares Outstanding | 1,050 | (3,632) | ||
Class Z | ||||
Shares sold | 326,360 | 369,953 | ||
Shares issued for dividends reinvested | 239,123 | 542,669 | ||
Shares redeemed | (521,103) | (1,944,961) | ||
Net Increase (Decrease) in Shares Outstanding | 44,380 | (1,032,339) |
a | During the period ended October 31, 2009, 36,016 Class B shares representing $397,770, were automatically | |
converted to 35,984 Class A shares and during the period ended April 30, 2009, 66,545 Class B shares | ||
representing $717,436 were automatically converted to 66,471 Class A shares. | ||
See notes to financial statements. |
The Fund 23
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 10.91 | 11.29 | 11.66 | 11.56 | 11.87 | 11.50 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .23 | .46 | .46 | .47 | .46 | .46 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .40 | (.36) | (.36) | .12 | (.29) | .39 | ||||||
Total from | ||||||||||||
Investment Operations | .63 | .10 | .10 | .59 | .17 | .85 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.23) | (.46) | (.46) | (.46) | (.46) | (.46) | ||||||
Dividends from net realized | ||||||||||||
gain on investments | — | (.02) | (.01) | (.03) | (.02) | (.02) | ||||||
Total Distributions | (.23) | (.48) | (.47) | (.49) | (.48) | (.48) | ||||||
Net asset value, end of period | 11.31 | 10.91 | 11.29 | 11.66 | 11.56 | 11.87 | ||||||
Total Return (%)b | 5.78c | 1.07 | .92 | 5.23 | 1.48 | 7.54 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .94d | .94 | .93 | .92 | .92 | .97 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | .94d,e | .94e | .92 | .92 | .92e | .97e | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 4.04d | 4.25 | 4.01 | 3.99 | 3.92 | 3.96 | ||||||
Portfolio Turnover Rate | 3.45c | 9.04 | 18.21 | 30.97 | 34.00 | 43.92 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 41,398 | 39,079 | 44,178 | 49,034 | 49,913 | 51,884 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
24
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class B Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 10.90 | 11.28 | 11.65 | 11.54 | 11.86 | 11.50 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .18 | .39 | .39 | .40 | .40 | .40 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .41 | (.35) | (.36) | .14 | (.30) | .38 | ||||||
Total from | ||||||||||||
Investment Operations | .59 | .04 | .03 | .54 | .10 | .78 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.19) | (.40) | (.39) | (.40) | (.40) | (.40) | ||||||
Dividends from net realized | ||||||||||||
gain on investments | — | (.02) | (.01) | (.03) | (.02) | (.02) | ||||||
Total Distributions | (.19) | (.42) | (.40) | (.43) | (.42) | (.42) | ||||||
Net asset value, end of period | 11.30 | 10.90 | 11.28 | 11.65 | 11.54 | 11.86 | ||||||
Total Return (%)b | 5.42c | .50 | .36 | 4.77 | .86 | 6.89 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.56d | 1.52 | 1.48 | 1.45 | 1.45 | 1.49 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.56d,e | 1.52e | 1.47 | 1.45 | 1.45e | 1.49e | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.37d | 3.68 | 3.46 | 3.47 | 3.39 | 3.44 | ||||||
Portfolio Turnover Rate | 3.45c | 9.04 | 18.21 | 30.97 | 34.00 | 43.92 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 841 | 1,404 | 2,910 | 3,893 | 5,188 | 6,239 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
The Fund 25
FINANCIAL HIGHLIGHTS (continued) |
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005a | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 10.92 | 11.30 | 11.67 | 11.56 | 11.88 | 11.51 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .18 | .38 | .37 | .38 | .37 | .37 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .40 | (.36) | (.36) | .14 | (.30) | .39 | ||||||
Total from | ||||||||||||
Investment Operations | .58 | .02 | .01 | .52 | .07 | .76 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.18) | (.38) | (.37) | (.38) | (.37) | (.37) | ||||||
Dividends from net realized | ||||||||||||
gain on investments | — | (.02) | (.01) | (.03) | (.02) | (.02) | ||||||
Total Distributions | (.18) | (.40) | (.38) | (.41) | (.39) | (.39) | ||||||
Net asset value, end of period | 11.32 | 10.92 | 11.30 | 11.67 | 11.56 | 11.88 | ||||||
Total Return (%)b | 5.37c | .32 | .17 | 4.53 | .64 | 6.74 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.69d | 1.69 | 1.68 | 1.67 | 1.66 | 1.72 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.69d,e | 1.69e | 1.67 | 1.67 | 1.66e | 1.71 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.28e | 3.51 | 3.26 | 3.24 | 3.18 | 3.20 | ||||||
Portfolio Turnover Rate | 3.45c | 9.04 | 18.21 | 30.97 | 34.00 | 43.92 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 3,293 | 3,163 | 3,314 | 3,520 | 4,478 | 4,214 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01% | |
See notes to financial statements. |
26
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class Z Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005a | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 10.91 | 11.29 | 11.66 | 11.55 | 11.87 | 11.88 | ||||||
Investment Operations: | ||||||||||||
Investment income—netb | .24 | .48 | .48 | .48 | .48 | .25 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .40 | (.36) | (.36) | .15 | (.30) | .01 | ||||||
Total from | ||||||||||||
Investment Operations | .64 | .12 | .12 | .63 | .18 | .26 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.24) | (.48) | (.48) | (.49) | (.48) | (.25) | ||||||
Dividends from net realized | ||||||||||||
gain on investments | — | (.02) | (.01) | (.03) | (.02) | (.02) | ||||||
Total Distributions | (.24) | (.50) | (.49) | (.52) | (.50) | (.27) | ||||||
Net asset value, end of period | 11.31 | 10.91 | 11.29 | 11.66 | 11.55 | 11.87 | ||||||
Total Return (%) | 5.89c | 1.28 | 1.14 | 5.54 | 1.56 | 2.23c | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .72d | .73 | .71 | .71 | .76 | .77d | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | .72d,e | .73e | .70 | .71 | .75 | .76d | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 4.25d | 4.46 | 4.23 | 4.20 | 4.09 | 4.07d | ||||||
Portfolio Turnover Rate | 3.45c | 9.04 | 18.21 | 30.97 | 34.00 | 43.92 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 166,861 160,394 | 177,652 | 195,667 | 137,011 | 147,338 |
a | From October 20, 2004 (commencement of initial offering) to April 30, 2005. | |
b | Based on average shares outstanding at each month end. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus State Municipal Bond Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a non-diversified open-end management investment company, and operates as a series company that offers nine series including the Dreyfus Massachusetts Fund (the “fund”).The Trust’s investment objective is to maximize current income exempt from federal and, where applicable, state income taxes, without undue risk.The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares. The fund is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Class A, Class B, Class C and Class Z. Class A shares are subject to a sales charge imposed at the time of purchase. Class B shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class B share redemptions made within six years of purchase and automatically convert to Class A shares after six years.The fund does not offer Class B shares, except in connection with dividend reinvestment and permitted exchanges of Class B shares. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Class Z shares are sold at net asset value per share generally only to shareholders who received Cl ass Z shares in exchange for their shares of a Dreyfus-managed fund as a result of the reorganization of such fund. Class Z shares generally are not available for new accounts. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
28
The Trust accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) has become the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The ASC has superseded all existing non-SEC accounting and reporting standards. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The fund enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued each business day by an independent pricing service (the “Service”) approved by the Board of Trustees. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market cond itions. Options and financial
The Fund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
futures on municipal and U.S.Treasury securities are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market on each business day.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value meaurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
30
The following is a summary of the inputs used as of October 31, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||||||
Level 1— | Significant | Significant | ||||||
Unadjusted | Observable | Unobservable | ||||||
Quoted Prices | Inputs | Inputs | Total | |||||
Assets ($) | ||||||||
Investments in Securities: | ||||||||
Municipal Bonds | — | 209,052,950 | — | 209,052,950 |
(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.
The fund follows an investment policy of investing primarily in municipal obligations of one state. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the fund.
(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
The Fund 31
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”).To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(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 October 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 April 30, 2009 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 April 30, 2009 was as follows: tax exempt income $9,184,521 and long-term capital gains $463,650.The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participated with other Dreyfus-managed funds in a $145 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. Effective October 14, 2009, the $145 million unsecured credit facility with
32
Citibank, N.A., was increased to $215 million and the fund continues participation in the $300 million unsecured credit facility provided by The Bank of New York Mellon. In connection therewith, the fund has agreed to pay its pro rata portion of Facility fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing.
The average amount of borrowings outstanding under the Facilities during the period ended October 31, 2009 was approximately $16,400 with a related weighted average annualized interest rate of 1.52%.
NOTE 3—Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement with the Manager, the management fee is computed at the annual rate of .55% of the value of the fund’s average daily net assets and is payable monthly.
During the period ended October 31, 2009, the Distributor retained $2,103 from commissions earned on sales of the fund’s Class A shares and $1,566 from CDSCs on redemptions of the fund’s Class C shares.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class B and Class C shares pay the Distributor for distributing their shares at an annual rate of .50% of the value of the average daily net assets of Class B shares and .75% of the value of the average daily net assets of Class C shares. During the period ended October 31, 2009, Class B and Class C shares were charged $2,531 and $12,162, respectively, pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay the Distributor at an annual rate of .25% of the value of the average daily net assets of their shares for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor
The Fund 33
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
may make payments to Service Agents (a securities dealer, financial institution or other industry professional) in respect of these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2009, Class A, Class B and Class C shares were charged $50,867, $1,266, and $4,054, respectively, pursuant to the Shareholder Services Plan.
Under the Shareholder Services Plan, Class Z shares reimburse the Distributor an amount not to exceed an annual rate of .25% of the value of Class Z shares’ average daily net assets for certain allocated expenses of providing personal services and/or maintaining shareholder accounts.The services provided may include personal services relating to shareholders accounts, such as answering shareholder inquiries regarding Class Z shares and providing reports and other information, and services related to the maintenance of shareholder accounts. During the period ended October 31, 2009, Class Z shares were charged $39,281 pursuant to the Shareholders Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the fund. During the period ended October 31, 2009, the fund was charged $32,044 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2009, the fund was charged $3,583 pursuant to the cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations. These fees were offset by earnings credits pursuant to the cash management agreement.
34
The fund also compensates The Bank of New York Mellon under a custody agreement to provide custodial services for the fund. During the period ended October 31, 2009, the fund was charged $14,052 pursuant to the custody agreement.
During the period ended October 31, 2009, the fund was charged $3,341 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $100,167, Rule 12b-1 distribution plan fees $2,484, shareholder services plan fees $9,759, custodian fees $7,020, chief compliance officer fees $3,897 and transfer agency per account fees $10,482.
(d) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended October 31, 2009, amounted to $9,466,053 and $7,023,514, respectively.
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The fund held no derivatives during the period ended October 31,2009, these disclosures did not impact the notes to the financial statements.
At October 31, 2009, accumulated net unrealized appreciation on investments was $2,403,360, consisting of $7,469,769 gross unrealized appreciation and $5,066,409 gross unrealized depreciation.
The Fund 35
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
At October 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).
NOTE 5—Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
36
INFORMATION ABOUT THE REVIEW AND APPROVAL |
OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the Board of Trustees held on July 21, 2009, the Board considered the re-approval for an annual period of the fund’s Management Agreement, pursuant to which the Manager provides the fund with investment advisory and administrative services. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager.
Analysis of Nature, Extent and Quality of Services Provided to the Fund.The Board members considered information previously provided to them in a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus fund complex, and representatives of the Manager confirmed that there had been no material changes in this information.The Board also discussed the nature, extent and quality of the services provided to the fund pursuant to its Management Agreement. The Manager’s representatives reviewed the fund’s distribution of accounts and the relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services in each distribution channel, including those of the fund.The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements.The Board members also considered the Manager’s extensive administrative, accounting and compliance infrastructure.The Board also considered the Manager’s brokerage policies and practices and the standards applied in seeking best execution.
The Fund 37
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
Comparative Analysis of the Fund’s Performance, Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of comparable funds (the “Performance Group”) and to a broader group of 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 yield performance for the past ten one-year periods ended May 31 (2000 - 2009) was below the Performance Group median for each reported time period except the one-year period ended May 31, 2007, when it was equa l to the median, and that the fund’s yield performance was above the Performance Universe median for each reported time period except the one-year periods ended May 31, 2003 and 2004, when it was below the median. The Board members also noted that the fund’s total return performance for various periods ended May 31, 2009 was below the Performance Group median for each reported time period, and above the Performance Universe median for the one-, five- and ten-year periods and below for the other periods.
The Manager also provided a comparison of the fund’s calendar year total returns to the returns of its Lipper category average for the prior ten years, and the Board members noted that the fund outperformed its Lipper category average in eight of the past ten calendar years, including calendar years 2007 and 2008.The Board members discussed with representatives of the Manager the reasons for the fund’s underperfor-mance compared to the Performance Group and Performance Universe medians for the applicable periods, and the Manager’s efforts to improve performance.The Board members also received a presentation from the fund’s primary portfolio manager during which he discussed the fund’s investment strategy and the factors that affected performance.
38
The Board members also discussed the fund’s contractual and actual management fee and total expense ratio as compared to a comparable group of funds (the “Expense Group”) that was composed of the same funds included in the Performance Group and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper. The Board noted that the fund’s contractual management fee was above the Expense Group median, and that the fund’s actual management fee and total expense ratio were above the Expense Group and Expense Universe medians.
Representatives of the Manager informed the Board members that there were no mutual funds, separate accounts or wrap fee accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex. The Board members also had been informed that the methodology also had been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of a fund. The Board members evaluated the profitability analysis in light of the re levant circumstances for the fund, and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders.The Board members also considered potential ben-
The Fund 39
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
efits to the Manager and its affiliates from acting as investment adviser to the fund and noted that there were no soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It was also noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
- The Board concluded that the nature, extent and quality of the services provided by the Manager to the fund are adequate and appropriate.
- Although the Board was concerned with the fund’s performance, it was satisfied with the fund’s yield performance relative to the Performance Universe and generally satisfied with the Manager’s efforts to improve the fund’s performance.
- The Board concluded that the fee paid to the Manager by the fund was reasonable in light of the services provided, comparative perfor- mance and expense and management fee information, costs of the services provided, and profits to be realized and benefits derived or to be derived by the Manager from its relationship with the fund.
40
- The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in con- nection with the management fee rate charged to the fund, and that, to the extent in the future it were to be determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with the information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
The Fund 41
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
13 | Statement of Assets and Liabilities |
14 | Statement of Operations |
15 | Statement of Changes in Net Assets |
17 | Financial Highlights |
20 | Notes to Financial Statements |
29 | Information About the Review and Approval of the Fund’s Management Agreement |
FOR MORE INFORMATION | |
Back Cover | |
Dreyfus State Municipal Bond Funds, Dreyfus Michigan Fund |
The Fund |
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A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We present to you this last report for Dreyfus State Municipal Bond Funds, Dreyfus Michigan Fund, covering the six-month period from May 1, 2009, through October 31, 2009.
Reports of positive U.S. economic growth over the third quarter of 2009 may have signaled the end of the deep recession that technically began in December 2007. Signs that the economy finally has turned a corner include inventory rebuilding among manufacturers and improvements in home sales and prices, while massive government stimulus and favorable supply-and-demand influences have all supported the municipal bond rally in 2009.As expected, funds with the longest average durations and lower-quality portfolios have led the rebound, while AAA-rated and shorter-duration funds have rallied to a lesser extent.
As the financial markets currently appear poised to enter into a new phase, and as government intervention appears to be winding down (at least for the moment), the best strategy for your portfolio depends not only on your view of the economy’s direction,but on your current financial needs,future goals and attitudes toward risk.Your financial advisor can help you decide which investments have the potential to benefit from a recovery while guarding against the taxation and investment risks that may accompany policy changes and unexpected market developments.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
![](https://capedge.com/proxy/N-CSRS/0000806176-10-000001/smbmincsrx4x2.jpg)
Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation November 20, 2009 |
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2009, through October 31, 2009, as provided by James Welch, Portfolio Manager
Note to Shareholders: On October 26, 2009, James Welch became the Primary Portfolio Manager of the fund.
Fund and Market Performance Overview
For the six-month period ended October 31, 2009, Class A, Class B and Class C shares of Dreyfus Michigan Fund, a series of Dreyfus State Municipal Bond Funds, produced total returns of 6.00%, 5.56% and 5.53%,respectively.1 In comparison,the Barclays Capital Municipal Bond Index (the “Index”), the fund’s benchmark Index, which is composed of bonds issued nationally and not solely within Michigan, achieved a total return of 4.99% for the same period.2
Municipal bonds rallied strongly over the reporting period amid expectations of better economic times and stable credit markets.The fund’s returns were higher than its Index, primarily due to strong performance by the fund’s core, seasoned holdings of municipal bonds.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax and Michigan state income tax without undue risk. To pursue its goal, the fund normally invests substantially all of its assets in municipal bonds that provide income exempt from federal income tax and from Michigan state income tax.The fund invests at least 70% of its assets in investment-grade municipal bonds or the unrated equivalent as determined by Dreyfus.The fund may invest up to 30% of its assets in municipal bonds rated below investment grade or the unrated equivalent as determined by Dreyfus. Under normal market conditions, the dollar-weighted average maturity of the fund’s port-
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
folio is expected to exceed 10 years.
We may buy and sell bonds based on credit quality, market outlook and yield potential. In selecting municipal bonds for investment, we may assess the current interest-rate environment and a municipal bond’s potential volatility in different rate environments. We focus on bonds with the potential to offer attractive current income, typically looking for bonds that can provide consistently attractive current yields or that are trading at competitive market prices. A portion of the fund’s assets may be allocated to“discount”bonds,which are bonds that sell at a price below their face value, or to “premium” bonds, which are bonds that sell at a price above their face value.The fund’s allocation either to discount bonds or to premium bonds will change along with our changing views of the current interest-rate and market environment.We may also look to select bonds that are most likely to obtain attractive prices when sold.
Municipal Bonds Rebounded Sharply
In the wake of severe market declines stemming from a global financial crisis and recession, the municipal bond market staged an impressive rebound over the reporting period. The rally was fueled by changing investor sentiment, which began to improve in March 2009 as government and monetary authorities’ aggressive remedial measures—including historically low interest rates, injections of liquidity into the banking system, the rescues of major corporations and a massive economic stimulus program—seemed to gain traction. Additional evidence of economic stabilization later appeared, supporting a sustained rally through the reporting period’s end. Although most municipal bonds participated in the rally, gains were particularly strong among lower-quality issues.
Seasoned Holdings Supported Fund Returns
The fund’s core holdings of seasoned bonds produced competitive levels of income that bolstered the fund’s total return. Moreover, we strived to maintain a high level of credit quality.When making new purchases, we
4
generally emphasized higher-rated bonds with maturities in the 15- to 20-year range, which offered most of the yield of longer-term securities but with less volatility.We generally favored bonds backed by dedicated revenue streams, including those from essential municipal services such as sewer and water facilities.
Michigan has continued to rank among the states whose fiscal conditions have been most severely impacted by the recession, including tax revenue shortfalls, greater demand for services and the nation’s highest unemployment rate.The state has attempted to balance its budget with payments from the federal economic stimulus program and spending cuts that reduce the size and cost of government.
Important Information About the Fund
An agreement and plan of Reorganization to merge the fund into Dreyfus AMT-Free Municipal Bond Fund (the “Acquiring Fund”) was approved at a Special Meeting of Shareholders held on November 19, 2009.As a result, effective on or about January 28, 2010, the fund will transfer its asset into the Acquiring Fund, in a tax-free exchange for shares of the acquiring fund, and will subsequently cease operation.
November 20, 2009
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take into | |
consideration the maximum initial sales charge in the case of Class A shares, or the applicable | ||
contingent deferred sales charges imposed on redemptions in the case of Class B and Class C | ||
shares. Had these charges been reflected, returns would have been lower. Each share class is subject | ||
to a different sales charge and distribution expense structure and will achieve different returns. Past | ||
performance is no guarantee of future results. Share price, yield and investment return fluctuate | ||
such that upon redemption, fund shares may be worth more or less than their original cost. Income | ||
may be subject to state and local taxes for non-Michigan residents, and some income may be | ||
subject to the federal alternative minimum tax (AMT) for certain investors. Capital gains, if any, | ||
are fully taxable. | ||
2 | SOURCE: LIPPER INC. — Reflects reinvestment of dividends and, where applicable, capital | |
gain distributions.The Barclays Capital Municipal Bond Index is a widely accepted, unmanaged | ||
total return performance benchmark for the long-term, investment-grade, tax-exempt bond market. | ||
Index returns do not reflect fees and expenses associated with operating a mutual fund. |
The Fund 5
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus State Municipal Bond Funds, Dreyfus Michigan Fund from May 1, 2009 to October 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 October 31, 2009 | ||||||
Class A | Class B | Class C | ||||
Expenses paid per $1,000† | $ 5.66 | $ 9.69 | $ 9.48 | |||
Ending value (after expenses) | $1,060.00 | $1,055.60 | $1,055.30 |
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 October 31, 2009 | ||||||
Class A | Class B | Class C | ||||
Expenses paid per $1,000† | $ 5.55 | $ 9.50 | $ 9.30 | |||
Ending value (after expenses) | $1,019.71 | $1,015.78 | $1,015.98 |
† Expenses are equal to the fund’s annualized expense ratio of 1.09% for Class A, 1.87% for Class B and 1.83% for Class C, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS | ||||||||
October 31, 2009 (Unaudited) | ||||||||
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments—104.4% | Rate (%) | Date | Amount ($) | Value ($) | ||||
Michigan—98.6% | ||||||||
Allegan Hospital Finance | ||||||||
Authority, HR (Allegan General | ||||||||
Hospital) | 6.88 | 11/15/17 | 1,000,000 | 1,010,290 | ||||
Brighton Area Schools, | ||||||||
GO—Unlimited Tax (Insured; | ||||||||
AMBAC) | 0.00 | 5/1/14 | 8,000,000 a | 7,034,800 | ||||
Brighton Area Schools, | ||||||||
GO—Unlimited Tax (Insured; | ||||||||
AMBAC) | 0.00 | 5/1/20 | 1,055,000 a | 664,713 | ||||
Detroit, | ||||||||
Sewage Disposal System Senior | ||||||||
Lien Revenue (Insured; FSA) | 7.50 | 7/1/33 | 1,000,000 | 1,237,470 | ||||
Detroit, | ||||||||
Water Supply System Revenue | ||||||||
(Insured; FGIC) (Prerefunded) | 5.75 | 7/1/11 | 4,000,000 b | 4,332,440 | ||||
Detroit Community High School, | ||||||||
Public School Academy Revenue | 5.65 | 11/1/25 | 1,200,000 | 902,124 | ||||
Detroit Community High School, | ||||||||
Public School Academy Revenue | 5.75 | 11/1/35 | 1,215,000 | 836,005 | ||||
Detroit School District, | ||||||||
School Building and Site | ||||||||
Improvement Bonds (GO— | ||||||||
Unlimited Tax) (Insured; FGIC) | 6.00 | 5/1/20 | 1,000,000 | 1,088,610 | ||||
Detroit School District, | ||||||||
School Building and Site | ||||||||
Improvement Bonds (GO— | ||||||||
Unlimited Tax) (Insured; FGIC) | 5.00 | 5/1/28 | 2,250,000 | 2,145,510 | ||||
Dickinson County Healthcare | ||||||||
System, HR (Insured; ACA) | 5.50 | 11/1/13 | 1,905,000 | 1,925,193 | ||||
Dickinson County Healthcare | ||||||||
System, HR (Insured; ACA) | 5.70 | 11/1/18 | 1,800,000 | 1,806,732 | ||||
Grand Rapids, | ||||||||
Water Supply System Revenue | ||||||||
(Insured; Assured Guaranty) | 5.00 | 1/1/29 | 1,000,000 | 1,047,120 | ||||
Grand Valley State University, | ||||||||
Revenue (Insured; FGIC) | ||||||||
(Prerefunded) | 5.25 | 12/1/10 | 3,000,000 b | 3,158,460 | ||||
Huron Valley School District, | ||||||||
GO—Unlimited Tax (Insured; | ||||||||
National Public Finance | ||||||||
Guarantee Corp.) | 0.00 | 5/1/18 | 6,270,000 a | 4,437,906 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Michigan (continued) | ||||||||
Kalamazoo Hospital Finance | ||||||||
Authority, HR (Borgess Medical | ||||||||
Center) (Insured; FGIC) | 6.25 | 6/1/14 | 2,000,000 | 2,382,460 | ||||
Kent County, | ||||||||
Airport Revenue (Gerald R. | ||||||||
Ford International Airport) | 5.00 | 1/1/26 | 2,000,000 | 2,108,180 | ||||
Kent Hospital Finance Authority, | ||||||||
Revenue (Metropolitan | ||||||||
Hospital Project) | 6.25 | 7/1/40 | 2,000,000 | 1,636,380 | ||||
Michigan Hospital Finance | ||||||||
Authority, HR (Detroit | ||||||||
Medical Center) | 8.13 | 8/15/12 | 20,000 | 20,060 | ||||
Michigan Hospital Finance | ||||||||
Authority, HR (MidMichigan | ||||||||
Obligated Group) | 5.00 | 4/15/36 | 500,000 | 466,010 | ||||
Michigan Hospital Finance | ||||||||
Authority, Revenue (Trinity | ||||||||
Health Credit Group) | ||||||||
(Insured; AMBAC) | 6.00 | 12/1/27 | 1,500,000 | 1,534,275 | ||||
Michigan Municipal Bond Authority, | ||||||||
Clean Water Revolving | ||||||||
Fund Revenue | 5.38 | 10/1/21 | 10,200,000 c,d | 11,080,515 | ||||
Michigan Strategic Fund, | ||||||||
LOR (NSF International Project) | 5.13 | 8/1/19 | 700,000 | 703,619 | ||||
Michigan Strategic Fund, | ||||||||
LOR (NSF International Project) | 5.25 | 8/1/26 | 2,000,000 | 1,947,680 | ||||
Michigan Strategic Fund, | ||||||||
LOR (The Detroit Edison | ||||||||
Company Exempt Facilities | ||||||||
Project) (Insured; XLCA) | 5.25 | 12/15/32 | 1,250,000 | 1,228,562 | ||||
Michigan Strategic Fund, SWDR | ||||||||
(Genesee Power Station Project) | 7.50 | 1/1/21 | 2,200,000 | 1,925,264 | ||||
Michigan Tobacco Settlement | ||||||||
Finance Authority, Tobacco | ||||||||
Settlement Asset-Backed Bonds | 6.00 | 6/1/34 | 3,000,000 | 2,503,770 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Michigan (continued) | ||||||||
Monroe County Economic Development | ||||||||
Corporation, LOR (Detroit | ||||||||
Edison Company Project) | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 6.95 | 9/1/22 | 2,000,000 | 2,300,260 | ||||
Pontiac Tax Increment Finance | ||||||||
Authority, Revenue | ||||||||
(Prerefunded) | 6.38 | 6/1/12 | 3,170,000 b | 3,612,627 | ||||
Romulus Economic Development | ||||||||
Corporation, Limited | ||||||||
Obligation EDR (Romulus HIR | ||||||||
Limited Partnership Project) | ||||||||
(Insured; ITT Lyndon Property | ||||||||
Insurance Company) | 7.00 | 11/1/15 | 3,700,000 | 4,594,290 | ||||
Royal Oak Hospital Finance | ||||||||
Authority, HR (William | ||||||||
Beaumont Hospital | ||||||||
Obligated Group) | 6.25 | 9/1/14 | 1,500,000 | 1,639,800 | ||||
Stockbridge Community Schools, | ||||||||
School Building and Site Bonds | ||||||||
(GO—Unlimited Tax) | ||||||||
(Prerefunded) | 5.50 | 5/1/10 | 600,000 b | 615,720 | ||||
Summit Academy North, | ||||||||
Public School Academy Revenue | 5.50 | 11/1/35 | 1,500,000 | 941,730 | ||||
Wayne County Airport Authority, | ||||||||
Airport Revenue (Detroit | ||||||||
Metropolitan Wayne County | ||||||||
Airport) (Insured; Assured | ||||||||
Guaranty) | 5.75 | 12/1/27 | 1,000,000 | 1,004,150 | ||||
Wayne State University Board of | ||||||||
Governors, General Revenue | ||||||||
(Insured; AMBAC) | 5.00 | 11/15/36 | 1,000,000 | 1,005,280 | ||||
Wayne State University Board of | ||||||||
Governors, General Revenue | ||||||||
