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 | |||||
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| Dreyfus State Municipal Bond Funds |
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| (Exact name of Registrant as specified in charter) |
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c/o The Dreyfus Corporation 200 Park Avenue New York, New York 10166 |
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| (Address of principal executive offices) (Zip code) |
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| Michael A. Rosenberg, Esq. 200 Park Avenue New York, New York 10166 |
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| (Name and address of agent for service) |
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Registrant's telephone number, including area code: | (212) 922-6000 | |||||
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Date of fiscal year end:
| 4/30 |
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Date of reporting period: | 10/31/10 |
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1 |
Dreyfus State |
Municipal Bond Funds, |
Dreyfus Connecticut Fund |
SEMIANNUAL REPORT October 31, 2010
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
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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 |
20 | Statement of Assets and Liabilities |
21 | Statement of Operations |
22 | Statement of Changes in Net Assets |
24 | Financial Highlights |
29 | Notes to Financial Statements |
38 | 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, 2010, through October 31, 2010.
Although a double-dip recession has recently become an increasingly unlikely scenario in our analysis, persistent uncertainty regarding the breadth and strength of the U.S. economic recovery has led to bouts of heightened volatility in some of the riskier sectors of the U.S. bond market during the past year. Municipal bonds, however, have fared relatively well due in part to the Build America Bonds program which has helped provide favorable supply-and-demand dynamics, and from investors seeking higher-income and tax-sensitive alternatives to comparable-credit taxable fixed income securities.
Uncertainty will probably remain in the broader financial markets until we see more robust economic growth, but the favorable influences underlying the municipal bond market’s advance could persist for some time to come.A declining supply of newly issued tax-exempt securities, potentially rising income tax rates for top earners and low yields among comparable taxable bonds could continue to support municipal bond prices, especially if today’s economic concerns prove to be overstated. With that, we strongly suggest that you meet with your financial advisor to discuss the potential opportunities and tax-related challenges we may now face, as well as to evaluate your portfolio to help meet your individual investment needs and your future goals relative to your risk-tolerance level.
For information about how the fund performed during the reporting period, as well as general market perspectives, we provide a Discussion of Fund Performance on the pages that follow.
Thank you for your continued confidence and support.
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Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
November 15, 2010
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2010, through October 31, 2010, as provided by James Welch, Senior Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended October 31, 2010, 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 3.48%, 3.18%, 3.09%, 3.61% and 3.69%, 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 3.95% for the same period.2
Despite heightened economic concerns during the reporting period, municipal bonds continued to rally amid favorable supply-and-demand dynamics. The fund’s returns were lower than its benchmark, as Connecticut bonds generally lagged national averages amid relatively severe fiscal pressures.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal and Connecticut state income taxes, 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 and Connecticut state income taxes. The fund invests at least 70% of its assets in investment-grade municipal bonds 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.
In managing the fund, we focus on identifying undervalued sectors and securities, and we minimize the use of interest rate forecasting.We select municipal bonds by using fundamental credit analysis to estimate the relative value of various sectors and securities and to exploit pricing inefficiencies in the municipal bond market. Additionally, we trade
TheFund 3
DISCUSSION OF FUND PERFORMANCE (continued)
among the market’s various sectors, such as pre-refunded, general obligation and revenue sectors, based on their apparent relative values. The fund generally will invest simultaneously in several of these sectors.
Supply-and-Demand Factors Supported Municipal Bonds
The U.S. economy continued to rebound from recession and financial crisis, but the pace of expansion slowed during the reporting period. In addition, investors responded cautiously to new global developments, including a sovereign debt crisis in Europe. For its part, Connecticut continued to struggle in the aftermath of the downturn, and it has not yet seen the economic improvement that has begun to boost tax revenues in other states. In light of high national unemployment, sluggish housing markets and other headwinds, the Federal Reserve Board (the “Fed”) left short-term interest rates unchanged in a historically low range between 0% and 0.25%. In addition, the Fed announced its intention to stimulate credit markets with a new round of quantitative easing of monetary policy.
Municipal bonds proved relatively insensitive to these economic concerns during the reporting period, advancing amid favorable supply-and-demand dynamics as the federally subsidized Build America Bonds program continued to shift a substantial portion of new issuance to the taxable bond market. At the same time, demand for municipal bonds intensified as investors sought alternatives to low yields from money market funds. Late in the reporting period, longer-term municipal bonds rallied as investors anticipated the Fed’s quantitative easing program, which was expected to drive longer-term interest rates lower.
Revenue Bonds Boosted Fund Returns
In this generally favorable market environment, the fund received positive contributions to relative performance from bonds backed by revenues from private colleges, municipal utilities and facilities supported by special taxes. Conversely, the fund held relatively light exposure to bonds backed by general tax receipts, which lagged market averages.The fund also benefited from underweighted exposure to traditionally defensive escrowed bonds, which generally trailed market averages during the reporting period. Escrowed bonds are municipal securities for which the funds for early redemption have been set aside in escrow.
4
Although our credit selection process drives our investment approach, it is worth noting that interest-rate considerations prompted us to focus primarily on bonds with maturities in the 20-year range. In our judgment, the negligible yield advantage provided by longer-term bonds did not provide sufficient compensation for their incremental risks.
Supply-and-Demand Factors May Remain Favorable
While Connecticut and other states have continued to face severe fiscal pressures, we believe the economic recovery will persist.We are aware that municipal bonds already have rallied strongly since the recession and financial crisis, suggesting that the bulk of their gains for the current cycle are behind us. In addition, the supply of newly issued Connecticut bonds has been relatively meager, offering the fund few opportunities for further diversification.Therefore, we have maintained our focus on higher-quality revenue bonds, including those in the secondary market.
We remain optimistic over the longer term.We anticipate a more ample supply of newly issued tax-exempt bonds when the BuildAmerica Bonds program either ends or is renewed possibly with lower federal subsidies at the end of this year. In the meantime, demand for municipal bonds seems likely to stay robust as investors grow increasingly concerned regarding potential income tax increases.
November 15, 2010
Bond funds are subject generally to interest rate, credit, liquidity and market risks, to varying degrees, all of which are more fully described in the fund’s prospectus. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes, and rate increases can cause price declines.
1 | Total 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 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. Investors | |
cannot invest directly in any index. |
TheFund 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, 2010 to October 31, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment
assuming actual returns for the six months ended October 31, 2010
Class A | Class B | Class C | Class I | Class Z | |
Expenses paid per $1,000† | $ 4.62 | $ 7.78 | $ 8.50 | $ 3.23 | $ 3.54 |
Ending value (after expenses) | $1,034.80 | $1,031.80 | $1,030.90 | $1,036.10 | $1,036.90 |
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, 2010
Class A | Class B | Class C | Class I | Class Z | |
Expenses paid per $1,000† | $4.58 | $ 7.73 | $ 8.44 | $ 3.21 | $ 3.52 |
Ending value (after expenses) | $1,020.67 | $1,017.54 | $1,016.84 | $1,022.03 | $1,021.73 |
† Expenses are equal to the fund’s annualized expense ratio of .90% for Class A, 1.52% for Class B, 1.66% for |
Class C, .63% for Class I and .69% for Class Z, multiplied by the average account value over the period, |
multiplied by 184/365 (to reflect the one-half year period). |
6
STATEMENT OF INVESTMENTS
October 31, 2010 (Unaudited)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments—98.8% | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut—76.1% | ||||
Connecticut, | ||||
General Airport Revenue | ||||
(Bradley International | ||||
Airport) (Insured; National | ||||
Public Finance Guarantee Corp.) | 5.25 | 10/1/13 | 5,530,000 | 5,681,024 |
Connecticut, | ||||
General Airport Revenue | ||||
(Bradley International | ||||
Airport) (Insured; National | ||||
Public Finance Guarantee Corp.) | 5.25 | 10/1/16 | 4,470,000 | 4,585,505 |
Connecticut, | ||||
General Airport Revenue | ||||
(Bradley International | ||||
Airport) (Insured; National | ||||
Public Finance Guarantee Corp.) | 5.25 | 10/1/17 | 2,275,000 | 2,333,103 |
Connecticut, | ||||
GO | 5.25 | 12/15/10 | 2,550,000 | 2,566,320 |
Connecticut, | ||||
GO | 5.00 | 12/15/22 | 4,855,000 | 5,454,495 |
Connecticut, | ||||
GO | 5.00 | 4/15/24 | 2,500,000 | 2,843,825 |
Connecticut, | ||||
GO | 5.00 | 11/1/27 | 2,000,000 | 2,253,220 |
Connecticut, | ||||
GO | 5.00 | 11/1/28 | 3,000,000 | 3,361,830 |
Connecticut, | ||||
GO (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 10/15/21 | 3,500,000 | 3,808,910 |
Connecticut, | ||||
GO (Prerefunded) | 5.13 | 11/15/11 | 1,500,000 a | 1,575,570 |
Connecticut, | ||||
Special Tax Obligation | ||||
(Transportation | ||||
Infrastructure Purposes) | 5.00 | 11/1/22 | 5,000,000 | 5,766,750 |
Connecticut, | ||||
Special Tax Obligation | ||||
(Transportation Infrastructure | ||||
Purposes) (Insured; AMBAC) | 5.25 | 7/1/19 | 3,395,000 | 4,070,401 |
TheFund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut (continued) | ||||
Connecticut, | ||||
Special Tax Obligation | ||||
(Transportation Infrastructure | ||||
Purposes) (Insured; Assured | ||||
Guaranty Municipal Corp.) | 5.50 | 11/1/12 | 4,180,000 | 4,597,248 |
Connecticut, | ||||
Special Tax Obligation | ||||
(Transportation Infrastructure | ||||
Purposes) (Insured; Assured | ||||
Guaranty Municipal Corp.) | 5.38 | 7/1/20 | 2,000,000 | 2,134,520 |
Connecticut Development Authority, | ||||
Airport Facility Revenue | ||||
(Learjet Inc. Project) | 7.95 | 4/1/26 | 2,300,000 | 2,470,844 |
Connecticut Development Authority, | ||||
First Mortgage Gross Revenue | ||||
(The Elim Park Baptist Home, | ||||
Inc. Project) | 5.38 | 12/1/11 | 1,765,000 | 1,806,301 |
Connecticut Development Authority, | ||||
First Mortgage Gross Revenue | ||||
(The Elim Park Baptist Home, | ||||
Inc. Project) | 5.38 | 12/1/18 | 2,300,000 | 2,300,782 |
Connecticut Development Authority, | ||||
First Mortgage Gross Revenue | ||||
(The Elim Park Baptist Home, | ||||
Inc. Project) | 5.75 | 12/1/23 | 1,000,000 | 1,008,620 |
Connecticut Development Authority, | ||||
PCR (Connecticut Light and | ||||
Power Company Project) | 5.85 | 9/1/28 | 6,200,000 | 6,355,000 |
Connecticut Development Authority, | ||||
PCR (Connecticut Light and | ||||
Power Company Project) | 5.95 | 9/1/28 | 4,445,000 | 4,556,125 |
Connecticut Development Authority, | ||||
PCR (The United Illuminating | ||||
Company Project) | 5.75 | 2/1/12 | 1,250,000 | 1,300,537 |
Connecticut Development Authority, | ||||
Revenue (Duncaster Project) | ||||
(Insured; Radian) | 5.50 | 8/1/11 | 845,000 | 856,069 |
Connecticut Development Authority, | ||||
Solid Waste Disposal Facility | ||||
Revenue (PSEG Power LLC Project) | 5.75 | 11/1/37 | 7,000,000 | 7,065,800 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut (continued) | ||||
Connecticut Development Authority, | ||||
Water Facilities Revenue (Aquarion | ||||
Water Company of Connecticut | ||||
Project) (Insured; XLCA) | 5.10 | 9/1/37 | 6,250,000 | 5,822,312 |
Connecticut Development Authority, | ||||
Water Facilities Revenue | ||||
(Bridgeport Hydraulic | ||||
Company Project) | 6.15 | 4/1/35 | 1,000,000 | 1,002,350 |
Connecticut Development Authority, | ||||
Water Facilities Revenue | ||||
(Bridgeport Hydraulic Company | ||||
Project) (Insured; AMBAC) | 6.15 | 4/1/35 | 2,750,000 | 2,756,462 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Ascension Health Senior | ||||
Credit Group) | 5.00 | 11/15/40 | 14,000,000 | 14,706,160 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Danbury Hospital Issue) | ||||
(Insured; AMBAC) | 5.75 | 7/1/29 | 3,000,000 | 3,008,250 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Fairfield University Issue) | 5.00 | 7/1/25 | 1,340,000 | 1,436,855 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Fairfield University Issue) | 5.00 | 7/1/27 | 1,420,000 | 1,508,125 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Fairfield University Issue) | 5.00 | 7/1/34 | 4,000,000 | 4,165,160 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Fairfield University Issue) | 5.00 | 7/1/35 | 2,000,000 | 2,095,180 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Fairfield University Issue) | 5.00 | 7/1/40 | 2,500,000 | 2,599,000 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Greenwich Academy Issue) | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.25 | 3/1/32 | 10,880,000 | 13,527,866 |
TheFund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Connecticut (continued) | |||||
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Griffin Hospital Issue) | |||||
(Insured; Radian) | 5.00 | 7/1/23 | 1,280,000 | 1,277,530 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Hospital for Special Care | |||||
Issue) (Insured; Radian) | 5.25 | 7/1/32 | 3,500,000 | 3,376,835 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Loomis Chaffee School Issue) | |||||
(Insured; AMBAC) | 5.25 | 7/1/28 | 1,760,000 | 2,102,584 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Loomis Chaffee School | |||||
Issue) (Prerefunded) | 5.25 | 7/1/11 | 3,000,000 | a | 3,129,690 |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Loomis Chaffee School | |||||
Issue) (Prerefunded) | 5.50 | 7/1/11 | 2,150,000 | a | 2,246,535 |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Quinnipiac University Issue) | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.75 | 7/1/33 | 5,000,000 | 5,527,650 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Quinnipiac University Issue) | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.00 | 7/1/37 | 2,000,000 | 2,089,220 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Salisbury School Issue) | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 7/1/33 | 5,000,000 | 5,291,700 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Stamford Hospital Issue) | 5.00 | 7/1/30 | 6,750,000 | 7,049,632 |
10
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut (continued) | ||||
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(The William W. Backus Hospital | ||||
Issue) (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.25 | 7/1/23 | 2,000,000 | 2,200,400 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue (Trinity | ||||
College Issue) (Insured; National | ||||
Public Finance Guarantee Corp.) | 5.00 | 7/1/22 | 1,000,000 | 1,076,160 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(University of Hartford Issue) | ||||
(Insured; Radian) | 5.00 | 7/1/17 | 1,220,000 | 1,305,571 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(University of Hartford Issue) | ||||
(Insured; Radian) | 5.50 | 7/1/22 | 1,750,000 | 1,791,160 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(University of Hartford Issue) | ||||
(Insured; Radian) | 5.63 | 7/1/26 | 4,000,000 | 4,080,680 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(University of Hartford Issue) | ||||
(Insured; Radian) | 5.25 | 7/1/36 | 5,070,000 | 4,954,303 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Wesleyan University Issue) | 5.00 | 7/1/35 | 5,000,000 | 5,416,300 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Wesleyan University Issue) | 5.00 | 7/1/39 | 6,500,000 | 7,024,875 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Yale University Issue) | 5.00 | 7/1/40 | 5,000,000 | 5,370,000 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Yale University Issue) | 5.00 | 7/1/42 | 5,000,000 | 5,307,250 |
TheFund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut (continued) | ||||
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Yale-New Haven Hospital | ||||
Issue) (Insured; AMBAC) | 5.00 | 7/1/31 | 2,500,000 | 2,580,125 |
Connecticut Higher Education | ||||
Supplemental Loan Authority, | ||||
Revenue (Family Education Loan | ||||
Program) (Insured; AMBAC) | 5.63 | 11/15/11 | 315,000 | 319,319 |
Connecticut Higher Education | ||||
Supplemental Loan Authority, | ||||
Senior Revenue (Connecticut | ||||
Family Education Loan Program) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 4.50 | 11/15/20 | 1,715,000 | 1,731,790 |
Connecticut Higher Education | ||||
Supplemental Loan Authority, | ||||
Senior Revenue (Connecticut | ||||
Family Education Loan Program) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 4.80 | 11/15/22 | 3,220,000 | 3,278,926 |
Connecticut Housing Finance | ||||
Authority, Revenue (Housing | ||||
Mortgage Finance Program) | 4.45 | 5/15/14 | 1,000,000 | 1,029,030 |
Connecticut Housing Finance | ||||
Authority, Revenue (Housing | ||||
Mortgage Finance Program) | 5.00 | 11/15/21 | 3,190,000 | 3,310,901 |
Connecticut Housing Finance | ||||
Authority, Revenue (Housing | ||||
Mortgage Finance Program) | 5.05 | 11/15/21 | 4,925,000 | 5,010,055 |
Connecticut Housing Finance | ||||
Authority, Revenue (Housing | ||||
Mortgage Finance Program) | 5.45 | 11/15/29 | 5,805,000 | 5,808,541 |
Connecticut Housing Finance | ||||
Authority, Revenue (Housing | ||||
Mortgage Finance Program) | 5.00 | 11/15/35 | 2,475,000 | 2,459,209 |
Connecticut Housing Finance | ||||
Authority, Revenue (Housing | ||||
Mortgage Finance Program) | 5.15 | 11/15/36 | 5,000,000 | 5,112,750 |
Connecticut Housing Finance | ||||
Authority, Revenue (Housing | ||||
Mortgage Finance Program) | 5.15 | 5/15/38 | 5,790,000 | 5,958,547 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut (continued) | ||||
Connecticut Housing Finance | ||||
Authority, Revenue (Housing | ||||
Mortgage Finance Program) | 6.00 | 11/15/38 | 3,785,000 | 4,143,175 |
Connecticut Housing Finance | ||||
Authority, Revenue (Housing | ||||
Mortgage Finance Program) | ||||
(Insured; AMBAC) | 5.10 | 11/15/33 | 2,500,000 | 2,548,100 |
Connecticut Resources Recovery | ||||
Authority, Mid-Connecticut | ||||
System Subordinated | ||||
Revenue (Prerefunded) | 5.50 | 11/15/10 | 1,000,000 a | 1,002,280 |
Connecticut Resources Recovery | ||||
Authority, RRR (American | ||||
Ref-Fuel Company of Southeastern | ||||
Connecticut Project) | 5.50 | 11/15/15 | 1,000,000 | 999,620 |
Connecticut Resources Recovery | ||||
Authority, RRR (American | ||||
Ref-Fuel Company of Southeastern | ||||
Connecticut Project) | 5.50 | 11/15/15 | 3,250,000 | 3,254,485 |
Eastern Connecticut Resource | ||||
Recovery Authority, Solid | ||||
Waste Revenue (Wheelabrator | ||||
Lisbon Project) | 5.50 | 1/1/14 | 3,255,000 | 3,265,579 |
Eastern Connecticut Resource | ||||
Recovery Authority, Solid | ||||
Waste Revenue (Wheelabrator | ||||
Lisbon Project) | 5.50 | 1/1/20 | 7,000,000 | 7,004,060 |
Fairfield, | ||||
GO | 5.50 | 4/1/11 | 2,030,000 | 2,075,167 |
Greater New Haven Water Pollution | ||||
Control Authority, Regional | ||||
Wastewater System Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 11/15/37 | 1,800,000 | 1,879,290 |
Greater New Haven Water | ||||
Pollution Control Authority, | ||||
Regional Wastewater | ||||
System Revenue (Insured; | ||||
National Public Finance | ||||
Guarantee Corp.) | 5.00 | 11/15/30 | 5,000,000 | 5,193,850 |
TheFund 13
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Connecticut (continued) | |||||
Greater New Haven Water Pollution | |||||
Control Authority, Regional | |||||
Wastewater System Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.00 | 8/15/35 | 2,000,000 | 2,051,900 | |
Greenwich Housing Authority, | |||||
MFHR (Greenwich | |||||
Close Apartments) | 6.25 | 9/1/17 | 3,715,000 | 3,774,849 | |
Hamden, | |||||
GO (Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 8/15/14 | 5,000 | 5,809 | |
Meriden, | |||||
GO (Insured; National Public | |||||
Finance Guarantee Corp.) | 5.00 | 8/1/16 | 2,090,000 | 2,490,340 | |
New Britain, | |||||
GO (Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 4/1/24 | 4,500,000 | 5,306,895 | |
New Haven, | |||||
GO (Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 3/1/29 | 1,000,000 | 1,078,350 | |
South Central Connecticut Regional | |||||
Water Authority, Water System | |||||
Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 5.25 | 8/1/31 | 2,000,000 | 2,155,120 | |
University of Connecticut, | |||||
GO | 5.00 | 2/15/25 | 1,000,000 | 1,130,560 | |
University of Connecticut, | |||||
GO | 5.00 | 2/15/27 | 1,000,000 | 1,116,660 | |
University of Connecticut, | |||||
GO | 5.00 | 2/15/28 | 1,000,000 | 1,110,550 | |
University of Connecticut, | |||||
GO (Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 2/15/24 | 1,225,000 | 1,318,933 | |
University of Connecticut, | |||||
Special Obligation | |||||
Student Fee Revenue | |||||
(Insured; FGIC) (Prerefunded) | 5.75 | 11/15/10 | 2,500,000 | a | 2,531,125 |
University of Connecticut, | |||||
Special Obligation | |||||
Student Fee Revenue | |||||
(Insured; FGIC) (Prerefunded) | 6.00 | 11/15/10 | 2,000,000 | a | 2,025,120 |
14
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
U.S. Related—22.7% | |||||
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 5.50 | 5/15/39 | 3,000,000 | 2,907,600 | |
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 0.00 | 5/15/50 | 12,000,000 | b | 424,800 |
Government of Guam, | |||||
LOR (Section 30) | 5.63 | 12/1/29 | 1,000,000 | 1,048,880 | |
Guam Economic Development | |||||
Authority, Tobacco Settlement | |||||
Asset-Backed Bonds | 5.20 | 5/15/12 | 795,000 | 850,570 | |
Guam Economic Development | |||||
Authority, Tobacco Settlement | |||||
Asset-Backed Bonds | 5.45 | 5/15/16 | 1,445,000 | 1,729,954 | |
Guam Economic Development | |||||
Authority, Tobacco | |||||
Settlement Asset-Backed | |||||
Bonds (Prerefunded) | 5.00 | 5/15/11 | 55,000 | a | 56,359 |
Guam Power Authority, | |||||
Revenue | 5.50 | 10/1/30 | 1,750,000 | 1,834,735 | |
Guam Waterworks Authority, | |||||
Water and Wastewater | |||||
System Revenue | 5.50 | 7/1/16 | 750,000 | 771,683 | |
Puerto Rico Aqueduct and Sewer | |||||
Authority, Senior Lien Revenue | 6.00 | 7/1/38 | 6,000,000 | 6,437,220 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | 5.25 | 7/1/25 | 1,500,000 | 1,546,590 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | 6.00 | 7/1/38 | 2,000,000 | 2,184,540 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.25 | 7/1/12 | 2,600,000 | 2,769,286 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | |||||
(Insured; FGIC) | 5.50 | 7/1/16 | 3,270,000 | 3,649,058 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.50 | 7/1/13 | 8,000,000 | 8,697,760 |
TheFund 15
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
U.S. Related (continued) | |||||
Puerto Rico Commonwealth, | |||||
Public Improvement GO | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 7/1/14 | 4,925,000 | 5,382,927 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.25 | 7/1/28 | 5,000,000 | 5,339,700 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.25 | 7/1/40 | 3,000,000 | 3,131,610 | |
Puerto Rico Highways and | |||||
Transportation Authority, | |||||
Highway Revenue (Prerefunded) | 5.50 | 7/1/16 | 5,000,000 | a | 6,109,400 |
Puerto Rico Highways and | |||||
Transportation Authority, | |||||
Highway Revenue (Insured; | |||||
National Public Finance | |||||
Guarantee Corp.) | 5.50 | 7/1/13 | 3,615,000 | 3,816,645 | |
Puerto Rico Highways and | |||||
Transportation Authority, | |||||
Transportation Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 7/1/33 | 7,750,000 | 8,085,730 | |
Puerto Rico Infrastructure | |||||
Financing Authority, Special | |||||
Tax Revenue (Insured; AMBAC) | 0.00 | 7/1/35 | 5,500,000 | b | 1,148,840 |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 5.38 | 8/1/39 | 1,500,000 | 1,580,925 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/39 | 4,000,000 | 4,516,440 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/42 | 3,450,000 | 3,857,894 |
16
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
U.S. Related (continued) | ||||
Virgin Islands Public Finance | ||||
Authority, Revenue (Virgin | ||||
Islands Gross Receipts | ||||
Taxes Loan Note) | 6.38 | 10/1/19 | 5,000,000 | 5,060,800 |
Virgin Islands Public Finance | ||||
Authority, Revenue (Virgin Islands | ||||
Matching Fund Loan Note) | 5.00 | 10/1/25 | 5,000,000 | 5,165,750 |
Total Long-Term Municipal Investments | ||||
(cost $367,949,724) | 384,165,300 | |||
Short-Term Municipal | ||||
Investment—1.2% | ||||
Connecticut; | ||||
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Yale University Issue) | ||||
(cost $4,800,000) | 0.22 | 11/1/10 | 4,800,000 c | 4,800,000 |
Total Investments (cost $372,749,724) | 100.0% | 388,965,300 | ||
Cash and Receivables (Net) | .0% | 18,920 | ||
Net Assets | 100.0% | 388,984,220 |
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, 2010. Maturity date represents |
the next demand date, or the ultimate maturity date if earlier. |
TheFund 17
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 | ARRN | Adjustable Rate Receipt Notes |
Assurance Corporation | |||
BAN | Bond Anticipation Notes | BPA | Bond Purchase Agreement |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | EDR | Economic Development Revenue |
EIR | Environmental Improvement Revenue | FGIC | Financial Guaranty Insurance |
Company | |||
FHA | Federal Housing Administration | FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage | FNMA | Federal National |
Corporation | Mortgage Association | ||
GAN | Grant Anticipation Notes | GIC | Guaranteed Investment Contract |
GNMA | Government National | GO | General Obligation |
Mortgage Association | |||
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 | PUTTERS Puttable Tax-Exempt Receipts | |
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 |
18
Summary of Combined Ratings (Unaudited) | |||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† |
AAA | Aaa | AAA | 30.5 | ||
AA | Aa | AA | 23.8 | ||
A | A | A | 17.5 | ||
BBB | Baa | BBB | 18.5 | ||
BB | Ba | BB | 1.9 | ||
F1 | MIG1/P1 | SP1/A1 | 1.2 | ||
Not Ratedd | Not Ratedd | Not Ratedd | 6.6 | ||
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.
