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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| Janette E. Farragher, 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: | 10/31/11 |
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
19 | Statement of Assets and Liabilities |
20 | Statement of Operations |
21 | Statement of Changes in Net Assets |
23 | Financial Highlights |
28 | Notes to Financial Statements |
38 | Information About the Renewal 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 Connecticut Fund, a series of Dreyfus State Municipal Bond Funds, covering the six-month period from May 1, 2011, through October 31, 2011. 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.
Investors were encouraged by expectations of a more robust economic recovery into the first quarter of 2011, but sentiment subsequently deteriorated due to disappointing economic data, rising commodity prices, an escalating sovereign debt crisis in Europe and a contentious debate regarding taxes, spending and borrowing in the United States. Market volatility was particularly severe during August and September after a major credit rating agency downgraded U.S. long-term debt. While most fixed-income securities proved volatile in this tumultuous environment, municipal bonds held up relatively well due to robust demand for a limited supply of newly issued securities.
The economic outlook currently remains clouded by market turbulence and political infighting, but we believe that a continued subpar global expansion is more likely than a return to recession. In addition, municipal bonds remain attractively valued despite recent issuer events, as fundamental measures of quality, including liquidity and revenue stabilization, support a stable outlook for the broad municipal market in general. With tax season considerations in mind, we encourage you, as always, to speak with your financial advisor in order to help evaluate the tax-efficiency of your portfolio.
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, 2011
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2011, through October 31, 2011, as provided by James Welch and Daniel Barton, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended October 31, 2011, 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 6.00%, 5.55%, 5.70%, 6.24% and 6.20%, respectively.1 In comparison, the Barclays Capital Municipal Bond Index, the fund’s benchmark index, which is composed of bonds issued nationally and not solely within Connecticut, achieved a total return of 5.56% for the same period.2
Despite intensifying economic uncertainty during the reporting period, municipal bonds fared relatively well as a reduced supply of newly issued securities was met by robust investor demand.The fund’s returns generally were higher than its benchmark, due primarily to positive contributions from revenue bonds.
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 among the market’s various sectors, such as the pre-refunded, general obligation and revenue sectors, based on their apparent relative values. The fund generally will invest simultaneously in several of these sectors.
The Fund | 3 |
DISCUSSION OF FUND PERFORMANCE (continued)
Municipal Bonds Held Up Relatively Well Amid Uncertainty
Investor confidence generally was shaken in the spring of 2011, when Greece appeared headed for default on its sovereign debt, U.S. economic data disappointed and a contentious political debate regarding U.S. government spending and borrowing intensified. Consequently, investors shifted their focus from relatively speculative asset classes to traditionally defensive investments, producing bouts of heightened volatility in many financial markets.Turbulence among stocks and lower-rated bonds was particularly severe in August and September, after a major credit-rating agency downgraded its assessment of long-term U.S. debt securities. In contrast, securities that had been hard-hit in late summer rebounded to a significant degree in October as certain macroeconomic concerns eased.
Positive supply-and-demand forces helped municipal bonds hold up relatively well despite these developments. New issuance volumes fell sharply in 2011 after a flood of new issuance in late 2010, when issuers sought to lock in federal subsidies provided by the expiring Build America Bonds program. Political pressure to reduce spending and borrowing also led to fewer capital projects requiring financing.Yet, demand for municipal bonds remained robust from investors seeking higher levels of tax-exempt income.
Like other states, Connecticut demonstrated progress in its recovery from recession during the reporting period. Tax revenues have increased, and the state cut spending in some areas to pass a balanced budget for its current fiscal year.
Revenue Bonds Supported Relative Performance
The fund’s results compared to its benchmark were bolstered by income-oriented bonds backed by dedicated revenues from municipal projects. Such securities generally have been less sensitive to economic concerns than their general obligation counterparts.The fund received especially strong results during the reporting period from an overweighted position in revenue bonds backed by hospitals. In addition, municipal bonds issued by Puerto Rico, which produce income exempt from state and federal taxes, fared well as investors reached for competitive yields. Although the fund encountered relatively few disappointments during the reporting period, its shorter-dated holdings and escrowed bonds generally lagged market averages.
4
We continued our efforts to upgrade the fund’s overall credit quality and reduce its sensitivity to interest-rate volatility during the reporting period. We generally reduced the fund’s holdings of lower-rated and longer-dated credits, including general obligation bonds from Connecticut issuers, that had reached richer valuations. We replaced them with shorter-maturity revenue bonds backed by essential services facilities, such as sewer systems and waterworks.
Adjusting to a Slower-Growth Environment
Ongoing market turbulence and general economic uncertainty have convinced us to maintain a relatively cautious investment posture, including a neutral duration and a bias toward higher-quality securities with strong liquidity characteristics. We have identified particularly attractive values among lower-yielding revenue bonds. In our view, municipal bonds with relatively defensive characteristics are likely to be the focus of demand from individual investors seeking tax-advantaged income and muted volatility as they grow more concerned about persistently low interest rates and potential tax increases in a slow-growth economy.