(Insured; FSA) | 5.00 | 11/15/30 | 2,000,000 | 2,063,080 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
U.S. Related—5.8% | ||||||||
Government of Guam, | ||||||||
GO | 6.75 | 11/15/29 | 250,000 | 268,468 | ||||
Puerto Rico Electric Power | ||||||||
Authority, Power Revenue | 5.00 | 7/1/26 | 1,360,000 | 1,350,793 | ||||
Puerto Rico Sales Tax Financing | ||||||||
Corporation, Sales Tax Revenue | ||||||||
(First Subordinate Series) | 6.00 | 8/1/42 | 1,750,000 | 1,838,112 | ||||
Puerto Rico Sales Tax Financing | ||||||||
Corporation, Sales Tax Revenue | ||||||||
(First Subordinate Series) | 6.50 | 8/1/44 | 1,000,000 | 1,084,660 | ||||
Total Long-Term Municipal Investments | ||||||||
(cost $78,220,224) | 81,483,118 | |||||||
Short-Term Municipal | ||||||||
Investment—.6% | ||||||||
Michigan; | ||||||||
University of Michigan Regents, | ||||||||
HR, Refunding | ||||||||
(cost $500,000) | 0.28 | 11/1/09 | 500,000 e | 500,000 | ||||
Total Investments (cost $78,720,224) | 105.0% | 81,983,118 | ||||||
Liabilities, Less Cash and Receivables | (5.0%) | (3,908,368) | ||||||
Net Assets | 100.0% | 78,074,750 |
a Security issued with a zero coupon. Income is recognized through the accretion of discount. |
b These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are |
collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on |
the municipal issue and to retire the bonds in full at the earliest refunding date. |
c 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 October 31, 2009, this security |
amounted to $11,080,515 or 14.2% of net assets. |
d Collateral for floating rate borrowings. |
e Variable rate demand note—rate shown is the interest rate in effect at October 31, 2009. Maturity date represents |
the next demand date, or the ultimate maturity date if earlier. |
10
Summary of Abbreviations | ||||||
ABAG | Association of Bay Area Governments | ACA | American Capital Access | |||
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company | |||
AMBAC | American Municipal Bond | |||||
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 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Combined Ratings (Unaudited) | ||||||||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† | |||||
AAA | Aaa | AAA | 50.8 | |||||||
AA | Aa | AA | 4.1 | |||||||
A | A | A | 15.9 | |||||||
BBB | Baa | BBB | 8.0 | |||||||
BB | Ba | BB | 5.6 | |||||||
B | B | B | .3 | |||||||
F1 | MIG1/P1 | SP1/A1 | .7 | |||||||
Not Ratedf | Not Ratedf | Not Ratedf | 14.6 | |||||||
100.0 |
† | Based on total investments. | |
f | Securities which, while not rated by Fitch, Moody’s and Standard & Poor’s, have been determined by the Manager to | |
be of comparable quality to those rated securities in which the fund may invest. | ||
See notes to financial statements. |
12
STATEMENT OF ASSETS AND LIABILITIES |
October 31, 2009 (Unaudited) |
Cost | Value | |||||
Assets ($): | ||||||
Investments in securities—See Statement of Investments | 78,720,224 | 81,983,118 | ||||
Interest receivable | 1,383,016 | |||||
Receivable for shares of Beneficial Interest subscribed | 18,359 | |||||
Prepaid expenses | 9,705 | |||||
83,394,198 | ||||||
Liabilities ($): | ||||||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 73,195 | |||||
Cash overdraft due to Custodian | 21,407 | |||||
Payable for floating rate notes issued—Note 4 | 5,100,000 | |||||
Payable for shares of Beneficial Interest redeemed | 58,396 | |||||
Interest and expense payable related | ||||||
to floating rate notes issued—Note 4 | 3,904 | |||||
Accrued expenses | 62,546 | |||||
5,319,448 | ||||||
Net Assets ($) | 78,074,750 | |||||
Composition of Net Assets ($): | ||||||
Paid-in capital | 75,237,637 | |||||
Accumulated undistributed investment income—net | 5,142 | |||||
Accumulated net realized gain (loss) on investments | (430,923) | |||||
Accumulated net unrealized appreciation | ||||||
(depreciation) on investments | 3,262,894 | |||||
Net Assets ($) | 78,074,750 | |||||
Net Asset Value Per Share | ||||||
Class A | Class B | Class C | ||||
Net Assets ($) | 74,451,364 | 274,468 | 3,348,918 | |||
Shares Outstanding | 5,121,387 | 18,882 | 230,293 | |||
Net Asset Value Per Share ($) | 14.54 | 14.54 | 14.54 | |||
See notes to financial statements. |
The Fund 13
STATEMENT OF OPERATIONS | ||
Six Months Ended October 31, 2009 (Unaudited) | ||
Investment Income ($): | ||
Interest Income | 2,281,991 | |
Expenses: | ||
Management fee—Note 3(a) | 219,059 | |
Shareholder servicing costs—Note 3(c) | 131,622 | |
Interest and expense related to | ||
floating rate notes issued—Note 4 | 24,134 | |
Professional fees | 19,938 | |
Distribution fees—Note 3(b) | 13,574 | |
Registration fees | 11,832 | |
Custodian fees—Note 3(c) | 7,113 | |
Prospectus and shareholders’ reports | 6,963 | |
Trustees’ fees and expenses—Note 3(d) | 2,142 | |
Loan commitment fees—Note 2 | 374 | |
Miscellaneous | 11,892 | |
Total Expenses | 448,643 | |
Less—reduction in fees due to | ||
earnings credits—Note 1(b) | (1,731) | |
Net Expenses | 446,912 | |
Investment Income—Net | 1,835,079 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | (803,580) | |
Net unrealized appreciation (depreciation) on investments | 3,528,417 | |
Net Realized and Unrealized Gain (Loss) on Investments | 2,724,837 | |
Net Increase in Net Assets Resulting from Operations | 4,559,916 | |
See notes to financial statements. |
14
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009 | |||
Operations ($): | ||||
Investment income—net | 1,835,079 | 3,852,375 | ||
Net realized gain (loss) on investments | (803,580) | 738,900 | ||
Net unrealized appreciation | ||||
(depreciation) on investments | 3,528,417 | (4,125,374) | ||
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 4,559,916 | 465,901 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (1,757,585) | (3,656,676) | ||
Class B Shares | (5,441) | (28,890) | ||
Class C Shares | (66,911) | (158,070) | ||
Total Dividends | (1,829,937) | (3,843,636) | ||
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 1,577,535 | 3,618,029 | ||
Class B Shares | 661 | 844 | ||
Class C Shares | 540,730 | 151,010 | ||
Dividends reinvested: | ||||
Class A Shares | 1,233,393 | 2,445,469 | ||
Class B Shares | 2,769 | 14,667 | ||
Class C Shares | 44,692 | 105,873 | ||
Cost of shares redeemed: | ||||
Class A Shares | (6,376,242) | (8,124,480) | ||
Class B Shares | (127,841) | (734,760) | ||
Class C Shares | (1,085,035) | (541,572) | ||
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | (4,189,338) | (3,064,920) | ||
Total Increase (Decrease) in Net Assets | (1,459,359) | (6,442,655) | ||
Net Assets ($): | ||||
Beginning of Period | 79,534,109 | 85,976,764 | ||
End of Period | 78,074,750 | 79,534,109 | ||
Undistributed investment income—net | 5,142 | — |
The Fund 15
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009 | |||
Capital Share Transactions: | ||||
Class Aa | ||||
Shares sold | 110,034 | 257,414 | ||
Shares issued for dividends reinvested | 85,892 | 175,077 | ||
Shares redeemed | (445,136) | (584,660) | ||
Net Increase (Decrease) in Shares Outstanding | (249,210) | (152,169) | ||
Class Ba | ||||
Shares sold | 44 | 61 | ||
Shares issued for dividends reinvested | 193 | 1,042 | ||
Shares redeemed | (9,041) | (52,449) | ||
Net Increase (Decrease) in Shares Outstanding | (8,804) | (51,346) | ||
Class C | ||||
Shares sold | 38,527 | 10,764 | ||
Shares issued for dividends reinvested | 3,111 | 7,575 | ||
Shares redeemed | (76,025) | (38,804) | ||
Net Increase (Decrease) in Shares Outstanding | (34,387) | (20,465) |
a | During the period ended October 31, 2009, 4,653 Class B shares representing $65,510 were automatically | |
converted to 4,653 Class A shares and during the period ended April 30, 2009, 17,675 Class B shares | ||
representing $246,899 were automatically converted to 17,671 Class A shares. | ||
See notes to financial statements. |
16
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 14.04 | 14.60 | 15.17 | 14.98 | 15.28 | 14.95 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .34 | .67 | .65 | .63 | .62 | .65 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .49 | (.56) | (.57) | .21 | (.30) | .33 | ||||||
Total from Investment Operations | .83 | .11 | .08 | .84 | .32 | .98 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.33) | (.67) | (.65) | (.63) | (.62) | (.65) | ||||||
Dividends from net realized | ||||||||||||
gain on investments | — | — | (.00)b | (.02) | — | — | ||||||
Total Distributions | (.33) | (.67) | (.65) | (.65) | (.62) | (.65) | ||||||
Net asset value, end of period | 14.54 | 14.04 | 14.60 | 15.17 | 14.98 | 15.28 | ||||||
Total Return (%)c | 6.00d | .85 | .56 | 5.71 | 2.11 | 6.68 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.09e | 1.13 | 1.19 | 1.16 | 1.11 | 1.09 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.09e,f | 1.12 | 1.18 | 1.15 | 1.10 | 1.09f | ||||||
Ratio of interest and expenses | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | .06e | .12 | .20 | .20 | .14 | .13 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 4.64e | 4.77 | 4.35 | 4.17 | 4.08 | 4.30 | ||||||
Portfolio Turnover Rate | 9.30d | 12.29 | 16.23 | 10.45 | 17.78 | 21.12 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 74,451 | 75,427 | 80,657 | 91,226 | 96,826 | 102,251 |
a | Based on average shares outstanding at each month end. | |
b | Amount represents less than $.01 per share. | |
c | Exclusive of sales charge. | |
d | Not annualized. | |
e | Annualized. | |
f | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
The Fund 17
FINANCIAL HIGHLIGHTS (continued) |
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class B Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 14.04 | 14.60 | 15.16 | 14.98 | 15.28 | 14.95 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .27 | .55 | .55 | .54 | .54 | .57 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .50 | (.55) | (.56) | .21 | (.30) | .33 | ||||||
Total from Investment Operations | .77 | — | (.01) | .75 | .24 | .90 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.27) | (.56) | (.55) | (.55) | (.54) | (.57) | ||||||
Dividends from net realized | ||||||||||||
gain on investments | — | — | (.00)b | (.02) | — | — | ||||||
Total Distributions | (.27) | (.56) | (.55) | (.57) | (.54) | (.57) | ||||||
Net asset value, end of period | 14.54 | 14.04 | 14.60 | 15.16 | 14.98 | 15.28 | ||||||
Total Return (%)c | 5.56d | .10 | .00e | 5.05 | 1.58 | 6.14 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.88f | 1.81 | 1.80 | 1.71 | 1.65 | 1.62 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.87f | 1.80 | 1.79 | 1.70 | 1.63 | 1.61 | ||||||
Ratio of interest and expenses | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | .06f | .12 | .20 | .20 | .14 | .13 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.82f | 4.02 | 3.72 | 3.62 | 3.55 | 3.81 | ||||||
Portfolio Turnover Rate | 9.30d | 12.29 | 16.23 | 10.45 | 17.78 | 21.12 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 274 | 389 | 1,154 | 2,167 | 3,926 | 6,114 |
a | Based on average shares outstanding at each month end. | |
b | Amount represents less than $.01 per share. | |
c | Exclusive of sales charge. | |
d | Not annualized. | |
e | Amount represents less than .01%. | |
f | Annualized. | |
See notes to financial statements. |
18
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 14.05 | 14.61 | 15.17 | 14.99 | 15.28 | 14.96 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .28 | .57 | .54 | .52 | .51 | .54 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .49 | (.57) | (.56) | .20 | (.29) | .32 | ||||||
Total from Investment Operations | .77 | — | (.02) | .72 | .22 | .86 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.28) | (.56) | (.54) | (.52) | (.51) | (.54) | ||||||
Dividends from net realized | ||||||||||||
gain on investments | — | — | (.00)b | (.02) | — | — | ||||||
Total Distributions | (.28) | (.56) | (.54) | (.54) | (.51) | (.54) | ||||||
Net asset value, end of period | 14.54 | 14.05 | 14.61 | 15.17 | 14.99 | 15.28 | ||||||
Total Return (%)c | 5.53d | .12 | (.12) | 4.86 | 1.44 | 5.84 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.83e | 1.87 | 1.93 | 1.90 | 1.84 | 1.82 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.83e,f | 1.86 | 1.92 | 1.89 | 1.82 | 1.82f | ||||||
Ratio of interest and expenses | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | .06e | .12 | .20 | .20 | .14 | .13 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.92e | 4.03 | 3.61 | 3.44 | 3.35 | 3.59 | ||||||
Portfolio Turnover Rate | 9.30d | 12.29 | 16.23 | 10.45 | 17.78 | 21.12 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 3,349 | 3,718 | 4,166 | 4,309 | 5,602 | 5,588 |
a | Based on average shares outstanding at each month end. | |
b | Amount represents less than $.01 per share. | |
c | Exclusive of sales charge. | |
d | Not annualized. | |
e | Annualized. | |
f | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus State Municipal Bond Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a non-diversified open-end management investment company, and operates as a series company that offers nine series including the Dreyfus Michigan Fund (the “fund”).The Trust’s investment objective is to maximize current income exempt from federal and, where applicable, state income taxes, without undue risk.The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of 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 each of the following classes of shares: Class A, Class B and Class C. Class A shares are subject to a sales charge imposed at the time of purchase. Class B shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class B share redemptions made within six years of purchase and automatically convert to Class A shares after six years.The fund does not offer Class B shares, except in connection with dividend reinvestment and permitted exchanges of Class B shares. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Other differences between the classes include the services offered to and the expenses borne by each class, the a llocation 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.
20
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) has become the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The ASC has superseded all existing non-SEC accounting and reporting standards. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The fund enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued each business day by an independent pricing service (the “Service”) approved by the Board of Trustees. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market cond itions. Options and financial futures on municipal and U.S.Treasury securities are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market on each business day.
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements. These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of October 31, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||||||
Level 1— | Significant | Significant | ||||||
Unadjusted | Observable | Unobservable | ||||||
Quoted Prices | Inputs | Inputs | Total | |||||
Assets ($) | ||||||||
Investments in Securities: | ||||||||
Municipal Bonds | — | 81,983,118 | — | 81,983,118 |
22
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gain and loss 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.
The fund follows an investment policy of investing primarily in municipal obligations of one state. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the fund.
(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 GAAP.
(d) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
As of and during the period ended October 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 April 30, 2009 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 April 30, 2009 was as follows: tax exempt income $3,843,636.The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participated with other Dreyfus-managed funds in a $145 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. Effective October 14, 2009, the $145 million unsecured credit facility with Citibank, N.A., was increased to $215 million and the fund continues participation in the $300 million unsecured credit facility provided by The Bank of New York Mellon. In connection therewith, the fund has agreed to pay its pro rata portion of Facility fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended October 31, 2009, the fund did not borrow under the Facilities.
NOTE 3—Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement with the Manager, the management fee is computed at the annual rate of .55% of the value of the fund’s average daily net assets and is payable monthly.
24
During the period ended October 31, 2009, the Distributor retained $4,835 from commissions earned on sales of the fund’s Class A shares and $541 from CDSCs on redemptions of the fund’s Class B.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class B and Class C shares pay the Distributor for distributing their shares at an annual rate of .50% of the value of the average daily net assets of Class B shares and .75% of the value of the average daily net assets of Class C shares. During the period ended October 31, 2009, Class B and Class C shares were charged $715 and $12,859, respectively, pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (a securities dealer, financial institution or other industry professional) in respect of these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2009, Class A, Class B and Class C shares were charged $94,929, $357 and $4,286, respectively, pursuant to the Shareholder Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the fund. During the period ended October 31, 2009, the fund was charged $17,078 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of NewYork Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, under a cash management
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2009, the fund was charged $1,731 pursuant to the cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations. These fees were offset by earnings credits pursuant to the cash management agreement.
The fund also compensates The Bank of New York Mellon under a custody agreement to provide custodial services for the fund. During the period ended October 31, 2009, the fund was charged $7,113 pursuant to the custody agreement.
During the period ended October 31, 2009, the fund was charged $3,341 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fee $36,971, Rule 12b-1 distribution plan fees $2,267, shareholder services plan fees $16,805, custodian fees $4,401, chief compliance officer fees $3,897 and transfer agency per account fees $8,854.
(d) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended October 31, 2009, amounted to $7,571,949 and $9,904,708, respectively.
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The fund held no derivatives during the period ended October 31,2009, these disclosures did not impact the notes to the financial statements.
26
Inverse Floater Securities: The fund may participate in secondary inverse floater structures in which fixed-rate, tax-exempt municipal bonds purchased by the fund are transferred to a trust.The trust subsequently issues two or more variable rate securities that are collateralized by the cash flows of the fixed-rate, tax-exempt municipal bonds. One or more of these variable rate securities pays interest based on a short-term floating rate set by a remarketing agent at predetermined intervals. A residual interest tax-exempt security is also created by the trust, which is transferred to the fund, and is paid interest based on the remaining cash flow of the trust, after payment of interest on the other securities and various expenses of the trust.
The fund accounts for the transfer of bonds to the trust as secured borrowings, with the securities transferred remaining in the fund’s investments, and the related floating rate certificate securities reflected as fund liabilities under the caption, “Payable for floating rate notes issued” in the Statement of Assets and Liabilities.
The average amount of borrowings outstanding under the inverse floater structure during the period ended October 31, 2009, was approximately $5,100,000, with related weighted average annualized interest rate of .94%.
At October 31, 2009, accumulated net unrealized appreciation on investments was $3,262,894, consisting of $5,942,678 gross unrealized appreciation and $2,679,784 gross unrealized depreciation.
At October 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).
NOTE 5—Plan of Reorganization:
On July 21, 2009 the Board of Trustees of the Trust approved, and on November 19, 2009 the shareholders of the fund approved, an Agreement and Plan of Reorganization (the “Agreement”) between the
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Trust, on behalf of the fund, and Dreyfus Municipal Funds, Inc. on behalf of Dreyfus AMT-Free Municipal Bond Fund, (the “Acquiring Fund”).The Agreement provides for the transfer of the fund’s assets to the Acquiring Fund in a tax-free exchange for shares of the Acquiring Fund and the assumption by the Acquiring Fund of the stated liabilities of the fund, the distribution of shares of the Acquiring Fund to the fund’s shareholders and the subsequent termination of the fund (the “Reorganization”). In anticipation of the Reorganization, effective September 11, 2009, the fund was closed to any investments for new accounts.The Reorganization will take place on or about January 28, 2010.
NOTE 6—Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
28
INFORMATION ABOUT THE REVIEW AND APPROVAL |
OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the Board of Trustees held on July 21, 2009, the Board considered the re-approval for an annual period of the fund’s Management Agreement, pursuant to which the Manager provides the fund with investment advisory and administrative services. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager.
Analysis of Nature, Extent and Quality of Services Provided to the Fund.The Board members considered information previously provided to them in a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus fund complex, and representatives of the Manager confirmed that there had been no material changes in this information.The Board also discussed the nature, extent and quality of the services provided to the fund pursuant to its Management Agreement. The Manager’s representatives reviewed the fund’s distribution of accounts and the relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services in each distribution channel, including those of the fund.The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements.The Board members also considered the Manager’s extensive administrative, accounting and compliance infrastructure.The Board also considered the Manager’s brokerage policies and practices and the standards applied in seeking best execution.
The Fund 29
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
Comparative Analysis of the Fund’s Performance, Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of comparable funds (the “Performance Group”) and to a broader group of 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 yield performance for the past ten one-year periods ended May 31 (2000 - 2009) was equal to or above the Performance Group median for each reported time period except the one-year period ended May 31, 2002, and that the fund’s yield performance was above the Performance Universe median for each reported time period. The Board members noted that the fund’s total return performance for various periods ended May 31, 2009 was above the Performance Group median for the one-year period and below the median for each of the other periods, and above the Performance Universe median for each reported time period except the two-year period, when it was below the median. The Manager also provided a comparison of the fund’s calendar year total returns to the returns of its Lipper category average for the prior ten years and the Board members noted that the fund equaled or outperformed its Lipper category average in seven of the past ten calendar years, including calendar year 2008. The Board members discussed with representatives of the Manager the reasons for the fund’s total return underperformance compared to the Performance Group median for the applicable periods, and the Manager’s efforts to improve performance. The Board members also received a presentation from the fund’s primary portfolio manager during which he discussed the fund’s investment strategy and the factors that affected performance.
30
The Board members also discussed the fund’s contractual and actual management fee and total expense ratio as compared to a comparable group of funds (the “Expense Group”) that was composed of the same funds included in the Performance Group and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper. The Board noted that the fund’s contractual management fee was equal to the Performance Group median, and that the fund’s actual management fee and total expense ratio were above the Expense Group and Expense Universe medians.
Representatives of the Manager informed the Board members that there were no mutual funds, separate accounts or wrap fee accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund com-plex.The Board members also had been informed that the methodology also had been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable.The consulting firm also analyzed where any economies of scale might emerge in connection with the management of a fund. The Board members evaluated the profitability analysis in light of the rel evant circumstances for the fund, and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. The Board members also considered potential benefits to the Manager
The Fund 31
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
and its affiliates from acting as investment adviser to the fund and noted that there were no soft dollar arrangements with respect to trading the fund’s portfolio. It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It was also noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Mana ger.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
- The Board concluded that the nature, extent and quality of the services provided by the Manager to the fund are adequate and appropriate.
- The Board was generally satisfied with the fund’s overall perfor- mance and with management’s efforts to improve performance as discussed at this meeting.
- The Board concluded that the fee paid to the Manager by the fund was reasonable in light of the services provided, comparative perfor- mance and expense and management fee information, costs of the services provided, and profits to be realized and benefits derived or to be derived by the Manager from its relationship with the fund.
32
- The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in con- nection with the management fee rate charged to the fund, and that, to the extent in the future it were to be determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with the information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
The Fund 33
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
16 | Statement of Assets and Liabilities |
17 | Statement of Operations |
18 | Statement of Changes in Net Assets |
20 | Financial Highlights |
23 | Notes to Financial Statements |
31 | Information About the Review and Approval of the Fund’s Management Agreement |
FOR MORE INFORMATION | |
Back Cover | |
Dreyfus State Municipal Bond Funds, Dreyfus Minnesota Fund |
The Fund |
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A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus State Municipal Bond Funds, Dreyfus Minnesota Fund, covering the six-month period from May 1, 2009, through October 31, 2009.
Reports of positive U.S. economic growth over the third quarter of 2009 may have signaled the end of the deep recession that technically began in December 2007. Signs that the economy finally has turned a corner include inventory rebuilding among manufacturers and improvements in home sales and prices, while massive government stimulus and favorable supply-and-demand influences have all supported the municipal bond rally in 2009.As expected, funds with the longest average durations and lower-quality portfolios have led the rebound, while AAA-rated and shorter-duration funds have rallied to a lesser extent.
As the financial markets currently appear poised to enter into a new phase, and as government intervention appears to be winding down (at least for the moment), the best strategy for your portfolio depends not only on your view of the economy’s direction,but on your current financial needs,future goals and attitudes toward risk.Your financial advisor can help you decide which investments have the potential to benefit from a recovery while guarding against the taxation and investment risks that may accompany policy changes and unexpected market developments.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
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Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation November 16, 2009 |
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2009, through October 31, 2009, as provided by Joseph P. Darcy, Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended October 31, 2009, the Class A, Class B and Class C shares of Dreyfus Minnesota Fund, a series of Dreyfus State Municipal Bond Funds, produced total returns of 4.72%, 4.34% and 4.25%,respectively.1 In comparison,the Barclays Capital Municipal Bond Index (the “Index”), the fund’s benchmark Index, which is composed of bonds issued nationally and not solely within Minnesota, achieved a total return of 4.99% for the same period.2
Municipal bonds rallied strongly over the reporting period amid expectations of better economic times and stable credit markets.The fund’s returns were roughly in line with its Index, primarily due to strong performance by the fund’s core, seasoned holdings of municipal bonds.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax and Minnesota state income tax without undue risk. To pursue its goal, the fund normally invests substantially all of its assets in municipal bonds that provide income exempt from federal income tax and from Minnesota state income tax. The fund invests at least 70% of its assets in investment-grade municipal bonds or the unrated equivalent as determined by Dreyfus.The fund may invest up to 30% of its assets in municipal bonds rated below investment grade or the unrated equivalent as determined by Dreyfus. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
We may buy and sell bonds based on credit quality, market outlook and yield potential.When selecting municipal bonds for investment, we may assess the current interest-rate environment and a municipal bond’s
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
potential volatility in different rate environments. We focus on bonds with the potential to offer attractive current income, typically looking for bonds that can provide consistently attractive current yields or that are trading at competitive market prices. A portion of the fund’s assets may be allocated to“discount”bonds,which are bonds that sell at a price below their face value, or to “premium” bonds, which are bonds that sell at a price above their face value.The fund’s allocation either to discount bonds or to premium bonds will change along with our changing views of the current interest-rate and market environment.We may also look to select bonds that are most likely to obtain attractive prices when sold.
Municipal Bonds Rebounded Sharply
In the wake of severe market declines stemming from a global financial crisis and recession, the municipal bond market staged an impressive rebound over the reporting period. The rally was fueled by changing investor sentiment, which began to improve in March 2009 as government and monetary authorities’aggressive remedial measures—including historically low interest rates, injections of liquidity into the banking system, the rescues of major corporations and a massive economic stimulus program—seemed to gain traction. Additional evidence of economic stabilization later appeared, supporting a sustained rally through the reporting period’s end. Although most municipal bonds participated in the rally, gains were particularly strong among lower-quality issues that had been punished in the downturn.
Seasoned Holdings Supported Fund Returns
The fund’s core holdings of seasoned bonds produced competitive levels of income that bolstered the fund’s total return. Moreover, we strived to maintain a high level of credit quality.When making new purchases, we generally emphasized higher-rated bonds with maturities in the 15- to 20-year range, which offered most of the yield of longer-term securities but with less volatility.We generally favored bonds backed by dedicated revenue streams, including those from essential municipal services such as sewer and water facilities.
4
Like most other states, Minnesota has continued to struggle with fiscal pressures due to tax revenue shortfalls and greater demand for services in the recession.The state has attempted to bridge its budget gap with spending cuts, payment deferrals and administrative actions designed to achieve one-time revenue enhancements.
Supply-and-Demand Factors Appear Favorable
We have maintained a generally conservative investment posture.With short-term interest rates expected to remain low for some time, credit conditions may be the dominant influence on market sentiment over the foreseeable future.
Despite the lingering impacts of the recession on municipalities, technical factors have supported the market. The supply of newly issued municipal bonds has fallen significantly to date in 2009 compared to one year ago as the Build America Bonds program, part of the economic stimulus package, has diverted a substantial portion of new issuance to the taxable bond market.At the same time, demand for municipal bonds has intensified from investors concerned about the likelihood of higher income taxes.We expect this favorable supply-and-demand dynamic to persist into 2010.