TheFund 19
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2010 (Unaudited)
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments | 372,749,724 | 388,965,300 |
Cash | 46,659 | |
Interest receivable | 6,101,657 | |
Receivable for shares of Beneficial Interest subscribed | 141,454 | |
Prepaid expenses | 19,261 | |
395,274,331 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 289,399 | |
Payable for investment securities purchased | 5,703,700 | |
Payable for shares of Beneficial Interest redeemed | 228,938 | |
Accrued expenses | 68,074 | |
6,290,111 | ||
Net Assets ($) | 388,984,220 | |
Composition of Net Assets ($): | ||
Paid-in capital | 375,377,591 | |
Accumulated undistributed investment income—net | 27,834 | |
Accumulated net realized gain (loss) on investments | (2,636,781) | |
Accumulated net unrealized appreciation | ||
(depreciation) on investments | 16,215,576 | |
Net Assets ($) | 388,984,220 |
Net Asset Value Per Share | |||||
Class A | Class B | Class C | Class I | Class Z | |
Net Assets ($) | 244,846,404 | 819,649 | 19,223,275 | 8,218,800 | 115,876,092 |
Shares Outstanding | 20,639,486 | 69,127 | 1,623,061 | 692,926 | 9,770,123 |
Net Asset Value | |||||
Per Share ($) | 11.86 | 11.86 | 11.84 | 11.86 | 11.86 |
See notes to financial statements. |
20
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2010 (Unaudited)
Investment Income ($): | |
Interest Income | 9,155,100 |
Expenses: | |
Management fee—Note 3(a) | 1,073,363 |
Shareholder servicing costs—Note 3(c) | 447,207 |
Distribution fees—Note 3(b) | 73,282 |
Professional fees | 22,804 |
Custodian fees—Note 3(c) | 22,041 |
Registration fees | 20,051 |
Trustees’ fees and expenses—Note 3(d) | 14,018 |
Prospectus and shareholders’ reports | 12,588 |
Loan commitment fees—Note 2 | 1,233 |
Interest expense—Note 2 | 146 |
Miscellaneous | 18,150 |
Total Expenses | 1,704,883 |
Less—reduction in fees due to earnings credits—Note 3(c) | (329) |
Net Expenses | 1,704,554 |
Investment Income—Net | 7,450,546 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | 519,608 |
Net unrealized appreciation (depreciation) on investments | 5,564,663 |
Net Realized and Unrealized Gain (Loss) on Investments | 6,084,271 |
Net Increase in Net Assets Resulting from Operations | 13,534,817 |
See notes to financial statements. |
TheFund 21
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
October 31, 2010 | Year Ended | |
(Unaudited) | April 30, 2010 | |
Operations ($): | ||
Investment income—net | 7,450,546 | 15,348,782 |
Net realized gain (loss) on investments | 519,608 | 296,423 |
Net unrealized appreciation | ||
(depreciation) on investments | 5,564,663 | 16,479,253 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 13,534,817 | 32,124,458 |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class A Shares | (4,684,969) | (9,931,039) |
Class B Shares | (14,299) | (60,216) |
Class C Shares | (283,994) | (557,038) |
Class I Shares | (134,770) | (33,864) |
Class Z Shares | (2,304,680) | (4,703,838) |
Total Dividends | (7,422,712) | (15,285,995) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 6,200,658 | 20,155,031 |
Class B Shares | 150 | 1,409 |
Class C Shares | 1,700,428 | 5,827,682 |
Class I Shares | 3,006,001 | 5,465,379 |
Class Z Shares | 2,900,582 | 7,350,576 |
Dividends reinvested: | ||
Class A Shares | 3,141,372 | 6,724,076 |
Class B Shares | 10,551 | 45,207 |
Class C Shares | 232,745 | 454,904 |
Class I Shares | 46,924 | 10,116 |
Class Z Shares | 1,702,772 | 3,469,994 |
Cost of shares redeemed: | ||
Class A Shares | (14,581,532) | (29,852,153) |
Class B Shares | (334,808) | (1,829,997) |
Class C Shares | (1,467,442) | (3,591,851) |
Class I Shares | (377,806) | (68,261) |
Class Z Shares | (3,262,253) | (11,527,353) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (1,081,658) | 2,634,759 |
Total Increase (Decrease) in Net Assets | 5,030,447 | 19,473,222 |
Net Assets ($): | ||
Beginning of Period | 383,953,773 | 364,480,551 |
End of Period | 388,984,220 | 383,953,773 |
Undistributed investment income—net | 27,834 | — |
22
Six Months Ended | ||
October 31, 2010 | Year Ended | |
(Unaudited) | April 30, 2010 | |
Capital Share Transactions: | ||
Class Aa | ||
Shares sold | 527,073 | 1,751,910 |
Shares issued for dividends reinvested | 266,106 | 584,106 |
Shares redeemed | (1,236,913) | (2,592,921) |
Net Increase (Decrease) in Shares Outstanding | (443,734) | (256,905) |
Class Ba | ||
Shares sold | 13 | 120 |
Shares issued for dividends reinvested | 894 | 3,943 |
Shares redeemed | (28,454) | (160,718) |
Net Increase (Decrease) in Shares Outstanding | (27,547) | (156,655) |
Class C | ||
Shares sold | 144,141 | 506,687 |
Shares issued for dividends reinvested | 19,746 | 39,568 |
Shares redeemed | (124,779) | (312,589) |
Net Increase (Decrease) in Shares Outstanding | 39,108 | 233,666 |
Class I | ||
Shares sold | 255,066 | 470,043 |
Shares issued for dividends reinvested | 3,974 | 868 |
Shares redeemed | (32,143) | (5,869) |
Net Increase (Decrease) in Shares Outstanding | 226,897 | 465,042 |
Class Z | ||
Shares sold | 245,986 | 639,262 |
Shares issued for dividends reinvested | 144,269 | 301,561 |
Shares redeemed | (276,137) | (1,000,688) |
Net Increase (Decrease) in Shares Outstanding | 114,118 | (59,865) |
a During the period ended October 31, 2010, 11,085 Class B shares representing $130,867, were automatically |
converted to 11,076 Class A shares and during the period ended April 30, 2010, 72,773 Class B shares |
representing $828,609 were automatically converted to 72,710 Class A shares. |
See notes to financial statements.
TheFund 23
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||
October 31, 2010 | Year Ended April 30, | |||||
Class A Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 11.68 | 11.16 | 11.55 | 11.87 | 11.78 | 12.11 |
Investment Operations: | ||||||
Investment income—neta | .23 | .47 | .47 | .48 | .49 | .51 |
Net realized and unrealized | ||||||
gain (loss) on investments | .17 | .52 | (.39) | (.30) | .09 | (.33) |
Total from Investment Operations | .40 | .99 | .08 | .18 | .58 | .18 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.22) | (.47) | (.47) | (.48) | (.49) | (.51) |
Dividends from net realized | ||||||
gain on investments | — | — | — | (.02) | — | — |
Total Distributions | (.22) | (.47) | (.47) | (.50) | (.49) | (.51) |
Net asset value, end of period | 11.86 | 11.68 | 11.16 | 11.55 | 11.87 | 11.78 |
Total Return (%)b | 3.48c | 8.98 | .86 | 1.54 | 5.04 | 1.52 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | .90d | .90 | .93 | 1.10 | 1.20 | 1.13 |
Ratio of net expenses | ||||||
to average net assets | .90d,e | .90e | .93e | 1.09 | 1.19 | 1.13e |
Ratio of interest and expense | ||||||
related to floating rate notes | ||||||
issued to average net assets | — | — | .02 | .20 | .30 | .23 |
Ratio of net investment income | ||||||
to average net assets | 3.79d | 4.07 | 4.29 | 4.12 | 4.17 | 4.29 |
Portfolio Turnover Rate | 8.08c | 11.42 | 26.41 | 44.96 | 43.87 | 14.24 |
Net Assets, end of period | ||||||
($ x 1,000) | 244,846 246,190 | 238,183 | 248,300 | 257,627 | 259,930 |
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, 2010 | Year Ended April 30, | |||||
Class B Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 11.67 | 11.15 | 11.54 | 11.86 | 11.77 | 12.10 |
Investment Operations: | ||||||
Investment income—neta | .18 | .38 | .40 | .41 | .43 | .45 |
Net realized and unrealized | ||||||
gain (loss) on investments | .19 | .53 | (.38) | (.30) | .09 | (.33) |
Total from Investment Operations | .37 | .91 | .02 | .11 | .52 | .12 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.18) | (.39) | (.41) | (.41) | (.43) | (.45) |
Dividends from net realized | ||||||
gain on investments | — | — | — | (.02) | — | — |
Total Distributions | (.18) | (.39) | (.41) | (.43) | (.43) | (.45) |
Net asset value, end of period | 11.86 | 11.67 | 11.15 | 11.54 | 11.86 | 11.77 |
Total Return (%)b | 3.18c | 8.31 | .26 | .97 | 4.50 | 1.00 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.52d | 1.54 | 1.52 | 1.66 | 1.72 | 1.66 |
Ratio of net expenses | ||||||
to average net assets | 1.52d,e | 1.54e | 1.52e | 1.65 | 1.71 | 1.66e |
Ratio of interest and expense | ||||||
related to floating rate notes | ||||||
issued to average net assets | — | — | .02 | .20 | .30 | .23 |
Ratio of net investment income | ||||||
to average net assets | 3.03d | 3.47 | 3.68 | 3.56 | 3.66 | 3.76 |
Portfolio Turnover Rate | 8.08c | 11.42 | 26.41 | 44.96 | 43.87 | 14.24 |
Net Assets, end of period | ||||||
($ x 1,000) | 820 | 1,128 | 2,825 | 7,541 | 17,314 | 24,853 |
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.
TheFund 25
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||
October 31, 2010 | Year Ended April 30, | |||||
Class C Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 11.66 | 11.14 | 11.53 | 11.85 | 11.76 | 12.09 |
Investment Operations: | ||||||
Investment income—neta | .18 | .38 | .39 | .39 | .40 | .42 |
Net realized and unrealized | ||||||
gain (loss) on investments | .18 | .52 | (.39) | (.30) | .09 | (.33) |
Total from Investment Operations | .36 | .90 | — | .09 | .49 | .09 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.18) | (.38) | (.39) | (.39) | (.40) | (.42) |
Dividends from net realized | ||||||
gain on investments | — | — | — | (.02) | — | — |
Total Distributions | (.18) | (.38) | (.39) | (.41) | (.40) | (.42) |
Net asset value, end of period | 11.84 | 11.66 | 11.14 | 11.53 | 11.85 | 11.76 |
Total Return (%)b | 3.09c | 8.17 | .09 | .76 | 4.25 | .76 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.66d | 1.66 | 1.69 | 1.86 | 1.96 | 1.89 |
Ratio of net expenses | ||||||
to average net assets | 1.66d,e | 1.66e | 1.68 | 1.85 | 1.95 | 1.89e |
Ratio of interest and expense | ||||||
related to floating rate notes | ||||||
issued to average net assets | — | — | .02 | .20 | .30 | .23 |
Ratio of net investment income | ||||||
to average net assets | 3.02d | 3.30 | 3.53 | 3.35 | 3.41 | 3.52 |
Portfolio Turnover Rate | 8.08c | 11.42 | 26.41 | 44.96 | 43.87 | 14.24 |
Net Assets, end of period | ||||||
($ x 1,000) | 19,223 | 18,466 | 15,045 | 12,640 | 11,021 | 11,429 |
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, 2010 | Year Ended April 30, | ||
Class I Shares | (Unaudited) | 2010 | 2009a |
Per Share Data ($): | |||
Net asset value, beginning of period | 11.68 | 11.16 | 10.13 |
Investment Operations: | |||
Investment income—netb | .24 | .44 | .19 |
Net realized and unrealized | |||
gain (loss) on investments | .18 | .58 | 1.03 |
Total from Investment Operations | .42 | 1.02 | 1.22 |
Distributions: | |||
Dividends from investment income—net | (.24) | (.50) | (.19) |
Net asset value, end of period | 11.86 | 11.68 | 11.16 |
Total Return (%) | 3.61c | 9.27 | 12.10c |
Ratios/Supplemental Data (%): | |||
Ratio of total expenses to average net assets | .64d | .70 | .64d |
Ratio of net expenses to average net assets | .64d,e | .65 | .63d |
Ratio of interest and expense related to floating | |||
rate notes issued to average net assets | — | — | .02 |
Ratio of net investment income | |||
to average net assets | 4.02d | 4.30 | 4.70d |
Portfolio Turnover Rate | 8.08c | 11.42 | 26.41 |
Net Assets, end of period ($ x 1,000) | 8,219 | 5,441 | 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.
TheFund 27
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||
October 31, 2010 | Year Ended April 30, | |||
Class Z Shares | (Unaudited) | 2010 | 2009 | 2008a |
Per Share Data ($): | ||||
Net asset value, beginning of period | 11.67 | 11.16 | 11.55 | 11.79 |
Investment Operations: | ||||
Investment income—netb | .24 | .49 | .49 | .46 |
Net realized and unrealized | ||||
gain (loss) on investments | .19 | .51 | (.39) | (.22) |
Total from Investment Operations | .43 | 1.00 | .10 | .24 |
Distributions: | ||||
Dividends from investment income—net | (.24) | (.49) | (.49) | (.46) |
Dividends from net realized | ||||
gain on investments | — | — | — | (.02) |
Total Distributions | (.24) | (.49) | (.49) | (.48) |
Net asset value, end of period | 11.86 | 11.67 | 11.16 | 11.55 |
Total Return (%) | 3.69c | 9.11 | 1.03 | 2.04c |
Ratios/Supplemental Data (%): | ||||
Ratio of total expenses to average net assets | .69d | .70 | .76 | .94d |
Ratio of net expenses to average net assets | .69d,e | .70e | .76e | .93d |
Ratio of interest and expense related | ||||
to floating rate notes issued | ||||
to average net assets | — | — | .02 | .20 |
Ratio of net investment income | ||||
to average net assets | 4.01d | 4.27 | 4.46 | 4.31d |
Portfolio Turnover Rate | 8.08c | 11.42 | 26.41 | 44.96 |
Net Assets, end of period ($ x 1,000) | 115,876 | 112,728 | 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.
28
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus State Municipal Bond Funds (the “Company”) 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 six series including the Dreyfus Connecticut Fund (the “fund”).The fund’s investment objective is to maximize current income exempt from federal income tax and Connecticut state income tax, without undue risk. The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary ofThe Bank of NewYork Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser.
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 i nstitutional investors. Class Z shares are sold at net asset value per share generally only to shareholders of the fund who received Class Z shares in exchange for their shares of a Dreyfus-managed fund as a result of the reorganization of such Dreyfus-managed fund, and who continue 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.
TheFund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The Company enters into contracts that contain a variety of indemnifications.The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued 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 va lues from dealers; and general market conditions. Options and financial futures on municipal
30
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.
TheFund 31
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The following is a summary of the inputs used as of October 31, 2010 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable | Unobservable | ||
Quoted Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in Securities: | ||||
Municipal Bonds | — | 388,965,300 | — | 388,965,300 |
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about FairValue Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the fund. No significant transfers between Level 1 or Level 2 fair value measurements occurred at October 31, 2010. The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and rev ised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized 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.
32
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.
As of and during the period ended October 31, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the three-year period ended April 30, 2010 remains subject to examination by the Internal Revenue Service and state taxing authorities.
TheFund 33
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The fund has an unused capital loss carryover of $3,117,536 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to April 30, 2010. 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, $1,304,906 expires in fiscal 2017 and $580,185 expires in fiscal 2018.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2010 was as follows: tax exempt income $15,218,456 and ordinary income $67,539.The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing.
The average amount of borrowings outstanding under the Facilities during the period ended October 31, 2010 was approximately $19,000, 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.
34
During the period ended October 31, 2010, the Distributor retained $7,175 from commissions earned on sales of the fund’s Class A shares and $3 and $4,662 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, 2010, Class B and Class C shares were charged $2,370 and $70,912, 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-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, 2010, Class A, Class B and Class C shares were charged $310,301, $1,185, and $23,637, respectiv ely, 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
TheFund 35
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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, 2010, Class Z shares were charged $21,323 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, 2010, the fund was charged $44,979 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
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 compensates The Bank of New York Mellon, under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2010, the fund was charged $4,713 pursuant to the cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations.These fees were partially offset by earnings credits of $329.
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, 2010, the fund was charged $22,041 pursuant to the custody agreement.
During the period ended October 31, 2010, the fund was charged $2,793 for services performed by the Chief Compliance Officer.
The components of “Due toThe Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $182,163, Rule 12b-1 distribution plan fees $12,631, shareholder services plan fees $56,517, custodian fees $14,240, chief compliance officer fees $2,248 and transfer agency per account fees $21,600.
36
(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, 2010, amounted to $37,213,493 and $30,468,340, respectively.
The provisions of ASC Topic 815 “Derivatives and Hedging” require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk related contingent features in derivative agreements.The fund held no derivatives during the period ended October 31, 2010.
At October 31, 2010, accumulated net unrealized appreciation on investments was $16,215,576, consisting of $18,959,932 gross unrealized appreciation and $2,744,356 gross unrealized depreciation.
At October 31, 2010, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
TheFund 37
INFORMATION ABOUT THE REVIEW AND APPROVAL |
OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the Board of Trustees held on July 20, 2010, 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 Dre yfus 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 portfolio management’s brokerage policies and practices and the standards applied in seeking best execution.
38
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 (2001-2010) was above or equal to the Performance Group median for each reported time period and 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, 2010 was below the Performance Group median for each reported time period, but above the Performance Universe median for each reported time period except the one-year period ended May 31, 2010 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 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 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.
TheFund 39
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
Representatives of the Manager informed the Board members that there were no similarly managed 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 prof itability analysis in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders.The Board members also considered potential benefits to the Manager and its affiliates from acting as investment adviser to the fund and noted that there were no soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a 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.
40
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 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.
TheFund 41
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Dreyfus State |
Municipal Bond Funds, |
Dreyfus Maryland Fund |
SEMIANNUAL REPORT October 31, 2010
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
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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 |
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, 2010, through October 31, 2010.
Although a double-dip recession has recently become an increasingly unlikely scenario in our analysis, persistent uncertainty regarding the breadth and strength of the U.S. economic recovery has led to bouts of heightened volatility in some of the riskier sectors of the U.S. bond market during the past year. Municipal bonds, however, have fared relatively well due in part to the Build America Bonds program, which has helped provide favorable supply-and-demand dynamics, and from investors seeking higher-income and tax-sensitive alternatives to comparable-credit taxable fixed income securities.
Uncertainty will probably remain in the broader financial markets until we see more robust economic growth, but the favorable influences underlying the municipal bond market’s advance could persist for some time to come.A declining supply of newly issued tax-exempt securities, potentially rising income tax rates for top earners and low yields among comparable taxable bonds could continue to support municipal bond prices, especially if today’s economic concerns prove to be overstated. With that, we strongly suggest that you meet with your financial advisor to discuss the potential opportunities and tax-related challenges we may now face, as well as to evaluate your portfolio to help meet your individual investment needs and your future goals relative to your risk-tolerance level.
For information about how the fund performed during the reporting period, as well as general market perspectives, we provide a Discussion of Fund Performance on the pages that follow.
Thank you for your continued confidence and support.
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Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
November 15, 2010
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2010, through October 31, 2010, as provided by Jeffrey B. Burger, Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended October 31, 2010, the Class A, Class B and Class C shares of Dreyfus Maryland Fund, a series of Dreyfus State Municipal Bond Funds, produced total returns of 3.95%, 3.56% and 3.55%, 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 3.95% for the same period.2
Despite heightened economic concerns during the reporting period, municipal bonds continued to rally amid favorable supply-and-demand dynamics.The fund’s Class A shares produced returns that were in line with its benchmark, as Maryland bonds generally kept pace with national averages.
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 from 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. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
We focus on identifying undervalued sectors and securities, and we minimize the use of interest rate forecasting.We select municipal bonds by using fundamental credit analysis to estimate the relative value and attractiveness of various sectors and securities and to exploit pricing inefficiencies in the municipal bond market.We actively trade among various sectors, such as escrowed, general obligation and revenue, based on their apparent relative values.
TheFund 3
DISCUSSION OF FUND PERFORMANCE (continued)
Supply-and-Demand Factors Supported Municipal Bonds
The U.S. economy continued to rebound from the 2007-2009 Great Recession and financial crisis, but the pace of expansion slowed during the reporting period compared to earlier in 2010. In addition, investors responded cautiously over the spring and summer to new global developments, including a sovereign debt crisis in Europe. For its part, Maryland continued to struggle in the aftermath of the downturn, but it has fared better than many other states in part due to a relatively better employment market attributable to high levels of Federal employment. Still, in light of high national unemployment, the Federal Reserve Board (the “Fed”) left short-term interest rates unchanged in a historically low range between 0.00% and 0.25%. In addition, the Fed announced its intention to stimulate credit markets with a new round of quantitative easing of monetary policy through massive purchases of U.S. Treasury secu rities.
Municipal bonds proved relatively insensitive to these economic concerns, advancing amid favorable supply-and-demand dynamics as the federally subsidized Build America Bonds program continued to shift a substantial portion of new issuance to the taxable bond market. At the same time, demand for municipal bonds intensified as investors sought alternatives to low yields from money market funds. Late in the reporting period, longer-term municipal bonds rallied in anticipation of the Fed’s quantitative easing program.
Revenue Bonds Supported Fund Returns
In this favorable market environment, the fund received particularly positive contributions to relative performance from its core holdings, which were purchased with higher yields than are available in today’s marketplace. In addition, the fund benefited from its emphasis on bonds backed by revenues from hospitals, municipal utilities and industrial business development programs. Conversely, the fund held relatively light exposure to bonds from local governments backed by general tax receipts, which lagged market averages.
Although our credit selection process drives our investment approach, interest-rate considerations prompted us to emphasize bonds with
4
maturities in the seven- to 10-year range, which proved to be one of the better-performing segments of the market’s maturity spectrum.
The fund encountered relatively few disappointments during the reporting period, but its returns were dampened to a mild degree by cash awaiting investment in municipal bonds. Because of the scarcity of newly issued bonds meeting our investment criteria in Maryland, it took some time to put cash to work.
Supply-and-Demand Factors May Remain Favorable
While we expect the U.S. economic recovery to persist, we are aware that municipal bonds already have rallied strongly since the recession and financial crisis, suggesting that the bulk of their gains for the current cycle are behind us. We have maintained our focus on higher-quality revenue bonds.
We remain optimistic over the longer term.We anticipate a more ample supply of newly issued tax-exempt bonds when the Build America Bonds program either ends or is renewed with lower federal subsidies at the end of this year. In the meantime, demand for municipal bonds seems likely to stay robust as investors grow increasingly concerned regarding potential income tax increases.
November 15, 2010
Bond funds are subject generally to interest rate, credit, liquidity and market risks, to varying degrees, all of which are more fully described in the fund’s prospectus. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes, and rate increases can cause price declines.
1 | Total 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. | |
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. Investors | |
cannot invest directly in any index. |
TheFund 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, 2010 to October 31, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment
assuming actual returns for the six months ended October 31, 2010
Class A | Class B | Class C | |
Expenses paid per $1,000† | $ 4.78 | $ 7.90 | $ 8.77 |
Ending value (after expenses) | $1,039.50 | $1,035.60 | $1,035.50 |
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, 2010
Class A | Class B | Class C | |
Expenses paid per $1,000† | $ 4.74 | $ 7.83 | $ 8.69 |
Ending value (after expenses) | $1,020.52 | $1,017.44 | $1,016.59 |
† Expenses are equal to the fund’s annualized expense ratio of .93% for Class A, 1.54% for Class B and 1.71% |
for Class C, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half |
year period). |
6
STATEMENT OF INVESTMENTS
October 31, 2010 (Unaudited)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments—96.7% | Rate (%) | Date | Amount ($) | Value ($) |
Maryland—81.6% | ||||
Anne Arundel County, | ||||
EDR (Anne Arundel Community | ||||
College Project) | 5.00 | 9/1/17 | 2,255,000 | 2,376,048 |
Baltimore, | ||||
Project Revenue (Wastewater | ||||
Projects) (Insured; National | ||||
Public Finance Guarantee Corp.) | 5.00 | 7/1/22 | 630,000 | 696,509 |
Baltimore, | ||||
Subordinate Project Revenue | ||||
(Water Projects) | 5.75 | 7/1/39 | 750,000 | 839,790 |
Frederick County, | ||||
Educational Facilities Revenue | ||||
(Mount Saint Mary’s University) | 4.50 | 9/1/25 | 3,000,000 | 2,653,530 |
Gaithersburg, | ||||
Hospital Facilities | ||||
Improvement Revenue (Shady | ||||
Grove Adventist Hospital) | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 6.50 | 9/1/12 | 2,750,000 | 2,953,170 |
Harford County, | ||||
MFHR (Affinity Old Post | ||||
Apartments Projects) | ||||
(Collateralized; GNMA) | 5.00 | 11/20/25 | 1,460,000 | 1,500,632 |
Howard County, | ||||
COP | 8.15 | 2/15/20 | 605,000 | 870,377 |
Howard County, | ||||
GO (Metropolitan District | ||||
Project) | 5.25 | 8/15/19 | 1,545,000 | 1,627,797 |
Hyattsville, | ||||
Special Obligation Revenue | ||||
(University Town | ||||
Center Project) | 5.75 | 7/1/34 | 3,000,000 | 2,847,510 |
Maryland, | ||||
GO (State and Local Facilities | ||||
Loan) (Prerefunded) | 5.00 | 8/1/13 | 5,000,000 a | 5,600,600 |
Maryland Community Development | ||||
Administration, Department of | ||||
Housing and Community | ||||
Development, Housing Revenue | 5.95 | 7/1/23 | 1,050,000 | 1,051,039 |
TheFund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Maryland (continued) | ||||
Maryland Community Development | ||||
Administration, Department of | ||||
Housing and Community | ||||
Development, Housing Revenue | ||||
(Collateralized; GNMA) | 5.05 | 7/1/47 | 2,550,000 | 2,528,758 |
Maryland Community | ||||
Development Administration, | ||||
Department of Housing and | ||||
Community Development, | ||||
Residential Revenue | 5.38 | 9/1/22 | 1,160,000 | 1,161,021 |
Maryland Community | ||||
Development Administration, | ||||
Department of Housing and | ||||
Community Development, | ||||
Residential Revenue | 4.80 | 9/1/32 | 3,000,000 | 3,014,460 |
Maryland Community | ||||
Development Administration, | ||||
Department of Housing and | ||||
Community Development, | ||||
Residential Revenue | 4.95 | 9/1/38 | 1,245,000 | 1,264,659 |
Maryland Community | ||||
Development Administration, | ||||
Department of Housing and | ||||
Community Development, | ||||
Residential Revenue | 4.85 | 9/1/47 | 4,175,000 | 4,193,078 |
Maryland Economic Development | ||||
Corporation, EDR | ||||
(Terminal Project) | 5.75 | 6/1/35 | 2,000,000 | 2,089,800 |
Maryland Economic Development | ||||
Corporation, EDR | ||||
(Transportation | ||||
Facilities Project) | 5.75 | 6/1/35 | 1,000,000 | 1,044,900 |
Maryland Economic Development | ||||
Corporation, LR (Maryland | ||||
Aviation Administration | ||||
Facilities) (Insured; Assured | ||||
Guaranty Municipal Corp.) | 5.50 | 6/1/16 | 3,120,000 | 3,349,913 |
Maryland Economic Development | ||||
Corporation, LR (Maryland | ||||
Aviation Administration | ||||
Facilities) (Insured; Assured | ||||
Guaranty Municipal Corp.) | 5.50 | 6/1/18 | 2,535,000 | 2,677,442 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Maryland (continued) | ||||
Maryland Economic Development | ||||
Corporation, LR (Maryland | ||||
Aviation Administration | ||||
Facilities) (Insured; Assured | ||||
Guaranty Municipal Corp.) | 5.38 | 6/1/19 | 9,530,000 | 9,979,625 |
Maryland Economic Development | ||||
Corporation, LR (Montgomery | ||||
County Wayne Avenue Parking | ||||
Garage Project) | 5.25 | 9/15/16 | 2,940,000 | 3,157,589 |
Maryland Economic Development | ||||
Corporation, PCR (Potomac | ||||
Electric Project) | 6.20 | 9/1/22 | 2,500,000 | 2,948,725 |
Maryland Economic Development | ||||
Corporation, Port Facilities | ||||
Revenue (CNX Marine Terminals | ||||
Inc. Port of Baltimore Facility) | 5.75 | 9/1/25 | 2,000,000 | 2,049,660 |
Maryland Economic Development | ||||
Corporation, Senior Student | ||||
Housing Revenue (Towson | ||||
University Project) | 5.00 | 7/1/39 | 695,000 | 647,942 |
Maryland Economic Development | ||||
Corporation, Student Housing | ||||
Revenue (University of | ||||
Maryland, College Park Projects) | 5.75 | 6/1/33 | 1,000,000 | 1,028,770 |
Maryland Economic Development | ||||
Corporation, Student Housing | ||||
Revenue (University Village at | ||||
Sheppard Pratt) | ||||
(Insured; ACA) | 5.88 | 7/1/21 | 1,750,000 | 1,675,642 |
Maryland Economic Development | ||||
Corporation, Student Housing | ||||
Revenue (University Village at | ||||
Sheppard Pratt) (Insured; ACA) | 6.00 | 7/1/33 | 1,750,000 | 1,585,395 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Anne | ||||
Arundel Health System Issue) | 5.00 | 7/1/32 | 1,000,000 | 1,034,790 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Anne | ||||
Arundel Health System Issue) | 6.75 | 7/1/39 | 2,500,000 | 2,870,975 |
TheFund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Maryland (continued) | ||||
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Peninsula | ||||
Regional Medical Center Issue) | 5.00 | 7/1/26 | 1,630,000 | 1,686,789 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Peninsula | ||||
Regional Medical Center Issue) | 5.00 | 7/1/36 | 3,350,000 | 3,395,995 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (The Johns | ||||
Hopkins Health System | ||||
Obligated Group Issue) | 5.00 | 5/15/40 | 4,945,000 | 5,217,519 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (University | ||||
of Maryland Medical System | ||||
Issue) (Insured; National | ||||
Public Finance Guarantee Corp.) | 7.00 | 7/1/22 | 4,560,000 | 5,435,930 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (University | ||||
of Maryland Medical System | ||||
Issue) (Prerefunded) | 6.00 | 7/1/12 | 1,000,000 a | 1,090,670 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Upper | ||||
Chesapeake Hospitals Issue) | 6.00 | 1/1/38 | 3,005,000 | 3,202,639 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Washington | ||||
Christian Academy Issue) | 5.25 | 7/1/18 | 500,000 | 214,985 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Washington | ||||
Christian Academy Issue) | 5.50 | 7/1/38 | 3,540,000 | 1,522,094 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Washington | ||||
County Hospital Issue) | 5.75 | 1/1/38 | 2,500,000 | 2,540,850 |
10
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Maryland (continued) | |||||
Maryland Industrial Development | |||||
Financing Authority, EDR | |||||
(Medical Waste Associates | |||||
Limited Partnership Facility) | 8.75 | 11/15/10 | 630,000 | 567,000 | |
Maryland Industrial Development | |||||
Financing Authority, EDR (Our | |||||
Lady of Good Counsel High | |||||
School Facility) | 6.00 | 5/1/35 | 1,600,000 | 1,597,952 | |
Montgomery County, | |||||
Consolidated Public | |||||
Improvement GO | 5.25 | 10/1/15 | 2,000,000 | 2,106,520 | |
Montgomery County, | |||||
Special Obligation Revenue | |||||
(West Germantown Development | |||||
District) (Insured; Radian) | 5.38 | 7/1/20 | 500,000 | 508,275 | |
Montgomery County, | |||||
Special Obligation Revenue | |||||
(West Germantown Development | |||||
District) (Insured; Radian) | 5.50 | 7/1/27 | 2,975,000 | 2,989,340 | |
Montgomery County Housing | |||||
Opportunities Commission, SFMR | 0.00 | 7/1/28 | 34,670,000 | b | 12,961,033 |
Montgomery County Housing | |||||
Opportunities Commission, SFMR | 0.00 | 7/1/33 | 3,060,000 | b | 825,772 |
Montgomery County Housing | |||||
Opportunities Commission, SFMR | 5.00 | 7/1/36 | 1,940,000 | 1,969,313 | |
Northeast Waste Disposal | |||||
Authority, RRR (Hartford | |||||
County Resource | |||||
Recovery Facility) | |||||
(Insured; AMBAC) | 5.25 | 3/15/13 | 1,400,000 | 1,419,950 | |
Northeast Waste Disposal | |||||
Authority, RRR (Hartford | |||||
County Resource Recovery | |||||
Facility) (Insured; AMBAC) | 5.25 | 3/15/14 | 1,220,000 | 1,235,689 | |
Northeast Waste Disposal | |||||
Authority, Solid Waste Revenue | |||||
(Montgomery County Solid Waste | |||||
Disposal System) | |||||
(Insured; AMBAC) | 5.50 | 4/1/15 | 7,000,000 | 7,568,260 |
TheFund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Maryland (continued) | ||||
Northeast Waste Disposal | ||||
Authority, Solid Waste Revenue | ||||
(Montgomery County Solid | ||||
Waste Disposal System) | ||||
(Insured; AMBAC) | 5.50 | 4/1/16 | 8,000,000 | 8,649,440 |
Prince Georges County, | ||||
Special Obligation Revenue | ||||
(National Harbor Project) | 5.20 | 7/1/34 | 4,000,000 | 3,683,120 |
Washington Metropolitan Area | ||||
Transit Authority, Gross | ||||
Transit Revenue | 5.25 | 7/1/29 | 1,750,000 | 1,929,095 |
Washington Suburban | ||||
Sanitary District, General | ||||
Construction Revenue | 5.00 | 6/1/15 | 2,500,000 | 2,591,325 |
U.S. Related—15.1% | ||||
Guam Power Authority, | ||||
Revenue | 5.50 | 10/1/30 | 1,000,000 | 1,048,420 |
Guam Waterworks Authority, | ||||
Water and Wastewater | ||||
System Revenue | 6.00 | 7/1/25 | 1,000,000 | 1,027,090 |
Puerto Rico Aqueduct and Sewer | ||||
Authority, Senior Lien Revenue | 6.00 | 7/1/44 | 1,000,000 | 1,068,900 |
Puerto Rico Aqueduct and Sewer | ||||
Authority, Senior Lien Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 7/1/28 | 2,000,000 | 2,103,240 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | 5.25 | 7/1/26 | 2,000,000 | 2,077,860 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | 5.00 | 7/1/28 | 1,830,000 | 1,854,742 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | 6.00 | 7/1/38 | 1,000,000 | 1,092,270 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.13 | 7/1/30 | 100,000 | 102,067 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | 5.50 | 7/1/38 | 3,500,000 | 3,685,290 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | 5.25 | 7/1/40 | 1,500,000 | 1,565,805 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | 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 | 1,208,701 |
Puerto Rico Infrastructure | ||||
Financing Authority, Special | ||||
Tax Revenue | 5.00 | 7/1/25 | 1,250,000 | 1,271,513 |
Puerto Rico Sales Tax Financing | ||||
Corporation, Sales Tax Revenue | ||||
(First Subordinate Series) | 6.00 | 8/1/39 | 1,580,000 | 1,783,994 |
Puerto Rico Sales Tax Financing | ||||
Corporation, Sales Tax Revenue | ||||
(First Subordinate Series) | 6.00 | 8/1/42 | 2,500,000 | 2,795,575 |
Puerto Rico Sales Tax Financing | ||||
Corporation, Sales Tax Revenue | ||||
(First Subordinate Series) | 6.50 | 8/1/44 | 1,500,000 | 1,731,435 |
Virgin Islands Public Finance | ||||
Authority, Revenue (Virgin | ||||
Islands Matching Fund Loan Note) | 5.00 | 10/1/25 | 2,500,000 | 2,582,875 |
Total Investments (cost $168,684,046) | 96.7% | 173,229,478 | ||
Cash and Receivables (Net) | 3.3% | 5,835,890 | ||
Net Assets | 100.0% | 179,065,368 |
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. |
TheFund 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 | ARRN | Adjustable Rate Receipt Notes |
Assurance Corporation | |||
BAN | Bond Anticipation Notes | BPA | Bond Purchase Agreement |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | EDR | Economic Development Revenue |
EIR | Environmental Improvement Revenue | FGIC | Financial Guaranty Insurance |
Company | |||
FHA | Federal Housing Administration | FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage | FNMA | Federal National |
Corporation | Mortgage Association | ||
GAN | Grant Anticipation Notes | GIC | Guaranteed Investment Contract |
GNMA | Government National | GO | General Obligation |
Mortgage Association | |||
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 | PUTTERS Puttable Tax-Exempt Receipts | |
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 | 33.4 | ||
AA | Aa | AA | 26.7 | ||
A | A | A | 19.9 | ||
BBB | Baa | BBB | 10.3 | ||
BB | Ba | BB | 1.8 | ||
Not Ratedc | Not Ratedc | Not Ratedc | 7.9 | ||
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.
TheFund 15
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2010 (Unaudited)
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments | 168,684,046 | 173,229,478 |
Cash | 4,071,336 | |
Interest receivable | 2,377,263 | |
Receivable for shares of Beneficial Interest subscribed | 164,543 | |
Prepaid expenses | 14,048 | |
179,856,668 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 146,057 | |
Payable for shares of Beneficial Interest redeemed | 598,909 | |
Accrued expenses | 46,334 | |
791,300 | ||
Net Assets ($) | 179,065,368 | |
Composition of Net Assets ($): | ||
Paid-in capital | 183,858,838 | |
Accumulated undistributed investment income—net | 15,751 | |
Accumulated net realized gain (loss) on investments | (9,354,653) | |
Accumulated net unrealized appreciation | ||
(depreciation) on investments | 4,545,432 | |
Net Assets ($) | 179,065,368 |
Net Asset Value Per Share | |||
Class A | Class B | Class C | |
Net Assets ($) | 173,839,122 | 1,071,923 | 4,154,323 |
Shares Outstanding | 14,249,741 | 87,898 | 340,323 |
Net Asset Value Per Share ($) | 12.20 | 12.20 | 12.21 |
See notes to financial statements. |
16
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2010 (Unaudited)
Investment Income ($): | |
Interest Income | 4,513,754 |
Expenses: | |
Management fee—Note 3(a) | 492,110 |
Shareholder servicing costs—Note 3(c) | 271,400 |
Professional fees | 18,148 |
Distribution fees—Note 3(b) | 17,951 |
Registration fees | 12,663 |
Custodian fees—Note 3(c) | 10,979 |
Prospectus and shareholders’ reports | 10,353 |
Trustees’ fees and expenses—Note 3(d) | 5,101 |
Loan commitment fees—Note 2 | 412 |
Miscellaneous | 13,733 |
Total Expenses | 852,850 |
Less—reduction in fees due to earnings credits—Note 3(c) | (153) |
Net Expenses | 852,697 |
Investment Income—Net | 3,661,057 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | 752,072 |
Net unrealized appreciation (depreciation) on investments | 2,401,941 |
Net Realized and Unrealized Gain (Loss) on Investments | 3,154,013 |
Net Increase in Net Assets Resulting from Operations | 6,815,070 |
See notes to financial statements. |
TheFund 17
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
October 31, 2010 | Year Ended | |
(Unaudited) | April 30, 2010 | |
Operations ($): | ||
Investment income—net | 3,661,057 | 7,457,744 |
Net realized gain (loss) on investments | 752,072 | (590,425) |
Net unrealized appreciation | ||
(depreciation) on investments | 2,401,941 | 10,871,700 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 6,815,070 | 17,739,019 |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class A Shares | (3,557,860) | (7,217,817) |
Class B Shares | (22,303) | (74,955) |
Class C Shares | (65,143) | (130,902) |
Total Dividends | (3,645,306) | (7,423,674) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 4,818,804 | 12,844,544 |
Class B Shares | 1,150 | 222,959 |
Class C Shares | 607,915 | 689,207 |
Dividends reinvested: | ||
Class A Shares | 2,791,950 | 5,558,143 |
Class B Shares | 16,633 | 51,371 |
Class C Shares | 41,753 | 82,148 |
Cost of shares redeemed: | ||
Class A Shares | (7,460,882) | (20,064,449) |
Class B Shares | (461,759) | (2,552,230) |
Class C Shares | (220,950) | (1,034,521) |
Increase (Decrease) in Net Assets | ||
from Beneficial Interest Transactions | 134,614 | (4,202,828) |
Total Increase (Decrease) in Net Assets | 3,304,378 | 6,112,517 |
Net Assets ($): | ||
Beginning of Period | 175,760,990 | 169,648,473 |
End of Period | 179,065,368 | 175,760,990 |
Undistributed investment income—net | 15,751 | — |
18
Six Months Ended | ||
October 31, 2010 | Year Ended | |
(Unaudited) | April 30, 2010 | |
Capital Share Transactions: | ||
Class Aa | ||
Shares sold | 396,889 | 1,095,293 |
Shares issued for dividends reinvested | 229,919 | 472,376 |
Shares redeemed | (615,278) | (1,705,994) |
Net Increase (Decrease) in Shares Outstanding | 11,530 | (138,325) |
Class Ba | ||
Shares sold | 95 | 19,377 |
Shares issued for dividends reinvested | 1,371 | 4,385 |
Shares redeemed | (38,134) | (221,536) |
Net Increase (Decrease) in Shares Outstanding | (36,668) | (197,774) |
Class C | ||
Shares sold | 50,181 | 58,403 |
Shares issued for dividends reinvested | 3,436 | 6,985 |
Shares redeemed | (18,282) | (87,708) |
Net Increase (Decrease) in Shares Outstanding | 35,335 | (22,320) |
a During the period ended October 31, 2010, 15,684 Class B shares representing $190,917 were automatically |
converted to 15,683 Class A shares and during the period ended April 30, 2010, 125,168 Class B shares |
representing $1,431,317 were automatically converted to 125,172 Class A shares. |
See notes to financial statements.
TheFund 19
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||
October 31, 2010 | Year Ended April 30, | |||||
Class A Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 11.98 | 11.29 | 11.83 | 12.24 | 12.12 | 12.36 |
Investment Operations: | ||||||
Investment income—neta | .25 | .51 | .51 | .49 | .48 | .48 |
Net realized and unrealized gain | ||||||
(loss) on investments | .22 | .68 | (.54) | (.41) | .12 | (.24) |
Total from Investment Operations | .47 | 1.19 | (.03) | .08 | .60 | .24 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.25) | (.50) | (.51) | (.49) | (.48) | (.48) |
Dividends from net realized | ||||||
gain on investments | — | — | — | — | — | (.00)b |
Total Distributions | (.25) | (.50) | (.51) | (.49) | (.48) | (.48) |
Net asset value, end of period | 12.20 | 11.98 | 11.29 | 11.83 | 12.24 | 12.12 |
Total Return (%)c | 3.95d | 10.74 | (.13) | .67 | 5.04 | 1.96 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | .93e | .94 | .95 | .93 | .91 | .91 |
Ratio of net expenses | ||||||
to average net assets | .93e,f | .94f | .94 | .92 | .91f | .91f |
Ratio of net investment income | ||||||
to average net assets | 4.11e | 4.31 | 4.54 | 4.07 | 3.94 | 3.87 |
Portfolio Turnover Rate | 8.59d | 9.96 | 14.86 | 17.25 | 5.67 | 14.38 |
Net Assets, end of period | ||||||
($ x 1,000) | 173,839 | 170,612 | 162,311 | 178,268 | 186,327 | 192,953 |
a | Based on average shares outstanding at each month end. |
b | Amount represents less than $.01 per share. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
f | Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements.
20
Six Months Ended | ||||||
October 31, 2010 | Year Ended April 30, | |||||
Class B Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 11.98 | 11.29 | 11.84 | 12.24 | 12.12 | 12.36 |
Investment Operations: | ||||||
Investment income—neta | .21 | .41 | .44 | .41 | .42 | .41 |
Net realized and unrealized gain | ||||||
(loss) on investments | .22 | .71 | (.54) | (.38) | .12 | (.24) |
Total from Investment Operations | .43 | 1.12 | (.10) | .03 | .54 | .17 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.21) | (.43) | (.45) | (.43) | (.42) | (.41) |
Dividends from net realized gain | ||||||
on investments | — | — | — | — | — | (.00)b |
Total Distributions | (.21) | (.43) | (.45) | (.43) | (.42) | (.41) |
Net asset value, end of period | 12.20 | 11.98 | 11.29 | 11.84 | 12.24 | 12.12 |
Total Return (%)c | 3.56d | 10.06 | (.76) | .22 | 4.51 | 1.43 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.54e | 1.55 | 1.50 | 1.46 | 1.41 | 1.42 |
Ratio of net expenses | ||||||
to average net assets | 1.54e,f | 1.55f | 1.50f | 1.45 | 1.41f | 1.42f |
Ratio of net investment income | ||||||
to average net assets | 3.53e | 3.73 | 3.94 | 3.53 | 3.43 | 3.35 |
Portfolio Turnover Rate | 8.59d | 9.96 | 14.86 | 17.25 | 5.67 | 14.38 |
Net Assets, end of period | ||||||
($ x 1,000) | 1,072 | 1,492 | 3,640 | 10,266 | 21,524 | 29,140 |
a | Based on average shares outstanding at each month end. |
b | Amount represents less than $.01 per share. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
f | Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements.
TheFund 21
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||
October 31, 2010 | Year Ended April 30, | |||||
Class C Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 11.99 | 11.30 | 11.84 | 12.25 | 12.12 | 12.37 |
Investment Operations: | ||||||
Investment income—neta | .20 | .41 | .42 | .39 | .39 | .38 |
Net realized and unrealized gain | ||||||
(loss) on investments | .22 | .69 | (.54) | (.41) | .13 | (.25) |
Total from Investment Operations | .42 | 1.10 | (.12) | (.02) | .52 | .13 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.20) | (.41) | (.42) | (.39) | (.39) | (.38) |
Dividends from net realized gain | ||||||
on investments | — | — | — | — | — | (.00)b |
Total Distributions | (.20) | (.41) | (.42) | (.39) | (.39) | (.38) |
Net asset value, end of period | 12.21 | 11.99 | 11.30 | 11.84 | 12.25 | 12.12 |
Total Return (%)c | 3.55d | 9.88 | (.90) | (.12) | 4.33 | 1.09 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.71e | 1.72 | 1.73 | 1.72 | 1.67 | 1.69 |
Ratio of net expenses | ||||||
to average net assets | 1.71e,f | 1.72f | 1.73f | 1.71 | 1.67f | 1.69f |
Ratio of net investment income | ||||||
to average net assets | 3.32e | 3.52 | 3.76 | 3.28 | 3.18 | 3.10 |
Portfolio Turnover Rate | 8.59d | 9.96 | 14.86 | 17.25 | 5.67 | 14.38 |
Net Assets, end of period | ||||||
($ x 1,000) | 4,154 | 3,657 | 3,698 | 3,713 | 4,025 | 4,702 |
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 “Company”) 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 six series, including the Dreyfus Maryland Fund (the “fund”).The fund’s investment objective is to maximize current income exempt from federal income tax and from Maryland state income tax, 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 exp enses 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 Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
TheFund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The Company enters into contracts that contain a variety of indemnifications.The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued 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 va lues from dealers; and general market conditions. 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
24
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, 2010 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable | Unobservable | ||
Quoted Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in Securities: | ||||
Municipal Bonds | — | 173,229,478 | — | 173,229,478 |
TheFund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about FairValue Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the fund. No significant transfers between Level 1 or Level 2 fair value measurements occurred at October 31, 2010.The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revi sed disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized 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 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
26
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.
As of and during the period ended October 31, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the three-year period ended April 30, 2010 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $10,155,490 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to April 30, 2010. 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, $625,584 expires in fiscal 2017 and $713,622 expires in fiscal 2018.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2010 was as follows: tax exempt income $7,423,674. The tax character of current year distributions will be determined at the end of the current fiscal year.
TheFund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended October 31, 2010, 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, 2010, the Distributor retained $4,243 from commissions earned on sales of the fund’s Class A shares and $701 and $25 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, 2010, Class B and Class C shares were charged $3,175 and $14,776, 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
28
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, 2010, Class A, Class B and Class C shares were charged $217,173, $1,588 and $4,925, respectively, 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, 2010, the fund was charged $23,113 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
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 compensates The Bank of New York Mellon under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2010, the fund was charged $2,193 pursuant to the cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations.These fees were partially offset by earnings credits of $153.
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, 2010, the fund was charged $10,979 pursuant to the custody agreement.
TheFund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
During the period ended October 31, 2010, the fund was charged $2,793 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 $83,928, Rule 12b-1 distribution plan fees $3,120, shareholder services plan fees $38,149, custodian fees $8,647, chief compliance officer fees $2,248 and transfer agent per account fees $9,965.
(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, 2010, amounted to $14,926,144 and $17,337,112, respectively.
The provisions of ASC Topic 815 “Derivatives and Hedging” require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements.The fund held no derivatives during the period ended October 31, 2010.
At October 31, 2010, accumulated net unrealized appreciation on investments was $4,545,432, consisting of $8,448,482 gross unrealized appreciation and $3,903,050 gross unrealized depreciation.
At October 31, 2010, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
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 20, 2010, 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 by the Manager pursuant to the 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 th e 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.
TheFund 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 total return performance for various periods ended May 31, 2010 was below the Performance Group median for each reported time period and above the Performance Universe me dian for each reported time period except the ten-year period ended May 31, 2010, when it was below the median. The Board members also noted that the fund’s yield performance for the past ten one-year periods ended May 31 (2001-2010) was variously above and below the Performance Group median for each reported time period and 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 seven of the past ten calendar years. The Board members discussed with representatives of the Manager the reasons for the fund’s underper-formance compared to the Performance Group medians for the applicable periods, and the Manager’s efforts to improve performance. The Board members also received a presentation from one of the fund’s portfolio managers duri ng 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 funds (the “Expense Universe”), each selected and provided by Lipper.
32
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 in the same Lipper category, 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 p rofitability analysis in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund share-holders.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, includ-
TheFund 33
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
ing 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 satisfied with management’s efforts to improve the fund’s performance as discussed at the meeting, and determined to closely monitor the performance of the fund.
The Board concluded that the fee paid to the Manager by the fund was reasonable in light of the factors discussed above.
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 connection 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
![](https://capedge.com/proxy/N-CSRS/0000806176-11-000001/smbmdncsrx40x1.jpg)
Dreyfus State |
Municipal Bond Funds, |
Dreyfus Massachusetts Fund |
SEMIANNUAL REPORT October 31, 2010
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
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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 |
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, 2010, through October 31, 2010.
Although a double-dip recession has recently become an increasingly unlikely scenario in our analysis, persistent uncertainty regarding the breadth and strength of the U.S. economic recovery has led to bouts of heightened volatility in some of the riskier sectors of the U.S. bond market during the past year. Municipal bonds, however, have fared relatively well due in part to the Build America Bonds program which has helped provide favorable supply-and-demand dynamics, and from investors seeking higher-income and tax-sensitive alternatives to comparable-credit taxable fixed income securities.
Uncertainty will probably remain in the broader financial markets until we see more robust economic growth, but the favorable influences underlying the municipal bond market’s advance could persist for some time to come.A declining supply of newly issued tax-exempt securities, potentially rising income tax rates for top earners and low yields among comparable taxable bonds could continue to support municipal bond prices, especially if today’s economic concerns prove to be overstated. With that, we strongly suggest that you meet with your financial advisor to discuss the potential opportunities and tax-related challenges we may now face, as well as to evaluate your portfolio to help meet your individual investment needs and your future goals relative to your risk-tolerance level.
For information about how the fund performed during the reporting period, as well as general market perspectives, we provide a Discussion of Fund Performance on the pages that follow.
Thank you for your continued confidence and support.
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Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
November 15, 2010
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2010, through October 31, 2010, as provided by James Welch, Senior Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended October 31, 2010, 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 3.77%, 3.34%, 3.37% and 3.87%, 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 3.95% for the same period.2
Despite heightened economic concerns during the reporting period stemming from high levels of unemployment and other factors, municipal bonds continued to rally amid favorable supply-and-demand dynamics, driving prices broadly higher. The fund’s Class Z shares produced returns that were roughly in line with its benchmark, as Massachusetts bonds generally kept pace with national averages.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal and Massachusetts state income taxes, 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 and Massachusetts state income taxes. The fund invests at least 70% of its assets in investment-grade municipal bonds 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.
In managing the fund, we focus on identifying undervalued sectors and securities, and we minimize the use of interest rate forecasting.We select municipal bonds by using fundamental credit analysis to estimate the relative value of various sectors and securities and to exploit pricing inefficiencies in the municipal bond market. Additionally, we trade
TheFund 3
DISCUSSION OF FUND PERFORMANCE (continued)
among the market’s various sectors, such as pre-refunded, general obligation and revenue sectors, based on their apparent relative values.The fund generally will invest simultaneously in several of these sectors.
Supply-and-Demand Factors Supported Municipal Bonds
The U.S. economy continued to rebound from the recession and financial crisis, but the pace of expansion slowed during the reporting period compared to earlier in 2010. In addition, investors responded cautiously over the spring and summer to new global developments, including a sovereign debt crisis in Europe. For its part, Massachusetts continued to struggle in the aftermath of the downturn, but it has begun to see evidence of economic improvement, including higher tax revenues. Still, in light of high national unemployment, sluggish housing markets and other headwinds, the Federal Reserve Board (the “Fed”) left short-term interest rates unchanged in a historically low range between 0% and 0.25%. In addition, the Fed announced its intention to stimulate credit markets with a new round of quantitative easing of monetary policy.
Municipal bonds proved relatively insensitive to these economic concerns during the reporting period, advancing amid favorable supply-and-demand dynamics as the federally subsidized Build America Bonds program continued to shift a substantial portion of new issuance to the taxable bond market. At the same time, demand for municipal bonds intensified as investors sought alternatives to low yields from money market funds. Late in the reporting period, longer-term municipal bonds rallied as investors anticipated the Fed’s quantitative easing program, which was widely expected to drive longer-term interest rates lower.
Revenue Bonds Supported Fund Returns
In this generally favorable market environment, the fund received particularly positive contributions to relative performance from bonds backed by revenues from hospitals, universities and facilities supported by special taxes. Conversely, the fund held relatively light exposure to bonds backed by general tax receipts, which lagged market averages. The fund also benefited from underweighted exposure to traditionally defensive escrowed bonds, which lagged market averages during the reporting period. Escrowed bonds are municipal securities for which the funds for early redemption have been set aside in escrow.
4
Although our credit selection process drives our investment approach, it is worth noting that interest-rate considerations prompted us to emphasize bonds with maturities in the 20-year range. In our judgment, the negligible yield advantage provided by longer-term bonds did not provide sufficient compensation for their incremental risks.
Supply-and-Demand Factors May Remain Favorable
While we expect the U.S. economic recovery to persist, we are aware that municipal bonds already have rallied strongly since the recession and financial crisis, suggesting that the bulk of their gains for the current cycle are behind us. We have maintained our focus on higher-quality revenue bonds, including those in the secondary market.
We remain optimistic over the longer term.We anticipate a more ample supply of newly issued tax-exempt bonds when the BuildAmerica Bonds program either ends or is possibly renewed with lower federal subsidies at the end of this year. In the meantime, demand for municipal bonds seems likely to stay robust as investors grow increasingly concerned regarding potential income tax increases.
November 15, 2010
Bond funds are subject generally to interest rate, credit, liquidity and market risks, to varying degrees, all of which are more fully described in the fund’s prospectus. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes, and rate increases can cause price declines.