November 16, 2009
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take into | |
consideration the maximum initial sales charge in the case of Class A shares or the applicable | ||
contingent deferred sales charges imposed on redemptions in the case of Class B and Class C | ||
shares. Had these charges been reflected, returns would have been lower. Past performance is no | ||
guarantee of future results. Each share class is subject to a different sales charge and distribution | ||
expense structure and will achieve different returns. 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 for non-Minnesota residents, and some income | ||
may be subject to the federal alternative minimum tax (AMT) for certain investors. Capital gains, | ||
if any, are fully taxable. | ||
2 | SOURCE: LIPPER INC. — Reflects reinvestment of dividends and, where applicable, capital | |
gain distributions.The Barclays Capital Municipal Bond Index is a widely accepted, unmanaged | ||
total return performance benchmark for the long-term, investment-grade, tax-exempt bond market. | ||
Index returns do not reflect fees and expenses associated with operating a mutual fund. |
The Fund 5
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus State Municipal Bond Funds, Dreyfus Minnesota Fund from May 1, 2009 to October 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 October 31, 2009 | ||||||
Class A | Class B | Class C | ||||
Expenses paid per $1,000† | $ 4.85 | $ 7.83 | $ 8.75 | |||
Ending value (after expenses) | $1,047.20 | $1,043.40 | $1,042.50 |
COMPARING YOUR FUND’S EXPENSES |
WITH THOSE OF OTHER FUNDS (Unaudited) |
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment | ||||||
assuming a hypothetical 5% annualized return for the six months ended October 31, 2009 | ||||||
Class A | Class B | Class C | ||||
Expenses paid per $1,000† | $ 4.79 | $ 7.73 | $ 8.64 | |||
Ending value (after expenses) | $1,020.47 | $1,017.54 | $1,016.64 |
† Expenses are equal to the fund’s annualized expense ratio of .94% for Class A, 1.52% for Class B and 1.70% for Class C, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS | ||||||||||
October 31, 2009 (Unaudited) | ||||||||||
Long-Term Municipal | Coupon | Maturity | Principal | |||||||
Investments—95.5% | Rate (%) | Date | Amount ($) | Value ($) | ||||||
Minnesota—91.8% | ||||||||||
Andover Economic Development | ||||||||||
Authority, Public Facility LR | ||||||||||
(City of Andover | ||||||||||
Community Center) | 5.20 | 2/1/34 | 885,000 | 974,527 | ||||||
Andover Economic Development | ||||||||||
Authority, Public Facility LR | ||||||||||
(City of Andover | ||||||||||
Community Center) | 5.20 | 2/1/34 | 615,000 | 677,213 | ||||||
Blooming Prairie Independent | ||||||||||
School District Number 756, GO | ||||||||||
School Building Bonds | ||||||||||
(Minnesota School District | ||||||||||
Credit Enhancement Program) | ||||||||||
(Insured; National Public | ||||||||||
Finance Guarantee Corp.) | 4.75 | 1/1/27 | 1,900,000 | 1,988,559 | ||||||
Bloomington Independent School | ||||||||||
District Number 271, GO | ||||||||||
(Minnesota School District | ||||||||||
Credit Enhancement | ||||||||||
Program) (Insured; FSA) | 5.13 | 2/1/24 | 2,000,000 | 2,159,960 | ||||||
Chaska, | ||||||||||
Electric Revenue (Generating | ||||||||||
Facilities) | 5.00 | 10/1/30 | 1,135,000 | 1,151,208 | ||||||
Chaska, | ||||||||||
Electric Revenue (Generating | ||||||||||
Facilities) (Prerefunded) | 6.00 | 10/1/10 | 3,000,000 | a | 3,151,020 | |||||
Columbia Heights, | ||||||||||
MFHR (Crest View ONDC 1 | ||||||||||
Project) (Collateralized; | ||||||||||
GNMA) (Prerefunded) | 6.63 | 10/20/12 | 1,485,000 | a | 1,795,484 | |||||
Coon Rapids, | ||||||||||
Multifamily Rental Housing | ||||||||||
Revenue (GNMA Collateralized | ||||||||||
Mortgage Loan—Mississippi | ||||||||||
View Apartments Project) | ||||||||||
(Collateralized; FHA) | 4.95 | 10/20/41 | 2,700,000 | 2,575,098 | ||||||
Dakota County Community | ||||||||||
Development Agency, MFHR | ||||||||||
(Grande Market Place Project) | ||||||||||
(Collateralized; GNMA) | 5.40 | 11/20/43 | 3,000,000 | 3,009,090 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Minnesota (continued) | ||||||||
Dakota County Community | ||||||||
Development Agency, SFMR | ||||||||
(Mortgage-Backed Securities | ||||||||
Program) (Collateralized: | ||||||||
FHLMC, FNMA and GNMA) | 5.30 | 12/1/39 | 851,808 | 867,464 | ||||
Falcon Heights, | ||||||||
LR (Kaleidoscope Charter | ||||||||
School Project) | 6.00 | 11/1/27 | 400,000 | 347,640 | ||||
Falcon Heights, | ||||||||
LR (Kaleidoscope Charter | ||||||||
School Project) | 6.00 | 11/1/37 | 400,000 | 327,792 | ||||
Hennepin County, | ||||||||
Second Lien Sales Tax Revenue | ||||||||
(Ballpark Project) | 5.00 | 12/15/29 | 1,500,000 | 1,595,085 | ||||
Lake Superior Independent School | ||||||||
District Number 381, GO | ||||||||
(Minnesota School District | ||||||||
Credit Enhancement Program) | ||||||||
(Insured; FSA) | 5.00 | 4/1/20 | 2,510,000 | 2,741,096 | ||||
Lake Superior Independent School | ||||||||
District Number 381, GO | ||||||||
(Minnesota School District | ||||||||
Credit Enhancement Program) | ||||||||
(Insured; FSA) | 5.00 | 4/1/21 | 2,640,000 | 2,883,065 | ||||
Lakeville Independent School | ||||||||
District Number 194, GO | ||||||||
(Minnesota School District | ||||||||
Credit Enhancement Program) | ||||||||
(Insured; FGIC) | 5.50 | 2/1/24 | 8,700,000 | 9,641,253 | ||||
Mahtomedi Independent School | ||||||||
District Number 832, GO | ||||||||
(Minnesota School District | ||||||||
Credit Enhancement Program) | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 0.00 | 2/1/17 | 1,275,000 b | 1,001,347 | ||||
Minneapolis, | ||||||||
GO | 0.00 | 12/1/14 | 1,825,000 b | 1,628,703 | ||||
Minneapolis, | ||||||||
Health Care System Revenue | ||||||||
(Fairview Health Services) | ||||||||
(Insured; Assured Guaranty) | 6.50 | 11/15/38 | 3,000,000 | 3,386,910 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Minnesota (continued) | ||||||||
Minneapolis, | ||||||||
MFHR (Sumner Field Phase II, | ||||||||
L.P. Project) (Collateralized; | ||||||||
GNMA) | 5.15 | 2/20/45 | 1,575,000 | 1,537,326 | ||||
Minneapolis, | ||||||||
Revenue (Blake School Project) | 5.45 | 9/1/21 | 2,000,000 | 2,036,180 | ||||
Minneapolis, | ||||||||
Tax Increment Revenue (Saint | ||||||||
Anthony Falls Project) | 5.75 | 2/1/27 | 1,000,000 | 872,180 | ||||
Minneapolis and Saint Paul Housing | ||||||||
and Redevelopment Authority, | ||||||||
Health Care Facility Revenue | ||||||||
(HealthPartners Obligated | �� | |||||||
Group Project) | 6.00 | 12/1/18 | 1,000,000 | 1,028,690 | ||||
Minneapolis and Saint Paul | ||||||||
Housing and Redevelopment | ||||||||
Authority, Health Care | ||||||||
Facility Revenue | ||||||||
(HealthPartners | ||||||||
Obligated Group Project) | 6.00 | 12/1/20 | 2,290,000 | 2,342,166 | ||||
Minneapolis and Saint Paul | ||||||||
Metropolitan Airports | ||||||||
Commission, Airport Revenue | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 6.00 | 1/1/18 | 3,000,000 | 3,046,560 | ||||
Minneapolis and Saint Paul | ||||||||
Metropolitan Airports | ||||||||
Commission, Senior | ||||||||
Airport Revenue | 5.00 | 1/1/22 | 2,000,000 c | 2,004,240 | ||||
Minnesota, | ||||||||
Retirement System Building | ||||||||
Revenue | 6.00 | 6/1/30 | 1,475,000 | 1,502,199 | ||||
Minnesota Agricultural and | ||||||||
Economic Development Board, | ||||||||
Health Care System Revenue | ||||||||
(Fairview Health Care Systems) | 6.38 | 11/15/29 | 150,000 | 153,045 | ||||
Minnesota Agricultural and | ||||||||
Economic Development Board, | ||||||||
Health Care System Revenue | ||||||||
(Fairview Health Care Systems) | ||||||||
(Prerefunded) | 6.38 | 11/15/10 | 3,850,000 a | 4,128,278 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Minnesota (continued) | ||||||||
Minnesota Agricultural and | ||||||||
Economic Development Board, | ||||||||
Revenue (Evangelical Lutheran | ||||||||
Project) | 6.00 | 2/1/22 | 1,130,000 | 1,162,341 | ||||
Minnesota Agricultural and | ||||||||
Economic Development Board, | ||||||||
Revenue (Evangelical Lutheran | ||||||||
Project) | 6.00 | 2/1/27 | 1,750,000 | 1,788,833 | ||||
Minnesota Higher Education | ||||||||
Facilities Authority, Revenue | ||||||||
(Augsburg College) | 5.00 | 5/1/36 | 1,500,000 | 1,390,110 | ||||
Minnesota Higher Education | ||||||||
Facilities Authority, Revenue | ||||||||
(University of Saint Thomas) | 5.00 | 4/1/29 | 1,000,000 | 1,035,670 | ||||
Minnesota Housing Finance Agency, | ||||||||
Residential Housing Finance | ||||||||
Revenue | 5.00 | 1/1/20 | 2,800,000 | 2,838,304 | ||||
Minnesota Housing Finance Agency, | ||||||||
Residential Housing Finance | ||||||||
Revenue | 4.65 | 7/1/22 | 2,330,000 | 2,307,865 | ||||
Minnesota Housing Finance Agency, | ||||||||
Residential Housing Finance | ||||||||
Revenue | 4.85 | 7/1/31 | 2,000,000 | 1,917,020 | ||||
Minnesota Housing Finance Agency, | ||||||||
Residential Housing Finance | ||||||||
Revenue | 5.00 | 1/1/37 | 750,000 | 758,392 | ||||
Minnesota Housing Finance Agency, | ||||||||
Residential Housing Finance | ||||||||
Revenue | 5.10 | 7/1/38 | 2,000,000 | 1,932,640 | ||||
Minnesota Housing Finance Agency, | ||||||||
SFMR | 5.80 | 1/1/19 | 740,000 | 760,380 | ||||
Minnesota Housing Finance Agency, | ||||||||
SFMR | 6.10 | 7/1/30 | 1,820,000 | 1,853,433 | ||||
Minnesota Housing Finance Agency, | ||||||||
SFMR (Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.45 | 1/1/22 | 400,000 | 418,848 | ||||
Minnesota Municipal Power Agency, | ||||||||
Electric Revenue | 5.00 | 10/1/35 | 1,500,000 | 1,515,240 | ||||
Minnesota Municipal Power Agency, | ||||||||
Electric Revenue | 5.00 | 10/1/37 | 2,000,000 | 2,020,760 |
10
Long-Term Municipal | Coupon | Maturity | Principal | |||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||||
Minnesota (continued) | ||||||||||
Northfield, | ||||||||||
HR | 5.38 | 11/1/31 | 2,240,000 | 2,044,739 | ||||||
Northfield, | ||||||||||
HR (Prerefunded) | 6.00 | 11/1/11 | 2,000,000 | a | 2,193,520 | |||||
Ramsey, | ||||||||||
LR (Pact Charter School | ||||||||||
Project) | 6.75 | 12/1/33 | 1,000,000 | 911,220 | ||||||
Rosemount-Apple Valley-Eagan | ||||||||||
Independent School District | ||||||||||
Number 196, GO (Minnesota | ||||||||||
School District Credit | ||||||||||
Enhancement Program) (Insured; | ||||||||||
National Public Finance | ||||||||||
Guarantee Corp.) | 0.00 | 4/1/14 | 2,960,000 | b | 2,666,723 | |||||
Saint Cloud, | ||||||||||
Health Care Revenue | ||||||||||
(CentraCare Health System | ||||||||||
Project) (Insured; Assured | ||||||||||
Guaranty) | 5.50 | 5/1/39 | 2,000,000 | 2,052,840 | ||||||
Saint Cloud Housing and | ||||||||||
Redevelopment Authority, | ||||||||||
Revenue (State University | ||||||||||
Foundation Project) | 5.13 | 5/1/18 | 1,500,000 | 1,565,985 | ||||||
Saint Louis Park, | ||||||||||
Health Care Facilities | ||||||||||
Revenue (Park Nicollet | ||||||||||
Health Services) | 5.75 | 7/1/30 | 1,000,000 | 1,039,330 | ||||||
Saint Paul Housing and | ||||||||||
Redevelopment Authority, | ||||||||||
Hospital Facility Revenue | ||||||||||
(HealthEast Project) | 6.00 | 11/15/35 | 250,000 | 222,955 | ||||||
Saint Paul Housing and | ||||||||||
Redevelopment Authority, | ||||||||||
Hospital Facility Revenue | ||||||||||
(HealthEast Project) | ||||||||||
(Insured; ACA) | 5.70 | 11/1/15 | 1,770,000 | 1,761,221 | ||||||
Saint Paul Housing and | ||||||||||
Redevelopment Authority, | ||||||||||
MFHR (Wellington Project) | ||||||||||
(Collateralized; FHLMC) | 5.10 | 2/1/24 | 2,000,000 | 2,016,500 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||||
Minnesota (continued) | ||||||||||
Saint Paul Housing and | ||||||||||
Redevelopment Authority, | ||||||||||
Parking Revenue (Block 19 | ||||||||||
Ramp) (Insured; FSA) | 5.25 | 8/1/23 | 3,395,000 | 3,462,594 | ||||||
Saint Paul Housing and | ||||||||||
Redevelopment Authority, | ||||||||||
Recreational Facility LR | ||||||||||
(Jimmy Lee Recreational Center) | 5.00 | 12/1/32 | 750,000 | 758,423 | ||||||
Southern Municipal Power Agency, | ||||||||||
Power Supply System Revenue | ||||||||||
(Insured; National Public | ||||||||||
Finance Guarantee Corp.) | 0.00 | 1/1/25 | 4,505,000 | b | 2,220,019 | |||||
Southern Municipal Power Agency, | ||||||||||
Power Supply System Revenue | ||||||||||
(Insured; National Public | ||||||||||
Finance Guarantee Corp.) | 0.00 | 1/1/26 | 4,625,000 | b | 2,161,540 | |||||
Todd, Morrison, Cass and Wadena | ||||||||||
Counties United Hospital | ||||||||||
District, Health Care Facility | ||||||||||
Revenue (Lakewood Health | ||||||||||
System) | 5.00 | 12/1/21 | 1,000,000 | 1,034,870 | ||||||
Washington County Housing and | ||||||||||
Redevelopment Authority, | ||||||||||
Annual Appropriation Limited | ||||||||||
Tax and Gross Revenue | ||||||||||
(Insured; National Public | ||||||||||
Finance Guarantee Corp.) | 5.50 | 2/1/32 | 2,000,000 | 2,031,960 | ||||||
Washington County Housing and | ||||||||||
Redevelopment Authority, | ||||||||||
Hospital Facility Revenue | ||||||||||
(HealthEast Project) | ||||||||||
(Insured; ACA) | 5.38 | 11/15/18 | 2,215,000 | 2,075,477 | ||||||
Willmar, | ||||||||||
HR (Rice Memorial Hospital | ||||||||||
Project) (Insured; FSA) | 5.00 | 2/1/32 | 4,000,000 | 4,064,440 | ||||||
Winona, | ||||||||||
Health Care Facilities Revenue | ||||||||||
(Winona Health Obligated Group) | 5.15 | 7/1/31 | 1,500,000 | 1,343,055 | ||||||
Winona, | ||||||||||
Health Care Facilities Revenue | ||||||||||
(Winona Health Obligated Group) | 6.00 | 7/1/34 | 2,500,000 | 2,449,350 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||||
U.S. Related—3.7% | ||||||||||
Government of Guam, | ||||||||||
GO | 6.75 | 11/15/29 | 500,000 | 536,935 | ||||||
Puerto Rico Electric Power | ||||||||||
Authority, Power Revenue | 5.50 | 7/1/38 | 2,000,000 | 2,012,160 | ||||||
Puerto Rico Sales Tax Financing | ||||||||||
Corporation, Sales Tax Revenue | ||||||||||
(First Subordinate Series) | 6.00 | 8/1/42 | 2,250,000 | 2,363,287 | ||||||
Total Long-Term Municipal Investments | ||||||||||
(cost $119,031,648) | 125,242,357 | |||||||||
Short-Term Municipal | ||||||||||
Investments—3.3% | ||||||||||
Minnesota: | ||||||||||
Minneapolis, | ||||||||||
Revenue (Guthrie Theater on | ||||||||||
the River Project) (LOC; Wells | ||||||||||
Fargo Bank) | 0.17 | 11/7/09 | 70,000 | d | 70,000 | |||||
Minneapolis, | ||||||||||
Revenue (Minnehaha Academy | ||||||||||
Project) (LOC; Firstar Bank NA) | 0.20 | 11/1/09 | 2,200,000 | d | 2,200,000 | |||||
Saint Paul Housing and | ||||||||||
Redevelopment Authority, | ||||||||||
Revenue (Minnesota Public | ||||||||||
Radio Project) (LOC; Allied | ||||||||||
Irish Banks) | 0.35 | 11/1/09 | 2,030,000 | d | 2,030,000 | |||||
Total Short-Term Municipal Investments | ||||||||||
(cost $4,300,000) | 4,300,000 | |||||||||
Total Investments (cost $123,331,648) | 98.8% | 129,542,357 | ||||||||
Cash and Receivables (Net) | 1.2% | 1,579,860 | ||||||||
Net Assets | 100.0% | 131,122,217 |
a These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are |
collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on |
the municipal issue and to retire the bonds in full at the earliest refunding date. |
b Security issued with a zero coupon. Income is recognized through the accretion of discount. |
c Purchased on a delayed delivery basis. |
d Variable rate demand note—rate shown is the interest rate in effect at October 31, 2009. Maturity date represents |
the next demand date, or the ultimate maturity date if earlier. |
The Fund 13
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 |
14
Summary of Combined Ratings (Unaudited) | ||||||||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† | |||||
AAA | Aaa | AAA | 22.9 | |||||||
AA | Aa | AA | 36.1 | |||||||
A | A | A | 22.9 | |||||||
BBB | Baa | BBB | 9.0 | |||||||
BB | Ba | BB | 1.8 | |||||||
B | B | B | .4 | |||||||
F1 | MIG1/P1 | SP1/A1 | 1.6 | |||||||
Not Ratede | Not Ratede | Not Ratede | 5.3 | |||||||
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 15
STATEMENT OF ASSETS AND LIABILITIES |
October 31, 2009 (Unaudited) |
Cost | Value | |||||
Assets ($): | ||||||
Investments in securities—See Statement of Investments | 123,331,648 | 129,542,357 | ||||
Cash | 1,730,544 | |||||
Interest receivable | 1,834,229 | |||||
Receivable for shares of Beneficial Interest subscribed | 214,508 | |||||
Prepaid expenses | 11,628 | |||||
133,333,266 | ||||||
Liabilities ($): | ||||||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 111,255 | |||||
Payable for investment securities purchased | 2,000,000 | |||||
Payable for shares of Beneficial Interest redeemed | 66,650 | |||||
Accrued expenses | 33,144 | |||||
2,211,049 | ||||||
Net Assets ($) | 131,122,217 | |||||
Composition of Net Assets ($): | ||||||
Paid-in capital | 126,101,122 | |||||
Accumulated undistributed investment income—net | 18,906 | |||||
Accumulated net realized gain (loss) on investments | (1,208,520) | |||||
Accumulated net unrealized appreciation | ||||||
(depreciation) on investments | 6,210,709 | |||||
Net Assets ($) | 131,122,217 | |||||
Net Asset Value Per Share | ||||||
Class A | Class B | Class C | ||||
Net Assets ($) | 123,160,448 | 955,900 | 7,005,869 | |||
Shares Outstanding | 8,177,844 | 63,368 | 464,445 | |||
Net Asset Value Per Share ($) | 15.06 | 15.08 | 15.08 | |||
See notes to financial statements. |
16
STATEMENT OF OPERATIONS |
Six Months Ended October 31, 2009 (Unaudited) |
Investment Income ($): | ||
Interest Income | 3,155,697 | |
Expenses: | ||
Management fee—Note 3(a) | 352,532 | |
Shareholder servicing costs—Note 3(c) | 191,695 | |
Distribution fees—Note 3(b) | 27,749 | |
Professional fees | 18,504 | |
Registration fees | 12,526 | |
Custodian fees—Note 3(c) | 9,560 | |
Prospectus and shareholders’ reports | 3,284 | |
Trustees’ fees and expenses—Note 3(d) | 2,882 | |
Loan commitment fees—Note 2 | 545 | |
Interest expense—Note 2 | 32 | |
Miscellaneous | 12,030 | |
Total Expenses | 631,339 | |
Less—reduction in fees due to earnings credits—Note 1(b) | (1,390) | |
Net Expenses | 629,949 | |
Investment Income—Net | 2,525,748 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | (815,830) | |
Net unrealized appreciation (depreciation) on investments | 4,120,545 | |
Net Realized and Unrealized Gain (Loss) on Investments | 3,304,715 | |
Net Increase in Net Assets Resulting from Operations | 5,830,463 | |
See notes to financial statements. |
The Fund 17
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009 | |||
Operations ($): | ||||
Investment income—net | 2,525,748 | 5,002,909 | ||
Net realized gain (loss) on investments | (815,830) | (288,856) | ||
Net unrealized appreciation (depreciation) | ||||
on investments | 4,120,545 | (1,413,249) | ||
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 5,830,463 | 3,300,804 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (2,380,299) | (4,687,154) | ||
Class B Shares | (22,999) | (114,752) | ||
Class C Shares | (103,544) | (182,171) | ||
Net realized gain on investments: | ||||
Class A Shares | — | (479,288) | ||
Class B Shares | — | (10,008) | ||
Class C Shares | — | (22,307) | ||
Total Dividends | (2,506,842) | (5,495,680) | ||
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 9,680,314 | 19,491,309 | ||
Class B Shares | 22,044 | 264,745 | ||
Class C Shares | 796,766 | 1,387,909 | ||
Dividends reinvested: | ||||
Class A Shares | 1,848,897 | 3,904,404 | ||
Class B Shares | 11,962 | 50,015 | ||
Class C Shares | 67,496 | 117,018 | ||
Cost of shares redeemed: | ||||
Class A Shares | (5,847,017) | (12,449,935) | ||
Class B Shares | (835,263) | (3,473,025) | ||
Class C Shares | (80,358) | (269,117) | ||
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | 5,664,841 | 9,023,323 | ||
Total Increase (Decrease) in Net Assets | 8,988,462 | 6,828,447 | ||
Net Assets ($): | ||||
Beginning of Period | 122,133,755 | 115,305,308 | ||
End of Period | 131,122,217 | 122,133,755 | ||
Undistributed investment income—net | 18,906 | — |
18
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009 | |||
Capital Share Transactions: | ||||
Class Aa | ||||
Shares sold | 649,951 | 1,345,308 | ||
Shares issued for dividends reinvested | 123,952 | 273,982 | ||
Shares redeemed | (389,347) | (871,788) | ||
Net Increase (Decrease) in Shares Outstanding | 384,556 | 747,502 | ||
Class Ba | ||||
Shares sold | 1,455 | 18,736 | ||
Shares issued for dividends reinvested | 802 | 3,496 | ||
Shares redeemed | (55,911) | (241,966) | ||
Net Increase (Decrease) in Shares Outstanding | (53,654) | (219,734) | ||
Class C | ||||
Shares sold | 53,171 | 98,153 | ||
Shares issued for dividends reinvested | 4,517 | 8,215 | ||
Shares redeemed | (5,385) | (19,061) | ||
Net Increase (Decrease) in Shares Outstanding | 52,303 | 87,307 |
a | During the period ended October 31, 2009, 13,792 Class B shares representing $209,598 were automatically | |
converted to 13,816 Class A shares and during the period ended April 30, 2009, 67,116 Class B shares | ||
representing $982,232 were automatically converted to 67,222 Class A shares. | ||
See notes to financial statements. |
The Fund 19
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 14.67 | 14.96 | 15.32 | 15.17 | 15.42 | 15.19 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .30 | .63 | .64 | .64 | .64 | .64 | ||||||
Net realized and unrealized gain | ||||||||||||
(loss) on investments | .39 | (.24) | (.36) | .17 | (.25) | .40 | ||||||
Total from Investment Operations | .69 | .39 | .28 | .81 | .39 | 1.04 | ||||||
Distributions: | ||||||||||||
Dividends from investment | ||||||||||||
income—net | (.30) | (.62) | (.64) | (.64) | (.64) | (.65) | ||||||
Dividends from net realized gain | ||||||||||||
on investments | — | (.06) | — | (.02) | — | (.16) | ||||||
Total Distributions | (.30) | (.68) | (.64) | (.66) | (.64) | (.81) | ||||||
Net asset value, end of period | 15.06 | 14.67 | 14.96 | 15.32 | 15.17 | 15.42 | ||||||
Total Return (%)b | 4.72c | 2.89 | 1.86 | 5.44 | 2.58 | 6.99 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .94d | .98 | 1.11 | 1.10 | 1.08 | 1.02 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | .94d,e | .98e | 1.10 | 1.09 | 1.07 | 1.01 | ||||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | —d | .02 | .15 | .17 | .13 | .07 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.99d | 4.35 | 4.21 | 4.18 | 4.19 | 4.21 | ||||||
Portfolio Turnover Rate | 1.90c | 14.21 | 14.69 | 5.27 | 7.24 | 9.86 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 123,160 114,357 | 105,393 | 103,737 | 102,510 | 107,083 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
20
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class B Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 14.70 | 14.98 | 15.35 | 15.19 | 15.44 | 15.22 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .25 | .54 | .56 | .56 | .56 | .56 | ||||||
Net realized and unrealized gain | ||||||||||||
(loss) on investments | .38 | (.21) | (.37) | .18 | (.24) | .39 | ||||||
Total from Investment Operations | .63 | .33 | .19 | .74 | .32 | .95 | ||||||
Distributions: | ||||||||||||
Dividends from investment | ||||||||||||
income—net | (.25) | (.55) | (.56) | (.56) | (.57) | (.57) | ||||||
Dividends from net realized gain | ||||||||||||
on investments | — | (.06) | — | (.02) | — | (.16) | ||||||
Total Distributions | (.25) | (.61) | (.56) | (.58) | (.57) | (.73) | ||||||
Net asset value, end of period | 15.08 | 14.70 | 14.98 | 15.35 | 15.19 | 15.44 | ||||||
Total Return (%)b | 4.34c | 2.41 | 1.26 | 4.98 | 2.06 | 6.36 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.52d | 1.52 | 1.62 | 1.61 | 1.59 | 1.53 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.52d,e | 1.52e | 1.61 | 1.59 | 1.58 | 1.52 | ||||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | —d | .02 | .15 | .17 | .13 | .07 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.42d | 3.83 | 3.70 | 3.67 | 3.68 | 3.70 | ||||||
Portfolio Turnover Rate | 1.90c | 14.21 | 14.69 | 5.27 | 7.24 | 9.86 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 956 | 1,720 | 5,046 | 9,088 | 10,420 | 12,621 |
a Based on average shares outstanding at each month end. b Exclusive of sales charge. c Not annualized. d Annualized. e Expense waivers and/or reimbursements amounted to less than .01%. See notes to financial statements.
The Fund 21
FINANCIAL HIGHLIGHTS (continued) |
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 14.70 | 14.98 | 15.35 | 15.19 | 15.44 | 15.21 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .24 | .51 | .52 | .53 | .53 | .53 | ||||||
Net realized and unrealized gain | ||||||||||||
(loss) on investments | .38 | (.21) | (.37) | .18 | (.25) | .39 | ||||||
Total from Investment Operations | .62 | .30 | .15 | .71 | .28 | .92 | ||||||
Distributions: | ||||||||||||
Dividends from investment | ||||||||||||
income—net | (.24) | (.52) | (.52) | (.53) | (.53) | (.53) | ||||||
Dividends from net realized gain | ||||||||||||
on investments | — | (.06) | — | (.02) | — | (.16) | ||||||
Total Distributions | (.24) | (.58) | (.52) | (.55) | (.53) | (.69) | ||||||
Net asset value, end of period | 15.08 | 14.70 | 14.98 | 15.35 | 15.19 | 15.44 | ||||||
Total Return (%)b | 4.25c | 2.18 | 1.03 | 4.72 | 1.81 | 6.18 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.70d | 1.75 | 1.86 | 1.85 | 1.83 | 1.77 | ||||||
Ratio of net expenses to | ||||||||||||
average net assets | 1.70d,e | 1.75e | 1.86e | 1.84 | 1.82 | 1.76 | ||||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | —d | .02 | .15 | .17 | .13 | .07 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.22d | 3.57 | 3.44 | 3.43 | 3.43 | 3.45 | ||||||
Portfolio Turnover Rate | 1.90c | 14.21 | 14.69 | 5.27 | 7.24 | 9.86 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 7,006 | 6,057 | 4,867 | 4,148 | 4,398 | 4,542 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
22
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus State Municipal Bond Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a non-diversified open-end management investment company and operates as a series company that offers nine series including the Dreyfus Minnesota Fund (the “fund”).TheTrust’s investment objective is to maximize current income exempt from federal and, where applicable, State income taxes, without undue risk.The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares. The fund is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Class A, Class B and Class C. Class A shares are subject to a sales charge imposed at the time of purchase. Class B shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class B share redemptions made within six years of purchase and automatically convert to Class A shares after six years.The fund does not offer Class B shares, except in connection with dividend reinvestment and permitted exchanges of Class B shares. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. 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 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) has become the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The ASC has superseded all existing non-SEC accounting and reporting standards. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The fund enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued each business day by an independent pricing service (the “Service”) approved by the Board ofTrustees. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of:yields or prices of municipal securities of comparable quality,coupon, maturity and type; indications as to values from dealers; and general market conditi ons. Options and financial futures on municipal and U.S.Treasury securities are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market on each business day.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly trans-
24
action between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements. These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of October 31, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||||||
Level 1— | Significant | Significant | ||||||
Unadjusted | Observable | Unobservable | ||||||
Quoted Prices | Inputs | Inputs | Total | |||||
Assets ($) | ||||||||
Investments in Securities: | ||||||||
Municipal Bonds | — | 129,542,357 | — | 129,542,357 |
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gain and loss 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.
The fund follows an investment policy of investing primarily in municipal obligations of one state. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the fund.
(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 GAAP.
(d) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
26
As of and during the period ended October 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 April 30, 2009 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 April 30, 2009 was as follows: tax exempt income $4,981,525, ordinary income $45,652 and long term-term capital gains $468,503.The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participated with other Dreyfus-managed funds in a $145 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. Effective October 14, 2009, the $145 million unsecured credit facility with Citibank, N.A., was increased to $215 million and the fund continues participation in the $300 million unsecured credit facility provided by The Bank of New York Mellon. In connection therewith, the fund has agreed to pay its pro rata portion of Facility fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing.
The average amount of borrowings outstanding under the Facilities during the period ended October 31, 2009, was approximately $2,100 with a related weighted average annualized interest rate of 1.52%.
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 3—Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement with the Manager, the management fee is computed at the annual rate of .55% of the value of the fund’s average daily net assets and is payable monthly.
During the period ended October 31, 2009, the Distributor retained $4,357 from commissions earned on sales of the fund’s Class A shares and $2,936 and $110 from CDSCs on redemptions of the fund’s Class B and Class C shares, respectively.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class B and Class C shares pay the Distributor for distributing their shares at an annual rate of .50% of the value of the average daily net assets of Class B shares and .75% of the value of the average daily net assets of Class C shares. During the period ended October 31, 2009, Class B and Class C shares were charged $3,396 and $24,353, respectively, pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (a securities dealer, financial institution or other industry professional) in respect of these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2009, Class A, Class B and Class C shares were charged $150,426, $1,698 and $8,118, respectively, pursuant to the Shareholder Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the
28
fund. During the period ended October 31, 2009, the fund was charged $15,153 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of NewYork Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2009, the fund was charged $1,390 pursuant to the cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations. These fees were offset by earnings credits pursuant to the cash management agreement.
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 October 31, 2009, the fund was charged $9,560 pursuant to the custody agreement.
During the period ended October 31, 2009, the fund was charged $3,341 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $61,311, Rule 12b-1 distribution plan fees $4,785, shareholder services plan fees $27,869, custodian fees $4,670, chief compliance officer fees $3,897 and transfer agency per account fees $8,723.
(d) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended October 31, 2009, amounted to $9,717,733 and $2,284,475, respectively.
The Fund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The fund held no derivatives during the period ended October 31,2009, these disclosures did not impact the notes to the financial statements.
At October 31, 2009, accumulated net unrealized appreciation on investments was $6,210,709, consisting of $7,323,751 gross unrealized appreciation and $1,113,042 gross unrealized depreciation.
At October 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).
NOTE 5—Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
30
INFORMATION ABOUT THE REVIEW AND APPROVAL |
OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the Board of Trustees held on July 21, 2009, the Board considered the re-approval for an annual period of the fund’s Management Agreement, pursuant to which the Manager provides the fund with investment advisory and administrative services. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager.
Analysis of Nature, Extent and Quality of Services Provided to the Fund.The Board members considered information previously provided to them in a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus fund complex, and representatives of the Manager confirmed that there had been no material changes in this information.The Board also discussed the nature, extent and quality of the services provided to the fund pursuant to its Management Agreement. The Manager’s representatives reviewed the fund’s distribution of accounts and the relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services in each distribution channel, including those of the fund.The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements. The Board members also considered the Manager’s extensive administrative, accounting and compliance infrastructure.
The Fund 31
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
Comparative Analysis of the Fund’s Performance, Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of comparable funds (the “Performance Group”) and to a broader group of 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 yield performance for the past ten one-year periods ended May 31 (2000 - 2009) was equal to or above the Performance Group median for the corresponding time periods, except the one-year periods ended May 31, 2001 and 2002, when it was below the median, and that the fund’s yield performance was above the Performance Universe median for each reported time period.The Board members noted that the fund’s total return performance for various periods ended May 31, 2009 was above the Performance Group and Performance Universe medians for each of the reported time periods. The Manager also provided a comparison of the fund’s calendar year total returns to the returns of its Lipper category average for the prior ten years, and the board members noted that the fund had outperformed its Lipper category average in nine of the past ten calendar years.
The Board members also discussed the fund’s contractual and actual management fee and total expense ratio as compared to a comparable group of funds (the “Expense Group”) that was composed of the same funds included in the Performance Group and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper. The Board noted that the fund’s contractual management fee was equal to the Expense Group median and above the Expense Universe median, and that the fund’s actual management fee and total expense ratio were above the Expense Group and Expense Universe medians.
32
Representatives of the Manager informed the Board members that there were no mutual funds, separate accounts or wrap fee accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex. The Board members also had been informed that the methodology also had been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of a fund. The Board members evaluated the profitability analysis in light of the re levant circumstances for the fund, and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders.The Board members also considered potential benefits to the Manager and its affiliates from acting as investment adviser to the fund and noted that there were no soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s
The Fund 33
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
- The Board concluded that the nature, extent and quality of the services provided by the Manager to the fund are adequate and appropriate.
- The Board was satisfied with the fund’s performance.
- The Board concluded that the fee paid to the Manager by the fund was reasonable in light of the services provided, comparative perfor- mance and expense and management fee information, costs of the services provided, and profits to be realized and benefits derived or to be derived by the Manager from its relationship with the fund.
- The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in con- nection with the management fee rate charged to the fund, and that, to the extent in the future it were to be determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with the information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
34
NOTES
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
13 | Statement of Assets and Liabilities |
14 | Statement of Operations |
15 | Statement of Changes in Net Assets |
17 | Financial Highlights |
20 | Notes to Financial Statements |
28 | Information About the Review and Approval of the Fund’s Management Agreement |
FOR MORE INFORMATION | |
Back Cover | |
Dreyfus State Municipal Bond Funds, Dreyfus North Carolina Fund |
The Fund |
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A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We present to you this last report for Dreyfus State Municipal Bond Funds, Dreyfus North Carolina Fund, covering the six-month period from May 1, 2009, through October 31, 2009.
Reports of positive U.S. economic growth over the third quarter of 2009 may have signaled the end of the deep recession that technically began in December 2007. Signs that the economy finally has turned a corner include inventory rebuilding among manufacturers and improvements in home sales and prices, while massive government stimulus and favorable supply-and-demand influences have all supported the municipal bond rally in 2009.As expected, funds with the longest average durations and lower-quality portfolios have led the rebound, while AAA-rated and shorter-duration funds have rallied to a lesser extent.
As the financial markets currently appear poised to enter into a new phase, and as government intervention appears to be winding down (at least for the moment), the best strategy for your portfolio depends not only on your view of the economy’s direction,but on your current financial needs,future goals and attitudes toward risk.Your financial advisor can help you decide which investments have the potential to benefit from a recovery while guarding against the taxation and investment risks that may accompany policy changes and unexpected market developments.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
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Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation November 20, 2009 |
2
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DISCUSSION OF FUND PERFORMANCE
For the period of April 1, 2009, through October 31, 2009, as provided by James Welch, Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended October 31, 2009, the Class A, Class B and Class C shares of Dreyfus North Carolina Fund, a series of Dreyfus State Municipal Bond Funds,produced total returns of 4.88%,4.57% and 4.48%,respectively.1 In comparison,the Barclays Capital Municipal Bond Index (the “Index”), the fund’s benchmark Index, which is composed of bonds issued nationally and not solely within North Carolina, achieved a total return of 4.99% for the same period.2
Municipal bonds rallied strongly over the reporting period amid expectations of better economic times and stable credit markets.The fund’s returns were roughly in line with its Index, primarily due to strong performance by the fund’s core, seasoned holdings of municipal bonds.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax and North Carolina state income tax without undue risk. To pursue its goal, the fund normally invests substantially all of its assets in municipal bonds that provide income exempt from federal income tax and from North Carolina state income tax.The fund invests at least 70% of its assets in investment-grade municipal bonds or the unrated equivalent as determined by Dreyfus.The fund may invest up to 30% of its assets in municipal bonds rated below investment grade or the unrated equivalent as determined by Dreyfus. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
We may buy and sell bonds based on credit quality, market outlook and yield potential. In selecting municipal bonds for investment, we may assess the current interest-rate environment and a municipal bond’s potential volatility in different rate environments. We focus on bonds
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
with the potential to offer attractive current income, typically looking for bonds that can provide consistently attractive current yields or that are trading at competitive market prices. A portion of the fund’s assets may be allocated to“discount”bonds,which are bonds that sell at a price below their face value, or to “premium” bonds, which are bonds that sell at a price above their face value.The fund’s allocation either to discount bonds or to premium bonds will change along with our changing views of the current interest-rate and market environment.We may also look to select bonds that are most likely to obtain attractive prices when sold.
Municipal Bonds Rebounded Sharply
In the wake of severe market declines stemming from a global financial crisis and recession, the municipal bond market staged an impressive rebound over the reporting period. The rally was fueled by changing investor sentiment, which began to improve in March 2009 as government and monetary authorities’ aggressive remedial measures—including historically low interest rates, injections of liquidity into the banking system, the rescues of major corporations and a massive economic stimulus program—seemed to gain traction.Additional evidence of economic stabilization later appeared, supporting a sustained rally through the reporting period’s end. Although most municipal bonds participated in the rally, gains were particularly strong among lower-quality issues that had been punished in the downturn.