1 | Total 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. 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. |
TheFund 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, 2010 to October 31, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment
assuming actual returns for the six months ended October 31, 2010
Class A | Class B | Class C | Class Z | |
Expenses paid per $1,000† | $ 4.73 | $ 7.74 | $ 8.51 | $ 3.65 |
Ending value (after expenses) | $1,037.70 | $1,033.40 | $1,033.70 | $1,038.70 |
COMPARING YOUR FUND’S EXPENSES
WITH THOSE OF OTHER FUNDS (Unaudited)
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment
assuming a hypothetical 5% annualized return for the six months ended October 31, 2010
Class A | Class B | Class C | Class Z | |
Expenses paid per $1,000† | $ 4.69 | $ 7.68 | $ 8.44 | $ 3.62 |
Ending value (after expenses) | $1,020.57 | $1,017.59 | $1,016.84 | $1,021.63 |
† Expenses are equal to the fund’s annualized expense ratio of .92% for Class A, 1.51% for Class B, 1.66% for |
Class C and .71% for Class Z; multiplied by the average account value over the period, multiplied by 184/365 (to |
reflect the one-half year period). |
6
STATEMENT OF INVESTMENTS
October 31, 2010 (Unaudited)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments—98.4% | Rate (%) | Date | Amount ($) | Value ($) |
Massachusetts—84.2% | ||||
Boston, | ||||
Convention Center Loan, | ||||
Special Obligation Bonds | ||||
(Insured; AMBAC) | 5.00 | 5/1/16 | 1,750,000 | 1,850,817 |
Boston Housing Authority, | ||||
Capital Program Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 4/1/24 | 1,900,000 | 1,981,852 |
Boston Industrial Development | ||||
Financing Authority, Sewage | ||||
Facility Revenue (Harbor Electric | ||||
Energy Company Project) | 7.38 | 5/15/15 | 1,135,000 | 1,139,869 |
Boston Water and Sewer | ||||
Commission, Revenue | 5.00 | 11/1/20 | 2,000,000 | 2,243,800 |
Holliston, | ||||
GO (Insured; National Public | ||||
Finance Guarantee Corp.) | ||||
(Prerefunded) | 5.25 | 4/1/12 | 1,655,000 a | 1,785,546 |
Holyoke, | ||||
Gas and Electric Department | ||||
Revenue (Insured; National | ||||
Public Finance Guarantee Corp.) | 5.38 | 12/1/15 | 1,245,000 | 1,317,820 |
Hopkinton, | ||||
GO | 5.00 | 9/1/17 | 1,735,000 | 1,816,285 |
Hopkinton, | ||||
GO | 5.00 | 9/1/18 | 1,735,000 | 1,810,698 |
Hopkinton, | ||||
GO | 5.00 | 9/1/19 | 1,735,000 | 1,810,698 |
Hopkinton, | ||||
GO | 5.00 | 9/1/20 | 1,735,000 | 1,810,698 |
Marblehead, | ||||
GO | 5.00 | 8/15/23 | 1,835,000 | 1,969,028 |
Marblehead, | ||||
GO | 5.00 | 8/15/24 | 1,925,000 | 2,060,308 |
Massachusetts, | ||||
GO | 5.25 | 8/1/22 | 2,650,000 | 3,218,107 |
Massachusetts, | ||||
GO | 0.86 | 11/1/25 | 5,000,000 b | 4,224,350 |
TheFund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts (continued) | |||||
Massachusetts, | |||||
GO (Insured; Assured | |||||
Guaranty Municipal Corp.) | 5.25 | 9/1/23 | 1,000,000 | 1,211,460 | |
Massachusetts, | |||||
Special Obligation Dedicated | |||||
Tax Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 5.50 | 1/1/23 | 3,000,000 | 3,413,040 | |
Massachusetts Bay Transportation | |||||
Authority, Assessment Revenue | 5.00 | 7/1/21 | 2,400,000 | 2,714,760 | |
Massachusetts Bay Transportation | |||||
Authority, Assessment Revenue | 5.25 | 7/1/34 | 2,500,000 | 2,733,075 | |
Massachusetts Bay Transportation | |||||
Authority, GO (General | |||||
Transportation Systems) | 6.20 | 3/1/16 | 2,055,000 | 2,365,367 | |
Massachusetts Bay Transportation | |||||
Authority, GO (General | |||||
Transportation Systems) | 7.00 | 3/1/21 | 1,000,000 | 1,242,130 | |
Massachusetts Bay Transportation | |||||
Authority, Senior Sales | |||||
Tax Revenue | 5.00 | 7/1/21 | 1,000,000 | 1,193,050 | |
Massachusetts Bay Transportation | |||||
Authority, Senior Sales Tax | |||||
Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 5.50 | 7/1/27 | 3,000,000 | 3,690,540 | |
Massachusetts College Building | |||||
Authority, Project Revenue | 5.00 | 5/1/28 | 1,540,000 | c | 1,693,384 |
Massachusetts College Building | |||||
Authority, Project Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 0.00 | 5/1/26 | 5,385,000 | d | 3,059,326 |
Massachusetts Department of | |||||
Transportation, Metropolitan | |||||
Highway System Senior Revenue | 5.00 | 1/1/27 | 4,000,000 | 4,326,720 | |
Massachusetts Development Finance | |||||
Agency, Higher Education | |||||
Revenue (Emerson College Issue) | 5.00 | 1/1/22 | 1,000,000 | c | 1,061,460 |
Massachusetts Development Finance | |||||
Agency, Revenue (Assumption | |||||
College Issue) (Insured; Radian) | 6.00 | 3/1/30 | 1,905,000 | c | 1,919,040 |
8
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts (continued) | |||||
Massachusetts Development Finance | |||||
Agency, Revenue (Brandeis | |||||
University Issue) | 5.00 | 10/1/26 | 1,250,000 | c | 1,349,800 |
Massachusetts Development Finance | |||||
Agency, Revenue (Brandeis | |||||
University Issue) | 5.00 | 10/1/29 | 1,475,000 | c | 1,562,010 |
Massachusetts Development Finance | |||||
Agency, Revenue (Landmark | |||||
School Issue) (Insured; Radian) | 5.25 | 6/1/29 | 1,100,000 | c | 996,820 |
Massachusetts Development Finance | |||||
Agency, Revenue (Milton | |||||
Academy Issue) | 5.00 | 9/1/30 | 2,000,000 | c | 2,170,580 |
Massachusetts Development Finance | |||||
Agency, Revenue (Mount Holyoke | |||||
College Issue) | 5.25 | 7/1/31 | 4,000,000 | c | 4,033,280 |
Massachusetts Development Finance | |||||
Agency, Revenue (Suffolk | |||||
University Issue) | 5.00 | 7/1/30 | 1,000,000 | c | 994,970 |
Massachusetts Development Finance | |||||
Agency, Revenue (Wheelock | |||||
College Issue) | 5.25 | 10/1/37 | 2,500,000 | c | 2,512,850 |
Massachusetts Development Finance | |||||
Agency, RRR (SEMASS System) | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.63 | 1/1/14 | 2,000,000 | 2,068,540 | |
Massachusetts Development Finance | |||||
Agency, SWDR (Dominion Energy | |||||
Brayton Point Issue) | 5.00 | 2/1/36 | 2,000,000 | 1,977,220 | |
Massachusetts Educational | |||||
Financing Authority, Education | |||||
Loan Revenue (Insured; AMBAC) | 5.00 | 1/1/13 | 1,440,000 | c | 1,443,024 |
Massachusetts Educational | |||||
Financing Authority, Education | |||||
Loan Revenue (Insured; AMBAC) | 4.70 | 1/1/27 | 10,000,000 | c | 9,794,200 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Healthcare System | |||||
Revenue (Covenant Health | |||||
Systems Obligated Group Issue) | 6.50 | 7/1/17 | 1,175,000 | 1,226,348 |
TheFund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts (continued) | |||||
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Healthcare System | |||||
Revenue (Covenant Health | |||||
Systems Obligated Group Issue) | 6.00 | 7/1/22 | 4,030,000 | 4,148,361 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Healthcare System | |||||
Revenue (Covenant Health | |||||
Systems Obligated Group | |||||
Issue) (Prerefunded) | 6.00 | 1/1/12 | 1,070,000 | a | 1,150,978 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Healthcare System | |||||
Revenue (Covenant Health | |||||
Systems Obligated Group | |||||
Issue) (Prerefunded) | 6.50 | 1/1/12 | 310,000 | a | 335,271 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Community | |||||
Colleges Program Issue) | |||||
(Insured; AMBAC) | 5.25 | 10/1/26 | 2,845,000 | c | 2,845,370 |
Massachusetts Health and | |||||
Educational Facilities Authority, | |||||
Revenue (Dana-Farber Cancer | |||||
Institute Issue) | 5.25 | 12/1/27 | 1,000,000 | 1,090,310 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Harvard University Issue) | 5.00 | 12/15/24 | 2,350,000 | c | 2,732,157 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Harvard University | |||||
Issue) (Prerefunded) | 5.00 | 7/15/12 | 1,500,000 | a | 1,617,720 |
Massachusetts Health and | |||||
Educational Facilities Authority, | |||||
Revenue (Massachusetts Eye | |||||
and Ear Infirmary Issue) | 5.00 | 7/1/20 | 1,000,000 | 1,019,140 |
10
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts (continued) | |||||
Massachusetts Health and | |||||
Educational Facilities Authority, | |||||
Revenue (Massachusetts Eye | |||||
and Ear Infirmary Issue) | 5.38 | 7/1/35 | 1,000,000 | 992,490 | |
Massachusetts Health and | |||||
Educational Facilities Authority, | |||||
Revenue (Massachusetts | |||||
Institute of Technology Issue) | 5.25 | 7/1/33 | 4,000,000 | c | 4,921,120 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Milford-Whitinsville Regional | |||||
Hospital Issue) (Prerefunded) | 6.50 | 7/15/12 | 2,250,000 | a | 2,499,008 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Partners | |||||
HealthCare System Issue) | 6.00 | 7/1/16 | 1,520,000 | 1,578,064 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Partners | |||||
HealthCare System Issue) | 6.00 | 7/1/17 | 45,000 | 46,688 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Partners | |||||
HealthCare System Issue) | 5.25 | 7/1/29 | 2,000,000 | 2,167,840 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Partners | |||||
HealthCare System Issue) | 5.75 | 7/1/32 | 60,000 | 61,246 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Partners | |||||
HealthCare System Issue) | 5.00 | 7/1/47 | 4,950,000 | 5,008,163 | |
Massachusetts Health and | |||||
Educational Facilities Authority, | |||||
Revenue (Partners HealthCare | |||||
System Issue) (Insured; National | |||||
Public Finance Guarantee Corp.) | 5.13 | 7/1/11 | 1,000,000 | 1,003,840 |
TheFund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts (continued) | |||||
Massachusetts Health and | |||||
Educational Facilities Authority, | |||||
Revenue (Springfield College | |||||
Issue) (Insured; Radian) | 5.13 | 10/15/23 | 1,100,000 | c | 1,111,946 |
Massachusetts Health and | |||||
Educational Facilities Authority, | |||||
Revenue (Suffolk University Issue) | 6.00 | 7/1/24 | 1,000,000 | c | 1,112,720 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Tufts University Issue) | 5.50 | 8/15/18 | 1,625,000 | c | 1,996,410 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Tufts University Issue) | 5.38 | 8/15/38 | 3,000,000 | c | 3,300,060 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(UMass Memorial Issue) | 5.25 | 7/1/25 | 1,895,000 | c | 1,943,720 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(UMass Memorial Issue) | 5.00 | 7/1/33 | 1,070,000 | c | 1,061,322 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Wheaton College Issue) | 5.00 | 1/1/30 | 2,405,000 | c | 2,529,483 |
Massachusetts Health and | |||||
Educational Facilities Authority, | |||||
Revenue (Winchester | |||||
Hospital Issue) | 5.25 | 7/1/38 | 1,000,000 | 1,003,690 | |
Massachusetts Housing Finance | |||||
Agency, Housing Development | |||||
Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 5.40 | 6/1/20 | 345,000 | 345,362 | |
Massachusetts Housing Finance | |||||
Agency, Housing Revenue | 5.00 | 12/1/24 | 1,160,000 | 1,183,212 | |
Massachusetts Housing Finance | |||||
Agency, Housing Revenue | 5.00 | 12/1/26 | 1,200,000 | 1,219,272 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Massachusetts (continued) | ||||
Massachusetts Housing Finance | ||||
Agency, Housing Revenue | 5.00 | 12/1/28 | 2,000,000 | 2,031,020 |
Massachusetts Housing Finance | ||||
Agency, Housing Revenue | 5.00 | 6/1/30 | 1,295,000 | 1,324,798 |
Massachusetts Housing Finance | ||||
Agency, Housing Revenue | 5.25 | 12/1/33 | 1,350,000 | 1,356,737 |
Massachusetts Housing Finance | ||||
Agency, Housing Revenue | 5.10 | 6/1/37 | 1,695,000 | 1,699,254 |
Massachusetts Housing Finance | ||||
Agency, Housing Revenue | 5.10 | 12/1/37 | 2,130,000 | 2,148,957 |
Massachusetts Housing Finance | ||||
Agency, Housing Revenue | 5.20 | 12/1/37 | 2,000,000 | 2,041,240 |
Massachusetts Housing Finance | ||||
Agency, Rental Housing | ||||
Mortgage Revenue | ||||
(Insured; AMBAC) | 5.70 | 7/1/20 | 1,195,000 | 1,197,055 |
Massachusetts Housing Finance | ||||
Agency, SFHR | 4.75 | 12/1/30 | 1,315,000 | 1,306,531 |
Massachusetts Industrial Finance | ||||
Agency, Water Treatment | ||||
Revenue (Massachusetts-American | ||||
Hingham Project) | 6.95 | 12/1/35 | 2,790,000 | 2,790,781 |
Massachusetts Municipal Wholesale | ||||
Electric Company, Power Supply | ||||
Project Revenue (Nuclear Project | ||||
Number 4 Issue) (Insured; National | ||||
Public Finance Guarantee Corp.) | 5.25 | 7/1/14 | 2,000,000 | 2,087,500 |
Massachusetts Port Authority, | ||||
Revenue | 5.00 | 7/1/27 | 5,475,000 | 6,051,353 |
Massachusetts Water Pollution | ||||
Abatement Trust (Pool Program) | 5.38 | 8/1/27 | 3,065,000 | 3,075,697 |
Massachusetts Water Pollution | ||||
Abatement Trust, State | ||||
Revolving Fund Bonds | 5.00 | 8/1/27 | 1,535,000 | 1,728,840 |
Massachusetts Water Resources | ||||
Authority, General Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.25 | 8/1/21 | 1,500,000 | 1,712,415 |
TheFund 13
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Massachusetts (continued) | ||||
Massachusetts Water Resources | ||||
Authority, General Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.25 | 8/1/26 | 2,000,000 | 2,222,180 |
Medford, | ||||
GO (Insured; AMBAC) | 5.00 | 3/15/19 | 1,155,000 | 1,180,676 |
Pittsfield, | ||||
GO (Insured; National Public | ||||
Finance Guarantee Corp.) | ||||
(Prerefunded) | 5.13 | 4/15/12 | 1,500,000 a | 1,618,275 |
Sandwich, | ||||
GO (Insured; National Public | ||||
Finance Guarantee Corp.) | 5.00 | 7/15/19 | 1,000,000 | 1,143,950 |
Triton Regional School District, | ||||
GO (Insured; National Public | ||||
Finance Guarantee Corp.) | 5.25 | 4/1/19 | 1,420,000 | 1,460,541 |
Triton Regional School District, | ||||
GO (Insured; National Public | ||||
Finance Guarantee Corp.) | 5.25 | 4/1/20 | 1,420,000 | 1,460,541 |
U.S. Related—14.2% | ||||
Children’s Trust Fund of Puerto | ||||
Rico, Tobacco Settlement | ||||
Asset-Backed Bonds | 5.38 | 5/15/33 | 1,825,000 | 1,830,165 |
Children’s Trust Fund of Puerto | ||||
Rico, Tobacco Settlement | ||||
Asset-Backed Bonds | 5.50 | 5/15/39 | 1,245,000 | 1,206,654 |
Children’s Trust Fund of Puerto | ||||
Rico, Tobacco Settlement | ||||
Asset-Backed Bonds | 0.00 | 5/15/50 | 5,000,000 d | 177,000 |
Guam Power Authority, | ||||
Revenue | 5.50 | 10/1/30 | 1,000,000 | 1,048,420 |
Puerto Rico Aqueduct and Sewer | ||||
Authority, Senior Lien Revenue | 6.00 | 7/1/38 | 2,000,000 | 2,145,740 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | 5.25 | 7/1/25 | 1,500,000 | 1,546,590 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 6.00 | 7/1/27 | 1,000,000 | 1,087,550 |
14
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
U.S. Related (continued) | ||||
Puerto Rico Commonwealth, | ||||
Public Improvement GO | ||||
(Insured; XLCA) | 5.25 | 7/1/17 | 1,460,000 | 1,600,773 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | 5.25 | 7/1/27 | 2,500,000 | 2,671,875 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | 5.25 | 7/1/40 | 1,000,000 | 1,043,870 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.25 | 7/1/30 | 1,000,000 | 1,088,920 |
Puerto Rico Infrastructure | ||||
Financing Authority, Special | ||||
Tax Revenue (Insured; AMBAC) | 0.00 | 7/1/35 | 6,840,000 d | 1,428,739 |
Puerto Rico Infrastructure | ||||
Financing Authority, Special | ||||
Tax Revenue (Insured; FGIC) | 5.50 | 7/1/19 | 1,225,000 | 1,360,363 |
Puerto Rico Public Buildings | ||||
Authority, Guaranteed | ||||
Government Facilities Revenue | 5.75 | 7/1/22 | 1,900,000 | 2,089,183 |
Puerto Rico Public Buildings | ||||
Authority, Guaranteed | ||||
Government Facilities | ||||
Revenue (Insured; AMBAC) | 6.25 | 7/1/15 | 1,100,000 | 1,350,800 |
Puerto Rico Sales Tax Financing | ||||
Corporation, Sales Tax Revenue | ||||
(First Subordinate Series) | 5.38 | 8/1/39 | 1,000,000 | 1,053,950 |
Puerto Rico Sales Tax Financing | ||||
Corporation, Sales Tax Revenue | ||||
(First Subordinate Series) | 6.00 | 8/1/39 | 2,500,000 | 2,822,775 |
Puerto Rico Sales Tax Financing | ||||
Corporation, Sales Tax Revenue | ||||
(First Subordinate Series) | 6.00 | 8/1/42 | 2,000,000 | 2,236,460 |
Virgin Islands Public Finance | ||||
Authority, Revenue | ||||
(Virgin Islands Matching | ||||
Fund Loan Note) | 5.00 | 10/1/25 | 2,500,000 | 2,582,875 |
Total Long-Term Municipal Investments | ||||
(cost $202,105,459) | 209,828,876 |
TheFund 15
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Short-Term Municipal | Coupon | Maturity | Principal | |
Investments—.4% | Rate (%) | Date | Amount ($) | Value ($) |
Massachusetts; | ||||
Massachusetts Development | ||||
Finance Agency, Revenue | ||||
(Boston University Issue) | ||||
(LOC; Bank of America) | ||||
(cost $800,000) | 0.26 | 11/1/10 | 800,000 c,e | 800,000 |
Total Investments (cost $202,905,459) | 98.8% | 210,628,876 | ||
Cash and Receivables (Net) | 1.2% | 2,585,379 | ||
Net Assets | 100.0% | 213,214,255 |
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 Variable rate security—interest rate subject to periodic change. |
c At October 31, 2010, the fund had $53,885,726 or 25.3% of net assets invested in securities whose payment of |
principal and interest is dependent upon revenues generated from education. |
d Security issued with a zero coupon. Income is recognized through the accretion of discount. |
e Variable rate demand note—rate shown is the interest rate in effect at October 31, 2010. Maturity date represents |
the next demand date, or the ultimate maturity date if earlier. |
16
Summary of Abbreviations | |||
ABAG | Association of Bay Area Governments | ACA | American Capital Access |
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company |
AMBAC | American Municipal Bond | ARRN | Adjustable Rate Receipt Notes |
Assurance Corporation | |||
BAN | Bond Anticipation Notes | BPA | Bond Purchase Agreement |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | EDR | Economic Development Revenue |
EIR | Environmental Improvement Revenue | FGIC | Financial Guaranty Insurance |
Company | |||
FHA | Federal Housing Administration | FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage | FNMA | Federal National |
Corporation | Mortgage Association | ||
GAN | Grant Anticipation Notes | GIC | Guaranteed Investment Contract |
GNMA | Government National | GO | General Obligation |
Mortgage Association | |||
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 | PUTTERS Puttable Tax-Exempt Receipts | |
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 |
TheFund 17
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Combined Ratings (Unaudited) | |||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† |
AAA | Aaa | AAA | 29.0 | ||
AA | Aa | AA | 34.0 | ||
A | A | A | 21.5 | ||
BBB | Baa | BBB | 10.5 | ||
F1 | MIG1/P1 | SPI/A1 | .4 | ||
Not Ratedf | Not Ratedf | Not Ratedf | 4.6 | ||
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.
18
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2010 (Unaudited)
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments | 202,905,459 | 210,628,876 |
Interest receivable | 2,938,057 | |
Receivable for shares of Beneficial Interest subscribed | 15,679 | |
Prepaid expenses | 18,672 | |
213,601,284 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 137,341 | |
Cash overdraft due to Custodian | 154,093 | |
Payable for shares of Beneficial Interest redeemed | 46,213 | |
Accrued expenses | 49,382 | |
387,029 | ||
Net Assets ($) | 213,214,255 | |
Composition of Net Assets ($): | ||
Paid-in capital | 204,246,506 | |
Accumulated undistributed investment income—net | 15,193 | |
Accumulated net realized gain (loss) on investments | 1,229,139 | |
Accumulated net unrealized appreciation | ||
(depreciation) on investments | 7,723,417 | |
Net Assets ($) | 213,214,255 |
Net Asset Value Per Share | ||||
Class A | Class B | Class C | Class Z | |
Net Assets ($) | 40,527,783 | 327,813 | 3,677,836 | 168,680,823 |
Shares Outstanding | 3,477,594 | 28,166 | 315,320 | 14,475,671 |
Net Asset Value Per Share ($) | 11.65 | 11.64 | 11.66 | 11.65 |
See notes to financial statements.
TheFund 19
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2010 (Unaudited)
Investment Income ($): | |
Interest Income | 5,023,554 |
Expenses: | |
Management fee—Note 3(a) | 592,197 |
Shareholder servicing costs—Note 3(c) | 150,072 |
Registration fees | 17,897 |
Professional fees | 16,117 |
Distribution fees—Note 3(b) | 14,249 |
Custodian fees—Note 3(c) | 12,027 |
Prospectus and shareholders’ reports | 7,954 |
Trustees’ fees and expenses—Note 3(d) | 1,573 |
Loan commitment fees—Note 2 | 145 |
Miscellaneous | 16,183 |
Total Expenses | 828,414 |
Less—reduction in fees due to earnings credits—Note 3(c) | (223) |
Net Expenses | 828,191 |
Investment Income—Net | 4,195,363 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | 910,205 |
Net unrealized appreciation (depreciation) on investments | 3,015,027 |
Net Realized and Unrealized Gain (Loss) on Investments | 3,925,232 |
Net Increase in Net Assets Resulting from Operations | 8,120,595 |
See notes to financial statements. |
20
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
October 31, 2010 | Year Ended | |
(Unaudited) | April 30, 2010 | |
Operations ($): | ||
Investment income—net | 4,195,363 | 8,693,292 |
Net realized gain (loss) on investments | 910,205 | 165,009 |
Net unrealized appreciation | ||
(depreciation) on investments | 3,015,027 | 9,951,115 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 8,120,595 | 18,809,416 |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class A Shares | (786,656) | (1,626,627) |
Class B Shares | (6,265) | (27,452) |
Class C Shares | (52,188) | (104,316) |
Class Z Shares | (3,335,061) | (6,898,410) |
Net realized gain on investments: | ||
Class A Shares | — | (30,075) |
Class B Shares | — | (539) |
Class C Shares | — | (2,378) |
Class Z Shares | — | (120,629) |
Total Dividends | (4,180,170) | (8,810,426) |
TheFund 21
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||
October 31, 2010 | Year Ended | |
(Unaudited) | April 30, 2010 | |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 2,303,349 | 4,067,838 |
Class B Shares | — | 5,353 |
Class C Shares | 327,655 | 358,300 |
Class Z Shares | 2,366,531 | 6,180,400 |
Dividends reinvested: | ||
Class A Shares | 593,105 | 1,260,290 |
Class B Shares | 4,762 | 18,796 |
Class C Shares | 32,645 | 77,930 |
Class Z Shares | 2,551,868 | 5,371,315 |
Cost of shares redeemed: | ||
Class A Shares | (5,047,056) | (4,435,824) |
Class B Shares | (195,539) | (960,987) |
Class C Shares | (105,895) | (388,433) |
Class Z Shares | (6,664,876) | (12,486,581) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (3,833,451) | (931,603) |
Total Increase (Decrease) in Net Assets | 106,974 | 9,067,387 |
Net Assets ($): | ||
Beginning of Period | 213,107,281 | 204,039,894 |
End of Period | 213,214,255 | 213,107,281 |
Undistributed investment income—net | 15,193 | — |
22
Six Months Ended | ||
October 31, 2010 | Year Ended | |
(Unaudited) | April 30, 2010 | |
Capital Share Transactions: | ||
Class Aa | ||
Shares sold | 198,866 | 362,494 |
Shares issued for dividends reinvested | 51,159 | 111,838 |
Shares redeemed | (435,742) | (393,995) |
Net Increase (Decrease) in Shares Outstanding | (185,717) | 80,337 |
Class Ba | ||
Shares sold | — | 491 |
Shares issued for dividends reinvested | 411 | 1,676 |
Shares redeemed | (16,935) | (86,297) |
Net Increase (Decrease) in Shares Outstanding | (16,524) | (84,130) |
Class C | ||
Shares sold | 28,084 | 31,583 |
Shares issued for dividends reinvested | 2,816 | 6,912 |
Shares redeemed | (9,181) | (34,657) |
Net Increase (Decrease) in Shares Outstanding | 21,719 | 3,838 |
Class Z | ||
Shares sold | 203,902 | 552,383 |
Shares issued for dividends reinvested | 220,089 | 476,760 |
Shares redeemed | (576,120) | (1,108,475) |
Net Increase (Decrease) in Shares Outstanding | (152,129) | (79,332) |
a During the period ended October 31, 2010, 9,170 Class B shares representing $106,387, were automatically |
converted to 9,161 Class A shares and during the period ended April 30, 2010, 48,066 Class B shares |
representing $534,590 were automatically converted to 48,021 Class A shares. |
See notes to financial statements.
TheFund 23
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||
October 31, 2010 | Year Ended April 30, | |||||
Class A Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 11.44 | 10.91 | 11.29 | 11.66 | 11.56 | 11.87 |
Investment Operations: | ||||||
Investment income—neta | .22 | .45 | .46 | .46 | .47 | .46 |
Net realized and unrealized | ||||||
gain (loss) on investments | .21 | .54 | (.36) | (.36) | .12 | (.29) |
Total from Investment Operations | .43 | .99 | .10 | .10 | .59 | .17 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.22) | (.45) | (.46) | (.46) | (.46) | (.46) |
Dividends from net realized | ||||||
gain on investments | — | (.01) | (.02) | (.01) | (.03) | (.02) |
Total Distributions | (.22) | (.46) | (.48) | (.47) | (.49) | (.48) |
Net asset value, end of period | 11.65 | 11.44 | 10.91 | 11.29 | 11.66 | 11.56 |
Total Return (%)b | 3.77c | 9.16 | 1.07 | .92 | 5.23 | 1.48 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | .92d | .94 | .94 | .93 | .92 | .92 |
Ratio of net expenses | ||||||
to average net assets | .92d,e | .94e | .94e | .92 | .92 | .92e |
Ratio of net investment income | ||||||
to average net assets | 3.76d | 4.00 | 4.25 | 4.01 | 3.99 | 3.92 |
Portfolio Turnover Rate | 11.37c | 12.60 | 9.04 | 18.21 | 30.97 | 34.00 |
Net Assets, end of period | ||||||
($ x 1,000) | 40,528 | 41,909 | 39,079 | 44,178 | 49,034 | 49,913 |
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, 2010 | Year Ended April 30, | |||||
Class B Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 11.43 | 10.90 | 11.28 | 11.65 | 11.54 | 11.86 |
Investment Operations: | ||||||
Investment income—neta | .17 | .36 | .39 | .39 | .40 | .40 |
Net realized and unrealized | ||||||
gain (loss) on investments | .21 | .55 | (.35) | (.36) | .14 | (.30) |
Total from Investment Operations | .38 | .91 | .04 | .03 | .54 | .10 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.17) | (.37) | (.40) | (.39) | (.40) | (.40) |
Dividends from net realized | ||||||
gain on investments | — | (.01) | (.02) | (.01) | (.03) | (.02) |
Total Distributions | (.17) | (.38) | (.42) | (.40) | (.43) | (.42) |
Net asset value, end of period | 11.64 | 11.43 | 10.90 | 11.28 | 11.65 | 11.54 |
Total Return (%)b | 3.34c | 8.45 | .50 | .36 | 4.77 | .86 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.51d | 1.57 | 1.52 | 1.48 | 1.45 | 1.45 |
Ratio of net expenses | ||||||
to average net assets | 1.51d,e | 1.57e | 1.52e | 1.47 | 1.45 | 1.45e |
Ratio of net investment income | ||||||
to average net assets | 2.95d | 3.34 | 3.68 | 3.46 | 3.47 | 3.39 |
Portfolio Turnover Rate | 11.37c | 12.60 | 9.04 | 18.21 | 30.97 | 34.00 |
Net Assets, end of period | ||||||
($ x 1,000) | 328 | 511 | 1,404 | 2,910 | 3,893 | 5,188 |
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.
TheFund 25
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||
October 31, 2010 | Year Ended April 30, | |||||
Class C Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 11.45 | 10.92 | 11.30 | 11.67 | 11.56 | 11.88 |
Investment Operations: | ||||||
Investment income—neta | .17 | .36 | .38 | .37 | .38 | .37 |
Net realized and unrealized | ||||||
gain (loss) on investments | .21 | .54 | (.36) | (.36) | .14 | (.30) |
Total from Investment Operations | .38 | .90 | .02 | .01 | .52 | .07 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.17) | (.36) | (.38) | (.37) | (.38) | (.37) |
Dividends from net realized | ||||||
gain on investments | — | (.01) | (.02) | (.01) | (.03) | (.02) |
Total Distributions | (.17) | (.37) | (.40) | (.38) | (.41) | (.39) |
Net asset value, end of period | 11.66 | 11.45 | 10.92 | 11.30 | 11.67 | 11.56 |
Total Return (%)b | 3.37c | 8.33 | .32 | .17 | 4.53 | .64 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.66d | 1.70 | 1.69 | 1.68 | 1.67 | 1.66 |
Ratio of net expenses | ||||||
to average net assets | 1.66d,e | 1.70e | 1.69e | 1.67 | 1.67 | 1.66e |
Ratio of net investment income | ||||||
to average net assets | 2.98d | 3.21 | 3.51 | 3.26 | 3.24 | 3.18 |
Portfolio Turnover Rate | 11.37c | 12.60 | 9.04 | 18.21 | 30.97 | 34.00 |
Net Assets, end of period | ||||||
($ x 1,000) | 3,678 | 3,362 | 3,163 | 3,314 | 3,520 | 4,478 |
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, 2010 | Year Ended April 30, | |||||
Class Z Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 11.44 | 10.91 | 11.29 | 11.66 | 11.55 | 11.87 |
Investment Operations: | ||||||
Investment income—neta | .23 | .47 | .48 | .48 | .48 | .48 |
Net realized and unrealized | ||||||
gain (loss) on investments | .21 | .54 | (.36) | (.36) | .15 | (.30) |
Total from Investment Operations | .44 | 1.01 | .12 | .12 | .63 | .18 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.23) | (.47) | (.48) | (.48) | (.49) | (.48) |
Dividends from net realized | ||||||
gain on investments | — | (.01) | (.02) | (.01) | (.03) | (.02) |
Total Distributions | (.23) | (.48) | (.50) | (.49) | (.52) | (.50) |
Net asset value, end of period | 11.65 | 11.44 | 10.91 | 11.29 | 11.66 | 11.55 |
Total Return (%) | 3.87b | 9.39 | 1.28 | 1.14 | 5.54 | 1.56 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | .71c | .73 | .73 | .71 | .71 | .76 |
Ratio of net expenses | ||||||
to average net assets | .71c,d | .73d | .73d | .70 | .71 | .75 |
Ratio of net investment income | ||||||
to average net assets | 3.95c | 4.18 | 4.46 | 4.23 | 4.20 | 4.09 |
Portfolio Turnover Rate | 11.37b | 12.60 | 9.04 | 18.21 | 30.97 | 34.00 |
Net Assets, end of period | ||||||
($ x 1,000) | 168,681 167,326 | 160,394 | 177,652 | 195,667 | 137,011 |
a | Based on average shares outstanding at each month end. |
b | Not annualized. |
c | Annualized. |
d | Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements.