Seasoned Holdings Supported Fund Returns
The fund’s core holdings of seasoned bonds produced competitive levels of income that bolstered the fund’s total return. Moreover, we strived to maintain a high level of credit quality.When making new purchases, we generally emphasized higher-rated bonds with maturities in the 15- to 20-year range, which offered most of the yield of longer-term securities but with less volatility.We generally favored bonds backed by dedicated revenue streams, including those from essential municipal services such as sewer and water facilities.
4
Like most other states, North Carolina has continued to struggle with fiscal pressures due to tax revenue shortfalls and greater demand for services in the recession.The state has attempted to bridge its budget gaps with spending cuts and payments from the federal economic stimulus program.
Important Information About the Fund
An agreement and plan of Reorganization to merge the fund into Dreyfus AMT-Free Municipal Bond Fund (the “Acquiring Fund”) was approved at a Special Meeting of Shareholders held on November 19, 2009.As a result, effective on or about January 26, 2010, the fund will transfer its asset into the Acquiring Fund, in a tax-free exchange for shares of the acquiring fund, and will subsequently cease operation.
November 20, 2009
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take into | |
consideration the maximum initial sales charge in the case of Class A shares or the applicable | ||
contingent deferred sales charges imposed on redemptions in the case of Class B and Class C | ||
shares. Had these charges been reflected, returns would have been lower. Past performance is no | ||
guarantee of future results. Each share class is subject to a different sales charge and distribution | ||
expense structure and will achieve different returns. 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 for non-North Carolina residents, and some | ||
income may be subject to the federal alternative minimum tax (AMT) for certain investors. | ||
Capital gains, if any, are fully taxable. | ||
2 | SOURCE: LIPPER INC. — Reflects reinvestment of dividends and, where applicable, capital | |
gain distributions.The Barclays Capital Municipal Bond Index is a widely accepted, unmanaged | ||
total return performance benchmark for the long-term, investment-grade, tax-exempt bond market. | ||
Index returns do not reflect fees and expenses associated with operating a mutual fund. |
The Fund 5
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus State Municipal Bond Funds, Dreyfus North Carolina Fund from May 1, 2009 to October 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 October 31, 2009 | ||||||
Class A | Class B | Class C | ||||
Expenses paid per $1,000† | $ 5.22 | $ 8.51 | $ 9.17 | |||
Ending value (after expenses) | $1,048.80 | $1,045.70 | $1,044.80 |
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 October 31, 2009 | ||||||
Class A | Class B | Class C | ||||
Expenses paid per $1,000† | $ 5.14 | $ 8.39 | $ 9.05 | |||
Ending value (after expenses) | $1,020.11 | $1,016.89 | $1,016.23 |
† Expenses are equal to the fund’s annualized expense ratio of 1.01% for Class A, 1.65% for Class B and 1.78% for Class C, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS | ||||||||
October 31, 2009 (Unaudited) | ||||||||
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments—96.4% | Rate (%) | Date | Amount ($) | Value ($) | ||||
North Carolina—87.4% | ||||||||
Appalachian State University, | ||||||||
Housing and Student | ||||||||
Center System Revenue | ||||||||
(Insured; FSA) (Prerefunded) | 5.60 | 7/15/10 | 1,000,000 a | 1,046,410 | ||||
Cabarrus County, | ||||||||
COP (Installment | ||||||||
Financing Contract) | 5.50 | 4/1/14 | 2,000,000 | 2,124,640 | ||||
Charlotte, | ||||||||
GO | 5.00 | 7/1/21 | 1,525,000 | 1,593,442 | ||||
Charlotte, | ||||||||
GO | 5.00 | 7/1/22 | 2,110,000 | 2,198,367 | ||||
Charlotte, | ||||||||
Storm Water Fee Revenue | ||||||||
(Prerefunded) | 6.00 | 6/1/10 | 2,000,000 a | 2,086,980 | ||||
Charlotte, | ||||||||
Water and Sewer System Revenue | 5.00 | 7/1/34 | 1,000,000 | 1,056,060 | ||||
Charlotte, | ||||||||
Water and Sewer System Revenue | 4.63 | 7/1/36 | 1,000,000 | 1,014,850 | ||||
Charlotte-Mecklenburg Hospital | ||||||||
Authority, Health Care Revenue | ||||||||
(Carolinas HealthCare System) | 5.00 | 1/15/39 | 1,000,000 | 983,330 | ||||
Durham, | ||||||||
Water and Sewer Utility | ||||||||
System Revenue | 5.25 | 6/1/21 | 1,620,000 | 1,908,392 | ||||
Durham County, | ||||||||
GO Public Improvement Bonds | 5.00 | 6/1/18 | 1,000,000 | 1,124,350 | ||||
Iredell County, | ||||||||
COP (Iredell County School | ||||||||
Projects) (Insured; AMBAC) | 5.00 | 6/1/26 | 1,000,000 | 1,052,630 | ||||
Johnston County, | ||||||||
GO (Insured; National Public | ||||||||
Finance Guarantee Corp.) | 4.50 | 2/1/25 | 1,250,000 | 1,285,175 | ||||
Monroe, | ||||||||
COP (Installment Financing | ||||||||
Agreement) (Insured; | ||||||||
Assured Guaranty) | 5.50 | 3/1/39 | 1,000,000 | 1,039,130 | ||||
New Hanover County, | ||||||||
GO Public Improvement | ||||||||
Bonds (Prerefunded) | 5.75 | 11/1/10 | 1,700,000 a | 1,826,616 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
North Carolina (continued) | ||||||||
North Carolina, | ||||||||
Capital Improvement Limited | ||||||||
Obligation Bonds | 5.00 | 5/1/28 | 2,205,000 | 2,389,691 | ||||
North Carolina Capital Facilities | ||||||||
Finance Agency, Educational | ||||||||
Facilities Revenue (Wake | ||||||||
Forest University) | 5.00 | 1/1/38 | 1,000,000 | 1,042,890 | ||||
North Carolina Capital Facilities | ||||||||
Finance Agency, Revenue (Duke | ||||||||
University Project) | 5.00 | 10/1/38 | 1,005,000 | 1,051,451 | ||||
North Carolina Capital Facilities | ||||||||
Finance Agency, Revenue (Duke | ||||||||
University Project) (Prerefunded) | 5.13 | 10/1/12 | 1,000,000 a | 1,117,310 | ||||
North Carolina Eastern Municipal | ||||||||
Power Agency, Power | ||||||||
System Revenue | 5.00 | 1/1/26 | 1,000,000 | 1,022,080 | ||||
North Carolina Eastern Municipal | ||||||||
Power Agency, Power System | ||||||||
Revenue (Insured; ACA) | 6.00 | 1/1/22 | 1,000,000 | 1,142,340 | ||||
North Carolina Eastern Municipal | ||||||||
Power Agency, Power System | ||||||||
Revenue (Insured; ACA) | ||||||||
(Prerefunded) | 6.75 | 1/1/10 | 3,000,000 a | 3,062,580 | ||||
North Carolina Medical Care | ||||||||
Commission, Health Care | ||||||||
Facilities First Mortgage | ||||||||
Revenue (DePaul Community | ||||||||
Facilities Project) (Prerefunded) | 7.63 | 11/1/09 | 2,005,000 a | 2,045,501 | ||||
North Carolina Medical Care | ||||||||
Commission, Health Care | ||||||||
Facilities First Mortgage | ||||||||
Revenue (Pennybyrn at | ||||||||
Maryfield Project) | 6.13 | 10/1/35 | 1,000,000 | 732,660 | ||||
North Carolina Medical Care | ||||||||
Commission, Health Care | ||||||||
Facilities Revenue (Cleveland | ||||||||
County HealthCare System | ||||||||
Project) (Insured; AMBAC) | 5.25 | 7/1/19 | 1,135,000 | 1,158,914 | ||||
North Carolina Medical Care | ||||||||
Commission, Health Care Facilities | ||||||||
Revenue (University Health | ||||||||
Systems of Eastern Carolina) | 6.25 | 12/1/33 | 1,750,000 | 1,914,763 |
8
Long-Term Municipal | Coupon | Maturity | Principal | ||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |||||
North Carolina (continued) | |||||||||
North Carolina Medical Care | |||||||||
Commission, HR | |||||||||
(NorthEast Medical | |||||||||
Center Project) (Insured; | |||||||||
AMBAC) (Prerefunded) | 5.50 | 11/1/10 | 1,000,000 | a | 1,058,240 | ||||
North Carolina Medical Care | |||||||||
Commission, HR (NorthEast | |||||||||
Medical Center Project) | |||||||||
(Insured; AMBAC) (Prerefunded) | 5.50 | 11/1/10 | 2,000,000 | a | 2,116,480 | ||||
North Carolina Medical Care | |||||||||
Commission, HR (Southeastern | |||||||||
Regional Medical Center) | 6.25 | 6/1/29 | 2,000,000 | 2,021,160 | |||||
North Carolina Medical Care | |||||||||
Commission, HR (Wilson | |||||||||
Memorial Hospital Project) | |||||||||
(Insured; AMBAC) | 0.00 | 11/1/16 | 3,055,000 | b | 2,327,971 | ||||
North Carolina Medical Care | |||||||||
Commission, Retirement | |||||||||
Facilities First Mortgage | |||||||||
Revenue (Cypress Glen | |||||||||
Retirement Community) | 6.00 | 10/1/33 | 1,000,000 | 788,210 | |||||
North Carolina Medical Care | |||||||||
Commission, Retirement | |||||||||
Facilities First Mortgage | |||||||||
Revenue (Givens Estates | |||||||||
Project) (Prerefunded) | 6.50 | 7/1/13 | 1,000,000 | a | 1,182,760 | ||||
North Carolina Medical Care | |||||||||
Commission, Revenue (North | |||||||||
Carolina Housing Foundation, | |||||||||
Inc.) (Insured; ACA) | 6.63 | 8/15/30 | 3,250,000 | 3,077,360 | |||||
North Carolina Municipal Power | |||||||||
Agency Number 1, Catawba | |||||||||
Electric Revenue | 5.00 | 1/1/30 | 1,000,000 | 1,011,670 | |||||
Oak Island, | |||||||||
Enterprise System Revenue | |||||||||
(Insured; Assured Guaranty) | 6.00 | 6/1/34 | 1,000,000 | 1,075,370 | |||||
Orange Water and Sewer | |||||||||
Authority, Water and | |||||||||
Sewer System Revenue | 5.00 | 7/1/31 | 1,000,000 | 1,045,760 | |||||
Raleigh, | |||||||||
Combined Enterprise | |||||||||
System Revenue | 5.00 | 3/1/31 | 1,175,000 | 1,239,120 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
North Carolina (continued) | ||||||||
University of North Carolina, | ||||||||
System Pool Revenue (Pool | ||||||||
General Trust Indenture of the | ||||||||
Board of Governors of The | ||||||||
University of North Carolina) | 5.00 | 10/1/34 | 1,000,000 | 1,030,730 | ||||
Winston Salem, | ||||||||
COP | 4.75 | 6/1/31 | 1,000,000 | 997,280 | ||||
U.S. Related—9.0% | ||||||||
Government of Guam, | ||||||||
GO | 6.75 | 11/15/29 | 250,000 | 268,467 | ||||
Guam Waterworks Authority, | ||||||||
Water and Wastewater | �� | |||||||
System Revenue | 5.88 | 7/1/35 | 1,000,000 | 958,410 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | ||||||||
(Insured; FGIC) | 5.50 | 7/1/29 | 1,315,000 | 1,313,317 | ||||
Puerto Rico Electric Power | ||||||||
Authority, Power Revenue | 5.50 | 7/1/38 | 1,000,000 | 1,006,080 | ||||
Puerto Rico Electric Power | ||||||||
Authority, Power Revenue | ||||||||
(Insured; FGIC) (Prerefunded) | 5.00 | 7/1/15 | 1,000,000 a | 1,151,040 | ||||
Puerto Rico Sales Tax Financing | ||||||||
Corporation, Sales Tax Revenue | ||||||||
(First Subordinate Series) | 6.00 | 8/1/42 | 1,000,000 | 1,050,350 | ||||
Total Investments (cost $59,696,155) | 96.4% | 61,740,327 | ||||||
Cash and Receivables (Net) | 3.6% | 2,312,901 | ||||||
Net Assets | 100.0% | 64,053,228 |
a These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are |
collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on |
the municipal issue and to retire the bonds in full at the earliest refunding date. |
b Security issued with a zero coupon. Income is recognized through the accretion of discount. |
10
Summary of Abbreviations | ||||||
ABAG | Association of Bay Area Governments | ACA | American Capital Access | |||
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company | |||
AMBAC | American Municipal Bond | |||||
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 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Combined Ratings (Unaudited) | ||||||||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† | |||||
AAA | Aaa | AAA | 34.3 | |||||||
AA | Aa | AA | 25.4 | |||||||
A | A | A | 16.7 | |||||||
BBB | Baa | BBB | 3.8 | |||||||
BB | Ba | BB | 1.6 | |||||||
B | B | B | .4 | |||||||
Not Ratedc | Not Ratedc | Not Ratedc | 17.8 | |||||||
100.0 |
† | Based on total investments. | |
c | 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. |
12
STATEMENT OF ASSETS AND LIABILITIES |
October 31, 2009 (Unaudited) |
Cost | Value | |||||
Assets ($): | ||||||
Investments in securities—See Statement of Investments | 59,696,155 | 61,740,327 | ||||
Cash | 1,399,078 | |||||
Interest receivable | 1,042,873 | |||||
Receivable for shares of Beneficial Interest subscribed | 2,795 | |||||
Prepaid expenses | 10,329 | |||||
64,195,402 | ||||||
Liabilities ($): | ||||||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 61,147 | |||||
Payable for shares of Beneficial Interest redeemed | 47,528 | |||||
Accrued expenses | 33,499 | |||||
142,174 | ||||||
Net Assets ($) | 64,053,228 | |||||
Composition of Net Assets ($): | ||||||
Paid-in capital | 61,730,841 | |||||
Accumulated undistributed investment income—net | 900 | |||||
Accumulated net realized gain (loss) on investments | 277,315 | |||||
Accumulated net unrealized appreciation | ||||||
(depreciation) on investments | 2,044,172 | |||||
Net Assets ($) | 64,053,228 | |||||
Net Asset Value Per Share | ||||||
Class A | Class B | Class C | ||||
Net Assets ($) | 59,644,422 | 610,026 | 3,798,780 | |||
Shares Outstanding | 4,387,780 | 44,915 | 279,407 | |||
Net Asset Value Per Share ($) | 13.59 | 13.58 | 13.60 | |||
See notes to financial statements. |
The Fund 13
STATEMENT OF OPERATIONS |
Six Months Ended October 31, 2009 (Unaudited) |
Investment Income ($): | ||
Interest Income | 1,707,790 | |
Expenses: | ||
Management fee—Note 3(a) | 182,149 | |
Shareholder servicing costs—Note 3(c) | 102,648 | |
Professional fees | 17,594 | |
Distribution fees—Note 3(b) | 15,360 | |
Registration fees | 11,562 | |
Custodian fees—Note 3(c) | 6,359 | |
Prospectus and shareholders’ reports | 2,820 | |
Trustees’ fees and expenses—Note 3(d) | 1,559 | |
Loan commitment fees—Note 2 | 292 | |
Miscellaneous | 10,218 | |
Total Expenses | 350,561 | |
Less—reduction in fees due to | ||
earnings credits—Note 1(b) | (1,002) | |
Net Expenses | 349,559 | |
Investment Income—Net | 1,358,231 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | 516,489 | |
Net unrealized appreciation (depreciation) on investments | 1,314,939 | |
Net Realized and Unrealized Gain (Loss) on Investments | 1,831,428 | |
Net Increase in Net Assets Resulting from Operations | 3,189,659 | |
See notes to financial statements. |
14
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009 | |||
Operations ($): | ||||
Investment income—net | 1,358,231 | 2,602,375 | ||
Net realized gain (loss) on investments | 516,489 | (220,398) | ||
Net unrealized appreciation | ||||
(depreciation) on investments | 1,314,939 | (1,458,318) | ||
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 3,189,659 | 923,659 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (1,282,935) | (2,463,298) | ||
Class B Shares | (14,485) | (55,408) | ||
Class C Shares | (59,911) | (82,627) | ||
Total Dividends | (1,357,331) | (2,601,333) | ||
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 3,211,871 | 9,457,543 | ||
Class B Shares | 19,947 | 39,452 | ||
Class C Shares | 689,571 | 1,356,633 | ||
Dividends reinvested: | ||||
Class A Shares | 904,735 | 1,579,942 | ||
Class B Shares | 12,241 | 38,212 | ||
Class C Shares | 37,858 | 50,120 | ||
Cost of shares redeemed: | ||||
Class A Shares | (6,032,267) | (7,701,285) | ||
Class B Shares | (418,609) | (1,623,447) | ||
Class C Shares | (185,003) | (128,189) | ||
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | (1,759,656) | 3,068,981 | ||
Total Increase (Decrease) in Net Assets | 72,672 | 1,391,307 | ||
Net Assets ($): | ||||
Beginning of Period | 63,980,556 | 62,589,249 | ||
End of Period | 64,053,228 | 63,980,556 | ||
Undistributed investment income—net | 900 | — |
The Fund 15
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009 | |||
Capital Share Transactions: | ||||
Class Aa | ||||
Shares sold | 240,110 | 717,854 | ||
Shares issued for dividends reinvested | 67,024 | 120,251 | ||
Shares redeemed | (442,839) | (590,143) | ||
Net Increase (Decrease) in Shares Outstanding | (135,705) | 247,962 | ||
Class Ba | ||||
Shares sold | 1,492 | 3,075 | ||
Shares issued for dividends reinvested | 909 | 2,901 | ||
Shares redeemed | (31,059) | (122,270) | ||
Net Increase (Decrease) in Shares Outstanding | (28,658) | (116,294) | ||
Class C | ||||
Shares sold | 51,195 | 103,014 | ||
Shares issued for dividends reinvested | 2,802 | 3,819 | ||
Shares redeemed | (13,500) | (9,882) | ||
Net Increase (Decrease) in Shares Outstanding | 40,497 | 96,951 |
a | During the period ended October 31, 2009, 10,594 Class B shares representing $142,349 were automatically | |
converted to 10,586 Class A shares and during the period ended April 30, 2009, 76,104 Class B shares | ||
representing $1,010,611, were automatically converted to 76,045 Class A shares. | ||
See notes to financial statements. |
16
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 13.23 | 13.58 | 13.89 | 13.76 | 14.04 | 13.71 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .28 | .56 | .57 | .56 | .56 | .53 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .36 | (.35) | (.29) | .16 | (.28) | .33 | ||||||
Total from Investment Operations | .64 | .21 | .28 | .72 | .28 | .86 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.28) | (.56) | (.57) | (.57) | (.56) | (.53) | ||||||
Dividends from net realized | ||||||||||||
gain on investments | — | — | (.02) | (.02) | — | — | ||||||
Total Distributions | (.28) | (.56) | (.59) | (.59) | (.56) | (.53) | ||||||
Net asset value, end of period | 13.59 | 13.23 | 13.58 | 13.89 | 13.76 | 14.04 | ||||||
Total Return (%)b | 4.88c | 1.63 | 2.05 | 5.31 | 2.01 | 6.36 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.01d | 1.05 | 1.00 | .99 | .99 | .98 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.01d,e | 1.04 | .99 | .99 | .99 | .98e | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 4.15d | 4.22 | 4.13 | 4.07 | 4.01 | 3.79 | ||||||
Portfolio Turnover Rate | 12.03c | 12.88 | — | 20.35 | 37.61 | 38.85 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 59,644 | 59,846 | 58,083 | 60,553 | 60,682 | 62,461 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
The Fund 17
FINANCIAL HIGHLIGHTS (continued) |
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class B Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 13.22 | 13.57 | 13.88 | 13.75 | 14.03 | 13.70 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .24 | .46 | .48 | .49 | .48 | .45 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .36 | (.33) | (.28) | .15 | (.27) | .34 | ||||||
Total from Investment Operations | .60 | .13 | .20 | .64 | .21 | .79 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.24) | (.48) | (.49) | (.49) | (.49) | (.46) | ||||||
Dividends from net realized | ||||||||||||
gain on investments | — | — | (.02) | (.02) | — | — | ||||||
Total Distributions | (.24) | (.48) | (.51) | (.51) | (.49) | (.46) | ||||||
Net asset value, end of period | 13.58 | 13.22 | 13.57 | 13.88 | 13.75 | 14.03 | ||||||
Total Return (%)b | 4.57c | 1.04 | 1.48 | 4.76 | 1.49 | 5.82 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.65d | 1.61 | 1.56 | 1.51 | 1.51 | 1.49 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.65d,e | 1.60 | 1.54 | 1.51 | 1.51 | 1.49e | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.56d | 3.64 | 3.58 | 3.56 | 3.49 | 3.28 | ||||||
Portfolio Turnover Rate | 12.03c | 12.88 | — | 20.35 | 37.61 | 38.85 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 610 | 973 | 2,577 | 5,330 | 7,430 | 10,366 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
18
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 13.24 | 13.59 | 13.90 | 13.77 | 14.05 | 13.71 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .23 | .45 | .46 | .46 | .45 | .42 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .36 | (.35) | (.29) | .15 | (.28) | .34 | ||||||
Total from Investment Operations | .59 | .10 | .17 | .61 | .17 | .76 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.23) | (.45) | (.46) | (.46) | (.45) | (.42) | ||||||
Dividends from net realized | ||||||||||||
gain on investments | — | — | (.02) | (.02) | — | — | ||||||
Total Distributions | (.23) | (.45) | (.48) | (.48) | (.45) | (.42) | ||||||
Net asset value, end of period | 13.60 | 13.24 | 13.59 | 13.90 | 13.77 | 14.05 | ||||||
Total Return (%)b | 4.48c | .85 | 1.24 | 4.51 | 1.25 | 5.64 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.78d | 1.82 | 1.79 | 1.76 | 1.75 | 1.73 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.77d | 1.81 | 1.77 | 1.76 | 1.75 | 1.73e | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.37d | 3.43 | 3.33 | 3.31 | 3.25 | 3.04 | ||||||
Portfolio Turnover Rate | 12.03c | 12.88 | — | 20.35 | 37.61 | 38.85 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 3,799 | 3,162 | 1,929 | 1,590 | 1,678 | 2,287 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus State Municipal Bond Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a non-diversified open-end management investment company, and operates as a series company that offers nine series, including the Dreyfus North Carolina Fund (the “fund”).The Trust’s investment objective is to maximize current income exempt from federal and, where applicable, state income taxes, without undue risk.The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares. The fund is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Class A, Class B and Class C. Class A shares are subject to a sales charge imposed at the time of purchase. Class B shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class B share redemptions made within six years of purchase and automatically convert to Class A shares after six years.The fund does not offer Class B shares, except in connection with dividend reinvestment and permitted exchanges of Class B shares. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. 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.
20
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) has become the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The ASC has superseded all existing non-SEC accounting and reporting standards. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The fund enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued each business day by an independent pricing service (the “Service”) approved by the Board of Trustees. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market cond itions. Options and financial futures on municipal and U.S.Treasury securities are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market on each business day.
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of October 31, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||||||
Level 1— | Significant | Significant | ||||||
Unadjusted | Observable | Unobservable | ||||||
Quoted Prices | Inputs | Inputs | Total | |||||
Assets ($) | ||||||||
Investments in Securities: | ||||||||
Municipal Bonds | — | 61,740,327 | — | 61,740,327 |
22
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gain and loss 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.
The fund follows an investment policy of investing primarily in municipal obligations of one state. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the fund.
(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 GAAP.
(d) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
As of and during the period ended October 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 April 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $159,002 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to April 30, 2009. If not applied, $7,970 of the carryover expires in fiscal 2016 and $151,032 expires in fiscal 2017.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2009 was as follows: tax exempt income $2,601,149 and ordinary income $184.The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participated with other Dreyfus-managed funds in a $145 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of NewYork Mellon (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. Effective October 14, 2009, the $145 million unsecured credit facility with Citibank, N.A., was increased to $215 million and the fund continues participation in the $300 million unsecured credit facility provided by The Bank of New York Mellon. In connection therewith, the fund has agreed to pay its pro rata portion of Facility fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended October 31, 2009, the fund did not borrow under the Facilities.
24
NOTE 3—Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement with the Manager, the management fee is computed at the annual rate of .55% of the value of the fund’s average daily net assets and is payable monthly.
During the period ended October 31, 2009, the Distributor retained $974 from commissions earned on sales of the fund’s Class A shares and $2,099 and $56 from CDSCs on redemptions of the fund’s Class B and Class C shares, respectively.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class B and Class C shares pay the Distributor for distributing their shares at an annual rate of .50% of the value of the average daily net assets of Class B shares and .75% of the value of the average daily net assets of Class C shares. During the period ended October 31, 2009, Class B and Class C shares were charged $2,033 and $13,327, respectively, pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts.The Distributor may make payments to Service Agents (a securities dealer, financial institution or other industry professional) in respect of these services.The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2009, Class A, Class B and Class C shares were charged $77,336, $1,017 and $4,442, respectively, pursuant to the Shareholder Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
fund. During the period ended October 31, 2009, the fund was charged $11,315 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of NewYork Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2009, the fund was charged $1,002 pursuant to the cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations. These fees were offset by earnings credits pursuant to the cash management agreement.
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 October 31, 2009, the fund was charged $6,359 pursuant to the custody agreement.
During the period ended October 31, 2009, the fund was charged $3,341 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $30,410, Rule 12b-1 distribution plan fees $2,675, shareholder services plan fees $13,823, custodian fees $3,019, chief compliance officer fees $3,897 and transfer agency per account fees $7,323.
(d) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended October 31, 2009, amounted to $7,697,169 and $10,206,922, respectively.
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value
26
amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The fund held no derivatives during the period ended October 31,2009, these disclosures did not impact the notes to the financial statements.
At October 31, 2009, accumulated net unrealized appreciation on investments was $2,044,172, consisting of $2,937,370 gross unrealized appreciation and $893,198 gross unrealized depreciation.
At October 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).
NOTE 5—Plan of Reorganization:
On July 21, 2009 the Board of Trustees of the Trust approved, and on November 19, 2009 the shareholders of the fund approved, an Agreement and Plan of Reorganization (the “Agreement”) between the Trust, on behalf of the fund, and Dreyfus Municipal Funds, Inc. on behalf of Dreyfus AMT-Free Municipal Bond Fund, (the “Acquiring Fund”).The Agreement provides for the transfer of the fund’s assets to the Acquiring Fund in a tax-free exchange for shares of the Acquiring Fund and the assumption by the Acquiring Fund of the stated liabilities of the fund, the distribution of shares of the Acquiring Fund to the fund’s shareholders and the subsequent termination of the fund (the “Reorganization”). In anticipation of the Reorganization, effective September 11, 2009, the fund was closed to any investments for new accounts. The Reorganization will take place on or about January 26, 2010.
NOTE 6—Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
The Fund 27
INFORMATION ABOUT THE REVIEW AND APPROVAL |
OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the Board of Trustees held on July 21, 2009, the Board considered the re-approval for an annual period of the fund’s Management Agreement, pursuant to which the Manager provides the fund with investment advisory and administrative services. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager.
Analysis of Nature, Extent and Quality of Services Provided to the Fund.The Board members considered information previously provided to them in a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus fund complex, and representatives of the Manager confirmed that there had been no material changes in this information.The Board also discussed the nature, extent and quality of the services provided to the fund pursuant to its Management Agreement. The Manager’s representatives reviewed the fund’s distribution of accounts and the relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services in each distribution channel, including those of the fund.The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements. The Board members also considered the Manager’s extensive administrative, accounting and compliance infrastructure. The Board also considered the Manager’s brokerage policies and practices and the standards applied in seeking best execution.
28
Comparative Analysis of the Fund’s Performance, Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of comparable funds (the “Performance Group”) and to a broader group of 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 yield performance for the past ten one-year periods ended May 31 (2000-2009) was above the Performance Group median for the one-year periods ended May 31, 2006,2007,2008 and 2009 and below the median for the oth er reported time periods, and that the fund’s yield performance was above the Performance Universe median for each reported time period.The Board members also noted that the fund’s total return performance for various periods ended May 31, 2009 was above or equal to the Performance Group median for the one-, two-, three- and five-year periods and below the median for the four- and ten-year periods.The Board members noted that the fund’s total return performance was above the Performance Universe median for each reported time period. The Manager also provided a comparison of the fund’s calendar year total returns to the returns of its Lipper category average for the prior ten years, and the Board members noted that the fund outperformed its Lipper category average in eight of the past ten calendar years.
The Board members also discussed the fund’s contractual and actual management fee and total expense ratio as compared to a comparable group of funds (the “Expense Group”) that was composed of the same funds included in the Performance Group and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper. The Board noted that the fund’s contractual management fee was
The Fund 29
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
equal to the Performance Group median, and that the fund’s actual management fee and total expense ratio were above the Expense Group and Expense Universe medians.
Representatives of the Manager informed the Board members that there were no mutual funds, separate accounts or wrap fee accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex. The Board members also had been informed that the methodology also had been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of a fund. The Board members evaluated the profitability analysis in light of the re levant circumstances for the fund, and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders.The Board members also considered potential benefits to the Manager and its affiliates from acting as investment adviser to the fund and noted that there were no soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager
30
may have realized any economies of scale would be less. It was also noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
- The Board concluded that the nature, extent and quality of the services provided by the Manager to the fund are adequate and appropriate.
- The Board was generally satisfied with the fund’s performance.
- The Board concluded that the fee paid to the Manager by the fund was reasonable in light of the services provided, comparative perfor- mance and expense and management fee information, costs of the services provided, and profits to be realized and benefits derived or to be derived by the Manager from its relationship with the fund.
- The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in con- nection with the management fee rate charged to the fund, and that, to the extent in the future it were to be determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with the information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
The Fund 31
NOTES
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
15 | Statement of Assets and Liabilities |
16 | Statement of Operations |
17 | Statement of Changes in Net Assets |
19 | Financial Highlights |
22 | Notes to Financial Statements |
31 | Information About the Review and Approval of the Fund’s Management Agreement |
FOR MORE INFORMATION | |
Back Cover | |
Dreyfus State Municipal Bond Funds, Dreyfus Ohio Fund |
The Fund |
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A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus State Municipal Bond Funds, Dreyfus Ohio Fund, covering the six-month period from May 1, 2009, through October 31, 2009.
Reports of positive U.S. economic growth over the third quarter of 2009 may have signaled the end of the deep recession that technically began in December 2007. Signs that the economy finally has turned a corner include inventory rebuilding among manufacturers and improvements in home sales and prices, while massive government stimulus and favorable supply-and-demand influences have all supported the municipal bond rally in 2009.As expected, funds with the longest average durations and lower-quality portfolios have led the rebound, while AAA-rated and shorter-duration funds have rallied to a lesser extent.