TheFund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus State Municipal Bond Funds (the “Company”) 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 six series including the Dreyfus Massachusetts Fund (the “fund”).The fund’s investment objective is to maximize current income exempt from federal income tax and from Massachusetts state income tax, 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 s hareholders of the fund who received Class Z shares in exchange for their shares of a Dreyfus-managed fund as a result of the reorganization of such Dreyfus-managed fund, and who continue 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.
28
The Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 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 fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The Company enters into contracts that contain a variety of indemnifications.The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued 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 va lues from dealers; and general market conditions. Options and financial futures on municipal
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NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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.
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The following is a summary of the inputs used as of October 31, 2010 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable | Unobservable | ||
Quoted Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in Securities: | ||||
Municipal Bonds | — | 210,628,876 | — | 210,628,876 |
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about FairValue Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the fund. No significant transfers between Level 1 or Level 2 fair value measurements occurred at October 31, 2010. The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and rev ised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Interest income, adjusted for accretion of discount and amortization of premium
TheFund 31
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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 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.
As of and during the period ended October 31, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the three-year period ended April 30, 2010 remains subject to examination by the Internal Revenue Service and state taxing authorities.
32
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2010 was as follows: tax exempt income $8,656,805, ordinary income $24,354 and long-term capital gains $129,267. The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended October 31, 2010, 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, 2010, the Distributor retained $677 from commissions earned on sales of the fund’s Class A shares and $36 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
TheFund 33
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
average daily net assets of Class C shares. During the period ended October 31, 2010, Class B and Class C shares were charged $1,069 and $13,180, 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-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, 2010, Class A, Class B and Class C shares were charged $52,547, $534, and $4,394, 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, 2010, Class Z shares were charged $40,000 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, 2010, the fund was charged $30,015 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
34
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 compensates The Bank of New York Mellon under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2010, the fund was charged $3,194 pursuant to the cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations.These fees were partially offset by earnings credits of $223.
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, 2010, the fund was charged $12,027 pursuant to the custody agreement.
During the period ended October 31, 2010, the fund was charged $2,793 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 $99,902, Rule 12b-1 distribution plan fees $2,469, shareholder services plan fees $12,557, custodian fees $8,715, chief compliance officer fees $2,248 and transfer agency per account fees $11,450.
(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, 2010, amounted to $23,918,428 and $25,816,148, respectively.
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NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The provisions of ASC Topic 815 “Derivatives and Hedging” require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk related contingent features in derivative agreements.The fund held no derivatives during the period ended October 31, 2010.
At October 31, 2010, accumulated net unrealized appreciation on investments was $7,723,417, consisting of $9,528,523 gross unrealized appreciation and $1,805,106 gross unrealized depreciation.
At October 31, 2010, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
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 20, 2010, 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 by the Manager pursuant to the 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 th e 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.
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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 total return performance for various periods ended May 31, 2010 was below the Performance Group median for each reported time period and below the Performance Universe me dian for each reported time period except the two- and ten-year periods ended May 31, 2010, when it was above the medians.The Board members also noted that the fund’s yield performance for the past ten one-year periods ended May 31 (2001-2010) was below the Performance Group median for each reported time period except the one-year period ended May 31, 2007 and May 31, 2008, when it was equal to the medians, and that the fund’s yield performance was above or equal to the Performance Universe median for each reported time period except the one-year period ended May 31, 2003 and May 31, 2004, when it was below the medians.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 underperf ormance 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
38
received a presentation from the fund’s primary portfolio manager 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 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 in the same Lipper category, 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 mem-
TheFund 39
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
bers evaluated the profitability analysis in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders.The Board members also considered potential benefits to the Manager and its affiliates from acting as investment adviser to the fund and noted that there were no soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a 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 satisfied with management’s efforts to improve the fund’s performance as discussed at the meeting, and determined to closely monitor the performance of the fund.
40
The Board concluded that the fee paid to the Manager by the fund was reasonable in light of the factors discussed above.
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.
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Dreyfus State |
Municipal Bond Funds, |
Dreyfus Minnesota Fund |
SEMIANNUAL REPORT October 31, 2010
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
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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 |
17 | Statement of Assets and Liabilities |
18 | Statement of Operations |
19 | Statement of Changes in Net Assets |
21 | Financial Highlights |
24 | Notes to Financial Statements |
32 | 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, 2010, through October 31, 2010.
Although a double-dip recession has recently become an increasingly unlikely scenario in our analysis, persistent uncertainty regarding the breadth and strength of the U.S. economic recovery has led to bouts of heightened volatility in some of the riskier sectors of the U.S. bond market during the past year. Municipal bonds, however, have fared relatively well due in part to the Build America Bonds program, which has helped provide favorable supply-and-demand dynamics, and from investors seeking higher-income and tax-sensitive alternatives to comparable-credit taxable fixed income securities.
Uncertainty will probably remain in the broader financial markets until we see more robust economic growth, but the favorable influences underlying the municipal bond market’s advance could persist for some time to come.A declining supply of newly issued tax-exempt securities, potentially rising income tax rates for top earners and low yields among comparable taxable bonds could continue to support municipal bond prices, especially if today’s economic concerns prove to be overstated. With that, we strongly suggest that you meet with your financial advisor to discuss the potential opportunities and tax-related challenges we may now face, as well as to evaluate your portfolio to help meet your individual investment needs and your future goals relative to your risk-tolerance level.
For information about how the fund performed during the reporting period, as well as general market perspectives, we provide a Discussion of Fund Performance on the pages that follow.
Thank you for your continued confidence and support.
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Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
November 15, 2010
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2010, through October 31, 2010, as provided by David Belton, Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended October 31, 2010, 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 3.60%, 3.20% and 3.19%, 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 3.95% for the same period.2 In addition, the fund is reported in the Lipper Minnesota Municipal Debt Funds category, and the average total return for all fu nds reported in this Lipper category was 3.81% for the reporting period.3
Despite heightened economic concerns during the reporting period, municipal bonds continued to rally amid favorable supply-and-demand dynamics.The fund produced returns that were lower than its benchmark, primarily due to a relatively short average duration stemming from longstanding, core holdings and a scarce supply of newly issued Minnesota bonds meeting our investment criteria.
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. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
In managing the fund, we focus on identifying undervalued sectors and securities and minimize the use of interest rate forecasting. We select municipal bonds by using fundamental credit analysis to estimate the
TheFund 3
DISCUSSION OF FUND PERFORMANCE (continued)
relative value and attractiveness of various sectors and securities and to exploit pricing inefficiencies in the municipal bond market.We actively trade among various sectors, such as health care, water and sewer and municipal electric or dedicated tax-secured, based on relative values.
Supply-and-Demand Factors Supported Municipal Bonds
The U.S. economy continued to rebound from the recession, but the pace of expansion slowed during the reporting period compared to earlier in 2010. In addition, investors responded cautiously over the spring and summer to new global developments, including a sovereign debt crisis in Europe. For its part, Minnesota continued to struggle in the aftermath of the downturn, but it has begun to see higher tax revenues in the economic recovery. Still, in light of high national unemployment and weak housing markets, the Federal Reserve Board (the “Fed”) left short-term interest rates unchanged in a historically low range between 0.00% and 0.25%. In addition, the Fed announced its intention to stimulate credit markets with a new round of quantitative easing of monetary policy through purchases of U.S.Treasury securities.
Municipal bonds proved relatively insensitive to economic concerns, advancing amid favorable supply-and-demand dynamics as the federally subsidized Build America Bonds program continued to shift a substantial portion of new issuance to the taxable bond market. At the same time, demand for municipal bonds intensified as investors sought alternatives to low yields from money market funds. Late in the reporting period, longer-term municipal bonds rallied in anticipation of the Fed’s quantitative easing program.
Revenue Bonds Supported Fund Returns
Although the fund encountered relatively few disappointments during the reporting period, its returns were dampened by an average duration that was shorter than industry averages.The fund’s short duration was the result of core holdings that have moved closer to their final maturities, as well as the scarcity of newly issued bonds meeting our investment criteria.
The fund received more positive contributions to relative performance from bonds backed by revenues from hospitals, airports, educational
4
institutions and power plants. Conversely, the fund held relatively light exposure to bonds backed by general tax receipts, which lagged market averages. The fund also benefited from underweighted exposure to traditionally defensive escrowed bonds, which are municipal securities for which the funds for early redemption have been set aside in escrow.
Supply-and-Demand Factors May Remain Favorable
While we expect the U.S. economic recovery to persist, we are aware that municipal bonds already have rallied strongly since the recession and financial crisis, suggesting that the bulk of their gains for the current cycle are behind us. Therefore, we have maintained our focus on higher-quality revenue bonds, including those in the secondary market.
We remain optimistic over the longer term. We anticipate a more ample supply of newly issued tax-exempt bonds when the Build America Bonds program either ends or is renewed with lower federal subsidies at the end of this year. In the meantime, demand for municipal bonds seems likely to stay robust as investors grow increasingly concerned regarding potential income tax increases.
November 15, 2010
Bond funds are subject generally to interest rate, credit, liquidity and market risks, to varying degrees, all of which are more fully described in the fund’s prospectus. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes, and rate increases can cause price declines.
1 | Total 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. Investors | |
cannot invest directly in any index. | |
3 | Source: Lipper Inc. |
TheFund 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, 2010 to October 31, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment
assuming actual returns for the six months ended October 31, 2010
Class A | Class B | Class C | |
Expenses paid per $1,000† | $ 4.82 | $ 7.79 | $ 8.71 |
Ending value (after expenses) | $1,036.00 | $1,032.00 | $1,031.90 |
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, 2010
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 | $1,016.64 |
† Expenses are equal to the fund’s annualized expense ratio of .94% for Class A, 1.52% for Class B and 1.70% |
for Class C, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half |
year period). |
6
STATEMENT OF INVESTMENTS
October 31, 2010 (Unaudited)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments—98.7% | Rate (%) | Date | Amount ($) | Value ($) |
Minnesota—94.9% | ||||
Andover Economic Development | ||||
Authority, Public Facility LR | ||||
(City of Andover | ||||
Community Center) | 5.20 | 2/1/34 | 885,000 | 973,827 |
Andover Economic Development | ||||
Authority, Public Facility LR | ||||
(City of Andover | ||||
Community Center) | 5.20 | 2/1/34 | 615,000 | 676,728 |
Blooming Prairie Independent | ||||
School District Number 756, GO | ||||
School Building Bonds | ||||
(Minnesota School District | ||||
Credit Enhancement Program) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 4.75 | 1/1/27 | 1,900,000 | 2,020,422 |
Bloomington Independent School | ||||
District Number 271, GO School | ||||
Building Bonds (Minnesota | ||||
School District Credit Enhancement | ||||
Program) (Insured; Assured | ||||
Guaranty Municipal Corp.) | 5.13 | 2/1/24 | 2,000,000 | 2,103,200 |
Chaska, | ||||
Electric Revenue | ||||
(Generating Facilities) | 5.00 | 10/1/30 | 1,135,000 | 1,176,496 |
Columbia Heights, | ||||
MFHR (Crest View Opportunity | ||||
Neighborhood Development | ||||
Corporation 1 Project) | ||||
(Collateralized; GNMA) | ||||
(Prerefunded) | 6.63 | 10/20/12 | 1,475,000 a | 1,721,281 |
Coon Rapids, | ||||
Multifamily Rental Housing | ||||
Revenue (GNMA Collateralized | ||||
Mortgage Loan—Mississippi | ||||
View Apartments Project) | ||||
(Collateralized; FHA) | 4.95 | 10/20/41 | 2,700,000 | 2,707,506 |
Dakota County Community | ||||
Development Agency, MFHR | ||||
(Grande Market Place Project) | ||||
(Collateralized; GNMA) | 5.40 | 11/20/43 | 3,000,000 | 3,034,770 |
TheFund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Minnesota (continued) | ||||
Dakota County Community | ||||
Development Agency, SFMR | ||||
(Mortgage-Backed Securities | ||||
Program) (Collateralized: | ||||
FHLMC, FNMA and GNMA) | 5.30 | 12/1/39 | 659,713 | 699,969 |
Hennepin County, | ||||
Second Lien Sales Tax Revenue | ||||
(Ballpark Project) | 5.00 | 12/15/29 | 1,500,000 | 1,635,360 |
Lake Superior Independent School | ||||
District Number 381, GO School | ||||
Building Bonds (Minnesota | ||||
School District Credit Enhancement | ||||
Program) (Insured; Assured | ||||
Guaranty Municipal Corp.) | 5.00 | 4/1/20 | 2,510,000 | 2,712,858 |
Lake Superior Independent School | ||||
District Number 381, GO School | ||||
Building Bonds (Minnesota | ||||
School District Credit Enhancement | ||||
Program) (Insured; Assured | ||||
Guaranty Municipal Corp.) | 5.00 | 4/1/21 | 2,640,000 | 2,853,365 |
Lakeville Independent School | ||||
District Number 194, GO School | ||||
Building Bonds (Minnesota | ||||
School District Credit Enhancement | ||||
Program) (Insured; FGIC) | 5.50 | 2/1/24 | 8,700,000 | 9,479,694 |
Mahtomedi Independent School | ||||
District Number 832, GO School | ||||
Building Bonds (Minnesota | ||||
School District Credit | ||||
Enhancement Program) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 0.00 | 2/1/17 | 1,275,000 b | 1,104,303 |
Minneapolis, | ||||
GO | 0.00 | 12/1/14 | 1,825,000 b | 1,734,407 |
Minneapolis, | ||||
Health Care System Revenue | ||||
(Fairview Health Services) | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 6.50 | 11/15/38 | 3,000,000 | 3,423,960 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Minnesota (continued) | ||||
Minneapolis, | ||||
MFHR (Sumner Field Phase II, | ||||
L.P. Project) (Collateralized; GNMA) | 5.15 | 2/20/45 | 1,575,000 | 1,588,592 |
Minneapolis, | ||||
Revenue (Blake School Project) | ||||
(Prerefunded) | 5.45 | 9/1/11 | 2,000,000 a | 2,086,180 |
Minneapolis, | ||||
Tax Increment Revenue (Saint | ||||
Anthony Falls Project) | 5.75 | 2/1/27 | 1,000,000 | 946,380 |
Minneapolis and Saint Paul Housing | ||||
and Redevelopment Authority, | ||||
Health Care Facilities Revenue | ||||
(Childrens’s Health Care) | 5.25 | 8/15/35 | 1,000,000 | 1,034,760 |
Minneapolis and Saint Paul Housing | ||||
and Redevelopment Authority, | ||||
Health Care Facility Revenue | ||||
(HealthPartners Obligated | ||||
Group Project) | 6.00 | 12/1/18 | 1,000,000 | 1,058,430 |
Minneapolis and Saint Paul Housing | ||||
and Redevelopment Authority, | ||||
Health Care Facility Revenue | ||||
(HealthPartners Obligated | ||||
Group Project) | 6.00 | 12/1/20 | 2,290,000 | 2,400,699 |
Minneapolis and Saint Paul Housing | ||||
and Redevelopment Authority, | ||||
Health Care System Revenue | ||||
(Allina Health System) | 5.25 | 11/15/29 | 1,000,000 | 1,052,920 |
Minneapolis and Saint Paul | ||||
Metropolitan Airports Commission, | ||||
Senior Airport Revenue | 5.00 | 1/1/22 | 2,000,000 | 2,127,380 |
Minneapolis and Saint Paul | ||||
Metropolitan Airports Commission, | ||||
Subordinate Airport | ||||
Revenue (Insured; AMBAC) | 5.00 | 1/1/25 | 2,140,000 | 2,168,376 |
Minnesota, | ||||
GO (Various Purpose) | 5.00 | 8/1/25 | 2,500,000 | 2,909,725 |
Minnesota, | ||||
GO (Various Purpose) | 4.00 | 8/1/30 | 2,500,000 | 2,568,050 |
TheFund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Minnesota (continued) | ||||
Minnesota, | ||||
Retirement System | ||||
Building Revenue | 6.00 | 6/1/30 | 1,475,000 | 1,481,033 |
Minnesota Agricultural and | ||||
Economic Development Board, | ||||
Health Care System Revenue | ||||
(Fairview Health Care Systems) | 6.38 | 11/15/29 | 150,000 | 151,633 |
Minnesota Agricultural and | ||||
Economic Development Board, | ||||
Revenue (Evangelical | ||||
Lutheran Project) | 6.00 | 2/1/22 | 1,130,000 | 1,161,448 |
Minnesota Agricultural and | ||||
Economic Development Board, | ||||
Revenue (Evangelical | ||||
Lutheran Project) | 6.00 | 2/1/27 | 1,750,000 | 1,787,117 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(Augsburg College) | 5.00 | 5/1/36 | 1,500,000 | 1,506,600 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(Carleton College) | 5.00 | 3/1/30 | 1,000,000 | 1,095,130 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(College of Saint Scholastica, Inc.) | 5.13 | 12/1/40 | 750,000 | 755,115 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(Gustavus Adolphus College) | 5.00 | 10/1/31 | 750,000 | 789,390 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(Saint Olaf College) | 5.00 | 10/1/21 | 1,000,000 | 1,129,200 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(University of Saint Thomas) | 5.00 | 4/1/29 | 1,000,000 | 1,054,660 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(University of Saint Thomas) | 5.00 | 10/1/29 | 1,500,000 | 1,608,675 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(University of Saint Thomas) | 5.00 | 10/1/39 | 1,700,000 | 1,780,291 |
Minnesota Housing Finance Agency, | ||||
Residential Housing | ||||
Finance Revenue | 5.00 | 1/1/20 | 2,615,000 | 2,640,182 |
10
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Minnesota (continued) | |||||
Minnesota Housing Finance Agency, | |||||
Residential Housing | |||||
Finance Revenue | 4.65 | 7/1/22 | 2,330,000 | 2,370,053 | |
Minnesota Housing Finance Agency, | |||||
Residential Housing | |||||
Finance Revenue | 4.85 | 7/1/31 | 2,000,000 | 2,017,160 | |
Minnesota Housing Finance Agency, | |||||
Residential Housing | |||||
Finance Revenue | 5.00 | 1/1/37 | 570,000 | 595,228 | |
Minnesota Housing Finance Agency, | |||||
Residential Housing | |||||
Finance Revenue | 5.10 | 7/1/38 | 2,000,000 | 2,025,200 | |
Minnesota Housing Finance Agency, | |||||
SFMR (Insured; National Public | |||||
Finance Guarantee Corp.) | 5.45 | 1/1/22 | 345,000 | 366,559 | |
Minnesota Municipal Power Agency, | |||||
Electric Revenue | 5.00 | 10/1/35 | 1,500,000 | 1,542,735 | |
Minnesota Municipal Power Agency, | |||||
Electric Revenue | 5.00 | 10/1/37 | 2,000,000 | 2,064,840 | |
Northern Municipal Power Agency, | |||||
Electric System Revenue | 5.00 | 1/1/20 | 1,150,000 | 1,313,369 | |
Northfield, | |||||
HR | 5.38 | 11/1/31 | 2,240,000 | 2,233,011 | |
Northfield, | |||||
HR (Prerefunded) | 6.00 | 11/1/11 | 1,750,000 | a | 1,845,900 |
Ramsey, | |||||
LR (Pact Charter School Project) | 6.75 | 12/1/33 | 1,000,000 | 1,002,910 | |
Rochester, | |||||
Health Care Facilities | |||||
Revenue (Mayo Clinic) | 5.00 | 11/15/38 | 2,000,000 | 2,126,320 | |
Rosemount-Apple Valley-Eagan | |||||
Independent School District | |||||
Number 196, GO School | |||||
Building Bonds (Minnesota | |||||
School District Credit | |||||
Enhancement Program) | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 0.00 | 4/1/14 | 2,960,000 | b | 2,839,321 |
Saint Cloud, | |||||
Health Care Revenue | |||||
(CentraCare Health System) | 5.13 | 5/1/30 | 1,000,000 | 1,046,330 |
TheFund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Minnesota (continued) | |||||
Saint Cloud, | |||||
Health Care Revenue | |||||
(CentraCare Health System | |||||
Project) (Insured; Assured | |||||
Guaranty Municipal Corp.) | 5.50 | 5/1/39 | 2,000,000 | 2,120,040 | |
Saint Cloud Housing and | |||||
Redevelopment Authority, | |||||
Revenue (State University | |||||
Foundation Project) | 5.13 | 5/1/18 | 1,500,000 | 1,573,065 | |
Saint Louis Park, | |||||
Health Care Facilities Revenue | |||||
(Park Nicollet Health Services) | 5.75 | 7/1/30 | 1,000,000 | 1,051,130 | |
Saint Louis Park, | |||||
Health Care Facilities Revenue | |||||
(Park Nicollet Health Services) | 5.75 | 7/1/39 | 3,000,000 | 3,126,510 | |
Saint Paul Housing and | |||||
Redevelopment Authority, | |||||
MFHR (Wellington Project) | |||||
(Collateralized; FHLMC) | 5.10 | 2/1/24 | 2,000,000 | 2,005,520 | |
Saint Paul Housing and | |||||
Redevelopment Authority, | |||||
Parking Revenue (Parking | |||||
Facilities Project) | 5.00 | 8/1/35 | 650,000 | 664,560 | |
Saint Paul Housing and | |||||
Redevelopment Authority, | |||||
Recreational Facility LR | |||||
(Jimmy Lee Recreational Center) | 5.00 | 12/1/32 | 750,000 | 783,390 | |
Southern Minnesota Municipal Power | |||||
Agency, Power Supply System | |||||
Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 0.00 | 1/1/25 | 4,505,000 | b | 2,555,732 |
Southern Minnesota Municipal | |||||
Power Agency, Power | |||||
Supply System Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 0.00 | 1/1/26 | 4,625,000 | b | 2,487,418 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Minnesota (continued) | ||||
Todd, Morrison, Cass and Wadena | ||||
Counties United Hospital District, | ||||
Health Care Facility Revenue | ||||
(Lakewood Health System) | 5.00 | 12/1/21 | 1,000,000 | 1,059,780 |
Vadnais Heights Economic | ||||
Development Authority, | ||||
Recovery Zone Facility LR | ||||
(Community and Recreational | ||||
Sports Facilities Project) | 5.25 | 2/1/41 | 2,460,000 | 2,592,520 |
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 | 2,030,600 |
Willmar, | ||||
HR (Rice Memorial Hospital | ||||
Project) (Insured; Assured | ||||
Guaranty Municipal Corp.) | 5.00 | 2/1/32 | 4,000,000 | 4,084,760 |
Winona, | ||||
Health Care Facilities Revenue | ||||
(Winona Health Obligated Group) | 5.15 | 7/1/31 | 1,500,000 | 1,424,865 |
Winona, | ||||
Health Care Facilities Revenue | ||||
(Winona Health Obligated Group) | 6.00 | 7/1/34 | 2,500,000 | 2,530,900 |
U.S. Related—3.8% | ||||
Government of Guam, | ||||
GO | 6.75 | 11/15/29 | 500,000 | 555,720 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | 5.50 | 7/1/38 | 2,000,000 | 2,105,880 |
Puerto Rico Sales Tax Financing | ||||
Corporation, Sales Tax Revenue | ||||
(First Subordinate Series) | 6.00 | 8/1/42 | 2,250,000 | 2,516,017 |
Total Long-Term Municipal Investments | ||||
(cost $124,586,110) | 133,597,455 |
TheFund 13
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Short-Term Municipal | Coupon | Maturity | Principal | |
Investment—.1% | Rate (%) | Date | Amount ($) | Value ($) |
Minnesota; | ||||
Minneapolis, | ||||
Revenue (Minnehaha Academy | ||||
Project) (LOC; U.S. Bank NA) | ||||
(cost $100,000) | 0.29 | 11/1/10 | 100,000 c | 100,000 |
Total Investments (cost $124,686,110) | 98.8% | 133,697,455 | ||
Cash and Receivables (Net) | 1.2% | 1,603,892 | ||
Net Assets | 100.0% | 135,301,347 |
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, 2010. Maturity date represents |
the next demand date, or the ultimate maturity date if earlier. |
14
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 | ARRN | Adjustable Rate Receipt Notes |
Assurance Corporation | |||
BAN | Bond Anticipation Notes | BPA | Bond Purchase Agreement |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | EDR | Economic Development Revenue |
EIR | Environmental Improvement Revenue | FGIC | Financial Guaranty Insurance |
Company | |||
FHA | Federal Housing Administration | FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage | FNMA | Federal National |
Corporation | Mortgage Association | ||
GAN | Grant Anticipation Notes | GIC | Guaranteed Investment Contract |
GNMA | Government National | GO | General Obligation |
Mortgage Association | |||
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 | PUTTERS Puttable Tax-Exempt Receipts | |
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 |
TheFund 15
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Combined Ratings (Unaudited) | |||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† |
AAA | Aaa | AAA | 21.4 | ||
AA | Aa | AA | 37.6 | ||
A | A | A | 31.4 | ||
BBB | Baa | BBB | 6.3 | ||
B | B | B | .4 | ||
Not Ratedd | Not Ratedd | Not Ratedd | 2.9 | ||
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.
16
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2010 (Unaudited)
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments | 124,686,110 | 133,697,455 |
Cash | 14,494 | |
Interest receivable | 1,810,485 | |
Receivable for shares of Beneficial Interest subscribed | 52,960 | |
Prepaid expenses | 11,572 | |
135,586,966 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 113,594 | |
Payable for shares of Beneficial Interest redeemed | 138,974 | |
Accrued expenses | 33,051 | |
285,619 | ||
Net Assets ($) | 135,301,347 | |
Composition of Net Assets ($): | ||
Paid-in capital | 127,258,427 | |
Accumulated undistributed investment income—net | 20,292 | |
Accumulated net realized gain (loss) on investments | (988,717) | |
Accumulated net unrealized appreciation | ||
(depreciation) on investments | 9,011,345 | |
Net Assets ($) | 135,301,347 |
Net Asset Value Per Share | |||
Class A | Class B | Class C | |
Net Assets ($) | 126,692,376 | 455,281 | 8,153,690 |
Shares Outstanding | 8,221,694 | 29,499 | 528,277 |
Net Asset Value Per Share ($) | 15.41 | 15.43 | 15.43 |
See notes to financial statements. |
TheFund 17
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2010 (Unaudited)
Investment Income ($): | |
Interest Income | 3,267,609 |
Expenses: | |
Management fee—Note 3(a) | 369,168 |
Shareholder servicing costs—Note 3(c) | 201,428 |
Distribution fees—Note 3(b) | 30,362 |
Professional fees | 17,558 |
Registration fees | 12,576 |
Custodian fees—Note 3(c) | 9,786 |
Prospectus and shareholders’ reports | 5,231 |
Trustees’ fees and expenses—Note 3(d) | 1,168 |
Loan commitment fees—Note 2 | 296 |
Miscellaneous | 12,031 |
Total Expenses | 659,604 |
Less—reduction in fees due to earnings credits—Note 3(c) | (80) |
Net Expenses | 659,524 |
Investment Income—Net | 2,608,085 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | 196,405 |
Net unrealized appreciation (depreciation) on investments | 1,855,810 |
Net Realized and Unrealized Gain (Loss) on Investments | 2,052,215 |
Net Increase in Net Assets Resulting from Operations | 4,660,300 |
See notes to financial statements. |
18
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
October 31, 2010 | Year Ended | |
(Unaudited) | April 30, 2010 | |
Operations ($): | ||
Investment income—net | 2,608,085 | 5,119,465 |
Net realized gain (loss) on investments | 196,405 | (830,696) |
Net unrealized appreciation | ||
(depreciation) on investments | 1,855,810 | 5,065,371 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 4,660,300 | 9,354,140 |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class A Shares | (2,459,205) | (4,829,375) |
Class B Shares | (7,609) | (33,418) |
Class C Shares | (120,979) | (218,408) |
Total Dividends | (2,587,793) | (5,081,201) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 5,568,149 | 15,566,769 |
Class B Shares | 15 | 22,304 |
Class C Shares | 1,394,407 | 1,456,592 |
Dividends reinvested: | ||
Class A Shares | 2,003,708 | 3,803,156 |
Class B Shares | 7,017 | 20,478 |
Class C Shares | 84,723 | 144,240 |
Cost of shares redeemed: | ||
Class A Shares | (6,186,120) | (14,378,461) |
Class B Shares | (64,638) | (1,299,172) |
Class C Shares | (486,105) | (834,916) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | 2,321,156 | 4,500,990 |
Total Increase (Decrease) in Net Assets | 4,393,663 | 8,773,929 |
Net Assets ($): | ||
Beginning of Period | 130,907,684 | 122,133,755 |
End of Period | 135,301,347 | 130,907,684 |
Undistributed investment income—net | 20,292 | — |
TheFund 19
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||
October 31, 2010 | Year Ended | |
(Unaudited) | April 30, 2010 | |
Capital Share Transactions: | ||
Class Aa | ||
Shares sold | 363,221 | 1,039,628 |
Shares issued for dividends reinvested | 130,539 | 253,319 |
Shares redeemed | (404,326) | (953,975) |
Net Increase (Decrease) in Shares Outstanding | 89,434 | 338,972 |
Class Ba | ||
Shares sold | 1 | 1,473 |
Shares issued for dividends reinvested | 457 | 1,365 |
Shares redeemed | (4,214) | (86,605) |
Net Increase (Decrease) in Shares Outstanding | (3,756) | (83,767) |
Class C | ||
Shares sold | 91,022 | 96,723 |
Shares issued for dividends reinvested | 5,508 | 9,589 |
Shares redeemed | (31,561) | (55,146) |
Net Increase (Decrease) in Shares Outstanding | 64,969 | 51,166 |
a During the period ended October 31, 2010, 48 Class B shares representing $739 were automatically converted to |
48 Class A shares and during the period ended April 30, 2010, 18,366 Class B shares representing $278,776 |
were automatically converted to 18,396 Class A shares. |
See notes to financial statements.