As the financial markets currently appear poised to enter into a new phase, and as government intervention appears to be winding down (at least for the moment), the best strategy for your portfolio depends not only on your view of the economy’s direction,but on your current financial needs,future goals and attitudes toward risk.Your financial advisor can help you decide which investments have the potential to benefit from a recovery while guarding against the taxation and investment risks that may accompany policy changes and unexpected market developments.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
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Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation November 16, 2009 |
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2009, through October 31, 2009, as provided by Joseph P. Darcy, Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended October 31, 2009, Class A, Class B and Class C shares of Dreyfus Ohio Fund, a series of Dreyfus State Municipal Bond Funds, produced total returns of 6.01%, 5.60% and 5.61%, respectively.1 In comparison, the Barclays Capital Municipal Bond Index (the “Index”), the fund’s benchmark Index, which is composed of bonds issued nationally and not solely within Ohio, achieved a total return of 4.99% for the same period.2
Municipal bonds rallied strongly over the reporting period amid expectations of better economic times and stable credit markets.The fund’s returns were higher than its Index, primarily due to strong performance by the fund’s core, seasoned holdings of municipal bonds.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax and Ohio state income tax without undue risk.To pursue its goal, the fund normally invests substantially all of its assets in municipal bonds that provide income exempt from federal income tax and from Ohio state income tax.The fund invests at least 70% of its assets in investment-grade municipal bonds or the unrated equivalent as determined by Dreyfus.The fund may invest up to 30% of its assets in municipal bonds rated below investment grade or the unrated equivalent as determined by Dreyfus. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
We may buy and sell bonds based on credit quality, market outlook and yield potential.When selecting municipal bonds for investment, we may assess the current interest-rate environment and a municipal bond’s potential volatility in different rate environments. We focus on bonds with the potential to offer attractive current income, typically looking
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
for bonds that can provide consistently attractive current yields or that are trading at competitive market prices. A portion of the fund’s assets may be allocated to“discount”bonds,which are bonds that sell at a price below their face value, or to “premium” bonds, which are bonds that sell at a price above their face value.The fund’s allocation either to discount bonds or to premium bonds will change along with our changing views of the current interest-rate and market environment.We may also look to select bonds that are most likely to obtain attractive prices when sold.
Municipal Bonds Rebounded Sharply
In the wake of severe market declines stemming from a global financial crisis and recession, the municipal bond market staged an impressive rebound over the reporting period. The rally was fueled by changing investor sentiment, which began to improve in early 2009 as government and monetary authorities’ aggressive remedial measures—including historically low interest rates, injections of liquidity into the banking system, the rescues of major corporations and a massive economic stimulus program—seemed to gain traction. Additional evidence of economic stabilization later appeared, supporting a sustained rally through the reporting period’s end. Although most municipal bonds participated in the rally, gains were particularly strong among lower-quality issues that had been punished in the downturn.
Seasoned Holdings Supported Fund Returns
The fund’s core holdings of seasoned bonds produced competitive levels of income that bolstered the fund’s total return. Moreover, we strived to maintain a high level of credit quality.When making new purchases, we generally emphasized higher-rated bonds with maturities in the 15- to 20-year range, which offered most of the yield of longer-term securities but with less volatility.We generally favored bonds backed by dedicated revenue streams, including those from essential municipal services such as sewer and water facilities.
Ohio has continued to struggle with fiscal pressures due to high levels of unemployment, tax revenue shortfalls and greater demand for services
4
in the recession. Proposals under consideration to bridge the budget gap include spending cuts, delays in planned income- and property-tax reductions, and higher fees and taxes on racetracks and casinos.
Supply-and-Demand Factors Appear Favorable
We have maintained a generally conservative investment posture.With short-term interest rates expected to remain low for some time, credit conditions may be the dominant influence on market sentiment over the foreseeable future.
Despite the impact of the recession on Ohio and its municipalities, technical factors have supported the market.The supply of newly issued municipal bonds has fallen significantly to date in 2009 compared to one year ago as the Build America Bonds program, part of the economic stimulus package, has diverted a substantial portion of new issuance to the taxable bond market.At the same time, demand for municipal bonds has intensified from investors concerned about the likelihood of higher income taxes.We expect this favorable supply-and-demand dynamic to persist into 2010.
November 16, 2009
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take | |
into consideration the maximum initial sales charge in the case of Class A shares, or the | ||
applicable contingent deferred sales charges imposed on redemptions in the case of Class B and | ||
Class C shares. Had these charges been reflected, returns would have been lower. Each share class | ||
is subject to a different sales charge and distribution expense structure and will achieve different | ||
returns. Past performance is no guarantee of future results. Share price, yield and investment | ||
return fluctuate such that upon redemption, fund shares may be worth more or less than their | ||
original cost. Income may be subject to state and local taxes for non-Ohio residents, and some | ||
income may be subject to the federal alternative minimum tax (AMT) for certain investors. | ||
Capital gains, if any, are fully taxable. | ||
2 | SOURCE: LIPPER INC. — Reflects reinvestment of dividends and, where applicable, capital | |
gain distributions.The Barclays Capital Municipal Bond Index is a widely accepted, unmanaged | ||
total return performance benchmark for the long-term, investment-grade, tax-exempt bond market. | ||
Index returns do not reflect fees and expenses associated with operating a mutual fund. |
The Fund 5
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus State Municipal Bond Funds, Dreyfus Ohio Fund from May 1, 2009 to October 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 October 31, 2009 | ||||||
Class A | Class B | Class C | ||||
Expenses paid per $1,000† | $ 5.09 | $ 8.29 | $ 8.97 | |||
Ending value (after expenses) | $1,060.10 | $1,056.00 | $1,056.10 |
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 October 31, 2009 | ||||||
Class A | Class B | Class C | ||||
Expenses paid per $1,000† | $ 4.99 | $ 8.13 | $ 8.79 | |||
Ending value (after expenses) | $1,020.27 | $1,017.14 | $1,016.48 |
† Expenses are equal to the fund’s annualized expense ratio of .98% for Class A, 1.60% for Class B, and 1.73% for Class C; multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS | ||||||||
October 31, 2009 (Unaudited) | ||||||||
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments—102.1% | Rate (%) | Date | Amount ($) | Value ($) | ||||
Ohio—92.2% | ||||||||
Akron, | ||||||||
GO | 6.00 | 12/1/12 | 1,380,000 | 1,586,338 | ||||
Akron, | ||||||||
GO (Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.50 | 12/1/20 | 1,460,000 | 1,510,049 | ||||
Blue Ash, | ||||||||
Tax Increment Financing | ||||||||
Revenue (Duke Realty Ohio | ||||||||
Project) | 5.00 | 12/1/16 | 1,000,000 | 972,130 | ||||
Blue Ash, | ||||||||
Tax Increment Financing | ||||||||
Revenue (Duke Realty Ohio | ||||||||
Project) | 5.00 | 12/1/21 | 730,000 | 658,642 | ||||
Blue Ash, | ||||||||
Tax Increment Financing | ||||||||
Revenue (Duke Realty Ohio | ||||||||
Project) | 5.00 | 12/1/25 | 500,000 | 431,745 | ||||
Blue Ash, | ||||||||
Tax Increment Financing | ||||||||
Revenue (Duke Realty Ohio | ||||||||
Project) | 5.00 | 12/1/30 | 400,000 | 323,388 | ||||
Blue Ash, | ||||||||
Tax Increment Financing | ||||||||
Revenue (Duke Realty Ohio | ||||||||
Project) | 5.00 | 12/1/35 | 1,000,000 | 758,800 | ||||
Buckeye Tobacco Settlement | ||||||||
Financing Authority, Tobacco | ||||||||
Settlement Asset-Backed Bonds | 5.13 | 6/1/24 | 2,500,000 | 2,226,650 | ||||
Cincinnati, | ||||||||
EDR (Baldwin 300 Project) | 5.00 | 11/1/28 | 2,565,000 | 2,622,841 | ||||
Cincinnati City School District, | ||||||||
GO School Improvement Bonds | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | ||||||||
(Prerefunded) | 5.38 | 12/1/11 | 6,560,000 a | 7,185,496 | ||||
Cincinnati State Technical and | ||||||||
Community College, General | ||||||||
Receipts Bonds (Insured; AMBAC) | 5.25 | 10/1/22 | 2,375,000 | 2,402,954 | ||||
Clermont County, | ||||||||
Hospital Facilities Revenue | ||||||||
(Mercy Health System) | ||||||||
(Insured; AMBAC) | 5.63 | 9/1/16 | 4,250,000 | 4,252,082 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |||||
Ohio (continued) | |||||||||
Cleveland, | |||||||||
Waterworks Revenue (Insured; | |||||||||
National Public Finance | |||||||||
Guarantee Corp.) | 5.50 | 1/1/21 | 8,000,000 | 9,056,560 | |||||
Cleveland-Cuyahoga County Port | |||||||||
Authority, Senior Special | |||||||||
Assessment/Tax Increment | |||||||||
Revenue (University Heights— | |||||||||
Public Parking Garage Project) | 7.00 | 12/1/18 | 2,200,000 | 2,234,826 | |||||
Cleveland-Cuyahoga County Port | |||||||||
Authority, Senior Special | |||||||||
Assessment/Tax Increment | |||||||||
Revenue (University Heights— | |||||||||
Public Parking Garage Project) | 7.35 | 12/1/31 | 3,655,000 | 3,655,804 | |||||
Cuyahoga County, | |||||||||
Hospital Facilities Revenue | |||||||||
(UHHS/CSAHS-Cuyahoga, Inc. | |||||||||
and CSAHS/UHHS-Canton, Inc. | |||||||||
Project) | 7.50 | 1/1/30 | 6,250,000 | 6,360,875 | |||||
Fairfield City School District, | |||||||||
GO School Improvement Bonds | |||||||||
(Insured; National Public | |||||||||
Finance Guarantee Corp.) | 5.38 | 12/1/19 | 1,860,000 | 1,981,384 | |||||
Fairfield City School District, | |||||||||
GO School Improvement Bonds | |||||||||
(Insured; National Public | |||||||||
Finance Guarantee Corp.) | 5.38 | 12/1/20 | 1,400,000 | 1,491,364 | |||||
Franklin County, | |||||||||
HR (Holy Cross Health System | |||||||||
Corporation) | 5.80 | 6/1/16 | 260,000 | 260,424 | |||||
Hamilton County, | |||||||||
EDR (King Highland Community | |||||||||
Urban Redevelopment | |||||||||
Corporation—University of | |||||||||
Cincinnati, Lessee, Project) | |||||||||
(Insured; National Public | |||||||||
Finance Guarantee Corp.) | 5.00 | 6/1/33 | 2,000,000 | 2,014,420 | |||||
Hamilton County, | |||||||||
Sales Tax Revenue | |||||||||
(Insured; AMBAC) | 0.00 | 12/1/27 | 17,940,000 | b | 6,879,990 | ||||
Highland Local School District, | |||||||||
GO School Improvement Bonds | |||||||||
(Insured; FSA) (Prerefunded) | 5.75 | 12/1/11 | 2,020,000 | a | 2,228,262 |
8
Long-Term Municipal | Coupon | Maturity | Principal | ||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |||||
Ohio (continued) | |||||||||
Hilliard City School District, | |||||||||
GO School Improvement Bonds | |||||||||
(Insured; National Public | |||||||||
Finance Guarantee Corp.) | 0.00 | 12/1/13 | 1,655,000 | b | 1,497,047 | ||||
Hilliard City School District, | |||||||||
GO School Improvement Bonds | |||||||||
(Insured; National Public | |||||||||
Finance Guarantee Corp.) | 0.00 | 12/1/14 | 1,655,000 | b | 1,425,981 | ||||
Kent State University, | |||||||||
General Receipts Bonds (A | |||||||||
State University of Ohio) | |||||||||
(Insured; Assured Guaranty) | 5.00 | 5/1/25 | 2,000,000 | 2,104,600 | |||||
Kent State University, | |||||||||
General Receipts Bonds (A | |||||||||
State University of Ohio) | |||||||||
(Insured; Assured Guaranty) | 5.00 | 5/1/29 | 1,000,000 | 1,029,740 | |||||
Lebanon City School District, | |||||||||
GO (School Facilities | |||||||||
Construction and Improvement) | |||||||||
(Insured; FSA) (Prerefunded) | 5.50 | 12/1/11 | 4,050,000 | a | 4,446,616 | ||||
Mason City School District, | |||||||||
GO Unlimited Tax Bonds | |||||||||
(Insured; FSA) | 5.25 | 12/1/31 | 5,000,000 | 5,750,650 | |||||
Massillon City School District, | |||||||||
GO (Various Purpose | |||||||||
Improvement) (Insured; | |||||||||
National Public Finance | |||||||||
Guarantee Corp.) | 5.00 | 12/1/25 | 1,150,000 | 1,189,618 | |||||
Milford Exempt Village School | |||||||||
District, GO School Improvement | |||||||||
Bonds (Insured; FSA) (Prerefunded) | 6.00 | 12/1/11 | 1,910,000 | a | 2,113,835 | ||||
Montgomery County, | |||||||||
Revenue (Miami Valley Hospital) | 6.25 | 11/15/33 | 2,500,000 | 2,626,325 | |||||
New Albany Community Authority, | |||||||||
Community Facilities Revenue | |||||||||
(Insured; AMBAC) | 5.20 | 10/1/24 | 2,000,000 | 2,040,880 | |||||
Ohio, | |||||||||
GO (Insured; FSA) | 5.00 | 3/15/20 | 15,520,000 | c,d | 16,315,478 | ||||
Ohio, | |||||||||
PCR (Standard Oil Company | |||||||||
Project) (Guaranteed; British | |||||||||
Petroleum Company PLC) | 6.75 | 12/1/15 | 2,700,000 | 3,293,757 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |||||
Ohio (continued) | |||||||||
Ohio Higher Educational Facility | |||||||||
Commission, Higher Educational | |||||||||
Facility Revenue (Xavier | |||||||||
University Project) (Insured; | |||||||||
FGIC) (Prerefunded) | 5.00 | 5/1/13 | 2,000,000 | a | 2,226,040 | ||||
Ohio State University, | |||||||||
General Receipts Bonds | 5.25 | 6/1/23 | 2,625,000 | 2,847,574 | |||||
Ohio Turnpike Commission, | |||||||||
Turnpike Revenue, Highway | |||||||||
Improvements | 5.50 | 2/15/26 | 3,565,000 | 3,630,097 | |||||
Ohio Turnpike Commission, | |||||||||
Turnpike Revenue, Highway | |||||||||
Improvements (Prerefunded) | 5.50 | 2/15/11 | 4,135,000 | a | 4,395,009 | ||||
Port of Greater Cincinnati | |||||||||
Development Authority, Special | |||||||||
Obligation Development Revenue | |||||||||
(Cooperative Public Parking | |||||||||
and Infrastructure Project) | 6.30 | 2/15/24 | 2,215,000 | 1,801,637 | |||||
Port of Greater Cincinnati | |||||||||
Development Authority, Special | |||||||||
Obligation Development Revenue | |||||||||
(Cooperative Public Parking | |||||||||
and Infrastructure Project) | 6.40 | 2/15/34 | 2,500,000 | 1,903,950 | |||||
Port of Greater Cincinnati | |||||||||
Development Authority, Tax | |||||||||
Increment Development Revenue | |||||||||
(Fairfax Village Red Bank | |||||||||
Infrastructure Project) | 5.50 | 2/1/25 | 2,145,000 | 1,672,263 | |||||
Richland County, | |||||||||
GO (Correctional Facilities | |||||||||
Bonds) (Insured; | |||||||||
Assured Guaranty) | 6.00 | 12/1/28 | 400,000 | 450,044 | |||||
Strongsville, | |||||||||
GO Library Improvement Bonds | |||||||||
(Insured; National Public | |||||||||
Finance Guarantee Corp.) | 5.50 | 12/1/20 | 1,700,000 | 1,815,243 | |||||
Summit County, | |||||||||
GO (Insured; FGIC) | |||||||||
(Prerefunded) | 6.50 | 12/1/10 | 2,000,000 | a | 2,152,640 | ||||
Summit County Port Authority, | |||||||||
Development Revenue | |||||||||
(Bond Fund Program-Twinsburg | |||||||||
Township Project) | 5.13 | 5/15/25 | 570,000 | 463,877 |
10
Long-Term Municipal | Coupon | Maturity | Principal | ||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |||||
Ohio (continued) | |||||||||
Summit County Port Authority, | |||||||||
Revenue (Civic Theatre | |||||||||
Project) (Insured; AMBAC) | 5.50 | 12/1/26 | 1,000,000 | 1,014,960 | |||||
Toledo-Lucas County Port | |||||||||
Authority, Development Revenue | |||||||||
(Northwest Ohio Bond Fund— | |||||||||
Midwest Terminals Project) | 6.00 | 11/15/27 | 1,740,000 | 1,507,240 | |||||
Toledo-Lucas County Port | |||||||||
Authority, Development Revenue | |||||||||
(Northwest Ohio Bond Fund— | |||||||||
Toledo Express Airport Project) | 6.38 | 11/15/32 | 2,425,000 | 2,084,239 | |||||
University of Cincinnati, | |||||||||
General Receipts Bonds | |||||||||
(Insured; FGIC) (Prerefunded) | 5.75 | 6/1/11 | 2,165,000 | a | 2,358,832 | ||||
University of Cincinnati, | |||||||||
General Receipts Bonds | |||||||||
(Insured; FGIC) (Prerefunded) | 5.75 | 6/1/11 | 1,500,000 | a | 1,634,295 | ||||
University of Cincinnati, | |||||||||
General Receipts Bonds | |||||||||
(Insured; National Public | |||||||||
Finance Guarantee Corp.) | 5.00 | 6/1/21 | 3,040,000 | 3,101,226 | |||||
Warren, | |||||||||
Waterworks Revenue (Insured; | |||||||||
National Public Finance | |||||||||
Guarantee Corp.) | 5.50 | 11/1/15 | 1,450,000 | 1,556,328 | |||||
West Muskingum Local School | |||||||||
District, GO (School | |||||||||
Facilities Construction and | |||||||||
Improvement) (Insured; | |||||||||
National Public Finance | |||||||||
Guarantee Corp.) | 5.00 | 12/1/30 | 2,945,000 | 2,955,661 | |||||
Youngstown, | |||||||||
GO Pension Bonds (Insured; | |||||||||
AMBAC) (Prerefunded) | 5.38 | 12/1/10 | 2,195,000 | a | 2,335,765 | ||||
Youngstown, | |||||||||
GO Pension Bonds (Insured; | |||||||||
AMBAC) (Prerefunded) | 6.00 | 12/1/10 | 2,370,000 | a | 2,538,033 | ||||
U.S. Related—9.9% | |||||||||
Children’s Trust Fund of Puerto | |||||||||
Rico, Tobacco Settlement | |||||||||
Asset-Backed Bonds | 0.00 | 5/15/50 | 12,500,000 | b | 450,000 | ||||
Government of Guam, | |||||||||
GO | 6.75 | 11/15/29 | 500,000 | 536,935 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
U.S. Related (continued) | ||||||||
Guam Waterworks Authority, | ||||||||
Water and Wastewater | ||||||||
System Revenue | 5.88 | 7/1/35 | 900,000 | 862,569 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | 5.25 | 7/1/17 | 1,000,000 | 1,031,110 | ||||
Puerto Rico Electric Power | ||||||||
Authority, Power Revenue | 5.50 | 7/1/38 | 1,500,000 | 1,509,120 | ||||
Puerto Rico Electric Power | ||||||||
Authority, Power Revenue | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.50 | 7/1/15 | 1,000,000 | 1,084,860 | ||||
Puerto Rico Electric Power | ||||||||
Authority, Power Revenue | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.00 | 7/1/23 | 2,000,000 | 2,012,260 | ||||
Puerto Rico Highways and | ||||||||
Transportation Authority, | ||||||||
Highway Revenue (Insured; FSA) | 5.50 | 7/1/31 | 3,370,000 | 3,707,034 | ||||
Puerto Rico Sales Tax Financing | ||||||||
Corporation, Sales Tax Revenue | ||||||||
(First Subordinate Series) | 6.00 | 8/1/42 | 1,750,000 | 1,838,112 | ||||
Virgin Islands Public Finance | ||||||||
Authority, Revenue, Virgin | ||||||||
Islands Gross Receipts Taxes | ||||||||
Loan Note | 6.38 | 10/1/19 | 3,000,000 | 3,068,460 | ||||
Total Investments (cost $160,949,471) | 102.1% | 165,474,964 | ||||||
Liabilities, Less Cash and Receivables | (2.1%) | (3,335,611) | ||||||
Net Assets | 100.0% | 162,139,353 |
a These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are |
collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on |
the municipal issue and to retire the bonds in full at the earliest refunding date. |
b Security issued with a zero coupon. Income is recognized through the accretion of discount. |
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 October 31, 2009, this security |
amounted to $16,315,478 or 10.1% of net assets. |
d Collateral for floating rate borrowings. |
12
Summary of Abbreviations | ||||||
ABAG | Association of Bay Area Governments | ACA | American Capital Access | |||
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company | |||
AMBAC | American Municipal Bond | |||||
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 |
The Fund 13
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Combined Ratings (Unaudited) | ||||||||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† | |||||
AAA | Aaa | AAA | 19.5 | |||||||
AA | Aa | AA | 35.2 | |||||||
A | A | A | 15.1 | |||||||
BBB | Baa | BBB | 11.7 | |||||||
BB | Ba | BB | .5 | |||||||
B | B | B | .3 | |||||||
Not Ratede | Not Ratede | Not Ratede | 17.7 | |||||||
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. |
14
STATEMENT OF ASSETS AND LIABILITIES |
October 31, 2009 (Unaudited) |
Cost | Value | |||||
Assets ($): | ||||||
Investments in securities—See Statement of Investments | 160,949,471 | 165,474,964 | ||||
Cash | 4,034,044 | |||||
Interest receivable | 2,802,397 | |||||
Receivable for shares of Beneficial Interest subscribed | 9,406 | |||||
Prepaid expenses | 10,219 | |||||
172,331,030 | ||||||
Liabilities ($): | ||||||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 143,543 | |||||
Payable for floating rate notes issued—Note 4 | 7,760,000 | |||||
Payable for investment securities purchased | 2,102,356 | |||||
Payable for shares of Beneficial Interest redeemed | 151,585 | |||||
Interest and expense payable related to | ||||||
floating rate notes issued—Note 4 | 6,601 | |||||
Accrued expenses | 27,592 | |||||
10,191,677 | ||||||
Net Assets ($) | 162,139,353 | |||||
Composition of Net Assets ($): | ||||||
Paid-in capital | 163,640,773 | |||||
Accumulated undistributed investment income—net | 13,543 | |||||
Accumulated net realized gain (loss) on investments | (6,040,456) | |||||
Accumulated net unrealized appreciation | ||||||
(depreciation) on investments | 4,525,493 | |||||
Net Assets ($) | 162,139,353 | |||||
Net Asset Value Per Share | ||||||
Class A | Class B | Class C | ||||
Net Assets ($) | 153,443,966 | 1,145,323 | 7,550,064 | |||
Shares Outstanding | 12,845,113 | 95,892 | 630,918 | |||
Net Asset Value Per Share ($) | 11.95 | 11.94 | 11.97 | |||
See notes to financial statements. |
The Fund 15
STATEMENT OF OPERATIONS | ||
Six Months Ended October 31, 2009 (Unaudited) | ||
Investment Income ($): | ||
Interest Income | 4,455,317 | |
Expenses: | ||
Management fee—Note 3(a) | 445,119 | |
Shareholder servicing costs—Note 3(c) | 246,808 | |
Interest and expense related to | ||
floating rate notes issued—Note 4 | 37,838 | |
Distribution fees—Note 3(b) | 31,149 | |
Professional fees | 18,816 | |
Registration fees | 11,108 | |
Custodian fees—Note 3(c) | 10,293 | |
Prospectus and shareholders’ reports | 5,700 | |
Trustees’ fees and expenses—Note 3(d) | 3,586 | |
Loan commitment fees—Note 2 | 752 | |
Miscellaneous | 13,200 | |
Total Expenses | 824,369 | |
Less—reduction in fees due to | ||
earnings credits—Note 1(b) | (2,300) | |
Net Expenses | 822,069 | |
Investment Income—Net | 3,633,248 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | (2,311,859) | |
Net unrealized appreciation (depreciation) on investments | 7,949,494 | |
Net Realized and Unrealized Gain (Loss) on Investments | 5,637,635 | |
Net Increase in Net Assets Resulting from Operations | 9,270,883 | |
See notes to financial statements. |
16
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009 | |||
Operations ($): | ||||
Investment income—net | 3,633,248 | 7,689,980 | ||
Net realized gain (loss) on investments | (2,311,859) | (1,832,677) | ||
Net unrealized appreciation | ||||
(depreciation) on investments | 7,949,494 | (8,333,339) | ||
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 9,270,883 | (2,476,036) | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (3,453,623) | (7,252,063) | ||
Class B Shares | (28,279) | (148,499) | ||
Class C Shares | (137,803) | (279,894) | ||
Total Dividends | (3,619,705) | (7,680,456) | ||
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 3,452,313 | 8,602,106 | ||
Class B Shares | 2,675 | 30,149 | ||
Class C Shares | 478,009 | 385,666 | ||
Dividends reinvested: | ||||
Class A Shares | 2,664,123 | 5,036,862 | ||
Class B Shares | 19,292 | 99,796 | ||
Class C Shares | 105,922 | 202,030 | ||
Cost of shares redeemed: | ||||
Class A Shares | (8,025,125) | (21,876,760) | ||
Class B Shares | (882,760) | (4,253,513) | ||
Class C Shares | (331,513) | (927,784) | ||
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | (2,517,064) | (12,701,448) | ||
Total Increase (Decrease) in Net Assets | 3,134,114 | (22,857,940) | ||
Net Assets ($): | ||||
Beginning of Period | 159,005,239 | 181,863,179 | ||
End of Period | 162,139,353 | 159,005,239 | ||
Undistributed investment income—net | 13,543 | — |
The Fund 17
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009 | |||
Capital Share Transactions: | ||||
Class Aa | ||||
Shares sold | 294,299 | 735,974 | ||
Shares issued for dividends reinvested | 225,880 | 436,180 | ||
Shares redeemed | (681,458) | (1,905,065) | ||
Net Increase (Decrease) in Shares Outstanding | (161,279) | (732,911) | ||
Class Ba | ||||
Shares sold | 227 | 2,529 | ||
Shares issued for dividends reinvested | 1,640 | 8,567 | ||
Shares redeemed | (75,419) | (363,886) | ||
Net Increase (Decrease) in Shares Outstanding | (73,552) | (352,790) | ||
Class C | ||||
Shares sold | 40,285 | 33,226 | ||
Shares issued for dividends reinvested | 8,962 | 17,456 | ||
Shares redeemed | (28,021) | (79,370) | ||
Net Increase (Decrease) in Shares Outstanding | 21,226 | (28,688) |
a | During the period ended October 31, 2009, 47,497 Class B shares representing $555,564 were automatically | |
converted to 47,497 Class A shares and during the period ended April 30, 2009, 203,425 Class B shares | ||
representing $2,391,540 were automatically converted to 203,494 Class A shares. | ||
See notes to financial statements. |
18
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.53 | 12.20 | 12.63 | 12.50 | 12.78 | 12.48 | ||||||
Investment Operations: | ||||||||||||
Investment income—net a | .27 | .54 | .52 | .51 | .52 | .52 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .42 | (.67) | (.43) | �� | .13 | (.28) | .30 | |||||
Total from | ||||||||||||
Investment Operations | .69 | (.13) | .09 | .64 | .24 | .82 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.27) | (.54) | (.52) | (.51) | (.52) | (.52) | ||||||
Net asset value, end of period | 11.95 | 11.53 | 12.20 | 12.63 | 12.50 | 12.78 | ||||||
Total Return (%)b | 6.01c | (1.00) | .74 | 5.22 | 1.92 | 6.70 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .98d | 1.06 | 1.07 | 1.05 | 1.02 | .97 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | .98d,e | 1.06e | 1.06 | 1.03 | 1.02e | .97e | ||||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | .05d | .11 | .14 | .14 | .11 | .06 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 4.53d | 4.64 | 4.19 | 4.07 | 4.12 | 4.12 | ||||||
Portfolio Turnover Rate | 4.82c | 7.73 | 12.00 | 31.65 | 13.57 | 5.30 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 153,444 150,007 | 167,683 | 183,157 | 184,312 | 189,946 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
The Fund 19
FINANCIAL HIGHLIGHTS (continued) |
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class B Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.53 | 12.21 | 12.63 | 12.50 | 12.78 | 12.48 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .22 | .45 | .45 | .44 | .46 | .45 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .42 | (.66) | (.42) | .14 | (.28) | .31 | ||||||
Total from | �� | |||||||||||
Investment Operations | .64 | (.21) | .03 | .58 | .18 | .76 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.23) | (.47) | (.45) | (.45) | (.46) | (.46) | ||||||
Net asset value, end of period | 11.94 | 11.53 | 12.21 | 12.63 | 12.50 | 12.78 | ||||||
Total Return (%)b | 5.60c | (1.66) | .28 | 4.68 | 1.40 | 6.15 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.60d | 1.62 | 1.61 | 1.57 | 1.53 | 1.48 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.60d,e | 1.62e | 1.60 | 1.55 | 1.53e | 1.48e | ||||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | .05d | .11 | .14 | .14 | .11 | .06 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.92d | 4.00 | 3.64 | 3.55 | 3.61 | 3.61 | ||||||
Portfolio Turnover Rate | 4.82c | 7.73 | 12.00 | 31.65 | 13.57 | 5.30 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 1,145 | 1,954 | 6,375 | 14,720 | 22,108 | 28,740 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
20
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.55 | 12.23 | 12.65 | 12.52 | 12.80 | 12.50 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .22 | .45 | .43 | .42 | .43 | .42 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .42 | (.68) | (.42) | .13 | (.28) | .31 | ||||||
Total from | ||||||||||||
Investment Operations | .64 | (.23) | .01 | .55 | .15 | .73 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.22) | (.45) | (.43) | (.42) | (.43) | (.43) | ||||||
Net asset value, end of period | 11.97 | 11.55 | 12.23 | 12.65 | 12.52 | 12.80 | ||||||
Total Return (%)b | 5.61c | (1.82) | .07 | 4.42 | 1.15 | 5.89 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.73d | 1.82 | 1.83 | 1.81 | 1.78 | 1.73 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.73d,e | 1.81 | 1.83e | 1.79 | 1.77 | 1.73e | ||||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | .05d | .11 | .14 | .14 | .11 | .06 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.77d | 3.88 | 3.43 | 3.31 | 3.36 | 3.36 | ||||||
Portfolio Turnover Rate | 4.82c | 7.73 | 12.00 | 31.65 | 13.57 | 5.30 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 7,550 | 7,044 | 7,805 | 9,053 | 9,939 | 10,406 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. | |
See notes to financial statements. |
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus State Municipal Bond Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a non-diversified open-end management investment company, and operates as a series company that offers nine series including the Dreyfus Ohio Fund (the “fund”).The Trust’s investment objective is to maximize current income exempt from federal and, where applicable, state income taxes, without undue risk.The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares. The fund is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in the following classes of shares: Class A, Class B and Class C. Class A shares are subject to a sales charge imposed at the time of purchase. Class B shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class B share redemptions made within six years of purchase and automatically convert to Class A shares after six years.The fund does not offer Class B shares, except in connection with dividend reinvestment and permitted exchanges of Class B shares. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Other differences between the classes include the services offered to and the expenses borne by each class, the allo cation 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.
22
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) has become the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The ASC has superseded all existing non-SEC accounting and reporting standards. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The fund enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued each business day by an independent pricing service (the “Service”) approved by the Board of Trustees. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market cond itions. Options and financial futures on municipal and U.S.Treasury securities are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market on each business day.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements. These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of October 31, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||||||
Level 1— | Significant | Significant | ||||||
Unadjusted | Observable | Unobservable | ||||||
Quoted Prices | Inputs | Inputs | Total | |||||
Assets ($) | ||||||||
Investments in Securities: | ||||||||
Municipal Bonds | — | 165,474,964 | — | 165,474,964 |
24
(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.
The fund follows an investment policy of investing primarily in municipal obligations of one state. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the fund.
(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 GAAP.
(d) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax exempt dividends, by complying with the applicable provisions of the
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended October 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 April 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $2,101,462 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to April 30, 2009. If not applied, $1,424,574 of the carryover expires in fiscal 2012, $387,374 expires in fiscal 2013, $91,735 expires in fiscal 2016 and $197,779 expires in fiscal 2017.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2009 was as follows: tax exempt income $7,678,995 and ordinary income $1,461.The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participated with other Dreyfus-managed funds in a $145 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. Effective October 14, 2009, the $145 million unsecured credit facility with Citibank, N.A. was increased to $215 million and the fund continues participation in the $300 million unsecured credit facility provided by
26
The Bank of New York Mellon. In connection therewith, the fund has agreed to pay its pro rata portion of Facility fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended October 31, 2009, the fund did not borrow under the Facilities.