20
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||
October 31, 2010 | Year Ended April 30, | |||||
Class A Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 15.17 | 14.67 | 14.96 | 15.32 | 15.17 | 15.42 |
Investment Operations: | ||||||
Investment income—neta | .30 | .60 | .63 | .64 | .64 | .64 |
Net realized and unrealized | ||||||
gain (loss) on investments | .24 | .50 | (.24) | (.36) | .17 | (.25) |
Total from Investment Operations | .54 | 1.10 | .39 | .28 | .81 | .39 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.30) | (.60) | (.62) | (.64) | (.64) | (.64) |
Dividends from net realized | ||||||
gain on investments | — | — | (.06) | — | (.02) | — |
Total Distributions | (.30) | (.60) | (.68) | (.64) | (.66) | (.64) |
Net asset value, end of period | 15.41 | 15.17 | 14.67 | 14.96 | 15.32 | 15.17 |
Total Return (%)b | 3.60c | 7.61 | 2.89 | 1.86 | 5.44 | 2.58 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | .94d | .94 | .98 | 1.11 | 1.10 | 1.08 |
Ratio of net expenses | ||||||
to average net assets | .94d,e | .94e | .98e | 1.10 | 1.09 | 1.07 |
Ratio of interest and expense | ||||||
related to floating rate notes | ||||||
issued to average net assets | — | — | .02 | .15 | .17 | .13 |
Ratio of net investment income | ||||||
to average net assets | 3.93d | 4.02 | 4.35 | 4.21 | 4.18 | 4.19 |
Portfolio Turnover Rate | 6.33c | 12.88 | 14.21 | 14.69 | 5.27 | 7.24 |
Net Assets, end of period | ||||||
($ x 1,000) | 126,692 123,363 | 114,357 | 105,393 | 103,737 | 102,510 |
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.
TheFund 21
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||
October 31, 2010 | Year Ended April 30, | |||||
Class B Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 15.19 | 14.70 | 14.98 | 15.35 | 15.19 | 15.44 |
Investment Operations: | ||||||
Investment income—neta | .24 | .49 | .54 | .56 | .56 | .56 |
Net realized and unrealized | ||||||
gain (loss) on investments | .24 | .50 | (.21) | (.37) | .18 | (.24) |
Total from Investment Operations | .48 | .99 | .33 | .19 | .74 | .32 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.24) | (.50) | (.55) | (.56) | (.56) | (.57) |
Dividends from net realized | ||||||
gain on investments | — | — | (.06) | — | (.02) | — |
Total Distributions | (.24) | (.50) | (.61) | (.56) | (.58) | (.57) |
Net asset value, end of period | 15.43 | 15.19 | 14.70 | 14.98 | 15.35 | 15.19 |
Total Return (%)b | 3.20c | 6.85 | 2.41 | 1.26 | 4.98 | 2.06 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.52d | 1.57 | 1.52 | 1.62 | 1.61 | 1.59 |
Ratio of net expenses | ||||||
to average net assets | 1.52d,e | 1.57e | 1.52e | 1.61 | 1.59 | 1.58 |
Ratio of interest and expense | ||||||
related to floating rate notes | ||||||
issued to average net assets | — | — | .02 | .15 | .17 | .13 |
Ratio of net investment income | ||||||
to average net assets | 3.18d | 3.41 | 3.83 | 3.70 | 3.67 | 3.68 |
Portfolio Turnover Rate | 6.33c | 12.88 | 14.21 | 14.69 | 5.27 | 7.24 |
Net Assets, end of period | ||||||
($ x 1,000) | 455 | 505 | 1,720 | 5,046 | 9,088 | 10,420 |
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
Six Months Ended | ||||||
October 31, 2010 | Year Ended April 30, | |||||
Class C Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 15.19 | 14.70 | 14.98 | 15.35 | 15.19 | 15.44 |
Investment Operations: | ||||||
Investment income—neta | .24 | .49 | .51 | .52 | .53 | .53 |
Net realized and unrealized | ||||||
gain (loss) on investments | .24 | .48 | (.21) | (.37) | .18 | (.25) |
Total from Investment Operations | .48 | .97 | .30 | .15 | .71 | .28 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.24) | (.48) | (.52) | (.52) | (.53) | (.53) |
Dividends from net realized | ||||||
gain on investments | — | — | (.06) | — | (.02) | — |
Total Distributions | (.24) | (.48) | (.58) | (.52) | (.55) | (.53) |
Net asset value, end of period | 15.43 | 15.19 | 14.70 | 14.98 | 15.35 | 15.19 |
Total Return (%)b | 3.19c | 6.72 | 2.18 | 1.03 | 4.72 | 1.81 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.70d | 1.71 | 1.75 | 1.86 | 1.85 | 1.83 |
Ratio of net expenses | ||||||
to average net assets | 1.70d,e | 1.71e | 1.75e | 1.86e | 1.84 | 1.82 |
Ratio of interest and expense | ||||||
related to floating rate notes | ||||||
issued to average net assets | — | — | .02 | .15 | .17 | .13 |
Ratio of net investment income | ||||||
to average net assets | 3.14d | 3.25 | 3.57 | 3.44 | 3.43 | 3.43 |
Portfolio Turnover Rate | 6.33c | 12.88 | 14.21 | 14.69 | 5.27 | 7.24 |
Net Assets, end of period | ||||||
($ x 1,000) | 8,154 | 7,039 | 6,057 | 4,867 | 4,148 | 4,398 |
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.
TheFund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus State Municipal Bond Funds (the “Company”) 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 six series including the Dreyfus Minnesota Fund (the “fund”).The fund’s investment objective is to maximize current income exempt from federal income tax and from Minnesota state income tax, 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 exp enses 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 Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
24
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The Company enters into contracts that contain a variety of indemnifications.The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued 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 val ues 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
TheFund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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, 2010 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable | Unobservable | ||
Quoted Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in Securities: | ||||
Municipal Bonds | — | 133,697,455 | — | 133,697,455 |
26
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about FairValue Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the fund. No significant transfers between Level 1 or Level 2 fair value measurements occurred at October 31, 2010. The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and rev ised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized 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 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.
TheFund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(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.
As of and during the period ended October 31, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the three-year period ended April 30, 2010 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $1,227,352 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to April 30, 2010. If not applied, the carryover expires in fiscal 2018.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2010 was as follows: tax exempt income $5,081,201. The tax character of current year distributions will be determined at the end of the current fiscal year.
28
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended October 31, 2010, 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, 2010, the Distributor retained $3,378 from commissions earned on sales of the fund’s Class A 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, 2010, Class B and Class C shares were charged $1,207 and $29,155, 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
TheFund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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, 2010, Class A, Class B and Class C shares were charged $157,482, $603 and $9,719, 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, 2010, the fund was charged $12,632 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
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 compensates The Bank of New York Mellon, under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2010, the fund was charged $1,153 pursuant to the cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations.These fees were partially offset by earnings credits of $80.
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, 2010, the fund was charged $9,786 pursuant to the custody agreement.
30
During the period ended October 31, 2010, the fund was charged $2,793 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 $63,339, Rule 12b-1 distribution plan fees $5,345, shareholder services plan fees $28,791, custodian fees $6,885, chief compliance officer fees $2,248 and transfer agency per account fees $6,986.
(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, 2010, amounted to $11,066,417 and $8,285,522, respectively.
The provisions of ASC Topic 815 “Derivatives and Hedging” require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk related contingent features in derivative agreements.The fund held no derivatives during the period ended October 31, 2010.
At October 31, 2010, accumulated net unrealized appreciation on investments was $9,011,345, consisting of $9,219,578 gross unrealized appreciation and $208,233 gross unrealized depreciation.
At October 31, 2010, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
TheFund 31
INFORMATION ABOUT THE REVIEW AND APPROVAL |
OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the Board of Trustees held on July 20, 2010, 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 by the Manager pursuant to the 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 th e 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.
32
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 total return performance for various periods ended May 31, 2010 was above or equal to the Performance Group and Performance Universe medians for each reported time peri od except the one-year period ended May 31, 2010, when it was below the medians. The Board members also noted that the fund’s yield performance for the past ten one-year periods ended May 31 (2001 - 2010) was above the Performance Group median for each reported time period except the one-year period ended May 31, 2001 and May 31, 2002, when it was below the medians, and that the fund’s yield 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
TheFund 33
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 in the same Lipper category, 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 prof itability analysis in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders.The Board members also considered potential benefits to the Manager and its affiliates from acting as investment adviser to the fund and noted that there were no soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of
34
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 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 factors discussed above.
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.
TheFund 35
NOTES
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Dreyfus State |
Municipal Bond Funds, |
Dreyfus Ohio Fund |
SEMIANNUAL REPORT October 31, 2010
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
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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 |
16 | Statement of Assets and Liabilities |
17 | Statement of Operations |
18 | Statement of Changes in Net Assets |
20 | Financial Highlights |
23 | Notes to Financial Statements |
32 | Information About the Review and Approval of 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, 2010, through October 31, 2010.
Although a double-dip recession has recently become an increasingly unlikely scenario in our analysis, persistent uncertainty regarding the breadth and strength of the U.S. economic recovery has led to bouts of heightened volatility in some of the riskier sectors of the U.S. bond market during the past year. Municipal bonds, however, have fared relatively well due in part to the Build America Bonds program, which has helped provide favorable supply-and-demand dynamics, and from investors seeking higher-income and tax-sensitive alternatives to comparable-credit taxable fixed income securities.
Uncertainty will probably remain in the broader financial markets until we see more robust economic growth, but the favorable influences underlying the municipal bond market’s advance could persist for some time to come.A declining supply of newly issued tax-exempt securities, potentially rising income tax rates for top earners and low yields among comparable taxable bonds could continue to support municipal bond prices, especially if today’s economic concerns prove to be overstated. With that, we strongly suggest that you meet with your financial advisor to discuss the potential opportunities and tax-related challenges we may now face, as well as to evaluate your portfolio to help meet your individual investment needs and your future goals relative to your risk-tolerance level.
For information about how the fund performed during the reporting period, as well as general market perspectives, we provide a Discussion of Fund Performance on the pages that follow.
Thank you for your continued confidence and support.
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Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
November 15, 2010
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2010, through October 31, 2010, as provided by David Belton, Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended October 31, 2010, the Class A, Class B and Class C shares of Dreyfus Ohio Fund, a series of Dreyfus State Municipal Bond Funds, produced total returns of 3.39%, 3.03% and 2.91%, 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 3.95% for the same period.2 In addition, the fund is reported in the Lipper Ohio Municipal Debt Funds category, and the average total return for all funds reported in this Lipper category was 3.44% for the reporting period.3
Despite heightened economic concerns during the reporting period, municipal bonds continued to rally amid favorable supply-and-demand dynamics.The fund produced returns that were lower than its benchmark, primarily due to economic concerns that were more severe in Ohio than most other states.
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. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
In managing the funds we focus on identifying undervalued sectors and securities, and we minimize the use of interest rate forecasting.We select municipal bonds by using fundamental credit analysis to estimate the relative value and attractiveness of various sectors and securities
TheFund 3
DISCUSSION OF FUND PERFORMANCE (continued)
and to exploit pricing inefficiencies in the municipal bond market. Additionally, we actively trade among various sectors, such as health care, water and sewer, municipal electric or dedicated tax-secured, based on our appraisal of relative values.
Supply-and-Demand Factors Supported Municipal Bonds
The U.S. economy continued to rebound from recession, but the pace of expansion slowed during the reporting period. In addition, investors responded cautiously over the spring and summer to new global developments, including a sovereign debt crisis in Europe. For its part, Ohio continued to struggle more than most other states in the aftermath of the downturn, primarily due to its reliance on heavy industry. In light of high national unemployment, the Federal Reserve Board (the “Fed”) left short-term interest rates unchanged in a historically low range between 0.00% and 0.25%. In addition, the Fed announced its intention to stimulate credit markets with a new round of quantitative easing of monetary policy through purchases of U.S.Treasury securities.
Municipal bonds proved relatively insensitive to economic concerns, advancing amid favorable supply-and-demand dynamics as the federally subsidized Build America Bonds program continued to shift a substantial portion of new issuance to the taxable bond market. At the same time, demand for municipal bonds intensified as investors sought alternatives to low yields from money market funds. Late in the reporting period, longer-term municipal bonds rallied in anticipation of the Fed’s quantitative easing program.
Revenue Bonds Supported Fund Returns
In this market environment, the fund received particularly positive contributions from bonds backed by revenues from hospitals, educational institutions and facilities supported by special taxes. Conversely, the fund held relatively light exposure to state bonds backed by general tax receipts, which lagged market averages. The fund also benefited from underweighted exposure to traditionally defensive escrowed bonds.
Although our credit selection process drives our investment approach, it is worth noting that interest-rate considerations prompted us to establish the fund’s duration in a range that was slightly longer than
4
industry averages. This positioning added value to the fund’s performance as longer-term interest rates declined.
On the other hand, the fund’s relative performance was dampened by its holdings of general obligation debt from local governments and bonds backed by water and sewer facilities.
Supply-and-Demand Factors May Remain Favorable
While we expect the U.S. economic recovery to persist, we are aware that municipal bonds already have rallied strongly since the recession and financial crisis, suggesting that the bulk of their gains for the current cycle are behind us. Therefore, we have maintained our focus on higher-quality revenue bonds.
We remain optimistic over the longer term.We anticipate a more ample supply of newly issued tax-exempt bonds when the Build America Bonds program ends or is renewed with lower federal subsidies at the end of this year. In the meantime, demand for municipal bonds seems likely to stay robust as investors grow increasingly concerned regarding potential income tax increases.
November 15, 2010
Bond funds are subject generally to interest rate, credit, liquidity and market risks, to varying degrees, all of which are more fully described in the fund’s prospectus. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes, and rate increases can cause price declines.
1 | Total 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-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. Investors | |
cannot invest directly in any index. | |
3 | Source: Lipper Inc. |
TheFund 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, 2010 to October 31, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment
assuming actual returns for the six months ended October 31, 2010
Class A | Class B | Class C | |
Expenses paid per $1,000† | $ 4.92 | $ 8.09 | $ 8.75 |
Ending value (after expenses) | $1,033.90 | $1,030.30 | $1,029.10 |
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, 2010
Class A | Class B | Class C | |
Expenses paid per $1,000† | $ 4.89 | $ 8.03 | $ 8.69 |
Ending value (after expenses) | $1,020.37 | $1,017.24 | $1,016.59 |
† Expenses are equal to the fund’s annualized expense ratio of .96% for Class A, 1.58% for Class B, and 1.71% |
for Class C; multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half |
year period). |
6
STATEMENT OF INVESTMENTS
October 31, 2010 (Unaudited)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments—99.4% | Rate (%) | Date | Amount ($) | Value ($) |
Ohio—84.4% | ||||
Akron, | ||||
GO | 6.00 | 12/1/12 | 1,035,000 | 1,065,946 |
Akron, | ||||
GO (Insured; National Public | ||||
Finance Guarantee Corp.) | 5.50 | 12/1/20 | 1,460,000 a | 1,526,912 |
Allen County, | ||||
Hospital Facilities Revenue | ||||
(Catholic Healthcare Partners) | 5.25 | 9/1/27 | 2,500,000 | 2,741,325 |
Blue Ash, | ||||
Tax Increment Financing Revenue | ||||
(Duke Realty Ohio Project) | 5.00 | 12/1/16 | 900,000 | 926,937 |
Blue Ash, | ||||
Tax Increment Financing Revenue | ||||
(Duke Realty Ohio Project) | 5.00 | 12/1/21 | 730,000 | 707,735 |
Blue Ash, | ||||
Tax Increment Financing Revenue | ||||
(Duke Realty Ohio Project) | 5.00 | 12/1/25 | 500,000 | 464,915 |
Blue Ash, | ||||
Tax Increment Financing Revenue | ||||
(Duke Realty Ohio Project) | 5.00 | 12/1/30 | 400,000 | 342,804 |
Blue Ash, | ||||
Tax Increment Financing Revenue | ||||
(Duke Realty Ohio Project) | 5.00 | 12/1/35 | 1,000,000 | 810,270 |
Buckeye Tobacco Settlement | ||||
Financing Authority, Tobacco | ||||
Settlement Asset-Backed Bonds | 5.13 | 6/1/24 | 2,475,000 | 2,162,705 |
Butler County, | ||||
Hospital Facilities Revenue | ||||
(UC Health) | 5.50 | 11/1/40 | 2,000,000 | 1,956,880 |
Cincinnati, | ||||
EDR (Baldwin 300 Project) | 5.00 | 11/1/28 | 2,565,000 | 2,719,387 |
Cincinnati City School District, | ||||
GO School Improvement Bonds | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | ||||
(Prerefunded) | 5.38 | 12/1/11 | 6,560,000 a,b | 6,924,736�� |
Cincinnati State Technical and | ||||
Community College, General | ||||
Receipts Bonds (Insured; AMBAC) | 5.25 | 10/1/22 | 2,375,000 | 2,445,466 |
TheFund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Ohio (continued) | |||||
Cleveland, | |||||
Waterworks Revenue (Insured; | |||||
National Public Finance | |||||
Guarantee Corp.) | 5.50 | 1/1/21 | 8,000,000 | a | 9,525,200 |
Cleveland-Cuyahoga County Port | |||||
Authority, Cultural Facility | |||||
Revenue (The Cleveland | |||||
Museum of Art Project) | 5.00 | 10/1/22 | 2,500,000 | 2,822,725 | |
Cleveland-Cuyahoga County Port | |||||
Authority, Senior Special | |||||
Assessment/Tax Increment | |||||
Revenue (University Heights— | |||||
Public Parking Garage Project) | 7.00 | 12/1/18 | 2,040,000 | 2,080,494 | |
Cleveland-Cuyahoga County Port | |||||
Authority, Senior Special | |||||
Assessment/Tax Increment | |||||
Revenue (University Heights— | |||||
Public Parking Garage Project) | 7.35 | 12/1/31 | 3,655,000 | 3,690,563 | |
Cuyahoga Community College | |||||
District, General Receipts Bonds | 5.00 | 8/1/25 | 2,500,000 | 2,779,525 | |
Fairfield City School District, | |||||
GO School Improvement Bonds | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.38 | 12/1/19 | 1,860,000 | a | 1,946,564 |
Fairfield City School District, | |||||
GO School Improvement Bonds | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.38 | 12/1/20 | 1,400,000 | a | 1,465,156 |
Franklin County, | |||||
Hospital Improvement Revenue | |||||
(Nationwide Children’s | |||||
Hospital Project) | 5.00 | 11/1/34 | 3,850,000 | 4,005,694 | |
Franklin County, | |||||
HR (Holy Cross Health | |||||
System Corporation) | 5.80 | 6/1/16 | 260,000 | 260,637 | |
Hamilton County, | |||||
EDR (King Highland Community | |||||
Urban Redevelopment Corporation— | |||||
University of Cincinnati, Lessee, | |||||
Project) (Insured; National Public | |||||
Finance Guarantee Corp.) | 5.00 | 6/1/33 | 2,000,000 | a | 2,059,800 |
8
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Ohio (continued) | |||||
Hamilton County, | |||||
Sales Tax Revenue | |||||
(Insured; AMBAC) | 0.00 | 12/1/27 | 17,940,000 | c | 7,831,169 |
Hilliard City School District, | |||||
GO School Improvement Bonds | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 0.00 | 12/1/13 | 1,655,000 | a,c | 1,593,484 |
Hilliard City School District, | |||||
GO School Improvement Bonds | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 0.00 | 12/1/14 | 1,655,000 | a,c | 1,553,184 |
Kent State University, | |||||
General Receipts Bonds (A | |||||
State University of Ohio) | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 5/1/25 | 2,000,000 | 2,204,360 | |
Kent State University, | |||||
General Receipts Bonds (A | |||||
State University of Ohio) | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 5/1/29 | 1,000,000 | 1,074,110 | |
Lebanon City School District, | |||||
GO (School Facilities | |||||
Construction and Improvement) | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) (Prerefunded) | 5.50 | 12/1/11 | 4,050,000 | b | 4,280,688 |
Mason City School District, | |||||
GO Unlimited Tax Bonds | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.25 | 12/1/31 | 5,000,000 | 6,073,850 | |
Massillon City School District, | |||||
GO (Various Purpose | |||||
Improvement) (Insured; | |||||
National Public Finance | |||||
Guarantee Corp.) | 5.00 | 12/1/25 | 1,150,000 | a | 1,176,956 |
Montgomery County, | |||||
Revenue (Miami Valley Hospital) | 6.25 | 11/15/33 | 2,500,000 | 2,660,175 | |
New Albany Community Authority, | |||||
Community Facilities Revenue | |||||
(Insured; AMBAC) | 5.20 | 10/1/24 | 2,000,000 | 2,041,960 |
TheFund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Ohio (continued) | |||||
Ohio Higher Educational Facility | |||||
Commission, Higher Educational | |||||
Facility Revenue (Kenyon | |||||
College Project) | 5.00 | 7/1/41 | 2,000,000 | 2,048,940 | |
Ohio Higher Educational Facility | |||||
Commission, Higher Educational | |||||
Facility Revenue (Xavier | |||||
University Project) (Insured; | |||||
FGIC) (Prerefunded) | 5.00 | 5/1/13 | 2,000,000 | b | 2,205,760 |
Ohio Higher Educational | |||||
Facility Commission, HR | |||||
(Cleveland Clinic Health | |||||
System Obligated Group) | 5.50 | 1/1/43 | 3,000,000 | 3,183,840 | |
Ohio State University, | |||||
General Receipts Bonds | 5.25 | 6/1/23 | 2,625,000 | 2,863,639 | |
Ohio State University, | |||||
General Receipts Bonds | 5.00 | 12/1/23 | 1,000,000 | 1,169,830 | |
Ohio Turnpike Commission, | |||||
Turnpike Revenue, Highway | |||||
Improvements | 5.50 | 2/15/26 | 3,565,000 | 3,584,786 | |
Ohio Turnpike Commission, | |||||
Turnpike Revenue, Highway | |||||
Improvements (Prerefunded) | 5.50 | 2/15/11 | 1,000,000 | b | 1,015,420 |
Ohio Water Development Authority, | |||||
Water Pollution Control | |||||
Loan Fund Revenue | |||||
(Water Quality Series) | 5.00 | 12/1/18 | 3,710,000 | 4,453,632 | |
Ohio Water Development Authority, | |||||
Water Pollution Control | |||||
Loan Fund Revenue | |||||
(Water Quality Series) | 5.00 | 12/1/23 | 2,000,000 | 2,293,460 | |
Port of Greater Cincinnati | |||||
Development Authority, Special | |||||
Obligation Development Revenue | |||||
(Cooperative Public Parking | |||||
and Infrastructure Project) | 6.30 | 2/15/24 | 2,215,000 | 1,529,147 | |
Port of Greater Cincinnati | |||||
Development Authority, Special | |||||
Obligation Development Revenue | |||||
(Cooperative Public Parking | |||||
and Infrastructure Project) | 6.40 | 2/15/34 | 2,500,000 | 1,544,550 |
10
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Ohio (continued) | |||||
Port of Greater Cincinnati | |||||
Development Authority, Tax | |||||
Increment Development Revenue | |||||
(Fairfax Village Red Bank | |||||
Infrastructure Project) | 5.50 | 2/1/25 | 2,145,000 | d | 1,781,187 |
Richland County, | |||||
GO (Correctional Facilities | |||||
Bonds) (Insured; Assured | |||||
Guaranty Municipal Corp.) | 6.00 | 12/1/28 | 400,000 | 457,628 | |
Strongsville, | |||||
GO Library Improvement Bonds | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.50 | 12/1/20 | 1,700,000 | a | 1,781,413 |
Summit County Port Authority, | |||||
Development Revenue | |||||
(Bond Fund Program-Twinsburg | |||||
Township Project) | 5.13 | 5/15/25 | 385,000 | 344,848 | |
Summit County Port Authority, | |||||
Revenue (Civic Theatre | |||||
Project) (Insured; AMBAC) | 5.50 | 12/1/26 | 1,000,000 | 965,790 | |
Toledo-Lucas County Port | |||||
Authority, Development Revenue | |||||
(Northwest Ohio Bond Fund— | |||||
Midwest Terminals Project) | 6.00 | 11/15/27 | 1,695,000 | 1,625,200 | |
Toledo-Lucas County Port | |||||
Authority, Development Revenue | |||||
(Northwest Ohio Bond Fund— | |||||
Toledo Express Airport Project) | 6.38 | 11/15/32 | 2,425,000 | 2,432,857 | |
University of Akron, | |||||
General Receipts Bonds | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 1/1/29 | 1,000,000 | 1,064,630 | |
University of Cincinnati, | |||||
General Receipts Bonds | 5.00 | 6/1/34 | 1,500,000 | 1,562,700 | |
University of Cincinnati, | |||||
General Receipts Bonds | |||||
(Insured; FGIC) (Prerefunded) | 5.75 | 6/1/11 | 1,000,000 | b | 1,042,250 |
University of Cincinnati, | |||||
General Receipts Bonds | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.00 | 6/1/21 | 3,040,000 | a | 3,203,582 |
TheFund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Ohio (continued) | |||||
Warren, | |||||
Waterworks Revenue (Insured; | |||||
National Public Finance | |||||
Guarantee Corp.) | 5.50 | 11/1/15 | 1,450,000 | a | 1,558,591 |
West Muskingum Local School | |||||
District, GO (School Facilities | |||||
Construction and Improvement) | |||||
(Insured; National Public Finance | |||||
Guarantee Corp.) | 5.00 | 12/1/30 | 2,945,000 | a | 2,951,126 |
U.S. Related—15.0% | |||||
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 0.00 | 5/15/50 | 12,500,000 | c | 442,500 |
Government of Guam, | |||||
GO | 6.75 | 11/15/29 | 500,000 | 555,720 | |
Guam Power Authority, | |||||
Revenue | 5.50 | 10/1/30 | 1,000,000 | 1,048,420 | |
Guam Waterworks Authority, | |||||
Water and Wastewater | |||||
System Revenue | 5.88 | 7/1/35 | 900,000 | 913,662 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | 5.25 | 7/1/17 | 1,000,000 | 1,083,390 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.50 | 7/1/38 | 2,500,000 | 2,632,350 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.50 | 7/1/15 | 1,000,000 | a | 1,142,150 |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.00 | 7/1/23 | 2,000,000 | a | 2,059,640 |
Puerto Rico Highways and | |||||
Transportation Authority, | |||||
Highway Revenue (Insured; | |||||
Assured Guaranty Municipal Corp.) | 5.50 | 7/1/31 | 3,370,000 | 3,781,241 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 5.38 | 8/1/39 | 1,000,000 | 1,053,950 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/39 | 2,000,000 | 2,258,220 |
12
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
U.S. Related (continued) | |||||
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/42 | 1,750,000 | 1,956,903 | |
Virgin Islands Public Finance | |||||
Authority, Revenue (Virgin | |||||
Islands Gross Receipts Taxes | |||||
Loan Note) | 6.38 | 10/1/19 | 3,000,000 | 3,036,480 | |
Virgin Islands Public Finance | |||||
Authority, Revenue (Virgin Islands | |||||
Matching Fund Loan Note) | 5.00 | 10/1/25 | 1,500,000 | 1,549,725 | |
Total Long-Term Municipal Investments | |||||
(cost $151,000,336) | 156,101,469 | ||||
Short-Term Municipal | |||||
Investments—1.5% | |||||
Ohio; | |||||
Allen County, | |||||
Hospital Facilities Revenue | |||||
(Catholic Healthcare Partners) | |||||
(LOC; Bank of America) | 0.27 | 11/1/10 | 1,000,000 | e | 1,000,000 |
Ohio Water Development Authority, | |||||
PCR, Refunding (FirstEnergy | |||||
Generation Corporation | |||||
Project) (LOC; Barclays Bank) | 0.25 | 11/1/10 | 1,300,000 | e | 1,300,000 |
Total Short-Term Municipal Investments | |||||
(cost $2,300,000) | 2,300,000 | ||||
Total Investments (cost $153,300,336) | 100.9% | 158,401,469 | |||
Liabilities, Less Cash and Receivables | (.9%) | (1,337,623) | |||
Net Assets | 100.0% | 157,063,846 |
a At October 31, 2010, 25.8% of the fund’s net assets are insured by National Public Finance Guarantee Corp. |
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 issued with a zero coupon. Income is recognized through the accretion of discount. |
d 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, 2010, this security |
had a market value of $1,781,187 or 1.1% of net assets. |
e Variable rate demand note—rate shown is the interest rate in effect at October 31, 2010. Maturity date represents |
the next demand date, or the ultimate maturity date if earlier. |
TheFund 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 | ARRN | Adjustable Rate Receipt Notes |
Assurance Corporation | |||
BAN | Bond Anticipation Notes | BPA | Bond Purchase Agreement |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | EDR | Economic Development Revenue |
EIR | Environmental Improvement Revenue | FGIC | Financial Guaranty Insurance |
Company | |||
FHA | Federal Housing Administration | FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage | FNMA | Federal National |
Corporation | Mortgage Association | ||
GAN | Grant Anticipation Notes | GIC | Guaranteed Investment Contract |
GNMA | Government National | GO | General Obligation |
Mortgage Association | |||
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 | PUTTERS Puttable Tax-Exempt Receipts | |
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 | 19.5 | ||
AA | Aa | AA | 39.7 | ||
A | A | A | 14.2 | ||
BBB | Baa | BBB | 10.0 | ||
BB | Ba | BB | .6 | ||
B | B | B | .3 | ||
F1 | MIG1/P1 | SP1/A1 | 1.5 | ||
Not Ratedf | Not Ratedf | Not Ratedf | 14.2 | ||
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.