NOTE 3—Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement with the Manager, the management fee is computed at the annual rate of .55% of the value of the fund’s average daily net assets and is payable monthly.
During the period ended October 31, 2009, the Distributor retained $3,507 from commissions earned on sales of the fund’s Class A shares and $877 from CDSCs on redemptions of the fund’s Class B shares.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class B and Class C shares pay the Distributor for distributing their shares at an annual rate of .50% of the value of the average daily net assets of Class B shares and .75% of the value of the average daily net assets of Class C shares. During the period ended October 31, 2009, Class B and Class C shares were charged $3,623 and $27,526, respectively, pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts.The Distributor may make payments to Service Agents (a securities dealer, financial institution or other industry professional) in respect of these services.The Distributor determines the amounts to be paid to Service Agents. During the
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
period ended October 31, 2009, Class A, Class B and Class C shares were charged $191,340, $1,812 and $9,175, respectively, pursuant to the Shareholder Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the fund. During the period ended October 31, 2009, the fund was charged $25,803 pursuant to the transfer agency agreement, which is included in Shareholder Servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2009, the fund was charged $2,300 pursuant to the cash management agreement, which is included in Shareholder Servicing costs in the Statement of Operations.These fees were offset by earnings credits pursuant to the cash management agreement.
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 October 31, 2009, the fund was charged $10,293 pursuant to the custody agreement.
During the period ended October 31, 2009, the fund was charged $3,341 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $76,478, Rule 12b-1 distribution plan fees $5,369, shareholder services plan fees $34,763, custodian fees $5,363, chief compliance officer fees $3,897 and transfer agent per account fees $17,673.
(d) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
28
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended October 31, 2009, amounted to $7,909,465 and $9,091,988, respectively.
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The fund held no derivatives during the period ended October 31, 2009.These disclosures did not impact the notes to the financial statements.
The fund may participate in secondary inverse floater structures in which fixed-rate, tax-exempt municipal bonds purchased by the fund are transferred to a trust.The trust subsequently issues two or more variable rate securities that are collateralized by the cash flows of the fixed-rate, tax-exempt municipal bonds. One or more of these variable rate securities pays interest based on a short-term floating rate set by a remarketing agent at predetermined intervals. A residual interest tax-exempt security is also created by the trust, which is transferred to the fund, and is paid interest based on the remaining cash flow of the trust, after payment of interest on the other securities and various expenses of the trust.
The fund accounts for the transfer of bonds to the trust as secured borrowings, with the securities transferred remaining in the fund’s investments, and the related floating rate certificate securities reflected as fund liabilities under the caption, “Payable for floating rate notes issued” in the Statement of Assets and Liabilities.
The average amount of borrowings outstanding under the inverse floater structure during the period ended October 31, 2009, was approximately $7,760,000, with a related weighted average annualized interest rate of .97%.
The Fund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
At October 31, 2009, accumulated net unrealized appreciation on investments was $4,525,493, consisting of $8,195,887 gross unrealized appreciation and $3,670,394 gross unrealized depreciation.
At October 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).
NOTE 5—Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
30
INFORMATION ABOUT THE REVIEW AND APPROVAL |
OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the Board of Trustees held on July 21, 2009, the Board considered the re-approval for an annual period of the fund’s Management Agreement, pursuant to which the Manager provides the fund with investment advisory and administrative services. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager.
Analysis of Nature, Extent and Quality of Services Provided to the Fund.The Board members considered information previously provided to them in a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus fund complex, and representatives of the Manager confirmed that there had been no material changes in this information.The Board also discussed the nature, extent and quality of the services provided to the fund pursuant to its Management Agreement.The Manager’s representatives reviewed the fund’s distribution of accounts and the relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services in each distribution channel, including those of the fund.The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements.The Board members also considered the Manager’s extensive administrative, accounting and compliance infrastructure.The Board also considered the Manager’s brokerage policies and practices and the standards applied in seeking best execution.
The Fund 31
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
Comparative Analysis of the Fund’s Performance, Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of comparable funds (the “Performance Group”) and to a broader group of 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 yield performance for the past ten one-year periods ended May 31 (2000-2009) was above or equal to the Performance Group median for each reported time period except the one-year periods ended May 31, 2001 and 20 02, when it was below the median, and that the fund’s yield performance was above the Performance Universe median for each reported time period.The Board members also noted that the fund’s total return performance for various periods ended May 31, 2009 was below the Performance Group and Performance Universe medians for each reported time period. The Manager also provided a comparison of the fund’s calendar year total returns to the returns of its Lipper category average for the prior ten years, and the Board members noted that the fund outperformed its Lipper category average in eight of the past ten calendar years. The Board members discussed with representatives of the Manager the reasons for the fund’s total return underperformance compared to the Performance Group and Performance Universe medians for the applicable periods, and the Manager’s efforts to improve performance. The Board members also received a presentation from the fund’s primary portfolio manager during which he discussed the fund’s investment strategy and the factors that affected performance.
The Board members also discussed the fund’s contractual and actual management fee and total expense ratio as compared to a comparable group of funds (the “Expense Group”) that was composed of the same
32
funds included in the Performance Group and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper. The Board noted that the fund’s contractual management fee was equal to the Performance Group median, and that the fund’s actual management fee and total expense ratio were above the Expense Group and Expense Universe medians.
Representatives of the Manager informed the Board members that there were no mutual funds, separate accounts or wrap fee accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex. The Board members also had been informed that the methodology also had been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of a fund. The Board members evaluated the profitability analysis in light of the re levant circumstances for the fund, and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders.The Board members also considered potential benefits to the Manager and its affiliates from acting as investment adviser to the fund and noted that there were no soft dollar arrangements with respect to trading the fund’s portfolio.
The Fund 33
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It was also noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
- The Board concluded that the nature, extent and quality of the services provided by the Manager to the fund are adequate and appropriate.
- The Board was concerned with the fund’s total return performance but was satisfied with the fund’s yield performance and with the Manager’s efforts to improve the fund’s performance as discussed at the meeting.The Board concluded it was necessary to closely mon- itor the performance of the fund and its portfolio management team.
- The Board concluded that the fee paid to the Manager by the fund was reasonable in light of the factors discussed above.
34
- The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in con- nection with the management fee rate charged to the fund, and that, to the extent in the future it were to be determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with the information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
The Fund 35
NOTES
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Dreyfus State |
Municipal Bond Funds, |
Dreyfus Pennsylvania Fund |
SEMIANNUAL REPORT October 31, 2009
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
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Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
19 | Statement of Assets and Liabilities |
20 | Statement of Operations |
21 | Statement of Changes in Net Assets |
23 | Financial Highlights |
27 | Notes to Financial Statements |
36 | Information About the Review and Approval of the Fund’s Management Agreement |
FOR MORE INFORMATION | |
Back Cover | |
Dreyfus State |
Municipal Bond Funds, |
Dreyfus Pennsylvania Fund |
The Fund |
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A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus State Municipal Bond Funds, Dreyfus Pennsylvania Fund, covering the six-month period from May 1, 2009, through October 31, 2009.
Reports of positive U.S. economic growth over the third quarter of 2009 may have signaled the end of the deep recession that technically began in December 2007. Signs that the economy finally has turned a corner include inventory rebuilding among manufacturers and improvements in home sales and prices, while massive government stimulus and favorable supply-and-demand influences have all supported the municipal bond rally in 2009.As expected, funds with the longest average durations and lower-quality portfolios have led the rebound, while AAA-rated and shorter-duration funds have rallied to a lesser extent.
As the financial markets currently appear poised to enter into a new phase, and as government intervention appears to be winding down (at least for the moment), the best strategy for your portfolio depends not only on your view of the economy’s direction, but on your current financial needs, future goals and attitudes toward risk. Your financial advisor can help you decide which investments have the potential to benefit from a recovery while guarding against the taxation and investment risks that may accompany policy changes and unexpected market developments.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
![](https://capedge.com/proxy/N-CSRS/0000806176-10-000001/smbpancsrx4x2.jpg)
Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation November 16, 2009 |
2
![](https://capedge.com/proxy/N-CSRS/0000806176-10-000001/smbpancsrx5x1.jpg)
DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2009, through October 31, 2009, as provided by Steven Harvey, Portfolio Manager
Note to Shareholders: On October 26, 2009, Steven Harvey became the Primary Portfolio Manager of the fund.
Fund and Market Performance Overview
For the six-month period ended October 31, 2009, the Class A, Class B, Class C and Class Z shares of Dreyfus Pennsylvania Fund, a series of Dreyfus State Municipal Bond Funds, produced total returns of 5.78%, 5.35%, 5.31% and 5.83%, respectively.1 In comparison, the Barclays Capital Municipal Bond Index (the “Index”), the fund’s benchmark Index, which is composed of bonds issued nationally and not solely within Pennsylvania, achieved a total return of 4.99% for the same period.2
Municipal bonds rallied strongly over the reporting period amid expectations of an economic recovery and stable credit markets. The fund’s returns were higher than its benchmark, primarily due to strong performance by the fund’s core, seasoned holdings of municipal bonds.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax and Pennsylvania state income tax without undue risk.To pursue its goal, the fund normally invests substantially all of its assets in municipal bonds that provide income exempt from federal income tax and Pennsylvania state personal income tax.The fund invests at least 70% of its assets in investment-grade municipal bonds or the unrated equivalent as determined by Dreyfus.The fund may invest up to 30% of its assets in municipal bonds rated below investment grade or the unrated equivalent as determined by Dreyfus. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
We may buy and sell bonds based on credit quality, market outlook and yield potential. In selecting municipal bonds for investment, we may
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
assess the current interest-rate environment and a municipal bond’s potential volatility in different rate environments. We focus on bonds with the potential to offer attractive current income, typically looking for bonds that can provide consistently attractive current yields or that are trading at competitive market prices. A portion of the fund’s assets may be allocated to“discount”bonds,which are bonds that sell at a price below their face value, or to “premium” bonds, which are bonds that sell at a price above their face value.The fund’s allocation either to discount bonds or to premium bonds will change along with our changing views of the current interest-rate and market environment.We may also look to select bonds that are most likely to obtain attractive prices when sold.
Municipal Bonds Rebounded Sharply
In the wake of severe market declines stemming from a global financial crisis and recession, the municipal bond market staged an impressive rebound over the reporting period. The rally was fueled by changing investor sentiment,which began to improve in March 2009 as government and monetary authorities’ aggressive remedial measures—including historically low interest rates, injections of liquidity into the banking system, the rescues of major corporations and a massive economic stimulus program—seemed to gain traction. Additional evidence of economic stabilization later appeared, supporting a sustained rally through the reporting period’s end. Although most municipal bonds participated in the rally, gains were particularly strong among lower-quality issues that had been punished in the downturn.
Seasoned Holdings Supported Fund Returns
The fund’s core holdings of seasoned bonds produced competitive levels of income that bolstered the fund’s total return. Moreover, we strived to maintain a high level of credit quality. When making new purchases, we emphasized higher-rated bonds with maturities in the 15- to 20-year range, which offered most of the yield of longer-term securities but with less volatility.We generally favored bonds backed by dedicated revenue streams, including those from essential municipal services such as sewer and water facilities.
4
Like most other states, Pennsylvania has continued to struggle with fiscal pressures due to tax revenue shortfalls and greater demand for services in the recession.The state has attempted to bridge its budget gaps with spending cuts, transfers from reserve funds and payments from the federal economic stimulus program.
Supply-and-Demand Factors Appear Favorable
We have maintained a generally conservative investment posture.With short-term interest rates expected to remain low for some time, credit conditions may be the dominant influence on market sentiment over the foreseeable future.
Despite the lingering impacts of the recession on municipalities, technical factors have supported the market. The supply of newly issued tax-free municipal bonds has fallen significantly to date in 2009 compared to one year ago as the Build America Bonds program, part of the economic stimulus package, has diverted a substantial portion of new issuance to the taxable bond market. At the same time, demand for municipal bonds has intensified from investors concerned about the likelihood of higher income taxes. We expect this favorable supply-and-demand dynamic to persist into 2010.
November 16, 2009
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take into | |
consideration the maximum initial sales charge in the case of Class A shares, or the applicable | ||
contingent deferred sales charges imposed on redemptions in the case of Class B and Class C | ||
shares. Had these charges been reflected, returns would have been lower. Class Z is not subject to | ||
any initial or deferred sales charge. Each share class is subject to a different sales charge and | ||
distribution expense structure and will achieve different returns. Past performance is no guarantee | ||
of future results. Share price, yield and investment return fluctuate such that upon redemption, | ||
fund shares may be worth more or less than their original cost. Income may be subject to state and | ||
local taxes for non-Pennsylvania residents, and some income may be subject to the federal | ||
alternative minimum tax (AMT) for certain investors. Capital gains, if any, are taxable. | ||
2 | SOURCE: LIPPER INC. — Reflects reinvestment of dividends and, where applicable, capital | |
gain distributions.The Barclays Capital Municipal Bond Index is a widely accepted, unmanaged | ||
total return performance benchmark for the long-term, investment-grade, tax-exempt bond market. | ||
Index returns do not reflect fees and expenses associated with operating a mutual fund. |
The Fund 5
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus State Municipal Bond Funds, Dreyfus Pennsylvania Fund from May 1, 2009 to October 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 October 31, 2009 |
Class A | Class B | Class C | Class Z | |||||
Expenses paid per $1,000† | $ 4.88 | $ 8.02 | $ 8.69 | $ 3.74 | ||||
Ending value (after expenses) | $1,057.80 | $1,053.50 | $1,053.10 | $1,058.30 |
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 October 31, 2009 |
Class A | Class B | Class C | Class Z | |||||
Expenses paid per $1,000† | $ 4.79 | $ 7.88 | $ 8.54 | $ 3.67 | ||||
Ending value (after expenses) | $1,020.47 | $1,017.39 | $1,016.74 | $1,021.58 |
† Expenses are equal to the fund’s annualized expense ration of .94% for Class A, 1.55% for Class B, 1.68% for |
Class C and .72% for Class Z, multiplied by the average account value over the period, multiplied by 184/365 (to |
reflect the one-half year period). |
6
STATEMENT OF INVESTMENTS October 31, 2009 (Unaudited) |
Long-Term Municipal | Coupon | Maturity | Principal | |||||||
Investments—98.0% | Rate (%) | Date | Amount ($) | Value ($) | ||||||
Pennsylvania—90.7% | ||||||||||
Allegheny County Hospital | ||||||||||
Development Authority, HR | ||||||||||
(South Hills Health System) | 5.13 | 5/1/29 | 1,100,000 | 967,252 | ||||||
Allegheny County Sanitary | ||||||||||
Authority, Sewer Revenue | ||||||||||
(Insured; National Public | ||||||||||
Finance Guarantee Corp.) | 5.00 | 12/1/19 | 1,900,000 | 1,947,671 | ||||||
Bethel Park School District, | ||||||||||
GO | 5.00 | 8/1/29 | 3,000,000 | 3,081,360 | ||||||
Butler Area Sewer Authority, | ||||||||||
Sewer Revenue (Insured; | ||||||||||
National Public Finance | ||||||||||
Guarantee Corp.) | 0.00 | 1/1/10 | 600,000 | a | 598,650 | |||||
Butler County Industrial | ||||||||||
Development Authority, Health | ||||||||||
Care Facilities Revenue (Saint | ||||||||||
John Lutheran Care Center | ||||||||||
Project) (Collateralized; GNMA) | 5.80 | 4/20/29 | 5,635,000 | 5,798,640 | ||||||
Butler County Industrial | ||||||||||
Development Authority, MFHR | ||||||||||
(Greenview Gardens Apartments) | 6.00 | 7/1/23 | 475,000 | 439,479 | ||||||
Butler County Industrial | ||||||||||
Development Authority, MFHR | ||||||||||
(Greenview Gardens Apartments) | 6.25 | 7/1/33 | 880,000 | 786,456 | ||||||
Centre County Hospital Authority, | ||||||||||
HR (Mount Nittany Medical | ||||||||||
Center Project) (Insured; | ||||||||||
Assured Guaranty) | 6.13 | 11/15/39 | 2,000,000 | 2,078,460 | ||||||
Charleroi Area School Authority, | ||||||||||
School Revenue (Insured; | ||||||||||
National Public Finance | ||||||||||
Guarantee Corp.) | 0.00 | 10/1/20 | 2,000,000 | a | 1,196,580 | |||||
Chester County Industrial | ||||||||||
Development Authority, Revenue | ||||||||||
(Avon Grove Charter School | ||||||||||
Project) | 6.38 | 12/15/37 | 1,600,000 | 1,350,192 | ||||||
Chester County School Authority, | ||||||||||
School LR (Chester County | ||||||||||
Intermediate Unit Project) | ||||||||||
(Insured; AMBAC) | 5.00 | 4/1/25 | 2,195,000 | 2,243,378 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||||
Pennsylvania (continued) | ||||||||||
Cumberland County Municipal | ||||||||||
Authority, College Revenue | ||||||||||
(Messiah College) | ||||||||||
(Insured; AMBAC) | 5.13 | 10/1/15 | 45,000 | 45,149 | ||||||
Cumberland County Municipal | ||||||||||
Authority, Revenue | ||||||||||
(Presbyterian Homes Obligated | ||||||||||
Group Project) | 5.35 | 1/1/20 | 515,000 | 506,642 | ||||||
Cumberland County Municipal | ||||||||||
Authority, Revenue | ||||||||||
(Presbyterian Homes Obligated | ||||||||||
Group Project) | 5.45 | 1/1/21 | 885,000 | 870,406 | ||||||
Dauphin County General Authority, | ||||||||||
Office and Parking Revenue | ||||||||||
(Riverfront Office | ||||||||||
Center Project) | 6.00 | 1/1/25 | 3,000,000 | 2,347,590 | ||||||
Delaware County Industrial | ||||||||||
Development Authority, Water | ||||||||||
Facilities Revenue (Aqua | ||||||||||
Pennsylvania, Inc. Project) | ||||||||||
(Insured; National Public | ||||||||||
Finance Guarantee Corp.) | 5.00 | 11/1/37 | 5,165,000 | 4,868,426 | ||||||
Erie Higher Education Building | ||||||||||
Authority, College Revenue | ||||||||||
(Mercyhurst College Project) | 5.35 | 3/15/28 | 1,000,000 | 977,070 | ||||||
Harrisburg Authority, | ||||||||||
University Revenue (The | ||||||||||
Harrisburg University of | ||||||||||
Science and Technology Project) | 6.00 | 9/1/36 | 2,000,000 | 1,792,320 | ||||||
Harrisburg Redevelopment | ||||||||||
Authority, Guaranteed Revenue | ||||||||||
(Insured; FSA) | 0.00 | 11/1/16 | 1,000,000 | a | 776,290 | |||||
Harrisburg Redevelopment | ||||||||||
Authority, Guaranteed Revenue | ||||||||||
(Insured; FSA) | 0.00 | 5/1/18 | 2,750,000 | a | 1,914,302 | |||||
Harrisburg Redevelopment | ||||||||||
Authority, Guaranteed Revenue | ||||||||||
(Insured; FSA) | 0.00 | 11/1/18 | 2,750,000 | a | 1,864,747 | |||||
Harrisburg Redevelopment | ||||||||||
Authority, Guaranteed Revenue | ||||||||||
(Insured; FSA) | 0.00 | 11/1/19 | 2,750,000 | a | 1,739,100 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||||
Pennsylvania (continued) | ||||||||||
Harrisburg Redevelopment | ||||||||||
Authority, Guaranteed Revenue | ||||||||||
(Insured; FSA) | 0.00 | 5/1/20 | 2,750,000 | a | 1,651,072 | |||||
Harrisburg Redevelopment | ||||||||||
Authority, Guaranteed Revenue | ||||||||||
(Insured; FSA) | 0.00 | 11/1/20 | 2,500,000 | a | 1,458,675 | |||||
McKeesport Area School District, | ||||||||||
GO (Insured; AMBAC) | 0.00 | 10/1/21 | 2,915,000 | a | 1,808,583 | |||||
Monroe County Hospital Authority, | ||||||||||
HR (Pocono Medical Center) | ||||||||||
(Insured; Radian) | 5.50 | 1/1/12 | 1,095,000 | 1,139,315 | ||||||
Monroe County Hospital Authority, | ||||||||||
HR (Pocono Medical Center) | ||||||||||
(Insured; Radian) | 5.50 | 1/1/22 | 1,455,000 | 1,459,001 | ||||||
Monroeville Municipal Authority, | ||||||||||
Sanitary Sewer Revenue | ||||||||||
(Insured; National Public | ||||||||||
Finance Guarantee Corp.) | 5.25 | 12/1/15 | 1,035,000 | 1,062,158 | ||||||
Monroeville Municipal Authority, | ||||||||||
Sanitary Sewer Revenue | ||||||||||
(Insured; National Public | ||||||||||
Finance Guarantee Corp.) | 5.25 | 12/1/16 | 50,000 | 50,895 | ||||||
Neshaminy School District, | ||||||||||
GO (Insured; National Public | ||||||||||
Finance Guarantee Corp.) | 5.00 | 4/15/16 | 1,250,000 | 1,358,475 | ||||||
Norristown, | ||||||||||
GO (Insured; Radian) | 0.00 | 12/15/11 | 1,465,000 | a | 1,395,955 | |||||
Norristown, | ||||||||||
GO (Insured; Radian) | 0.00 | 12/15/13 | 735,000 | a | 644,132 | |||||
North Allegheny School District, | ||||||||||
GO (Insured; National Public | ||||||||||
Finance Guarantee Corp.) | 5.00 | 5/1/15 | 1,625,000 | 1,773,444 | ||||||
North Allegheny School District, | ||||||||||
GO (Insured; National Public | ||||||||||
Finance Guarantee Corp.) | 5.05 | 11/1/21 | 1,455,000 | 1,537,717 | ||||||
Northampton County Industrial | ||||||||||
Development Authority, | ||||||||||
Mortgage Revenue (Moravian | ||||||||||
Hall Square Project) | ||||||||||
(Insured; Radian) | 5.00 | 7/1/17 | 1,890,000 | 1,825,645 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||||
Pennsylvania (continued) | ||||||||||
Pennsylvania Finance Authority, | ||||||||||
Guaranteed Revenue (Penn Hills | ||||||||||
Project) (Insured; FGIC) | ||||||||||
(Prerefunded) | 5.45 | 12/1/10 | 445,000 | b | 469,471 | |||||
Pennsylvania Finance Authority, | ||||||||||
Guaranteed Revenue (Penn Hills | ||||||||||
Project) (Insured; National | ||||||||||
Public Finance Guarantee Corp.) | 5.25 | 12/1/13 | 1,105,000 | 1,106,646 | ||||||
Pennsylvania Finance Authority, | ||||||||||
Guaranteed Revenue (Penn Hills | ||||||||||
Project) (Insured; National | ||||||||||
Public Finance Guarantee Corp.) | 5.45 | 12/1/19 | 2,170,000 | 2,184,821 | ||||||
Pennsylvania Finance Authority, | ||||||||||
Guaranteed Revenue (Penn Hills | ||||||||||
Project) (Insured; National | ||||||||||
Public Finance Guarantee Corp.) | 0.00 | 12/1/22 | 1,200,000 | a | 617,112 | |||||
Pennsylvania Finance Authority, | ||||||||||
Guaranteed Revenue (Penn Hills | ||||||||||
Project) (Insured; National | ||||||||||
Public Finance Guarantee Corp.) | 0.00 | 12/1/23 | 3,790,000 | a | 1,821,967 | |||||
Pennsylvania Finance Authority, | ||||||||||
Guaranteed Revenue (Penn Hills | ||||||||||
Project) (Insured; National | ||||||||||
Public Finance Guarantee Corp.) | 0.00 | 12/1/24 | 3,790,000 | a | 1,714,217 | |||||
Pennsylvania Finance Authority, | ||||||||||
Guaranteed Revenue (Penn Hills | ||||||||||
Project) (Insured; National | ||||||||||
Public Finance Guarantee Corp.) | 0.00 | 12/1/25 | 3,790,000 | a | 1,613,441 | |||||
Pennsylvania Higher Educational | ||||||||||
Facilities Authority, Revenue | ||||||||||
(Carnegie Mellon University) | 5.00 | 8/1/21 | 3,000,000 | 3,290,490 | ||||||
Pennsylvania Higher Educational | ||||||||||
Facilities Authority, Revenue | ||||||||||
(Edinboro University | ||||||||||
Foundation Student Housing | ||||||||||
Project at Edinboro University | ||||||||||
of Pennsylvania) | 5.88 | 7/1/38 | 2,000,000 | 1,835,800 | ||||||
Pennsylvania Higher Educational | ||||||||||
Facilities Authority, Revenue | ||||||||||
(University of Pennsylvania | ||||||||||
Health System) | 6.00 | 8/15/26 | 2,500,000 | 2,773,450 |
10
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Pennsylvania (continued) | ||||||||
Pennsylvania Higher Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(UPMC Health System) | 6.00 | 1/15/13 | 1,995,000 | 2,090,261 | ||||
Pennsylvania Higher Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(UPMC Health System) | 6.00 | 1/15/14 | 1,580,000 | 1,647,719 | ||||
Pennsylvania Higher Educational | ||||||||
Facilities Authority, Revenue | ||||||||
(UPMC Health System) | 6.00 | 1/15/22 | 5,000,000 | 5,147,950 | ||||
Pennsylvania Housing Finance | ||||||||
Agency, Capital Fund | ||||||||
Securitization Revenue | ||||||||
(Insured; FSA) | 5.00 | 12/1/25 | 2,285,000 | 2,342,833 | ||||
Pennsylvania Housing Finance | ||||||||
Agency, SFMR | 5.10 | 10/1/20 | 1,775,000 | 1,786,875 | ||||
Pennsylvania Housing Finance | ||||||||
Agency, SFMR | 4.70 | 10/1/25 | 965,000 | 935,297 | ||||
Pennsylvania Housing Finance | ||||||||
Agency, SFMR | 4.60 | 10/1/27 | 5,000,000 | 4,706,200 | ||||
Pennsylvania Housing Finance | ||||||||
Agency, SFMR | 4.88 | 10/1/31 | 3,000,000 | 2,892,240 | ||||
Pennsylvania Housing Finance | ||||||||
Agency, SFMR | 4.88 | 10/1/34 | 1,000,000 | 999,240 | ||||
Pennsylvania Housing Finance | ||||||||
Agency, SFMR | 4.70 | 10/1/37 | 2,085,000 | 1,881,525 | ||||
Pennsylvania Industrial | ||||||||
Development Authority, EDR | 5.50 | 7/1/23 | 1,000,000 | 1,085,260 | ||||
Pennsylvania Turnpike Commission, | ||||||||
Oil Franchise Tax Senior | ||||||||
Revenue (Insured; AMBAC) | 5.25 | 12/1/18 | 690,000 | 696,403 | ||||
Pennsylvania Turnpike Commission, | ||||||||
Oil Franchise Tax Senior | ||||||||
Revenue (Insured; AMBAC) | 5.25 | 12/1/18 | 4,325,000 | 4,383,387 | ||||
Pennsylvania Turnpike Commission, | ||||||||
Oil Franchise Tax | ||||||||
Senior Revenue | ||||||||
(Insured; AMBAC) | 5.00 | 12/1/23 | 75,000 | 75,680 | ||||
Pennsylvania Turnpike Commission, | ||||||||
Turnpike Revenue | ||||||||
(Insured; AMBAC) | 5.00 | 12/1/22 | 1,815,000 | 1,877,146 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Pennsylvania (continued) | ||||||||
Pennsylvania Turnpike Commission, | ||||||||
Turnpike Subordinate Revenue | 5.25 | 6/1/39 | 3,530,000 | 3,531,412 | ||||
Pennsylvania Turnpike Commission, | ||||||||
Turnpike Subordinate Revenue | ||||||||
(Insured; Assured Guaranty) | 6.00 | 6/1/28 | 3,000,000 | 3,286,110 | ||||
Philadelphia, | ||||||||
Airport Revenue (Insured; FSA) | 5.00 | 6/15/11 | 2,155,000 | 2,255,552 | ||||
Philadelphia, | ||||||||
Airport Revenue (Insured; | ||||||||
National Public Finance | ||||||||
Guarantee Corp.) | 5.00 | 6/15/25 | 510,000 | 486,550 | ||||
Philadelphia, | ||||||||
Gas Works Revenue | ||||||||
(Insured; FSA) | 5.50 | 7/1/15 | 1,550,000 | 1,568,662 | ||||
Philadelphia, | ||||||||
Gas Works Revenue | ||||||||
(Insured; FSA) | 5.25 | 8/1/22 | 2,000,000 | 2,066,120 | ||||
Philadelphia, | ||||||||
GO (Insured; FSA) | 5.25 | 12/15/23 | 1,500,000 | 1,619,475 | ||||
Philadelphia, | ||||||||
GO (Insured; XLCA) | 5.25 | 2/15/14 | 2,000,000 | 2,104,820 | ||||
Philadelphia, | ||||||||
Water and Wastewater Revenue | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.60 | 8/1/18 | 800,000 | 923,392 | ||||
Philadelphia Authority for | ||||||||
Industrial Development, | ||||||||
Revenue (Independence Charter | ||||||||
School Project) | 5.50 | 9/15/37 | 1,700,000 | 1,423,410 | ||||
Philadelphia Authority for | ||||||||
Industrial Development, | ||||||||
Revenue (Russell Byers Charter | ||||||||
School Project) | 5.15 | 5/1/27 | 1,230,000 | 1,049,448 | ||||
Philadelphia Authority for | ||||||||
Industrial Development, | ||||||||
Revenue (Russell Byers Charter | ||||||||
School Project) | 5.25 | 5/1/37 | 1,715,000 | 1,384,417 | ||||
Philadelphia Hospitals and Higher | ||||||||
Education Facilities | ||||||||
Authority, Health System | ||||||||
Revenue (Jefferson Health System) | 5.00 | 5/15/11 | 4,500,000 | 4,535,505 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||||
Pennsylvania (continued) | ||||||||||
Philadelphia Housing Authority, | ||||||||||
Capital Fund Program Revenue | ||||||||||
(Insured; FSA) | 5.00 | 12/1/21 | 1,685,000 | 1,731,624 | ||||||
Philadelphia Municipal Authority, | ||||||||||
LR (Insured; FSA) | 5.25 | 11/15/15 | 2,115,000 | 2,278,955 | ||||||
Philadelphia Redevelopment | ||||||||||
Authority, Revenue | ||||||||||
(Philadelphia Neighborhood | ||||||||||
Transformation Initiative) | ||||||||||
(Insured; National Public | ||||||||||
Finance Guarantee Corp.) | 5.50 | 4/15/18 | 3,600,000 | 3,721,680 | ||||||
Philadelphia School District, | ||||||||||
GO | 6.00 | 9/1/38 | 1,000,000 | 1,083,270 | ||||||
Pittsburgh Urban Redevelopment | ||||||||||
Authority, MFHR (West Park | ||||||||||
Court Project) | ||||||||||
(Collateralized; GNMA) | 4.90 | 11/20/47 | 1,280,000 | 1,191,629 | ||||||
Sayre Health Care Facilities | ||||||||||
Authority, Revenue (Guthrie | ||||||||||
Health Issue) | 6.25 | 12/1/13 | 470,000 | 496,687 | ||||||
Sayre Health Care Facilities | ||||||||||
Authority, Revenue (Guthrie | ||||||||||
Health Issue) | 6.25 | 12/1/14 | 250,000 | 262,985 | ||||||
Sayre Health Care Facilities | ||||||||||
Authority, Revenue (Guthrie | ||||||||||
Health Issue) | 5.75 | 12/1/21 | 1,165,000 | 1,187,310 | ||||||
Sayre Health Care Facilities | ||||||||||
Authority, Revenue (Guthrie | ||||||||||
Health Issue) (Prerefunded) | 5.75 | 12/1/11 | 3,585,000 | b | 3,984,871 | |||||
Sayre Health Care Facilities | ||||||||||
Authority, Revenue (Guthrie | ||||||||||
Health Issue) (Prerefunded) | 5.85�� | 12/1/11 | 3,000,000 | b | 3,340,830 | |||||
Sayre Health Care Facilities | ||||||||||
Authority, Revenue (Guthrie | ||||||||||
Health Issue) (Prerefunded) | 6.25 | 12/1/11 | 750,000 | b | 841,395 | |||||
Sayre Health Care Facilities | ||||||||||
Authority, Revenue (Guthrie | ||||||||||
Health Issue) (Prerefunded) | 6.25 | 12/1/11 | 1,330,000 | b | 1,492,074 | |||||
Schuylkill County Industrial | ||||||||||
Development Authority, Revenue | ||||||||||
(Charity Obligation Group) | 5.00 | 11/1/14 | 1,495,000 | 1,510,114 |
The Fund 13
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Pennsylvania (continued) | ||||||||
Scranton School District, | ||||||||
GO (Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.00 | 4/1/18 | 1,390,000 | 1,418,356 | ||||
Scranton School District, | ||||||||
GO (Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.00 | 4/1/19 | 2,710,000 | 2,760,000 | ||||
Spring-Ford Area School District, | ||||||||
GO (Insured; FSA) | 5.00 | 4/1/21 | 1,015,000 | 1,083,320 | ||||
State Public School Building | ||||||||
Authority, Community College | ||||||||
Revenue (Community College of | ||||||||
Philadelphia Project) | 6.00 | 6/15/28 | 3,000,000 | 3,212,910 | ||||
State Public School Building | ||||||||
Authority, Revenue (Central | ||||||||
Montgomery County Area | ||||||||
Vocational Technical School) | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.25 | 5/15/17 | 1,055,000 | 1,125,864 | ||||
State Public School Building | ||||||||
Authority, Revenue (Central | ||||||||
Montgomery County Area | ||||||||
Vocational Technical School) | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.25 | 5/15/18 | 1,110,000 | 1,146,130 | ||||
State Public School Building | ||||||||
Authority, School Revenue | ||||||||
(School District of Haverford | ||||||||
Township Project) | ||||||||
(Insured; XLCA) | 5.25 | 3/15/25 | 3,360,000 | 3,481,195 | ||||
State Public School Building | ||||||||
Authority, School Revenue | ||||||||
(York School District Project) | ||||||||
(Insured; FSA) | 5.00 | 5/1/18 | 545,000 | 578,060 | ||||
Susquehanna Area Regional Airport | ||||||||
Authority, Airport System | ||||||||
Revenue | 6.50 | 1/1/38 | 1,625,000 | 1,529,223 | ||||
University Area Joint Authority, | ||||||||
Sewer Revenue (Insured; | ||||||||
National Public Finance | ||||||||
Guarantee Corp.) | 5.00 | 11/1/17 | 1,660,000 | 1,687,905 |
14
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Pennsylvania (continued) | ||||||||
University Area Joint Authority, | ||||||||
Sewer Revenue (Insured; | ||||||||
National Public Finance | ||||||||
Guarantee Corp.) | 5.00 | 11/1/18 | 2,010,000 | 2,036,753 | ||||
University of Pittsburgh of the | ||||||||
Commonwealth System of Higher | ||||||||
Education, GO (University | ||||||||
Capital Project) | 5.00 | 9/15/35 | 1,000,000 | 1,041,480 | ||||
Washington County Industrial | ||||||||
Development Authority, PCR | ||||||||
(West Penn Power Company | ||||||||
Mitchell Station Project) | ||||||||
(Insured; AMBAC) | 6.05 | 4/1/14 | 3,000,000 | 3,003,030 | ||||
Wayne Memorial Hospital and Health | ||||||||
Facilities Authority, County | ||||||||
Guaranteed HR | ||||||||
(Wayne Memorial | ||||||||
Hospital Project) (Insured; | ||||||||
National Public Finance | ||||||||
Guarantee Corp.) | 5.25 | 7/1/16 | 2,135,000 | 2,159,659 | ||||
West Mifflin Area School District, | ||||||||
GO (Insured; FSA) | 5.00 | 10/1/22 | 710,000 | 749,178 | ||||
Wilson Area School District, | ||||||||
GO (Insured; National Public | ||||||||
Finance Guarantee Corp.) | 5.13 | 3/15/16 | 1,300,000 | 1,422,200 | ||||
U.S. Related—7.3% | ||||||||
Guam Waterworks Authority, | ||||||||
Water and Wastewater | ||||||||
System Revenue | 5.50 | 7/1/16 | 320,000 | 310,598 | ||||
Guam Waterworks Authority, | ||||||||
Water and Wastewater System | ||||||||
Revenue | 6.00 | 7/1/25 | 1,000,000 | 1,004,660 | ||||
Puerto Rico Aqueduct and | ||||||||
Sewer Authority, | ||||||||
Senior Lien Revenue | 6.00 | 7/1/44 | 2,500,000 | 2,555,650 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | 5.25 | 7/1/23 | 1,000,000 | 991,270 | ||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | 5.00 | 7/1/28 | 3,000,000 | 2,836,110 |
The Fund 15
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
U.S. Related (continued) | ||||||||
Puerto Rico Commonwealth, | ||||||||
Public Improvement GO | ||||||||
(Insured; National Public | ||||||||
Finance Guarantee Corp.) | 6.00 | 7/1/27 | 1,000,000 | 1,041,720 | ||||
Puerto Rico Electric Power | ||||||||
Authority, Power Revenue | 5.00 | 7/1/26 | 1,000,000 | 993,230 | ||||
Puerto Rico Electric Power | ||||||||
Authority, Power Revenue | 5.50 | 7/1/38 | 685,000 | 689,165 | ||||
Puerto Rico Sales Tax Financing | ||||||||
Corporation, Sales Tax Revenue | ||||||||
(First Subordinate Series) | 6.00 | 8/1/42 | 1,500,000 | 1,575,525 | ||||
Puerto Rico Sales Tax Financing | ||||||||
Corporation, Sales Tax Revenue | ||||||||
(First Subordinate Series) | 6.50 | 8/1/44 | 2,500,000 | 2,711,650 | ||||
Total Long-Term Municipal Investments | ||||||||
(cost $193,279,570) | 197,833,796 | |||||||
Short-Term Municipal | ||||||||
Investment—.4% | ||||||||
Pennsylvania; | ||||||||
Philadelphia Authority for | ||||||||
Industrial Development, | ||||||||
Revenue (Fox Chase Cancer | ||||||||
Obligated Group) (LOC; | ||||||||
Citizens Bank of Pennsylvania) | ||||||||
(cost $800,000) | 0.35 | 11/1/09 | 800,000 c | 800,000 | ||||
Total Investments (cost $194,079,570) | 98.4% | 198,633,796 | ||||||
Cash and Receivables (Net) | 1.6% | 3,277,311 | ||||||
Net Assets | 100.0% | 201,911,107 |
a Security issued with a zero coupon. Income is recognized through the accretion of discount. |
b These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are |
collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on |
the municipal issue and to retire the bonds in full at the earliest refunding date. |
c Variable rate demand note—rate shown is the interest rate in effect at October 31, 2009. Maturity date represents |
the next demand date, or the ultimate maturity date if earlier. |
16
Summary of Abbreviations | ||||||
ABAG | Association of Bay Area Governments | ACA | American Capital Access | |||
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company | |||
AMBAC | American Municipal Bond | |||||
Assurance Corporation | ARRN | Adjustable Rate Receipt Notes | ||||
BAN | Bond Anticipation Notes | 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 |
The Fund 17
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Combined Ratings (Unaudited) | ||||||||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† | |||||
AAA | Aaa | AAA | 28.6 | |||||||
AA | Aa | AA | 24.1 | |||||||
A | A | A | 28.8 | |||||||
BBB | Baa | BBB | 13.0 | |||||||
BB | Ba | BB | 1.3 | |||||||
F1 | MIG1/P1 | SP1/A1 | .4 | |||||||
Not Ratedd | Not Ratedd | Not Ratedd | 3.8 | |||||||
100.0 |
† Based on total investments. |
d Securities which, while not rated by Fitch, Moody’s and Standard & Poor’s, have been determined by the Manager to |
be of comparable quality to those rated securities in which the fund may invest. |
See notes to financial statements. |
18
STATEMENT OF ASSETS AND LIABILITIES October 31, 2009 (Unaudited) |
Cost | Value | |||
Assets ($): | ||||
Investments in securities—See Statement of Investments | 194,079,570 | 198,633,796 | ||
Cash | 549,850 | |||
Interest receivable | 2,890,123 | |||
Receivable for shares of Beneficial Interest subscribed | 186,893 | |||
Prepaid expenses | 10,327 | |||
202,270,989 | ||||
Liabilities ($): | ||||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 154,639 | |||
Payable for shares of Beneficial Interest redeemed | 136,938 | |||
Accrued expenses | 68,305 | |||
359,882 | ||||
Net Assets ($) | 201,911,107 | |||
Composition of Net Assets ($): | ||||
Paid-in capital | 200,086,577 | |||
Accumulated undistributed investment income—net | 36,688 | |||
Accumulated net realized gain (loss) on investments | (2,766,384) | |||
Accumulated net unrealized appreciation (depreciation) | ||||
on investments | 4,554,226 | |||
Net Assets ($) | 201,911,107 |
Net Asset Value Per Share | ||||||||
Class A | Class B | Class C | Class Z | |||||
Net Assets ($) | 136,663,341 | 1,715,592 | 6,157,136 | 57,375,038 | ||||
Shares Outstanding | 8,635,411 | 108,519 | 388,886 | 3,625,881 | ||||
Net Asset Value Per Share ($) | 15.83 | 15.81 | 15.83 | 15.82 |
See notes to financial statements.