TheFund 15
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2010 (Unaudited)
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments | 153,300,336 | 158,401,469 |
Interest receivable | 2,510,407 | |
Receivable for shares of Beneficial Interest subscribed | 57,147 | |
Prepaid expenses | 12,301 | |
160,981,324 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 130,590 | |
Cash overdraft due to Custodian | 37,546 | |
Payable for investment securities purchased | 3,489,005 | |
Payable for shares of Beneficial Interest redeemed | 182,084 | |
Accrued expenses | 78,253 | |
3,917,478 | ||
Net Assets ($) | 157,063,846 | |
Composition of Net Assets ($): | ||
Paid-in capital | 155,954,295 | |
Accumulated undistributed investment income—net | 14,981 | |
Accumulated net realized gain (loss) on investments | (4,006,563) | |
Accumulated net unrealized appreciation | ||
(depreciation) on investments | 5,101,133 | |
Net Assets ($) | 157,063,846 |
Net Asset Value Per Share | |||
Class A | Class B | Class C | |
Net Assets ($) | 149,156,547 | 554,404 | 7,352,895 |
Shares Outstanding | 12,283,020 | 45,663 | 604,440 |
Net Asset Value Per Share ($) | 12.14 | 12.14 | 12.16 |
See notes to financial statements. |
16
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2010 (Unaudited)
Investment Income ($): | |
Interest Income | 4,080,743 |
Expenses: | |
Management fee—Note 3(a) | 437,451 |
Shareholder servicing costs—Note 3(c) | 239,475 |
Distribution fees—Note 3(b) | 28,933 |
Interest and expense related to floating rate notes issued—Note 4 | 25,425 |
Professional fees | 16,515 |
Registration fees | 10,421 |
Custodian fees—Note 3(c) | 9,928 |
Prospectus and shareholders’ reports | 6,170 |
Trustees’ fees and expenses—Note 3(d) | 2,461 |
Loan commitment fees—Note 2 | 365 |
Miscellaneous | 13,340 |
Total Expenses | 790,484 |
Less—reduction in fees due to earnings credits—Note 3(c) | (127) |
Net Expenses | 790,357 |
Investment Income—Net | 3,290,386 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | 1,434,500 |
Net unrealized appreciation (depreciation) on investments | 502,484 |
Net Realized and Unrealized Gain (Loss) on Investments | 1,936,984 |
Net Increase in Net Assets Resulting from Operations | 5,227,370 |
See notes to financial statements. |
TheFund 17
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
October 31, 2010 | Year Ended | |
(Unaudited) | April 30, 2010 | |
Operations ($): | ||
Investment income—net | 3,290,386 | 7,097,326 |
Net realized gain (loss) on investments | 1,434,500 | (1,740,408) |
Net unrealized appreciation | ||
(depreciation) on investments | 502,484 | 8,022,650 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 5,227,370 | 13,379,568 |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class A Shares | (3,140,829) | (6,750,433) |
Class B Shares | (10,646) | (46,349) |
Class C Shares | (123,930) | (272,602) |
Total Dividends | (3,275,405) | (7,069,384) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 1,838,760 | 5,324,952 |
Class B Shares | 968 | 4,292 |
Class C Shares | 326,832 | 613,878 |
Dividends reinvested: | ||
Class A Shares | 2,485,810 | 5,256,051 |
Class B Shares | 9,069 | 31,264 |
Class C Shares | 102,369 | 211,477 |
Cost of shares redeemed: | ||
Class A Shares | (7,028,557) | (16,552,034) |
Class B Shares | (136,046) | (1,372,868) |
Class C Shares | (710,493) | (609,266) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (3,111,288) | (7,092,254) |
Total Increase (Decrease) in Net Assets | (1,159,323) | (782,070) |
Net Assets ($): | ||
Beginning of Period | 158,223,169 | 159,005,239 |
End of Period | 157,063,846 | 158,223,169 |
Undistributed investment income—net | 14,981 | — |
18
Six Months Ended | ||
October 31, 2010 | Year Ended | |
(Unaudited) | April 30, 2010 | |
Capital Share Transactions: | ||
Class Aa | ||
Shares sold | 152,375 | 450,584 |
Shares issued for dividends reinvested | 205,550 | 442,202 |
Shares redeemed | (581,403) | (1,392,680) |
Net Increase (Decrease) in Shares Outstanding | (223,478) | (499,894) |
Class Ba | ||
Shares sold | 80 | 362 |
Shares issued for dividends reinvested | 750 | 2,640 |
Shares redeemed | (11,254) | (116,359) |
Net Increase (Decrease) in Shares Outstanding | (10,424) | (113,357) |
Class C | ||
Shares sold | 26,865 | 51,612 |
Shares issued for dividends reinvested | 8,449 | 17,755 |
Shares redeemed | (58,786) | (51,147) |
Net Increase (Decrease) in Shares Outstanding | (23,472) | 18,220 |
a During the period ended October 31, 2010, 2,333 Class B shares representing $28,060 were automatically |
converted to 2,332 Class A shares and during the period ended April 30, 2010, 60,353 Class B shares |
representing $709,409 were automatically converted to 60,353 Class A shares. |
See notes to financial statements.
TheFund 19
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||
October 31, 2010 | Year Ended April 30, | |||||
Class A Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 11.99 | 11.53 | 12.20 | 12.63 | 12.50 | 12.78 |
Investment Operations: | ||||||
Investment income—neta | .25 | .53 | .54 | .52 | .51 | .52 |
Net realized and unrealized | ||||||
gain (loss) on investments | .15 | .46 | (.67) | (.43) | .13 | (.28) |
Total from Investment Operations | .40 | .99 | (.13) | .09 | .64 | .24 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.25) | (.53) | (.54) | (.52) | (.51) | (.52) |
Net asset value, end of period | 12.14 | 11.99 | 11.53 | 12.20 | 12.63 | 12.50 |
Total Return (%)b | 3.39c | 8.71 | (1.00) | .74 | 5.22 | 1.92 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | .96d | .97 | 1.06 | 1.07 | 1.05 | 1.02 |
Ratio of net expenses | ||||||
to average net assets | .96d,e | .97e | 1.06e | 1.06 | 1.03 | 1.02e |
Ratio of interest and expense | ||||||
related to floating rate notes | ||||||
issued to average net assets | .03d | .04 | .11 | .14 | .14 | .11 |
Ratio of net investment income | ||||||
to average net assets | 4.17d | 4.47 | 4.64 | 4.19 | 4.07 | 4.12 |
Portfolio Turnover Rate | 11.33c | 15.70 | 7.73 | 12.00 | 31.65 | 13.57 |
Net Assets, end of period | ||||||
($ x 1,000) | 149,157 150,006 | 150,007 | 167,683 | 183,157 | 184,312 |
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, 2010 | Year Ended April 30, | |||||
Class B Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 11.99 | 11.53 | 12.21 | 12.63 | 12.50 | 12.78 |
Investment Operations: | ||||||
Investment income—neta | .21 | .44 | .45 | .45 | .44 | .46 |
Net realized and unrealized | ||||||
gain (loss) on investments | .15 | .47 | (.66) | (.42) | .14 | (.28) |
Total from Investment Operations | .36 | .91 | (.21) | .03 | .58 | .18 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.21) | (.45) | (.47) | (.45) | (.45) | (.46) |
Net asset value, end of period | 12.14 | 11.99 | 11.53 | 12.21 | 12.63 | 12.50 |
Total Return (%)b | 3.03c | 8.02 | (1.66) | .28 | 4.68 | 1.40 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.58d | 1.56 | 1.62 | 1.61 | 1.57 | 1.53 |
Ratio of net expenses | ||||||
to average net assets | 1.58d,e | 1.56e | 1.62e | 1.60 | 1.55 | 1.53e |
Ratio of interest and expense | ||||||
related to floating rate notes | ||||||
issued to average net assets | .03d | .04 | .11 | .14 | .14 | .11 |
Ratio of net investment income | ||||||
to average net assets | 3.50d | 3.86 | 4.00 | 3.64 | 3.55 | 3.61 |
Portfolio Turnover Rate | 11.33c | 15.70 | 7.73 | 12.00 | 31.65 | 13.57 |
Net Assets, end of period | ||||||
($ x 1,000) | 554 | 673 | 1,954 | 6,375 | 14,720 | 22,108 |
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.
TheFund 21
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||
October 31, 2010 | Year Ended April 30, | |||||
Class C Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 12.02 | 11.55 | 12.23 | 12.65 | 12.52 | 12.80 |
Investment Operations: | ||||||
Investment income—neta | .21 | .44 | .45 | .43 | .42 | .43 |
Net realized and unrealized | ||||||
gain (loss) on investments | .14 | .47 | (.68) | (.42) | .13 | (.28) |
Total from Investment Operations | .35 | .91 | (.23) | .01 | .55 | .15 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.21) | (.44) | (.45) | (.43) | (.42) | (.43) |
Net asset value, end of period | 12.16 | 12.02 | 11.55 | 12.23 | 12.65 | 12.52 |
Total Return (%)b | 2.91c | 7.97 | (1.82) | .07 | 4.42 | 1.15 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.71d | 1.73 | 1.82 | 1.83 | 1.81 | 1.78 |
Ratio of net expenses | ||||||
to average net assets | 1.71d,e | 1.73e | 1.81 | 1.83e | 1.79 | 1.77 |
Ratio of interest and expense | ||||||
related to floating rate notes | ||||||
issued to average net assets | .03d | .04 | .11 | .14 | .14 | .11 |
Ratio of net investment income | ||||||
to average net assets | 3.41d | 3.71 | 3.88 | 3.43 | 3.31 | 3.36 |
Portfolio Turnover Rate | 11.33c | 15.70 | 7.73 | 12.00 | 31.65 | 13.57 |
Net Assets, end of period | ||||||
($ x 1,000) | 7,353 | 7,545 | 7,044 | 7,805 | 9,053 | 9,939 |
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 “Company”) 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 currently offering six series, including the Dreyfus Ohio Fund (the “fund”).The fund’s investment objective is to maximize current income exempt from federal income tax and from Ohio state income tax, 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 b orne 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 Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
TheFund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The Company enters into contracts that contain a variety of indemnifications.The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued 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 va lues from dealers; and general market conditions.
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 hierar-
24
chy 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, 2010 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable | Unobservable | ||
Quoted Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in Securities: | ||||
Municipal Bonds | — | 158,401,469 | — | 158,401,469 |
TheFund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about FairValue Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the fund. No significant transfers between Level 1 or Level 2 fair value measurements occurred at October 31, 2010. The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and rev ised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Interest income, adjusted for accretion of discount and amortization of premium on investments is earned from settlement date and recognized on the accrual basis. Securities purchased or sold on a when issued or delayed delivery basis may be settled a month or more after the trade date.
The fund 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
26
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, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the three-year period ended April 30, 2010 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $5,476,768 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to April 30, 2010. 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, $197,779 expires in fiscal 2017 and $3,375,306 expires in fiscal 2018.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2010 was as follows: tax exempt income $7,069,384. The tax character of current year distributions will be determined at the end of the current fiscal year.
TheFund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended October 31, 2010, 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, 2010, the Distributor retained $3,374 from commissions earned on sales of the fund’s Class A shares and $601 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, 2010, Class B and Class C shares were charged $1,530 and $27,403, 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
28
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, 2010, Class A, Class B and Class C shares were charged $188,942, $765 and $9,134, 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, 2010, the fund was charged $19,981 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
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 compensates The Bank of New York Mellon under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2010, the fund was charged $1,822 pursuant to the cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations.These fees were partially offset by earnings credits of $127.
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, 2010, the fund was charged $9,928 pursuant to the custody agreement.
TheFund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
During the period ended October 31, 2010, the fund was charged $2,793 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 $73,730, Rule 12b-1 distribution plan fees $4,891, shareholder services plan fees $33,514, custodian fees $6,562, chief compliance officer fees $2,248 and transfer agent per account fees $9,645.
(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, 2010, amounted to $18,163,639 and $20,093,208, respectively.
The fund participates 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. At October 31, 2010, there were no floating rate notes outstanding.
30
The average amount of borrowings outstanding under the inverse floater structure during the period ended October 31, 2010, was approximately $5,173,300, with a related weighted average annualized interest rate of .97%.
The provisions of ASC Topic 815 “Derivatives and Hedging” require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements.The fund held no derivatives during the period ended October 31, 2010.
At October 31, 2010, accumulated net unrealized appreciation on investments was $5,101,133, consisting of $8,454,644 gross unrealized appreciation and $3,353,511 gross unrealized depreciation.
At October 31, 2010, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
TheFund 31
INFORMATION ABOUT THE REVIEW AND APPROVAL
OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited)
At a meeting of the Board of Trustees held on July 20, 2010, 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 by the Manager pursuant to the 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 th e 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.
32
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 total return performance for various periods ended May 31, 2010 was below the Performance Group and Performance Universe medians for each reported time period except the one-year period ended May 31, 2010, when it was above the medians.The Board members also noted that the fund’s yield performance for the past ten one-year periods ended May 31 (2001-2010) was variously above and below the Performance Group median for each reported time period and 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 seven 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 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.
TheFund 33
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
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 in the same Lipper category, 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 pro fitability analysis in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of
34
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 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 satisfied with management’s efforts to improve the fund’s performance as discussed at the meeting, and determined to closely monitor the performance of the fund.
The Board concluded that the fee paid to the Manager by the fund was reasonable in light of the factors discussed above.
TheFund 35
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
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.
36
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Dreyfus State |
Municipal Bond Funds, |
Dreyfus Pennsylvania Fund |
SEMIANNUAL REPORT October 31, 2010
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Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.dreyfus.com and sign up for Dreyfus eCommunications. It’s simple and only takes a few minutes.
The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
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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, 2010, through October 31, 2010.
Although a double-dip recession has recently become an increasingly unlikely scenario in our analysis, persistent uncertainty regarding the breadth and strength of the U.S. economic recovery has led to bouts of heightened volatility in some of the riskier sectors of the U.S. bond market during the past year. Municipal bonds, however, have fared relatively well due in part to the Build America Bonds program which has helped provide favorable supply-and-demand dynamics, and from investors seeking higher-income and tax-sensitive alternatives to comparable-credit taxable fixed income securities.
Uncertainty will probably remain in the broader financial markets until we see more robust economic growth, but the favorable influences underlying the municipal bond market’s advance could persist for some time to come.A declining supply of newly issued tax-exempt securities, potentially rising income tax rates for top earners and low yields among comparable taxable bonds could continue to support municipal bond prices, especially if today’s economic concerns prove to be overstated. With that, we strongly suggest that you meet with your financial advisor to discuss the potential opportunities and tax-related challenges we may now face, as well as to evaluate your portfolio to help meet your individual investment needs and your future goals relative to your risk-tolerance level.
For information about how the fund performed during the reporting period, as well as general market perspectives, we provide a Discussion of Fund Performance on the pages that follow.
Thank you for your continued confidence and support.
![](https://capedge.com/proxy/N-CSRS/0000806176-11-000001/smbpancsrx4x2.jpg)
Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
November 15, 2010
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2010, through October 31, 2010, as provided by Steven Harvey, Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended October 31, 2010, 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 4.43%, 4.04%, 3.97% and 4.47%, 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 3.95% for the same period.2
Despite heightened economic concerns during the reporting period, municipal bonds continued to benefit from favorable supply-and-demand dynamics.The fund’s returns were higher than its benchmark, primarily due to its emphasis on revenue-backed 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. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
In managing the fund, we focus on identifying undervalued sectors and securities, and we minimize the use of interest rate forecasting.We select municipal bonds by using fundamental credit analysis to estimate the relative value of various sectors and securities and to exploit pricing inefficiencies in the municipal bond market. Additionally, we trade among various sectors, such as pre-refunded, general obligation and revenue sectors, based on their apparent relative values.The fund generally will invest simultaneously in several of these sectors.
TheFund 3
DISCUSSION OF FUND PERFORMANCE (continued)
Supply-and-Demand Factors Supported Municipal Bonds
The U.S. economy continued to rebound from the recession, but the pace of expansion slowed during the reporting period. In addition, investors responded cautiously to new global developments, including a sovereign debt crisis in Europe.While Pennsylvania and most other states continued to struggle in the aftermath of the downturn, we began to see evidence of improvement, including a modest increase in tax revenues, as economic conditions stabilized. Nonetheless, in light of high unemployment and other headwinds, the Federal Reserve Board (the “Fed”) left short-term interest rates unchanged in a historically low range between 0% and 0.25%. In addition, the Fed announced its intention to stimulate credit markets with a new round of quantitative easing of monetary policy.
Municipal bonds proved relatively insensitive to economic concerns during the reporting period, advancing amid favorable supply-and-demand dynamics as a result of the federally subsidized Build America Bonds program, which shifted a substantial portion of new issuance to the taxable bond market.At the same time, demand for municipal bonds intensified as investors sought alternatives to low yields from money market funds. Late in the reporting period, longer-term municipal bonds rallied as investors anticipated the Fed’s quantitative easing program, which was expected to drive longer-term interest rates lower.
Revenue Bonds Boosted Fund Returns
In this favorable market environment, the fund received particularly positive contributions from bonds backed by revenues from waterworks, sewer systems and other municipal facilities. Conversely, the fund held relatively light exposure to bonds backed by general tax receipts, which lagged market averages.
The fund particularly benefited from municipal bonds backed by revenues from industrial development projects and health care facilities, which we identified through extensive independent research into their underlying credit profiles. Finally, while we manage the fund with an emphasis on security selection, we maintained the fund’s average duration in a range between neutral and slightly longer-than-average. This strategy added a degree of value as longer-term interest rates declined and short-term interest rates remained anchored by a historically low federal funds rate.
4
Bonds issued by Harrisburg lagged during the quarter on negative news regarding the city’s guarantee of an incinerator project owned by Dauphin County.While the fund owns no bonds related to the incinerator project, holdings in bonds issued by Harrisburg to finance a state office building also underperformed. State rentals are sufficient to pay debt service on the office building bonds, and we are confident they will remain distinct from the city’s problem with its incinerator guarantee.
Supply-and-Demand Factors May Remain Favorable
Pennsylvania and other states have continued to face fiscal pressures, but we do not expect a return to recessionary conditions. Still, we are aware that municipal bonds already have rallied strongly, suggesting to us that the bulk of their gains for the current cycle are behind us.Therefore, we have maintained our focus on higher-quality revenue bonds.
We remain optimistic over the longer term. We anticipate a more ample supply of newly issued bonds when the Build America Bonds program either ends or is renewed with possibly lower federal subsidies at the end of this year. In the meantime, demand seems likely to stay robust as investors grow increasingly concerned regarding potential income tax increases.
November 15, 2010
Bond funds are subject generally to interest rate, credit, liquidity and market risks, to varying degrees, all of which are more fully described in the fund’s prospectus. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes, and rate increases can cause price declines.
1 | Total 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 is 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-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 Barclay 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. Investors | |
cannot invest directly in any index. |
TheFund 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, 2010 to October 31, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment
assuming actual returns for the six months ended October 31, 2010
Class A | Class B | Class C | Class Z | |
Expenses paid per $1,000† | $ 4.84 | $ 8.07 | $ 8.69 | $ 3.76 |
Ending value (after expenses) | $1,044.30 | $1,040.40 | $1,039.70 | $1,044.70 |
COMPARING YOUR FUND’S EXPENSES
WITH THOSE OF OTHER FUNDS (Unaudited)
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment
assuming a hypothetical 5% annualized return for the six months ended October 31, 2010
Class A | Class B | Class C | Class Z | |
Expenses paid per $1,000† | $ 4.79 | $ 7.98 | $ 8.59 | $ 3.72 |
Ending value (after expenses) | $1,020.47 | $1,017.29 | $1,016.69 | $1,021.53 |
† Expenses are equal to the fund’s annualized expense ration of .94% for Class A, 1.57% for Class B, 1.69% for |
Class C and .73% for Class Z, multiplied by the average account value over the period, multiplied by 184/365 (to |
reflect the one-half year period). |
6
STATEMENT OF INVESTMENTS
October 31, 2010 (Unaudited)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments—99.3% | Rate (%) | Date | Amount ($) | Value ($) |
Pennsylvania—87.0% | ||||
Adams County Industrial | ||||
Development Authority, Revenue | ||||
(Gettysburg College) | 5.00 | 8/15/25 | 1,000,000 | 1,092,190 |
Adams County Industrial | ||||
Development Authority, Revenue | ||||
(Gettysburg College) | 5.00 | 8/15/26 | 1,000,000 | 1,082,850 |
Allegheny County Airport | ||||
Authority, Airport Revenue | ||||
(Pittsburgh International | ||||
Airport) (Insured; Assured | ||||
Guaranty Municipal Corp.) | 5.00 | 1/1/17 | 1,000,000 | 1,069,110 |
Allegheny County Hospital | ||||
Development Authority, HR | ||||
(South Hills Health System) | 5.13 | 5/1/29 | 1,100,000 | 997,865 |
Allegheny County Sanitary | ||||
Authority, Sewer Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 6/1/30 | 2,000,000 | 2,140,600 |
Bethel Park School District, | ||||
GO | 5.00 | 8/1/29 | 3,000,000 | 3,178,650 |
Butler County Industrial | ||||
Development Authority, Health | ||||
Care Facilities Revenue (Saint | ||||
John Lutheran Care Center | ||||
Project) (Collateralized; GNMA) | 5.80 | 4/20/29 | 5,475,000 | 5,620,526 |
Butler County Industrial | ||||
Development Authority, MFHR | ||||
(Greenview Gardens Apartments) | 6.00 | 7/1/23 | 475,000 | 475,907 |
Butler County Industrial | ||||
Development Authority, MFHR | ||||
(Greenview Gardens Apartments) | 6.25 | 7/1/33 | 880,000 | 863,192 |
Centennial School District, | ||||
GO | 5.00 | 12/15/34 | 2,500,000 | 2,720,525 |
Centre County Hospital Authority, | ||||
HR (Mount Nittany Medical | ||||
Center Project) (Insured; Assured | ||||
Guaranty Municipal Corp.) | 6.13 | 11/15/39 | 2,000,000 | 2,104,260 |
Charleroi Area School Authority, | ||||
School Revenue (Insured; | ||||
National Public Finance | ||||
Guarantee Corp.) | 0.00 | 10/1/20 | 2,000,000 a | 1,359,320 |
TheFund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Pennsylvania (continued) | ||||
Chester County Industrial | ||||
Development Authority, | ||||
Revenue (Avon Grove | ||||
Charter School Project) | 6.38 | 12/15/37 | 1,600,000 | 1,601,664 |
Chester County School Authority, | ||||
School LR (Chester County | ||||
Intermediate Unit Project) | ||||
(Insured; AMBAC) | 5.00 | 4/1/25 | 2,195,000 | 2,301,128 |
Coatesville Area School District, | ||||
GO (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 8/15/30 | 2,000,000 | 2,166,540 |
Cumberland County Municipal | ||||
Authority, College Revenue | ||||
(Messiah College Project) | ||||
(Insured; AMBAC) | 5.13 | 10/1/15 | 40,000 | 40,143 |
Cumberland County Municipal | ||||
Authority, Revenue | ||||
(Presbyterian Homes | ||||
Obligated Group Project) | 5.35 | 1/1/20 | 515,000 | 519,681 |
Cumberland County Municipal | ||||
Authority, Revenue | ||||
(Presbyterian Homes | ||||
Obligated Group Project) | 5.45 | 1/1/21 | 885,000 | 892,487 |
Dauphin County General | ||||
Authority, Office and | ||||
Parking Revenue (Riverfront | ||||
Office Center Project) | 6.00 | 1/1/25 | 3,000,000 | 2,518,950 |
Delaware County Industrial | ||||
Development Authority, Water | ||||
Facilities Revenue (Aqua | ||||
Pennsylvania, Inc. Project) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.00 | 11/1/37 | 5,165,000 | 5,236,845 |
Delaware River Port Authority, | ||||
Revenue | 5.00 | 1/1/30 | 1,500,000 | 1,596,360 |
Delaware River Port Authority, | ||||
Revenue | 5.00 | 1/1/35 | 1,500,000 | 1,554,615 |
Erie Higher Education Building | ||||
Authority, College Revenue | ||||
(Mercyhurst College Project) | 5.35 | 3/15/28 | 1,000,000 | 1,047,020 |
8
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Pennsylvania (continued) | |||||
Harrisburg Authority, | |||||
University Revenue (The | |||||
Harrisburg University of | |||||
Science and Technology Project) | 6.00 | 9/1/36 | 2,000,000 | 1,838,060 | |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 11/1/16 | 1,000,000 | a | 744,220 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 5/1/18 | 2,750,000 | a | 1,832,765 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 11/1/18 | 2,750,000 | a | 1,775,565 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 11/1/19 | 2,750,000 | a | 1,650,220 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 5/1/20 | 2,750,000 | a | 1,590,078 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 11/1/20 | 2,500,000 | a | 1,401,050 |
McKeesport Area School District, | |||||
GO (Insured; AMBAC) | 0.00 | 10/1/21 | 2,915,000 | a | 2,057,990 |
Monroe County Hospital Authority, | |||||
HR (Pocono Medical Center) | |||||
(Insured; Radian) | 5.50 | 1/1/12 | 750,000 | 764,925 | |
Monroe County Hospital Authority, | |||||
HR (Pocono Medical Center) | |||||
(Insured; Radian) | 5.50 | 1/1/22 | 1,455,000 | 1,474,322 | |
Monroeville Municipal Authority, | |||||
Sanitary Sewer Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 12/1/15 | 1,035,000 | 1,079,991 |
TheFund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Pennsylvania (continued) | |||||
Monroeville Municipal Authority, | |||||
Sanitary Sewer Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 12/1/16 | 50,000 | 51,828 | |
Mount Lebanon School District, | |||||
GO | 5.00 | 2/15/28 | 1,470,000 | 1,620,249 | |
Neshaminy School District, | |||||
GO (Insured; National Public | |||||
Finance Guarantee Corp.) | 5.00 | 4/15/16 | 1,250,000 | 1,385,088 | |
Norristown, | |||||
GO (Insured; Radian) | 0.00 | 12/15/11 | 1,465,000 | a | 1,435,890 |
Norristown, | |||||
GO (Insured; Radian) | 0.00 | 12/15/13 | 735,000 | a | 683,102 |
North Allegheny School District, | |||||
GO (Insured; National Public | |||||
Finance Guarantee Corp.) | 5.05 | 11/1/21 | 1,455,000 | 1,513,258 | |
Northampton County Industrial | |||||
Development Authority, | |||||
Mortgage Revenue | |||||
(Moravian Hall Square | |||||
Project) (Insured; Radian) | 5.00 | 7/1/17 | 1,890,000 | 1,901,453 | |