The Fund 19
STATEMENT OF OPERATIONS Six Months Ended October 31, 2009 (Unaudited) |
Investment Income ($): | ||
Interest Income | 5,103,309 | |
Expenses: | ||
Management fee—Note 3(a) | 547,533 | |
Shareholder servicing costs—Note 3(c) | 263,158 | |
Distribution fees—Note 3(b) | 25,518 | |
Custodian fees—Note 3(c) | 15,176 | |
Registration fees | 12,919 | |
Prospectus and shareholders’ reports | 10,251 | |
Professional fees | 7,388 | |
Trustees’ fees and expenses—Note 3(d) | 4,451 | |
Loan commitment fees—Note 2 | 890 | |
Miscellaneous | 19,435 | |
Total Expenses | 906,719 | |
Less—reduction in management fee due to undertaking—Note 3(a) | (4,668) | |
Less—reduction in fees due to earnings credits—Note 1(b) | (4,078) | |
Net Expenses | 897,973 | |
Investment Income—Net | 4,205,336 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | 678,230 | |
Net unrealized appreciation (depreciation) on investments | 6,129,702 | |
Net Realized and Unrealized Gain (Loss) on Investments | 6,807,932 | |
Net Increase in Net Assets Resulting from Operations | 11,013,268 | |
See notes to financial statements. |
20
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009 | |||
Operations ($): | ||||
Investment income—net | 4,205,336 | 8,399,168 | ||
Net realized gain (loss) on investments | 678,230 | (133,300) | ||
Net unrealized appreciation | ||||
(depreciation) on investments | 6,129,702 | (5,268,178) | ||
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 11,013,268 | 2,997,690 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (2,792,871) | (5,547,791) | ||
Class B Shares | (35,117) | (133,434) | ||
Class C Shares | (92,476) | (142,447) | ||
Class Z Shares | (1,248,184) | (2,518,863) | ||
Total Dividends | (4,168,648) | (8,342,535) | ||
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 5,378,667 | 8,585,182 | ||
Class B Shares | 19,630 | 47,659 | ||
Class C Shares | 1,118,867 | 1,456,834 | ||
Class Z Shares | 1,082,766 | 1,920,609 | ||
Dividends reinvested: | ||||
Class A Shares | 2,045,943 | 3,820,558 | ||
Class B Shares | 29,305 | 99,889 | ||
Class C Shares | 72,607 | 105,231 | ||
Class Z Shares | 994,097 | 2,014,836 | ||
Cost of shares redeemed: | ||||
Class A Shares | (5,985,025) | (16,320,684) | ||
Class B Shares | (880,935) | (2,893,459) | ||
Class C Shares | (201,647) | (387,728) | ||
Class Z Shares | (2,323,408) | (8,794,231) | ||
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | 1,350,867 | (10,345,304) | ||
Total Increase (Decrease) in Net Assets | 8,195,487 | (15,690,149) | ||
Net Assets ($): | ||||
Beginning of Period | 193,715,620 | 209,405,769 | ||
End of Period | 201,911,107 | 193,715,620 | ||
Undistributed investment income—net | 36,688 | — |
The Fund 21
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009 | |||
Capital Share Transactions: | ||||
Class Aa | ||||
Shares sold | 342,969 | 567,056 | ||
Shares issued for dividends reinvested | 130,790 | 253,024 | ||
Shares redeemed | (385,072) | (1,083,373) | ||
Net Increase (Decrease) in Shares Outstanding | 88,687 | (263,293) | ||
Class Ba | ||||
Shares sold | 1,238 | 3,213 | ||
Shares issued for dividends reinvested | 1,878 | 6,597 | ||
Shares redeemed | (56,578) | (191,136) | ||
Net Increase (Decrease) in Shares Outstanding | (53,462) | (181,326) | ||
Class C | ||||
Shares sold | 71,347 | 96,956 | ||
Shares issued for dividends reinvested | 4,637 | 6,970 | ||
Shares redeemed | (13,002) | (25,170) | ||
Net Increase (Decrease) in Shares Outstanding | 62,982 | 78,756 | ||
Class Z | ||||
Shares sold | 69,512 | 126,743 | ||
Shares issued for dividends reinvested | 63,596 | 133,383 | ||
Shares redeemed | (149,141) | (581,781) | ||
Net Increase (Decrease) in Shares Outstanding | (16,033) | (321,655) |
a During the period ended October 31, 2009, 36,258 Class B shares representing $564,594, were automatically |
converted to 36,235 Class A shares and during the period ended April 30, 2009, 131,176 Class B shares |
representing $2,001,505 were automatically converted to 131,068 Class A shares. |
See notes to financial statements. |
22
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 15.28 | 15.67 | 16.19 | 15.88 | 16.19 | 15.78 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .33 | .65 | .64 | .62 | .62 | .62 | ||||||
Net realized and unrealized gain | ||||||||||||
(loss) on investments | .55 | (.40) | (.53) | .31 | (.31) | .41 | ||||||
Total from Investment Operations | .88 | .25 | .11 | .93 | .31 | 1.03 | ||||||
Distributions: | ||||||||||||
Dividends from investment | ||||||||||||
income—net | (.33) | (.64) | (.63) | (.62) | (.62) | (.62) | ||||||
Net asset value, end of period | 15.83 | 15.28 | 15.67 | 16.19 | 15.88 | 16.19 | ||||||
Total Return (%)b | 5.78c | 1.75 | .71 | 5.95 | 1.89 | 6.62 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .94d | .96 | .99 | .94 | .94 | .95 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | .94d,e | .96e | .98 | .94 | .94e | .95e | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 4.19d | 4.27 | 4.02 | 3.87 | 3.82 | 3.86 | ||||||
Portfolio Turnover Rate | 8.29c | 16.60 | 15.47 | 8.82 | 11.89 | 10.18 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 136,663 130,611 | 138,054 | 145,897 | 147,733 | 155,436 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements. |
The Fund 23
FINANCIAL HIGHLIGHTS (continued) |
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class B Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 15.27 | 15.66 | 16.18 | 15.87 | 16.18 | 15.77 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .27 | .54 | .53 | .54 | .53 | .53 | ||||||
Net realized and unrealized gain | ||||||||||||
(loss) on investments | .54 | (.38) | (.51) | .31 | (.31) | .42 | ||||||
Total from Investment Operations | .81 | .16 | .02 | .85 | .22 | .95 | ||||||
Distributions: | ||||||||||||
Dividends from investment | ||||||||||||
income—net | (.27) | (.55) | (.54) | (.54) | (.53) | (.54) | ||||||
Net asset value, end of period | 15.81 | 15.27 | 15.66 | 16.18 | 15.87 | 16.18 | ||||||
Total Return (%)b | 5.35c | 1.16 | .15 | 5.41 | 1.37 | 6.08 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.56d | 1.55 | 1.56 | 1.45 | 1.46 | 1.46 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.55d | 1.54 | 1.55 | 1.45 | 1.46e | 1.46e | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.52d | 3.67 | 3.47 | 3.35 | 3.30 | 3.35 | ||||||
Portfolio Turnover Rate | 8.29c | 16.60 | 15.47 | 8.82 | 11.89 | 10.18 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 1,716 | 2,474 | 5,375 | 12,886 | 21,799 | 29,280 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements. |
24
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 15.29 | 15.68 | 16.20 | 15.89 | 16.20 | 15.79 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .27 | .53 | .52 | .50 | .50 | .50 | ||||||
Net realized and unrealized gain | ||||||||||||
(loss) on investments | .54 | (.39) | (.53) | .31 | (.31) | .41 | ||||||
Total from Investment Operations | .81 | .14 | (.01) | .81 | .19 | .91 | ||||||
Distributions: | ||||||||||||
Dividends from investment | ||||||||||||
income—net | (.27) | (.53) | (.51) | (.50) | (.50) | (.50) | ||||||
Net asset value, end of period | 15.83 | 15.29 | 15.68 | 16.20 | 15.89 | 16.20 | ||||||
Total Return (%)b | 5.31c | 1.00 | (.04) | 5.18 | 1.15 | 5.83 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.69d | 1.70 | 1.73 | 1.67 | 1.68 | 1.69 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.68d | 1.69 | 1.72 | 1.67 | 1.68e | 1.69e | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.42c | 3.54 | 3.27 | 3.13 | 3.08 | 3.11 | ||||||
Portfolio Turnover Rate | 8.29 | 16.60 | 15.47 | 8.82 | 11.89 | 10.18 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 6,157 | 4,983 | 3,875 | 3,599 | 2,932 | 2,839 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. | |
e | Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements. |
The Fund 25
FINANCIAL HIGHLIGHTS (continued) |
Six Months Ended | ||||||
October 31, 2009 | Year Ended April 30, | |||||
Class Z Shares | (Unaudited) | 2009 | 2008a | |||
Per Share Data ($): | ||||||
Net asset value, beginning of period | 15.28 | 15.67 | 15.98 | |||
Investment Operations: | ||||||
Investment income—netb | .35 | .68 | .29 | |||
Net realized and unrealized gain (loss) on investments | .53 | (.40) | (.32) | |||
Total from Investment Operations | .88 | .28 | (.03) | |||
Distributions: | ||||||
Dividends from investment income—net | (.34) | (.67) | (.28) | |||
Net asset value, end of period | 15.82 | 15.28 | 15.67 | |||
Total Return (%) | 5.83c | 1.96 | (.18)c | |||
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses to average net assets | .74d | .78 | .78d | |||
Ratio of net expenses to average net assets | .72d | .77 | .77d | |||
Ratio of net investment income to average net assets | 4.41d | 4.48 | 4.37d | |||
Portfolio Turnover Rate | 8.29c | 16.60 | 15.47 | |||
Net Assets, end of period ($ x 1,000) | 57,375 | 55,649 | 62,102 |
a | From November 29, 2007 (commencement of initial offering) to April 30, 2008. | |
b | Based on average shares outstanding at each month end. | |
c | Not annualized. | |
d | Annualized. |
See notes to financial statements. |
26
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus State Municipal Bond Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a non-diversified open-end management investment company, and operates as a series company that offers nine series including the Dreyfus Pennsylvania Fund (the “fund”).The Trust’s investment objective is to maximize current income exempt from federal and, where applicable, state income taxes, without undue risk.The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares. The fund is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Class A, Class B and Class C. Class A shares are subject to a sales charge imposed at the time of purchase. Class B shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class B share redemptions made within six years of purchase and automatically convert to Class A shares after six years.The fund does not offer Class B shares, except in connection with dividend reinvestment and permitted exchanges of Class B shares. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Class Z shares are sold at net asset value per share generally only to shareholders who received Class Z sha res in exchange for their shares of Dreyfus Pennsylvania Intermediate Municipal Bond Fund, as a result of the reorganization of such fund. Class Z shares generally are not available for new accounts. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The Trust accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) has become the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The ASC has superseded all existing non-SEC accounting and reporting standards. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The fund enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued each business day by an independent pricing service (the “Service”) approved by the Board of Trustees. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values
28
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 securities exchange on which such securities are primarily traded or at the last sales price on the national securities market on each business day.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements. These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments. Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.). Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments). |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The Fund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The following is a summary of the inputs used as of October 31, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||||||
Level 1— | Significant | Significant | ||||||
Unadjusted | Observable | Unobservable | ||||||
Quoted Prices | Inputs | Inputs | Total | |||||
Assets ($) | ||||||||
Investments in | ||||||||
Securities: | ||||||||
Municipal Bonds | — | 198,633,796 | — | 198,633,796 |
(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.
The fund follows an investment policy of investing primarily in municipal obligations of one state. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the fund.
(c) Dividends to shareholders: It is the policy of the fund to declare dividends daily from investment income-net. Such dividends are paid monthly. Dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”).To the extent that net realized capital gains can be offset by capital loss carry-
30
overs, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(d) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended October 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 April 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $3,667,437 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to April 30, 2009. If not applied, $634,612 of the carryover expires in fiscal 2011, $2,886,837 expires in fiscal 2013, $38,932 expires in fiscal 2014 and $107,056 expires in fiscal 2017.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2009 was as follows: tax exempt income $8,331,189 and ordinary income $11,346.The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participated with other Dreyfus-managed funds in a $145 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon (each, a “Facility”), each to be utilized primarily for temporary
The Fund 31
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
or emergency purposes, including the financing of redemptions. Effective October 14, 2009, the $145 million unsecured credit facility with Citibank, N.A., was increased to $215 million and the fund continues participation in the $300 million unsecured credit facility provided by The Bank of NewYork Mellon. In connection therewith, the fund has agreed to pay its pro rata portion of Facility fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended October 31, 2009, the fund did not borrow under the Facilities.
NOTE 3—Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement with the Manager, the management fee is computed at the annual rate of .55% of the value of the fund’s average daily net assets and is payable monthly.
The Manager voluntarily agreed,from May 1,2009 through October 31, 2009, to waive a portion of its management fee and/or reimburse Class Z shares to the extent Class Z shares total operating expenses exceed .80% of the value of Class Z shares average daily net assets. The reduction in expenses, pursuant to the undertaking, amounted to $4,668 during the period ended October 31, 2009.
During the period ended October 31, 2009, the Distributor retained $3,392 from commissions earned on sales of the fund’s Class A shares and $325 and $789 from CDSCs on redemptions of the fund’s Class B and Class C shares, respectively.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class B and Class C shares pay the Distributor for distributing their shares at an annual rate of .50% of the value of the average daily net assets of Class B shares and .75% of the value of the average daily net assets of Class C shares. During the period ended October 31, 2009, Class B and Class C shares were charged $5,044 and $20,474, respectively, pursuant to the Plan.
32
(c) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (a securities dealer, financial institution or other industry professional) in respect of these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2009, Class A, Class B and Class C shares were charged $168,219, $2,522 and $6,825, respectively, pursuant to the Shareholder Services Plan.
Under the Shareholder Services Plan, Class Z shares reimburse the Distributor an amount not to exceed an annual rate of .25% of the value of Class Z shares’ average daily net assets for certain allocated expenses for providing personal services and/or maintaining shareholder accounts.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding Class Z shares and providing reports and other information, and services related to the maintenance of shareholder accounts. During the period ended October 31, 2009, Class Z shares were charged $12,326 pursuant to the Shareholder Services Plan.
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 October 31, 2009, the fund was charged $38,303 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of NewYork Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, under a cash management agreement for performing cash management services related to fund
The Fund 33
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
subscriptions and redemptions. During the period ended October 31, 2009, the fund was charged $4,078 pursuant to the cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations. These fees were offset by earnings credits pursuant to the cash management agreement.
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 October 31, 2009, the fund was charged $15,176 pursuant to the custody agreement.
During the period ended October 31, 2009, the fund was charged $3,341 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $95,069, Rule 12b-1 distribution plan fees $4,607, shareholder services plan fees $30,942, custodian fees $8,271, chief compliance officer fees $3,897 and transfer agency per account fees $11,853.
(d) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended October 31, 2009, amounted to $17,261,706 and $16,014,965, respectively.
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The fund held no derivatives during the period ended October 31,2009. These disclosures did not impact the notes to the financial statements.
34
At October 31, 2009, accumulated net unrealized appreciation on investments was $4,554,226, consisting of $7,914,826 gross unrealized appreciation and $3,360,600 gross unrealized depreciation.
At October 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).
NOTE 5—Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
The Fund 35
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the Board of Trustees held on July 21, 2009, the Board considered the re-approval for an annual period of the fund’s Management Agreement, pursuant to which the Manager provides the fund with investment advisory and administrative services.The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager.
Analysis of Nature, Extent and Quality of Services Provided to the Fund. The Board members considered information previously provided to them in a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus fund complex, and representatives of the Manager confirmed that there had been no material changes in this information. The Board also discussed the nature, extent and quality of the services provided to the fund pursuant to its Management Agreement.The Manager’s representatives reviewed the fund’s distribution of accounts and the relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’ s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services in each distribution channel, including those of the fund. The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements. The Board members also considered the Manager’s extensive administrative, accounting and compliance infrastructure. The Board also considered the Manager’s brokerage policies and practices and the standards applied in seeking best execution.
36
Comparative Analysis of the Fund’s Performance, Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of comparable funds (the “Performance Group”) and to a broader group of 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 yield performance for the past ten one-year periods ended May 31 (2000-2009) was below the Performance Group median for each reported time period, and that the fund’s yield performance was above the Perform ance Universe median for the periods ended May 31, 2000, 2001, 2007 and 2008 and below the Performance Universe median for the other peri-ods.The Board members noted that the fund’s total return performance for various periods ended May 31, 2009 was above the Performance Group median for each reported time period, except the ten-year period, when it was below the median, and that the fund’s total return performance was above the Performance Universe median for each reported time period.The Manager also provided a comparison of the fund’s calendar year total returns to the returns of its Lipper category average for the prior ten years, and the Board members noted that the fund outperformed its Lipper category average in six of the past ten calendar years.The Board members discussed with representatives of the Manager the reasons for the fund’s yield underperformance compared to the Performance Group and Performance Universe medians for the applicable periods, and the Manager’s efforts to improve performance. The Board members also received a presentation from the fund’s primary portfolio manager during which he discussed the fund’s investment strategy and the factors that affected performance.
The Board members also discussed the fund’s contractual and actual management fee and total expense ratio as compared to a comparable group of funds (the “Expense Group”) that was composed of the same funds included in the Performance Group and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper.
The Fund 37
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
The Board noted that the fund’s contractual management fee was above the Expense Group median, and that the fund’s actual management fee and total expense ratio were above the Expense Group and Expense Universe medians.
Representatives of the Manager informed the Board members that there were no mutual funds, separate accounts or wrap fee accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex. The Board members also had been informed that the methodology also had been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of a fund. The Board members evaluated the profitability analysis in light of the re levant circumstances for the fund, and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders.The Board members also considered potential benefits to the Manager and its affiliates from acting as investment adviser to the fund and noted that there were no soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have
38
realized any economies of scale would be less. It was also noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
- The Board concluded that the nature,extent and quality of the services provided by the Manager to the fund are adequate and appropriate.
- Although the Board was concerned with the fund’s yield perfor- mance relative to the Performance Group and Performance Universe, it was satisfied with the fund’s total return performance.
The Board was also satisfied with the Manager’s efforts to improve performance as discussed at the meeting. - The Board concluded that the fee paid to the Manager by the fund was reasonable in light of the services provided, comparative perfor- mance and expense and management fee information, costs of the services provided, and profits to be realized and benefits derived or to be derived by the Manager from its relationship with the fund.
- The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the man- agement of the fund had been adequately considered by the Manager in connection with the management fee rate charged to the fund, and that, to the extent in the future it were to be deter- mined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with the information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
The Fund 39
NOTES
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Dreyfus State |
Municipal Bond Funds, |
Dreyfus Virginia Fund |
SEMIANNUAL REPORT October 31, 2009
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
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Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
13 | Statement of Assets and Liabilities |
14 | Statement of Operations |
15 | Statement of Changes in Net Assets |
17 | Financial Highlights |
20 | Notes to Financial Statements |
29 | Information About the Review and Approval of the Fund’s Management Agreement |
FOR MORE INFORMATION | |
Back Cover | |
Dreyfus State |
Municipal Bond Funds, |
Dreyfus Virginia Fund |
The Fund
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A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We present to you this last report for Dreyfus State Municipal Bond Funds, Dreyfus Virginia Fund, covering the six-month period from May 1, 2009, through October 31, 2009.
Reports of positive U.S. economic growth over the third quarter of 2009 may have signaled the end of the deep recession that technically began in December 2007. Signs that the economy finally has turned a corner include inventory rebuilding among manufacturers and improvements in home sales and prices, while massive government stimulus and favorable supply-and-demand influences have all supported the municipal bond rally in 2009.As expected, funds with the longest average durations and lower-quality portfolios have led the rebound, while AAA-rated and shorter-duration funds have rallied to a lesser extent.
As the financial markets currently appear poised to enter into a new phase, and as government intervention appears to be winding down (at least for the moment), the best strategy for your portfolio depends not only on your view of the economy’s direction,but on your current financial needs,future goals and attitudes toward risk.Your financial advisor can help you decide which investments have the potential to benefit from a recovery while guarding against the taxation and investment risks that may accompany policy changes and unexpected market developments.
For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance.
Thank you for your continued confidence and support.
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Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation November 20, 2009 |
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2009, through October 31, 2009, as provided by James Welch, Senior Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended October 31, 2009, the Class A, Class B and Class C shares of Dreyfus Virginia Fund, a series of Dreyfus State Municipal Bond Funds, produced total returns of 5.40%, 5.09% and 5.00%,respectively.1 In comparison,the Barclays Capital Municipal Bond Index (the “Index”), the fund’s benchmark Index, which is composed of bonds issued nationally and not solely within Virginia, achieved a total return of 4.99% for the same period.2
Municipal bonds rallied strongly over the reporting period amid expectations of an economic recovery and stable credit markets. The fund’s returns were slightly better than its Index, primarily due to strong performance by the fund’s core, seasoned holdings of municipal bonds.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax andVirginia state income tax without undue risk.To pursue its goal, the fund normally invests substantially all of its assets in municipal bonds that provide income exempt from federal income tax and from Virginia state income tax.The fund invests at least 70% of its assets in investment-grade municipal bonds or the unrated equivalent as determined by Dreyfus.The fund may invest up to 30% of its assets in municipal bonds rated below investment grade or the unrated equivalent as determined by Dreyfus. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
We may buy and sell bonds based on credit quality, market outlook and yield potential. In selecting municipal bonds for investment, we may assess the current interest-rate environment and a municipal bond’s potential volatility in different rate environments. We focus on bonds
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued) |
with the potential to offer attractive current income, typically looking for bonds that can provide consistently attractive current yields or that are trading at competitive market prices. A portion of the fund’s assets may be allocated to“discount”bonds,which are bonds that sell at a price below their face value, or to “premium” bonds, which are bonds that sell at a price above their face value.The fund’s allocation either to discount bonds or to premium bonds will change along with our changing views of the current interest-rate and market environment.We may also look to select bonds that are most likely to obtain attractive prices when sold.
Municipal Bonds Rebounded Sharply
In the wake of severe market declines stemming from a global financial crisis and recession, the municipal bond market staged an impressive rebound over the reporting period. The rally was fueled by changing investor sentiment, which began to improve in March 2009 as government and monetary authorities’ aggressive remedial measures—including historically low interest rates, injections of liquidity into the banking system, the rescues of major corporations and a massive economic stimulus program—seemed to gain traction. Additional evidence of economic stabilization later appeared,supporting a sustained rally through the reporting period’s end.Although most municipal bonds participated in the rally, gains were particularly strong among lower-quality issues that had been punished in the downturn.