Pennsylvania Economic Development | |||||
Financing Authority, Sewage | |||||
Sludge Disposal Revenue | |||||
(Philadelphia Biosolids | |||||
Facility Project) | 6.25 | 1/1/32 | 1,000,000 | 1,083,330 | |
Pennsylvania Finance Authority, | |||||
Guaranteed Revenue (Penn Hills | |||||
Project) (Insured; National | |||||
Public Finance Guarantee Corp.) | 5.25 | 12/1/13 | 1,105,000 | 1,107,851 | |
Pennsylvania Finance Authority, | |||||
Guaranteed Revenue (Penn Hills | |||||
Project) (Insured; National | |||||
Public Finance Guarantee Corp.) | 0.00 | 12/1/22 | 1,200,000 | a | 707,712 |
Pennsylvania Finance Authority, | |||||
Guaranteed Revenue (Penn Hills | |||||
Project) (Insured; National | |||||
Public Finance Guarantee Corp.) | 0.00 | 12/1/23 | 3,790,000 | a | 2,122,741 |
Pennsylvania Finance Authority, | |||||
Guaranteed Revenue (Penn Hills | |||||
Project) (Insured; National | |||||
Public Finance Guarantee Corp.) | 0.00 | 12/1/24 | 3,790,000 | a | 2,016,280 |
10
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Pennsylvania (continued) | |||||
Pennsylvania Finance Authority, | |||||
Guaranteed Revenue (Penn Hills | |||||
Project) (Insured; National | |||||
Public Finance Guarantee Corp.) | 0.00 | 12/1/25 | 3,790,000 | a | 1,905,347 |
Pennsylvania Finance Authority, | |||||
Guaranteed Revenue (Penn Hills | |||||
Project) (Insured; National | |||||
Public Finance Guarantee | |||||
Corp.) (Prerefunded) | 5.45 | 12/1/10 | 2,170,000 | b | 2,179,027 |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(Carnegie Mellon University) | 5.00 | 8/1/21 | 3,000,000 | 3,453,510 | |
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 | 2,056,320 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(The Trustees of the | |||||
University of Pennsylvania) | 5.00 | 9/1/31 | 1,300,000 | 1,415,297 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(Thomas Jefferson University) | 5.00 | 3/1/40 | 1,000,000 | 1,043,930 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(University of Pennsylvania | |||||
Health System) | 6.00 | 8/15/26 | 2,500,000 | 2,846,175 | |
Pennsylvania Housing Finance | |||||
Agency, Capital Fund | |||||
Securitization Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 12/1/25 | 2,285,000 | 2,390,795 | |
Pennsylvania Housing Finance | |||||
Agency, SFMR | 5.10 | 10/1/20 | 1,380,000 | 1,402,149 | |
Pennsylvania Housing Finance | |||||
Agency, SFMR | 4.70 | 10/1/25 | 830,000 | 837,960 | |
Pennsylvania Housing Finance | |||||
Agency, SFMR | 4.60 | 10/1/27 | 5,000,000 | 5,004,950 | |
Pennsylvania Housing Finance | |||||
Agency, SFMR | 4.88 | 10/1/31 | 3,000,000 | 3,020,100 |
TheFund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Pennsylvania (continued) | ||||
Pennsylvania Housing Finance | ||||
Agency, SFMR | 4.88 | 10/1/34 | 1,000,000 | 1,027,420 |
Pennsylvania Housing Finance | ||||
Agency, SFMR | 4.70 | 10/1/37 | 1,995,000 | 1,985,863 |
Pennsylvania Industrial | ||||
Development Authority, EDR | 5.50 | 7/1/23 | 1,000,000 | 1,123,480 |
Pennsylvania State University, | ||||
Revenue | 5.00 | 3/1/35 | 2,000,000 | 2,168,280 |
Pennsylvania Turnpike Commission, | ||||
Oil Franchise Tax Senior | ||||
Revenue (Insured; AMBAC) | 5.25 | 12/1/18 | 4,325,000 | 4,579,872 |
Pennsylvania Turnpike | ||||
Commission, Turnpike | ||||
Revenue (Insured; AMBAC) | 5.00 | 12/1/22 | 1,815,000 | 1,973,667 |
Pennsylvania Turnpike Commission, | ||||
Turnpike Subordinate Revenue | 5.25 | 6/1/39 | 3,530,000 | 3,677,413 |
Pennsylvania Turnpike Commission, | ||||
Turnpike Subordinate Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 6.00 | 6/1/28 | 3,000,000 | 3,382,980 |
Philadelphia, | ||||
Airport Revenue | 5.25 | 6/15/25 | 2,500,000 | 2,578,975 |
Philadelphia, | ||||
Airport Revenue (Insured; | ||||
National Public Finance | ||||
Guarantee Corp.) | 5.00 | 6/15/25 | 510,000 | 517,436 |
Philadelphia, | ||||
Gas Works Revenue (Insured; | ||||
Assured Guaranty Municipal Corp.) | 5.50 | 7/1/15 | 1,550,000 | 1,554,758 |
Philadelphia, | ||||
Gas Works Revenue (Insured; | ||||
Assured Guaranty Municipal Corp.) | 5.25 | 8/1/22 | 2,000,000 | 2,076,140 |
Philadelphia, | ||||
GO (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.25 | 12/15/23 | 1,500,000 | 1,653,225 |
Philadelphia, | ||||
GO (Insured; XLCA) | 5.25 | 2/15/14 | 2,000,000 | 2,139,640 |
Philadelphia, | ||||
Water and Wastewater Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.60 | 8/1/18 | 800,000 | 963,376 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Pennsylvania (continued) | ||||
Philadelphia Authority for | ||||
Industrial Development, | ||||
Revenue (Independence | ||||
Charter School Project) | 5.50 | 9/15/37 | 1,700,000 | 1,582,853 |
Philadelphia Authority for | ||||
Industrial Development, | ||||
Revenue (Russell Byers | ||||
Charter School Project) | 5.15 | 5/1/27 | 1,230,000 | 1,151,501 |
Philadelphia Authority for | ||||
Industrial Development, | ||||
Revenue (Russell Byers | ||||
Charter School Project) | 5.25 | 5/1/37 | 1,715,000 | 1,541,168 |
Philadelphia Housing Authority, | ||||
Capital Fund Program Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 12/1/21 | 1,685,000 | 1,748,676 |
Philadelphia Municipal Authority, | ||||
LR (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.25 | 11/15/15 | 2,115,000 | 2,297,102 |
Philadelphia Redevelopment | ||||
Authority, Revenue (Philadelphia | ||||
Neighborhood Transformation | ||||
Initiative) (Insured; National Public | ||||
Finance Guarantee Corp.) | 5.50 | 4/15/18 | 3,600,000 | 3,776,256 |
Philadelphia School District, | ||||
GO | 6.00 | 9/1/38 | 1,000,000 | 1,092,570 |
Pittsburgh Urban Redevelopment | ||||
Authority, MFHR | ||||
(West Park Court Project) | ||||
(Collateralized; GNMA) | 4.90 | 11/20/47 | 1,280,000 | 1,282,240 |
Sayre Health Care Facilities Authority, | ||||
Revenue (Guthrie Health Issue) | 6.25 | 12/1/13 | 470,000 | 494,402 |
Sayre Health Care Facilities | ||||
Authority, Revenue (Guthrie | ||||
Health Issue) | 6.25 | 12/1/14 | 250,000 | 262,355 |
Sayre Health Care Facilities | ||||
Authority, Revenue (Guthrie | ||||
Health Issue) | 5.75 | 12/1/21 | 1,165,000 | 1,195,733 |
Sayre Health Care Facilities | ||||
Authority, Revenue (Guthrie | ||||
Health Issue) (Prerefunded) | 6.25 | 12/1/11 | 750,000 b | 806,055 |
TheFund 13
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Pennsylvania (continued) | ||||
Schuylkill County Industrial | ||||
Development Authority, Revenue | ||||
(Charity Obligation Group) | 5.00 | 11/1/14 | 1,495,000 | 1,499,321 |
State Public School Building | ||||
Authority, Community College | ||||
Revenue (Community College of | ||||
Philadelphia Project) | 6.00 | 6/15/28 | 3,000,000 | 3,314,070 |
State Public School Building | ||||
Authority, Revenue (Central | ||||
Montgomery County Area | ||||
Vocational Technical School) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.25 | 5/15/17 | 1,055,000 | 1,166,788 |
State Public School Building | ||||
Authority, Revenue (Central | ||||
Montgomery County Area | ||||
Vocational Technical School) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.25 | 5/15/18 | 1,110,000 | 1,223,620 |
State Public School Building | ||||
Authority, School Revenue | ||||
(School District of | ||||
Haverford Township | ||||
Project) (Insured; XLCA) | 5.25 | 3/15/25 | 3,360,000 | 3,576,317 |
State Public School Building | ||||
Authority, School Revenue | ||||
(York School District Project) | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 5/1/18 | 545,000 | 585,592 |
Susquehanna Area Regional | ||||
Airport Authority, Airport | ||||
System Revenue | 6.50 | 1/1/38 | 1,625,000 | 1,643,054 |
University Area Joint Authority, | ||||
Sewer Revenue (Insured; | ||||
National Public Finance | ||||
Guarantee Corp.) | 5.00 | 11/1/18 | 2,010,000 | 2,087,204 |
University of Pittsburgh of the | ||||
Commonwealth System of Higher | ||||
Education, GO (University | ||||
Capital Project) | 5.00 | 9/15/35 | 1,000,000 | 1,074,450 |
14
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Pennsylvania (continued) | ||||
Washington County Industrial | ||||
Development Authority, PCR (West | ||||
Penn Power Company Mitchell | ||||
Station Project) (Insured; AMBAC) | 6.05 | 4/1/14 | 3,000,000 | 3,005,460 |
Wayne Memorial Hospital and Health | ||||
Facilities Authority, County | ||||
Guaranteed HR (Wayne Memorial | ||||
Hospital Project) (Insured; | ||||
National Public Finance | ||||
Guarantee Corp.) | 5.25 | 7/1/16 | 2,135,000 | 2,219,461 |
West Mifflin Area School District, | ||||
GO (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 10/1/22 | 710,000 | 777,819 |
Westmoreland County Industrial | ||||
Development Authority, | ||||
Health System Revenue | ||||
(Excela Health Project) | 5.00 | 7/1/25 | 2,390,000 | 2,452,546 |
Wilson Area School District, | ||||
GO (Insured; National Public | ||||
Finance Guarantee Corp.) | 5.13 | 3/15/16 | 1,300,000 | 1,396,356 |
U.S. Related—12.3% | ||||
Guam Power Authority, | ||||
Revenue | 5.50 | 10/1/30 | 1,000,000 | 1,048,420 |
Guam Waterworks Authority, | ||||
Water and Wastewater | ||||
System Revenue | 5.50 | 7/1/16 | 320,000 | 329,251 |
Guam Waterworks Authority, | ||||
Water and Wastewater | ||||
System Revenue | 6.00 | 7/1/25 | 1,000,000 | 1,027,090 |
Puerto Rico Aqueduct and Sewer | ||||
Authority, Senior Lien Revenue | 6.00 | 7/1/44 | 2,500,000 | 2,672,250 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | 5.25 | 7/1/23 | 1,000,000 | 1,034,580 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | 5.00 | 7/1/28 | 3,000,000 | 3,040,560 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 6.00 | 7/1/27 | 1,000,000 | 1,087,550 |
TheFund 15
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
U.S. Related (continued) | ||||
Puerto Rico Electric Power | ||||
Authority, Power Revenue | 5.00 | 7/1/26 | 1,000,000 | 1,038,990 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | 5.25 | 7/1/27 | 2,000,000 | 2,137,500 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | 5.50 | 7/1/38 | 1,185,000 | 1,247,734 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | 5.25 | 7/1/40 | 1,500,000 | 1,565,805 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.25 | 7/1/30 | 1,170,000 | 1,274,036 |
Puerto Rico Sales Tax Financing | ||||
Corporation, Sales Tax Revenue | ||||
(First Subordinate Series) | 6.00 | 8/1/39 | 1,690,000 | 1,908,196 |
Puerto Rico Sales Tax Financing | ||||
Corporation, Sales Tax Revenue | ||||
(First Subordinate Series) | 6.00 | 8/1/42 | 1,500,000 | 1,677,345 |
Puerto Rico Sales Tax Financing | ||||
Corporation, Sales Tax Revenue | ||||
(First Subordinate Series) | 6.50 | 8/1/44 | 2,500,000 | 2,885,725 |
Virgin Islands Public Finance | ||||
Authority, Revenue (Virgin Islands | ||||
Matching Fund Loan Note) | 5.00 | 10/1/25 | 1,000,000 | 1,033,150 |
Total Investments (cost $191,860,296) | 99.3% | 201,237,632 | ||
Cash and Receivables (Net) | .7% | 1,443,688 | ||
Net Assets | 100.0% | 202,681,320 |
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. |
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 | ARRN | Adjustable Rate Receipt Notes |
Assurance Corporation | |||
BAN | Bond Anticipation Notes | BPA | Bond Purchase Agreement |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | EDR | Economic Development Revenue |
EIR | Environmental Improvement Revenue | FGIC | Financial Guaranty Insurance |
Company | |||
FHA | Federal Housing Administration | FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage | FNMA | Federal National |
Corporation | Mortgage Association | ||
GAN | Grant Anticipation Notes | GIC | Guaranteed Investment Contract |
GNMA | Government National | GO | General Obligation |
Mortgage Association | |||
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 | PUTTERS Puttable Tax-Exempt Receipts | |
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 |
TheFund 17
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Combined Ratings (Unaudited) | |||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† |
AAA | Aaa | AAA | 18.0 | ||
AA | Aa | AA | 38.4 | ||
A | A | A | 25.6 | ||
BBB | Baa | BBB | 12.4 | ||
BB | Ba | BB | 1.5 | ||
Not Ratedc | Not Ratedc | Not Ratedc | 4.1 | ||
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.
18
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2010 (Unaudited)
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments | 191,860,296 | 201,237,632 |
Cash | 1,096,994 | |
Interest receivable | 2,584,466 | |
Receivable for investment securities sold | 2,253,007 | |
Receivable for shares of Beneficial Interest subscribed | 5,485 | |
Prepaid expenses | 8,096 | |
207,185,680 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 158,940 | |
Payable for investment securities purchased | 4,152,332 | |
Payable for shares of Beneficial Interest redeemed | 130,975 | |
Accrued expenses | 62,113 | |
4,504,360 | ||
Net Assets ($) | 202,681,320 | |
Composition of Net Assets ($): | ||
Paid-in capital | 194,426,365 | |
Accumulated undistributed investment income—net | 30,226 | |
Accumulated net realized gain (loss) on investments | (1,152,607) | |
Accumulated net unrealized appreciation | ||
(depreciation) on investments | 9,377,336 | |
Net Assets ($) | 202,681,320 |
Net Asset Value Per Share | ||||
Class A | Class B | Class C | Class Z | |
Net Assets ($) | 136,643,225 | 734,617 | 6,400,526 | 58,902,952 |
Shares Outstanding | 8,364,058 | 45,015 | 391,613 | 3,606,020 |
Net Asset Value Per Share ($) | 16.34 | 16.32 | 16.34 | 16.33 |
See notes to financial statements. |
TheFund 19
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2010 (Unaudited)
Investment Income ($): | |
Interest Income | 5,017,798 |
Expenses: | |
Management fee—Note 3(a) | 561,356 |
Shareholder servicing costs—Note 3(c) | 263,295 |
Distribution fees—Note 3(b) | 25,612 |
Professional fees | 20,018 |
Custodian fees—Note 3(c) | 13,360 |
Registration fees | 12,123 |
Prospectus and shareholders’ reports | 8,617 |
Trustees’ fees and expenses—Note 3(d) | 5,414 |
Loan commitment fees—Note 2 | 653 |
Miscellaneous | 16,388 |
Total Expenses | 926,836 |
Less—reduction in fees due to earnings credits—Note 3(c) | (240) |
Net Expenses | 926,596 |
Investment Income—Net | 4,091,202 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | 1,313,037 |
Net unrealized appreciation (depreciation) on investments | 3,373,033 |
Net Realized and Unrealized Gain (Loss) on Investments | 4,686,070 |
Net Increase in Net Assets Resulting from Operations | 8,777,272 |
See notes to financial statements. |
20
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
October 31, 2010 | Year Ended | |
(Unaudited) | April 30, 2010 | |
Operations ($): | ||
Investment income—net | 4,091,202 | 8,440,802 |
Net realized gain (loss) on investments | 1,313,037 | 904,596 |
Net unrealized appreciation | ||
(depreciation) on investments | 3,373,033 | 7,579,779 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 8,777,272 | 16,925,177 |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class A Shares | (2,732,334) | (5,627,304) |
Class B Shares | (16,034) | (57,555) |
Class C Shares | (98,350) | (195,482) |
Class Z Shares | (1,214,258) | (2,486,087) |
Total Dividends | (4,060,976) | (8,366,428) |
Beneficial Interest Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 2,609,179 | 11,556,534 |
Class B Shares | — | 26,937 |
Class C Shares | 795,505 | 1,473,903 |
Class Z Shares | 1,189,082 | 2,860,050 |
Dividends reinvested: | ||
Class A Shares | 2,068,185 | 4,175,141 |
Class B Shares | 12,996 | 47,662 |
Class C Shares | 76,830 | 153,397 |
Class Z Shares | 981,071 | 1,983,310 |
Cost of shares redeemed: | ||
Class A Shares | (9,211,149) | (14,148,812) |
Class B Shares | (437,752) | (1,500,561) |
Class C Shares | (694,547) | (759,400) |
Class Z Shares | (1,788,521) | (5,778,385) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (4,399,121) | 89,776 |
Total Increase (Decrease) in Net Assets | 317,175 | 8,648,525 |
Net Assets ($): | ||
Beginning of Period | 202,364,145 | 193,715,620 |
End of Period | 202,681,320 | 202,364,145 |
Undistributed investment income—net | 30,226 | — |
TheFund 21
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||
October 31, 2010 | Year Ended | |
(Unaudited) | April 30, 2010 | |
Capital Share Transactions: | ||
Class Aa | ||
Shares sold | 160,616 | 731,302 |
Shares issued for dividends reinvested | 127,400 | 264,558 |
Shares redeemed | (568,435) | (898,107) |
Net Increase (Decrease) in Shares Outstanding | (280,419) | 97,753 |
Class Ba | ||
Shares sold | — | 1,697 |
Shares issued for dividends reinvested | 802 | 3,032 |
Shares redeemed | (26,909) | (95,588) |
Net Increase (Decrease) in Shares Outstanding | (26,107) | (90,859) |
Class C | ||
Shares sold | 48,804 | 93,647 |
Shares issued for dividends reinvested | 4,731 | 9,711 |
Shares redeemed | (43,128) | (48,056) |
Net Increase (Decrease) in Shares Outstanding | 10,407 | 55,302 |
Class Z | ||
Shares sold | 73,352 | 181,097 |
Shares issued for dividends reinvested | 60,451 | 125,751 |
Shares redeemed | (110,574) | (365,971) |
Net Increase (Decrease) in Shares Outstanding | 23,229 | (59,123) |
a During the period ended October 31, 2010, 22,093 Class B shares representing $359,882 were automatically |
converted to 22,076 Class A shares and during the period ended April 30, 2010, 52,127 Class B shares |
representing $816,669 were automatically converted to 52,086 Class A shares. |
See notes to financial statements.
22
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||
October 31, 2010 | Year Ended April 30, | |||||
Class A Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 15.96 | 15.28 | 15.67 | 16.19 | 15.88 | 16.19 |
Investment Operations: | ||||||
Investment income—neta | .32 | .66 | .65 | .64 | .62 | .62 |
Net realized and unrealized | ||||||
gain (loss) on investments | .38 | .67 | (.40) | (.53) | .31 | (.31) |
Total from Investment Operations | .70 | 1.33 | .25 | .11 | .93 | .31 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.32) | (.65) | (.64) | (.63) | (.62) | (.62) |
Net asset value, end of period | 16.34 | 15.96 | 15.28 | 15.67 | 16.19 | 15.88 |
Total Return (%)b | 4.43c | 8.85 | 1.75 | .71 | 5.95 | 1.89 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | .94d | .94 | .96 | .99 | .94 | .94 |
Ratio of net expenses | ||||||
to average net assets | .94d,e | .94e | .96e | .98 | .94 | .94e |
Ratio of net investment income | ||||||
to average net assets | 3.98d | 4.17 | 4.27 | 4.02 | 3.87 | 3.82 |
Portfolio Turnover Rate | 14.35c | 10.93 | 16.60 | 15.47 | 8.82 | 11.89 |
Net Assets, end of period | ||||||
($ x 1,000) | 136,643 137,969 | 130,611 | 138,054 | 145,897 | 147,733 |
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.
TheFund 23
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||
October 31, 2010 | Year Ended April 30, | |||||
Class B Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 15.94 | 15.27 | 15.66 | 16.18 | 15.87 | 16.18 |
Investment Operations: | ||||||
Investment income—neta | .26 | .53 | .54 | .53 | .54 | .53 |
Net realized and unrealized | ||||||
gain (loss) on investments | .38 | .68 | (.38) | (.51) | .31 | (.31) |
Total from Investment Operations | .64 | 1.21 | .16 | .02 | .85 | .22 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.26) | (.54) | (.55) | (.54) | (.54) | (.53) |
Net asset value, end of period | 16.32 | 15.94 | 15.27 | 15.66 | 16.18 | 15.87 |
Total Return (%)b | 4.04c | 8.03 | 1.16 | .15 | 5.41 | 1.37 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.57d | 1.56 | 1.55 | 1.56 | 1.45 | 1.46 |
Ratio of net expenses | ||||||
to average net assets | 1.57d,e | 1.56e | 1.54 | 1.55 | 1.45 | 1.46e |
Ratio of net investment income | ||||||
to average net assets | 3.23d | 3.49 | 3.67 | 3.47 | 3.35 | 3.30 |
Portfolio Turnover Rate | 14.35c | 10.93 | 16.60 | 15.47 | 8.82 | 11.89 |
Net Assets, end of period | ||||||
($ x 1,000) | 735 | 1,134 | 2,474 | 5,375 | 12,886 | 21,799 |
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, 2010 | Year Ended April 30, | |||||
Class C Shares | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 |
Per Share Data ($): | ||||||
Net asset value, | ||||||
beginning of period | 15.97 | 15.29 | 15.68 | 16.20 | 15.89 | 16.20 |
Investment Operations: | ||||||
Investment income—neta | .26 | .54 | .53 | .52 | .50 | .50 |
Net realized and unrealized | ||||||
gain (loss) on investments | .37 | .67 | (.39) | (.53) | .31 | (.31) |
Total from Investment Operations | .63 | 1.21 | .14 | (.01) | .81 | .19 |
Distributions: | ||||||
Dividends from | ||||||
investment income—net | (.26) | (.53) | (.53) | (.51) | (.50) | (.50) |
Net asset value, end of period | 16.34 | 15.97 | 15.29 | 15.68 | 16.20 | 15.89 |
Total Return (%)b | 3.97c | 8.03 | 1.00 | (.04) | 5.18 | 1.15 |
Ratios/Supplemental Data (%): | ||||||
Ratio of total expenses | ||||||
to average net assets | 1.69d | 1.69 | 1.70 | 1.73 | 1.67 | 1.68 |
Ratio of net expenses | ||||||
to average net assets | 1.69d,e | 1.69e | 1.69 | 1.72 | 1.67 | 1.68e |
Ratio of net investment income | ||||||
to average net assets | 3.22d | 3.41 | 3.54 | 3.27 | 3.13 | 3.08 |
Portfolio Turnover Rate | 14.35c | 10.93 | 16.60 | 15.47 | 8.82 | 11.89 |
Net Assets, end of period | ||||||
($ x 1,000) | 6,401 | 6,087 | 4,983 | 3,875 | 3,599 | 2,932 |
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.
TheFund 25
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||
October 31, 2010 | Year Ended April 30, | |||
Class Z Shares | (Unaudited) | 2010 | 2009 | 2008a |
Per Share Data ($): | ||||
Net asset value, beginning of period | 15.96 | 15.28 | 15.67 | 15.98 |
Investment Operations: | ||||
Investment income—netb | .34 | .69 | .68 | .29 |
Net realized and unrealized | ||||
gain (loss) on investments | .37 | .68 | (.40) | (.32) |
Total from Investment Operations | .71 | 1.37 | .28 | (.03) |
Distributions: | ||||
Dividends from investment income—net | (.34) | (.69) | (.67) | (.28) |
Net asset value, end of period | 16.33 | 15.96 | 15.28 | 15.67 |
Total Return (%) | 4.47c | 9.10 | 1.96 | (.18)c |
Ratios/Supplemental Data (%): | ||||
Ratio of total expenses to average net assets | .73d | .72 | .78 | .78d |
Ratio of net expenses to average net assets | .73d,e | .72e | .77 | .77d |
Ratio of net investment income | ||||
to average net assets | 4.18d | 4.40 | 4.48 | 4.37d |
Portfolio Turnover Rate | 14.35c | 10.93 | 16.60 | 15.47c |
Net Assets, end of period ($ x 1,000) | 58,903 | 57,175 | 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. |
e | Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements.
26
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus State Municipal Bond Funds (the “Company”) 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 six series including the Dreyfus Pennsylvania Fund (the “fund”).The fund’s investment objective is to maximize current income exempt from federal income tax and from Pennsylvania state income tax, without undue risk. The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary ofThe Bank of NewYork Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser.
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 of the fund who received Class Z shares in exchange for their shares of a Dreyfus-managed fund, as a result of the reorganization of such Dreyfus-managed fund, and who continue 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.
TheFund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The Company enters into contracts that contain a variety of indemnifications.The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued 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 va lues from dealers; and general market conditions.
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-
28
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, 2010 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable | Unobservable | ||
Quoted Prices | Inputs | Inputs | Total | |
Investments in Securities: | ||||
Municipal Bonds | — | 201,237,632 | — | 201,237,632 |
TheFund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about FairValue Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the fund. No significant transfers between Level 1 or Level 2 fair value measurements occurred at October 31, 2010. The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and rev ised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Interest income, adjusted for accretion of discount and amortization of premium on investments, is earned from settlement date and recognized on the accrual basis. Securities purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date.
The fund 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
30
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.
As of and during the period ended October 31, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the three-year period ended April 30, 2010 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $2,789,084 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to April 30, 2010. If not applied, $2,643,096 of the carryover 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, 2010 was as follows: tax exempt income $8,366,428. The tax character of current year distributions will be determined at the end of the current fiscal year.
TheFund 31
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended October 31, 2010, 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, 2010, the Distributor retained $2,764 from commissions earned on sales of the fund’s Class A shares and $370 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, 2010, Class B and Class C shares were charged $2,504 and $23,108, 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
32
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, 2010, Class A, Class B and Class C shares were charged $173,038, $1,252 and $7,703, 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, 2010, Class Z shares were charged $11,463 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, 2010, the fund was charged $33,302 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
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.
TheFund 33
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The fund compensates The Bank of New York Mellon under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2010, the fund was charged $3,439 pursuant to the cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations.These fees were partially offset by earnings credits of $240.
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, 2010, the fund was charged $13,360 pursuant to the custody agreement.
During the period ended October 31, 2010, the fund was charged $2,793 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 $95,001, Rule 12b-1 distribution plan fees $4,387, shareholder services plan fees $30,667, custodian fees $10,481, chief compliance officer fees $2,248 and transfer agent per account fees $16,156.
(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, 2010, amounted to $28,637,452 and $32,495,051, respectively.
34
The provisions of ASC Topic 815 “Derivatives and Hedging” require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements.The fund held no derivatives during the period ended October 31, 2010.
At October 31, 2010, accumulated net unrealized appreciation on investments was $9,377,336, consisting of $10,681,398 gross unrealized appreciation and $1,304,062 gross unrealized depreciation.
At October 31, 2010, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
TheFund 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 20, 2010, 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 by the Manager pursuant to the 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 th e 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.
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 total return performance for various periods ended May 31, 2010 was below the Performance Group median for each reported time period except the two-year period ended May 31, 2010, when it was above the median, and that the fund’s total return performance was above the Performance Universe median for each reported time period except the one-year period ended May 31, 2010, when it was below the median.The Board members also noted that the fund’s yield performance for the past ten one-year periods ended May 31 (2001-2010) was below the Performance Group median for each reported time period except the one-year period ended May 31, 2010, when it was equal to the median, and that the fund’s yield performance was variously above, at and below 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 underperformance compared to the Performance Group and Performance Universe medians for the applicable periods,
TheFund 37
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued) |
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 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 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 in the same Lipper category, 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 pro fitability analysis in light of the relevant cir-
38
cumstances 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 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 satisfied with management’s efforts to improve the fund’s performance as discussed at the meeting, and determined to closely monitor the performance of the fund.
The Board concluded that the fee paid to the Manager by the fund was reasonable in light of the factors discussed above.
TheFund 39
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE
FUND’S MANAGEMENT AGREEMENT (Unaudited) (continued)
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.
40
![](https://capedge.com/proxy/N-CSRS/0000806176-11-000001/smbpancsrx44x1.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.
3 |
Item 12. Exhibits.
(a)(1) Not applicable.
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(a)(3) Not applicable.
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940.
4 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dreyfus State Municipal Bond Funds
By: /s/ Bradley J. Skapyak |
Bradley J. Skapyak, President
|
Date: December 23, 2010 |
|
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. |
|
By: /s/ Bradley J. Skapyak |
Bradley J. Skapyak, President
|
Date: December 23, 2010 |
|
By: /s/ James Windels |
James Windels, Treasurer
|
Date: December 23, 2010 |
|
5 |
EXHIBIT INDEX
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940. (EX-99.CERT)
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940. (EX-99.906CERT)
6 |