Seasoned Holdings Supported Fund Returns
The fund’s core holdings of seasoned bonds produced competitive levels of income that bolstered the fund’s total return. Moreover, we strived to maintain a high level of credit quality. When making new purchases, we emphasized higher-rated bonds with maturities in the 15- to 20-year range, which offered most of the yield of longer-term securities but with less volatility.We generally favored bonds backed by dedicated revenue streams, including those from essential municipal services such as sewer and water facilities.
4
Like most other states,Virginia has continued to struggle with fiscal pressures due to tax revenue shortfalls and greater demand for services in the recession.The state has attempted to bridge its budget gaps with spending cuts and payments from the federal economic stimulus program.
Important Information About the Fund
An agreement and plan of Reorganization to merge the fund into Dreyfus AMT-Free Municipal Bond Fund (the “Acquiring Fund”) was approved at a Special Meeting of Shareholders held on November 19, 2009.As a result, effective on or about January 19, 2010, the fund will transfer its asset into the Acquiring Fund, in a tax-free exchange for shares of the acquiring fund, and will subsequently cease operation.
November 20, 2009
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take into | |
consideration the maximum initial sales charge in the case of Class A shares, or the applicable | ||
contingent deferred sales charges imposed on redemptions in the case of Class B and Class C | ||
shares. Had these charges been reflected, returns would have been lower. Each share class is subject | ||
to a different sales charge and distribution expense structure and will achieve different returns. Past | ||
performance is no guarantee of future results. Share price, yield and investment return fluctuate | ||
such that upon redemption, fund shares may be worth more or less than their original cost. Income | ||
may be subject to state and local taxes for non-Virginia residents, and some income may be subject | ||
to the federal alternative minimum tax (AMT) for certain investors. Capital gains, if any, are fully | ||
taxable. Return figures provided reflect the absorption of certain fund expenses by The Dreyfus | ||
Corporation pursuant to an undertaking in effect that may be extended, terminated or modified at | ||
any time. Had these expenses not been absorbed, the fund’s returns would have been lower.The | ||
undertaking is no longer in effect. | ||
2 | SOURCE: LIPPER INC. — Reflects reinvestment of dividends and, where applicable, capital | |
gain distributions.The Barclays Capital Municipal Bond Index is a widely accepted, unmanaged | ||
total return performance benchmark for the long-term, investment-grade, tax-exempt bond market. | ||
Index returns do not reflect fees and expenses associated with operating a mutual fund. |
The Fund 5
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus State Municipal Bond Funds, DreyfusVirginia Fund from May 1, 2009 to October 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 October 31, 2009 |
Class A | Class B | Class C | ||||
Expenses paid per $1,000† | $ 5.18 | $ 8.12 | $ 9.09 | |||
Ending value (after expenses) | $1,054.00 | $1,050.90 | $1,050.00 |
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 October 31, 2009 |
Class A | Class B | Class C | ||||
Expenses paid per $1,000† | $ 5.09 | $ 7.98 | $ 8.94 | |||
Ending value (after expenses) | $1,020.16 | $1,017.29 | $1,016.33 |
† Expenses are equal to the fund’s annualized expense ratio of 1.00% for Class A, 1.57% for Class B, and 1.76% |
for Class C, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half |
year period). |
6
STATEMENT OF INVESTMENTS October 31, 2009 (Unaudited) |
Long-Term Municipal | Coupon | Maturity | Principal | |||||||
Investments—98.1% | Rate (%) | Date | Amount ($) | Value ($) | ||||||
Virginia—82.2% | ||||||||||
Albemarle County Industrial | ||||||||||
Development Authority, HR | ||||||||||
(Martha Jefferson Hospital) | 5.25 | 10/1/15 | 1,445,000 | 1,522,784 | ||||||
Alexandria, | ||||||||||
Consolidated Public Improvement | ||||||||||
GO Bonds (Prerefunded) | 5.50 | 6/15/10 | 2,625,000 | a | 2,736,169 | |||||
Amherst Industrial Development | ||||||||||
Authority, Educational | ||||||||||
Facilities Revenue (Sweet | ||||||||||
Briar College) | 5.00 | 9/1/26 | 1,000,000 | 944,430 | ||||||
Bristol, | ||||||||||
Utility System Revenue | ||||||||||
(Insured; National Public | ||||||||||
Finance Guarantee Corp.) | 5.25 | 7/15/20 | 2,185,000 | 2,192,254 | ||||||
Capital Region Airport Commission, | ||||||||||
Airport Revenue (Insured; FSA) | 5.00 | 7/1/31 | 1,000,000 | 1,036,230 | ||||||
Chesapeake, | ||||||||||
Chesapeake Expressway Toll | ||||||||||
Road Revenue | 5.63 | 7/15/19 | 900,000 | 909,990 | ||||||
Chesapeake, | ||||||||||
GO Public Improvement Bonds | 5.50 | 12/1/17 | 1,750,000 | 1,917,388 | ||||||
Chesapeake Bay Bridge and Tunnel | ||||||||||
Commission District, General | ||||||||||
Resolution Revenue (Insured; | ||||||||||
Berkshire Hathaway | ||||||||||
Assurance Corporation) | 5.50 | 7/1/25 | 1,000,000 | 1,184,920 | ||||||
Chesterfield County Economic | ||||||||||
Development Authority, PCR | ||||||||||
(Virginia Electric and Power | ||||||||||
Company Project) | 5.00 | 5/1/23 | 1,000,000 | 1,050,950 | ||||||
Danville Industrial Development | ||||||||||
Authority, HR (Danville | ||||||||||
Regional Medical Center) | ||||||||||
(Insured; AMBAC) | 5.25 | 10/1/28 | 1,500,000 | 1,711,560 | ||||||
Dulles Town Center Community | ||||||||||
Development Authority, Special | ||||||||||
Assessment Revenue (Dulles | ||||||||||
Town Center Project) | 6.25 | 3/1/26 | 2,885,000 | 2,691,936 | ||||||
Fairfax County Water Authority, | ||||||||||
Water Revenue (Prerefunded) | 5.50 | 4/1/10 | 1,830,000 | a | 1,888,414 |
The Fund 7 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
Virginia (continued) | ||||||||
Metropolitan Washington Airports | ||||||||
Authority, Airport System | ||||||||
Revenue (Insured; AMBAC) | 4.75 | 10/1/23 | 2,055,000 | 2,017,989 | ||||
Metropolitan Washington Airports | ||||||||
Authority, Dulles Toll Road | ||||||||
First Senior Lien Revenue | ||||||||
(Dulles Metrorail and Capital | ||||||||
Improvement Projects) | 5.00 | 10/1/39 | 1,000,000 | 1,002,520 | ||||
Newport News, | ||||||||
GO General Improvement Bonds | ||||||||
and GO Water Bonds | 5.25 | 7/1/22 | 1,000,000 | 1,179,490 | ||||
Norfolk, | ||||||||
Water Revenue | 5.00 | 11/1/25 | 1,000,000 | 1,095,320 | ||||
Peninsula Ports Authority of | ||||||||
Virginia, Residential Care | ||||||||
Facility Revenue (Virginia | ||||||||
Baptist Homes) | 5.40 | 12/1/33 | 500,000 | 311,975 | ||||
Pittsylvania County Industrial | ||||||||
Development Authority, Exempt | ||||||||
Facility Revenue (Multitrade of | ||||||||
Pittsylvania County, L.P. Project) | 7.65 | 1/1/10 | 300,000 | 302,715 | ||||
Prince William County Industrial | ||||||||
Development Authority, Educational | ||||||||
Facilities Revenue (The Catholic | ||||||||
Diocese of Arlington) | 5.50 | 10/1/33 | 1,000,000 | 1,005,080 | ||||
Richmond Metropolitan Authority, | ||||||||
Expressway Revenue (Insured; | ||||||||
National Public Finance | ||||||||
Guarantee Corp.) | 5.25 | 7/15/17 | 2,900,000 | 3,195,017 | ||||
Roanoke Industrial Development | ||||||||
Authority, HR (Carilion Health | ||||||||
System) (Insured; National | ||||||||
Public Finance Guarantee Corp.) | 5.50 | 7/1/21 | 2,500,000 | 2,580,475 | ||||
Tobacco Settlement Financing | ||||||||
Corporation of Virginia, Tobacco | ||||||||
Settlement Asset-Backed | ||||||||
Bonds (Prerefunded) | 5.63 | 6/1/15 | 1,000,000 a | 1,161,850 | ||||
Virginia College Building | ||||||||
Authority, Educational | ||||||||
Facilities Revenue (Regent | ||||||||
University Project) | 5.00 | 6/1/36 | 785,000 | 675,728 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |||||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||||
Virginia (continued) | ||||||||||
Virginia College Building | ||||||||||
Authority, Educational | ||||||||||
Facilities Revenue (Regent | ||||||||||
University Project) (Prerefunded) | 5.00 | 6/1/16 | 215,000 | a | 247,138 | |||||
Virginia Housing Development | ||||||||||
Authority, Commonwealth | ||||||||||
Mortgage Revenue | 4.75 | 7/1/22 | 1,000,000 | 1,014,580 | ||||||
Virginia Housing Development | ||||||||||
Authority, Commonwealth | ||||||||||
Mortgage Revenue | 4.90 | 1/1/33 | 2,750,000 | 2,701,215 | ||||||
Virginia Housing Development | ||||||||||
Authority, Commonwealth | ||||||||||
Mortgage Revenue | 6.38 | 1/1/36 | 1,500,000 | 1,634,715 | ||||||
Virginia Housing Development | ||||||||||
Authority, Rental | ||||||||||
Housing Revenue | 5.50 | 6/1/30 | 1,000,000 | 1,056,380 | ||||||
Virginia Public Building | ||||||||||
Authority, Public Facilities | ||||||||||
Revenue (Prerefunded) | 5.75 | 8/1/10 | 2,700,000 | a | 2,809,107 | |||||
Virginia Public School Authority, | ||||||||||
School Financing Bonds | 5.00 | 8/1/28 | 1,500,000 | 1,614,930 | ||||||
Virginia Resources Authority, | ||||||||||
Clean Water State Revolving | ||||||||||
Fund Revenue | 5.00 | 10/1/29 | 1,000,000 | 1,088,850 | ||||||
Virginia Resources Authority, | ||||||||||
Clean Water State Revolving | ||||||||||
Fund Revenue (Prerefunded) | 5.38 | 10/1/10 | 1,535,000 | a | 1,606,101 | |||||
Washington County Industrial | ||||||||||
Development Authority, HR | ||||||||||
(Mountain States Health Alliance) | 7.75 | 7/1/38 | 2,000,000 | 2,286,340 | ||||||
Washington Metropolitan Area | ||||||||||
Transit Authority, Gross | ||||||||||
Revenue Transit Revenue | 5.13 | 7/1/32 | 1,000,000 | 1,048,500 | ||||||
U.S. Related—15.9% | ||||||||||
Children’s Trust Fund of Puerto | ||||||||||
Rico, Tobacco Settlement | ||||||||||
Asset-Backed Bonds (Prerefunded) | 6.00 | 7/1/10 | 1,500,000 | a | 1,555,320 | |||||
Guam Waterworks Authority, | ||||||||||
Water and Wastewater | ||||||||||
System Revenue | 5.88 | 7/1/35 | 1,000,000 | 958,410 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |||||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||||
U.S. Related (continued) | ||||||||
Puerto Rico Electric Power | ||||||||
Authority, Power Revenue | 5.00 | 7/1/26 | 1,000,000 | 993,230 | ||||
Puerto Rico Electric Power | ||||||||
Authority, Power Revenue | 5.50 | 7/1/38 | 1,250,000 | 1,257,600 | ||||
Puerto Rico Sales Tax Financing | ||||||||
Corporation, Sales Tax Revenue | ||||||||
(First Subordinate Series) | 6.00 | 8/1/42 | 1,860,000 | 1,953,651 | ||||
Virgin Islands Public Finance | ||||||||
Authority, Revenue, Virgin | ||||||||
Islands Gross Receipts Taxes | ||||||||
Loan Note (Prerefunded) | 6.50 | 10/1/10 | 3,000,000 a | 3,198,090 | ||||
Total Investments (cost $57,911,599) | 98.1% | 61,339,341 | ||||||
Cash and Receivables (Net) | 1.9% | 1,180,000 | ||||||
Net Assets | 100.0% | 62,519,341 |
a These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are |
collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on |
the municipal issue and to retire the bonds in full at the earliest refunding date. |
10
Summary of Abbreviations | ||||||
ABAG | Association of Bay Area Governments | ACA | American Capital Access | |||
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company | |||
AMBAC | American Municipal Bond | |||||
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 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Combined Ratings (Unaudited) | ||||||||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† | |||||
AAA | Aaa | AAA | 36.7 | |||||||
AA | Aa | AA | 19.0 | |||||||
A | A | A | 23.8 | |||||||
BBB | Baa | BBB | 13.1 | |||||||
BB | Ba | BB | 1.6 | |||||||
Not Ratedb | Not Ratedb | Not Ratedb | 5.8 | |||||||
100.0 |
† Based on total investments. |
b 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. |
12
STATEMENT OF ASSETS AND LIABILITIES October 31, 2009 (Unaudited) |
Cost | Value | |||
Assets ($): | ||||
Investments in securities—See Statement of Investments | 57,911,599 | 61,339,341 | ||
Cash | 428,298 | |||
Interest receivable | 887,553 | |||
Receivable for shares of Beneficial Interest subscribed | 12,083 | |||
Prepaid expenses | 9,838 | |||
62,677,113 | ||||
Liabilities ($): | ||||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 55,826 | |||
Payable for shares of Beneficial Interest redeemed | 72,737 | |||
Accrued expenses | 29,209 | |||
157,772 | ||||
Net Assets ($) | 62,519,341 | |||
Composition of Net Assets ($): | ||||
Paid-in capital | 61,020,869 | |||
Accumulated undistributed investment income—net | 21,922 | |||
Accumulated net realized gain (loss) on investments | (1,951,192) | |||
Accumulated net unrealized appreciation | ||||
(depreciation) on investments | 3,427,742 | |||
Net Assets ($) | 62,519,341 |
Net Asset Value Per Share | ||||||
Class A | Class B | Class C | ||||
Net Assets ($) | 58,763,294 | 638,520 | 3,117,527 | |||
Shares Outstanding | 3,543,614 | 38,519 | 188,130 | |||
Net Asset Value Per Share ($) | 16.58 | 16.58 | 16.57 |
See notes to financial statements.
The Fund 13
STATEMENT OF OPERATIONS Six Months Ended October 31, 2009 (Unaudited) |
Investment Income ($): | ||
Interest Income | 1,663,085 | |
Expenses: | ||
Management fee—Note 3(a) | 176,199 | |
Shareholder servicing costs—Note 3(c) | 99,075 | |
Professional fees | 18,001 | |
Distribution fees—Note 3(b) | 13,143 | |
Registration fees | 11,670 | |
Custodian fees—Note 3(c) | 6,808 | |
Prospectus and shareholders’ reports | 3,687 | |
Trustees’ fees and expenses—Note 3(d) | 1,628 | |
Loan commitment fees—Note 2 | 277 | |
Interest expense—Note 2 | 86 | |
Miscellaneous | 9,859 | |
Total Expenses | 340,433 | |
Less—reduction in management fee | ||
due to undertaking—Note 3(a) | (6,405) | |
Less—reduction in fees due to | ||
earnings credits—Note 1(b) | (968) | |
Net Expenses | 333,060 | |
Investment Income—Net | 1,330,025 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | 618,020 | |
Net unrealized appreciation (depreciation) on investments | 1,405,646 | |
Net Realized and Unrealized Gain (Loss) on Investments | 2,023,666 | |
Net Increase in Net Assets Resulting from Operations | 3,353,691 | |
See notes to financial statements. |
14
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009 | |||
Operations ($): | ||||
Investment income—net | 1,330,025 | 2,311,932 | ||
Net realized gain (loss) on investments | 618,020 | (1,414,560) | ||
Net unrealized appreciation | ||||
(depreciation) on investments | 1,405,646 | 683,889 | ||
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 3,353,691 | 1,581,261 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (1,244,415) | (2,175,340) | ||
Class B Shares | (12,968) | (45,184) | ||
Class C Shares | (50,720) | (76,097) | ||
Total Dividends | (1,308,103) | (2,296,621) | ||
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 3,131,903 | 8,741,533 | ||
Class B Shares | 5,239 | 14,033 | ||
Class C Shares | 165,230 | 781,409 | ||
Dividends reinvested: | ||||
Class A Shares | 879,847 | 1,427,314 | ||
Class B Shares | 4,905 | 20,058 | ||
Class C Shares | 33,955 | 49,001 | ||
Cost of shares redeemed: | ||||
Class A Shares | (5,081,379) | (5,849,833) | ||
Class B Shares | (316,377) | (917,653) | ||
Class C Shares | (7,809) | (200,584) | ||
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | (1,184,486) | 4,065,278 | ||
Total Increase (Decrease) in Net Assets | 861,102 | 3,349,918 | ||
Net Assets ($): | ||||
Beginning of Period | 61,658,239 | 58,308,321 | ||
End of Period | 62,519,341 | 61,658,239 | ||
Undistributed investment income—net | 21,922 | — |
The Fund 15
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||||
October 31, 2009 | Year Ended | |||
(Unaudited) | April 30, 2009 | |||
Capital Share Transactions: | ||||
Class Aa | ||||
Shares sold | 193,821 | 557,710 | ||
Shares issued for dividends reinvested | 53,674 | 89,988 | ||
Shares redeemed | (308,599) | (371,360) | ||
Net Increase (Decrease) in Shares Outstanding | (61,104) | 276,338 | ||
Class Ba | ||||
Shares sold | 320 | 883 | ||
Shares issued for dividends reinvested | 300 | 1,262 | ||
Shares redeemed | (19,488) | (57,999) | ||
Net Increase (Decrease) in Shares Outstanding | (18,868) | (55,854) | ||
Class C | ||||
Shares sold | 10,167 | 49,551 | ||
Shares issued for dividends reinvested | 2,073 | 3,092 | ||
Shares redeemed | (475) | (12,528) | ||
Net Increase (Decrease) in Shares Outstanding | 11,765 | 40,115 |
a During the period ended October 31, 2009, 7,144 Class B shares representing $115,503 were automatically |
converted to 7,141 Class A shares and during the period ended April 30, 2009, 20,116 Class B shares |
representing $320,354 were automatically converted to 20,113 Class A shares. |
See notes to financial statements. |
16
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 16.06 | 16.30 | 16.72 | 16.61 | 17.04 | 16.73 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .35 | .64 | .65 | .68 | .69 | .66 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .51 | (.24) | (.42) | .11 | (.43) | .31 | ||||||
Total from Investment Operations | .86 | .40 | .23 | .79 | .26 | .97 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.34) | (.64) | (.65) | (.68) | (.69) | (.66) | ||||||
Net asset value, end of period | 16.58 | 16.06 | 16.30 | 16.72 | 16.61 | 17.04 | ||||||
Total Return (%)b | 5.40c | 2.57 | 1.44 | 4.85 | 1.51 | 5.87 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.02d | 1.05 | 1.18 | 1.16 | 1.11 | 1.06 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.00d | 1.00 | 1.15 | 1.15 | 1.10 | 1.05 | ||||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | — | — | .16 | .17 | .12 | .07 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 4.19d | 4.04 | 3.97 | 4.09 | 4.06 | 3.88 | ||||||
Portfolio Turnover Rate | 10.44c | 26.99 | 18.22 | 18.14 | 41.99 | 36.57 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 58,763 | 57,906 | 54,244 | 58,748 | 60,998 | 66,155 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. |
See notes to financial statements. |
The Fund 17
FINANCIAL HIGHLIGHTS (continued) |
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class B Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 16.06 | 16.29 | 16.72 | 16.60 | 17.04 | 16.72 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .29 | .56 | .56 | .59 | .60 | .56 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .52 | (.23) | (.42) | .13 | (.44) | .33 | ||||||
Total from Investment Operations | .81 | .33 | .14 | .72 | .16 | .89 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.29) | (.56) | (.57) | (.60) | (.60) | (.57) | ||||||
Net asset value, end of period | 16.58 | 16.06 | 16.29 | 16.72 | 16.60 | 17.04 | ||||||
Total Return (%)b | 5.09c | 2.15 | .86 | 4.38 | .94 | 5.40 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.64d | 1.63 | 1.74 | 1.68 | 1.63 | 1.58 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.57d | 1.49 | 1.65 | 1.66 | 1.61 | 1.56 | ||||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | — | — | .16 | .17 | .12 | .07 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.62d | 3.57 | 3.45 | 3.58 | 3.55 | 3.37 | ||||||
Portfolio Turnover Rate | 10.44c | 26.99 | 18.22 | 18.14 | 41.99 | 36.57 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 639 | 922 | 1,845 | 3,597 | 5,796 | 7,465 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. |
See notes to financial statements. |
18
Six Months Ended | ||||||||||||
October 31, 2009 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 16.05 | 16.29 | 16.71 | 16.60 | 17.03 | 16.71 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .28 | .52 | .53 | .56 | .56 | .53 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .52 | (.24) | (.42) | .11 | (.43) | .32 | ||||||
Total from Investment Operations | .80 | .28 | .11 | .67 | .13 | .85 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.28) | (.52) | (.53) | (.56) | (.56) | (.53) | ||||||
Net asset value, end of period | 16.57 | 16.05 | 16.29 | 16.71 | 16.60 | 17.03 | ||||||
Total Return (%)b | 5.00c | 1.80 | .68 | 4.08 | .76 | 5.16 | ||||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.78d | 1.82 | 1.95 | 1.92 | 1.86 | 1.80 | ||||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.76d | 1.75 | 1.90 | 1.90 | 1.84 | 1.79 | ||||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | — | — | .16 | .17 | .12 | .07 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.43d | 3.28 | 3.22 | 3.34 | 3.32 | 3.14 | ||||||
Portfolio Turnover Rate | 10.44c | 26.99 | 18.22 | 18.14 | 41.99 | 36.57 | ||||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 3,118 | 2,831 | 2,219 | 2,397 | 2,887 | 3,314 |
a | Based on average shares outstanding at each month end. | |
b | Exclusive of sales charge. | |
c | Not annualized. | |
d | Annualized. |
See notes to financial statements. |
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus State Municipal Bond Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a non-diversified open-end management investment company, and operates as a series company that offers nine series including the DreyfusVirginia Fund (the “fund”).The Trust’s investment objective is to maximize current income exempt from federal and, where applicable, state income taxes, without undue risk.The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the Distributor of the fund’s shares.The fund is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Class A, Class B and Class C. Class A shares are subject to a sales charge imposed at the time of purchase. Class B shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class B share redemptions made within six years of purchase and automatically convert to Class A shares after six years.The fund does not offer Class B shares, except in connection with dividend reinvestment and permitted exchanges of Class B shares. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Other differences between the classes include the services offered to and the expenses borne by each class, t he 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.
20
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) has become the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The ASC has superseded all existing non-SEC accounting and reporting standards. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The fund enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued each business day by an independent pricing service (the “Service”) approved by the Board of Trustees. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market cond itions. Options and financial futures on municipal and U.S.Treasury securities are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market on each business day.
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements. These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of October 31, 2009 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||||||
Level 1— | Significant | Significant | ||||||
Unadjusted | Observable | Unobservable | ||||||
Quoted Prices | Inputs | Inputs | Total | |||||
Assets ($) | ||||||||
Investments in Securities: | ||||||||
Municipal Bonds | — | 61,339,341 | — | 61,339,341 |
22
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gain and loss 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.
The fund follows an investment policy of investing primarily in municipal obligations of one state. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the fund.
(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 GAAP.
(d) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
As of and during the period ended October 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 April 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $1,990,148 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to April 30, 2009. If not applied, $151,002 of the carryover expires in fiscal 2010, $939,844 expires in fiscal 2011, $79,117 expires in fiscal 2013 and $820,185 expires in fiscal 2017.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2009 was as follows: tax exempt income $2,296,621. The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participated with other Dreyfus-managed funds in a $145 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon, (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. Effective October 14, 2009, the $145 million unsecured credit facility with Citibank, N.A., was increased to $215 million and the fund continues participation in the $300 million unsecured credit facility provided by The Bank of New York Mellon. In connection therewith, the fund has agreed to pay its pro rata portion of Facility fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing.
24
The average amount of borrowings outstanding under the Facilities during the period ended October 31, 2009, was approximately $5,800 with a related weighted average annualized interest rate of 1.47%.
NOTE 3—Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement with the Manager, the management fee is computed at the annual rate of .55% of the value of the fund’s average daily net assets and is payable monthly.The Manager had undertaken from May 1, 2009 through July 31, 2009 to reduce the management fee paid by the fund, if the fund’s aggregate expenses, excluding Rule 12b-1 distribution plan fees, taxes, brokerage fees, commitment fees, interest on borrowings and extraordinary expenses, exceeded an annual rate of 1% of the value of the fund’s average daily net assets.The reduction in management fee, pursuant to the undertaking, amounted to $6,405 during the period ended October 31, 2009.
During the period ended October 31, 2009, the Distributor retained $1,451 from commissions earned on sales of the fund’s Class A shares and $4,274 from CDSCs on redemptions of the fund’s Class B shares.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class B and Class C shares pay the Distributor for distributing their shares at an annual rate of .50% of the value of the average daily net assets of Class B shares and .75% of the value of the average daily net assets of Class C shares. During the period ended October 31, 2009, Class B and Class C shares were charged $1,825 and $11,318, respectively, pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
the maintenance of shareholder accounts.The Distributor may make payments to Service Agents (a securities dealer, financial institution or other industry professional) in respect of these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2009, Class A, Class B and Class C shares were charged $75,405, $913 and $3,773, respectively, pursuant to the Shareholder Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the fund. During the period ended October 31, 2009, the fund was charged $10,207 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of NewYork Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2009, the fund was charged $968 pursuant to the cash management agreement, which is included in Shareholder Servicing costs in the Statement of Operations. These fees were offset by earnings credits pursuant to the cash management agreement.
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 October 31, 2009, the fund was charged $6,808 pursuant to the custody agreement.
During the period ended October 31, 2009, the fund was charged $3,341 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $29,741, Rule 12b-1 distribution plan fees $2,273, shareholder services plan fees $13,519, custodian fees $3,126, chief compliance officer fees $3,897 and transfer agency per account fees $3,270.
26
(d) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended October 31, 2009, amounted to $7,041,799 and $6,409,068, respectively.
The fund adopted the provisions of ASC Topic 815 “Derivatives and Hedging” which requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The fund held no derivatives during the period ended October 31,2009. These disclosures did not impact the notes to the financial statements.
At October 31, 2009 accumulated net unrealized appreciation on investments was $3,427,742, consisting of $4,120,658 gross unrealized appreciation and $692,916 gross unrealized depreciation.
At October 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).
NOTE 5—Plan of Reorganization:
On July 21, 2009, the Board of Trustees of the Trust approved and on November 19, 2009 the shareholders of the fund approved, an Agreement and Plan of Reorganization (the “Agreement”) between the Trust, on behalf of the fund, and Dreyfus Municipal Funds, Inc. on behalf of Dreyfus AMT-Free Municipal Bond Fund, (the “Acquiring Fund”).The Agreement provides for the transfer of the fund’s assets to the Acquiring Fund in a tax-free exchange for shares of the Acquiring Fund and the assumption by the Acquiring Fund to the fund’s shareholders
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
and the subsequent termination of the fund (the “Reorganization”). In anticipation of the Reorganization, effective August 25, 2009, the fund was closed to any investments for new accounts.The Reorganization will take place on or about January 19, 2010.
NOTE 6—Subsequent Events Evaluation:
Dreyfus has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued.This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
28
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the Board of Trustees held on July 21, 2009, the Board considered the re-approval for an annual period of the fund’s Management Agreement, pursuant to which the Manager provides the fund with investment advisory and administrative services. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager.
Analysis of Nature, Extent and Quality of Services Provided to the Fund.The Board members considered information previously provided to them in a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus fund complex, and representatives of the Manager confirmed that there had been no material changes in this information.The Board also discussed the nature, extent and quality of the services provided to the fund pursuant to its Management Agreement. The Manager’s representatives reviewed the fund’s distribution of accounts and the relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services in each distribution channel, including those of the fund.The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements.The Board members also considered the Manager’s extensive administrative, accounting and compliance infrastructure.The Board also considered the Manager’s brokerage policies and practices and the standards applied in seeking best execution.
The Fund 29
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
Comparative Analysis of the Fund’s Performance, Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of comparable funds (the “Performance Group”) and to a broader group of 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 yield performance for the past ten one-year periods ended May 31 (2000-2009) was above or equal to the Performance Group median for the one-year periods ended May 31, 2000, 2006, 2007 and 2008 and below the medi an for the other reported periods, and that the fund’s yield performance was above or equal to the Performance Universe median for each reported time period.The Board members also noted that the fund’s total return performance for various periods ended May 31, 2009 was above the Performance Group median for the one-, two- and three-year periods, equal to the median for the four-year period, and below the median for the five- and ten-year periods. The Board members noted that the fund’s total return performance was above the Performance Universe median for each reported time period except the ten-year period, when it was equal to the median.The Manager also provided a comparison of the fund’s calendar year total returns to the returns of its Lipper category average for the prior ten years and the Board members noted that the fund outperformed its Lipper category average in seven of the past ten calendar years.
The Board members also discussed the fund’s contractual and actual management fee and total expense ratio as compared to a comparable group of funds (the “Expense Group”) that was composed of the same funds included in the Performance Group and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper. The Board noted that the fund’s contractual management fee was
30
equal to the Performance Group median, and that the fund’s actual management fee and total expense ratio were above the Expense Group and Expense Universe medians.
Representatives of the Manager informed the Board members that there were no mutual funds, separate accounts or wrap fee accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex. The Board members also had been informed that the methodology also had been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of a fund. The Board members evaluated the profitability analysis in light of the re levant circumstances for the fund, and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders.The Board members also considered potential benefits to the Manager and its affiliates from acting as investment adviser to the fund and noted that there were no soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of
The Fund 31
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It was also noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
- The Board concluded that the nature, extent and quality of the services provided by the Manager to the fund are adequate and appropriate.
- The Board was generally satisfied with the fund’s performance.
- The Board concluded that the fee paid to the Manager by the fund was reasonable in light of the services provided, comparative perfor- mance and expense and management fee information, costs of the services provided, and profits to be realized and benefits derived or to be derived by the Manager from its relationship with the fund.
- The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in con- nection with the management fee rate charged to the fund, and that, to the extent in the future it were to be determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with the information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
32
![](https://capedge.com/proxy/N-CSRS/0000806176-10-000001/smbvancsrx36x1.jpg)
Item 2. | Code of Ethics. | |
Not applicable. | ||
Item 3. | Audit Committee Financial Expert. | |
Not applicable. | ||
Item 4. | Principal Accountant Fees and Services. | |
Not applicable. | ||
Item 5. | Audit Committee of Listed Registrants. | |
Not applicable. | ||
Item 6. | Investments. | |
(a) | Not applicable. | |
Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management | |
Investment Companies. | ||
Not applicable. | ||
Item 8. | Portfolio Managers of Closed-End Management Investment Companies. | |
Not applicable. | ||
Item 9. | Purchases of Equity Securities by Closed-End Management Investment Companies and | |
Affiliated Purchasers. | ||
Not applicable. [CLOSED END FUNDS ONLY] | ||
Item 10. | Submission of Matters to a Vote of Security Holders. | |
There have been no material changes to the procedures applicable to Item 10. | ||
Item 11. | Controls and Procedures. |
(a) The Registrant's principal executive and principal financial officers have concluded, based on their evaluation of the Registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the Registrant's disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes to the Registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable.
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(a)(3) Not applicable.
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940.
SIGNATURES |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dreyfus State Municipal Bond Funds
By: | /s/ J. David Officer | |
J. David Officer, | ||
President | ||
Date: | December 23, 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: | December 23, 2009 | |
By: | /s/ James Windels | |
James Windels, | ||
Treasurer | ||
Date: | December 23, 2009 |
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)