November 15, 2011
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. |
The Fund | 5 |
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus State Municipal Bond Funds, Dreyfus Connecticut Fund from May 1, 2011 to October 31, 2011. 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, 2011 | ||||||||||
Class A | Class B | Class C | Class I | Class Z | ||||||
Expenses paid per $1,000† | $ | 4.71 | $ | 9.97 | $ | 8.58 | $ | 3.32 | $ | 3.68 |
Ending value (after expenses) | $ | 1,060.00 | $ | 1,055.50 | $ | 1,057.00 | $ | 1,062.40 | $ | 1,062.00 |
COMPARING YOUR FUND’S EXPENSES |
WITH THOSE OF OTHER FUNDS (Unaudited) |
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment | ||||||||||
assuming a hypothetical 5% annualized return for the six months ended October 31, 2011 | ||||||||||
Class A | Class B | Class C | Class I | Class Z | ||||||
Expenses paid per $1,000† | $ | 4.62 | $ | 9.78 | $ | 8.42 | $ | 3.25 | $ | 3.61 |
Ending value (after expenses) | $ | 1,020.56 | $ | 1,015.43 | $ | 1,016.79 | $ | 1,021.92 | $ | 1,021.57 |
† Expenses are equal to the fund’s annualized expense ratio of .91% for Class A, 1.93% for Class B, 1.66% for Class C, .64% for Class I and .71% for Class Z, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
October 31, 2011 (Unaudited) |
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments—97.3% | Rate (%) | Date | Amount ($) | Value ($) | |
Connecticut—74.5% | |||||
Connecticut, | |||||
GO | 5.00 | 12/1/16 | 5,000,000 | 5,885,000 | |
Connecticut, | |||||
GO | 5.00 | 12/15/22 | 4,855,000 | 5,489,112 | |
Connecticut, | |||||
GO | 5.00 | 4/15/24 | 2,500,000 | 2,819,250 | |
Connecticut, | |||||
GO | 5.00 | 11/1/27 | 2,000,000 | 2,226,160 | |
Connecticut, | |||||
GO | 5.00 | 11/1/28 | 3,000,000 | 3,321,390 | |
Connecticut, | |||||
GO (Insured; Assured Guaranty | |||||
Municipal Corp.) (Prerefunded) | 5.00 | 10/15/12 | 3,500,000 | a | 3,658,795 |
Connecticut, | |||||
Special Tax Obligation | |||||
(Transportation | |||||
Infrastructure Purposes) | 5.00 | 11/1/22 | 5,000,000 | 5,847,250 | |
Connecticut, | |||||
Special Tax Obligation | |||||
(Transportation Infrastructure | |||||
Purposes) (Insured; AMBAC) | 5.25 | 7/1/19 | 3,395,000 | 4,100,447 | |
Connecticut, | |||||
Special Tax Obligation | |||||
(Transportation Infrastructure | |||||
Purposes) (Insured; Assured | |||||
Guaranty Municipal Corp.) | 5.50 | 11/1/12 | 4,180,000 | 4,397,653 | |
Connecticut, | |||||
Special Tax Obligation | |||||
(Transportation Infrastructure | |||||
Purposes) (Insured; Assured | |||||
Guaranty Municipal Corp.) | |||||
(Prerefunded) | 5.38 | 7/1/12 | 2,000,000 | a | 2,068,560 |
Connecticut, | |||||
State Revolving Fund | |||||
General Revenue | 5.00 | 1/1/23 | 1,250,000 | 1,494,937 | |
Connecticut Development Authority, | |||||
Airport Facility Revenue | |||||
(Learjet Inc. Project) | 7.95 | 4/1/26 | 2,300,000 | 2,410,308 |
The Fund | 7 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut (continued) | ||||
Connecticut Development Authority, | ||||
First Mortgage Gross Revenue | ||||
(The Elim Park Baptist | ||||
Home, Inc. Project) | 5.38 | 12/1/11 | 1,765,000 | 1,769,360 |
Connecticut Development Authority, | ||||
First Mortgage Gross Revenue | ||||
(The Elim Park Baptist | ||||
Home, Inc. Project) | 5.38 | 12/1/18 | 2,025,000 | 2,026,701 |
Connecticut Development Authority, | ||||
First Mortgage Gross Revenue | ||||
(The Elim Park Baptist | ||||
Home, Inc. Project) | 5.75 | 12/1/23 | 1,000,000 | 1,014,420 |
Connecticut Development Authority, | ||||
PCR (The Connecticut Light and | ||||
Power Company Project) | 4.38 | 9/1/28 | 3,000,000 | 3,008,190 |
Connecticut Development Authority, | ||||
PCR (The Connecticut Light and | ||||
Power Company Project) | 5.95 | 9/1/28 | 4,445,000 | 4,480,782 |
Connecticut Development Authority, | ||||
PCR (The United Illuminating | ||||
Company Project) | 5.75 | 2/1/12 | 1,250,000 | 1,262,812 |
Connecticut Development | ||||
Authority, Solid Waste | ||||
Disposal Facility | ||||
Revenue (PSEG | ||||
Power LLC Project) | 5.75 | 11/1/37 | 9,250,000 | 9,262,395 |
Connecticut Development Authority, | ||||
Water Facilities Revenue | ||||
(Aquarion Water Company of | ||||
Connecticut Project) | 5.50 | 4/1/21 | 3,500,000 | 3,702,755 |
Connecticut Development Authority, | ||||
Water Facilities Revenue | ||||
(Aquarion Water Company of | ||||
Connecticut Project) | ||||
(Insured; XLCA) | 5.10 | 9/1/37 | 6,550,000 | 5,855,111 |
Connecticut Development Authority, | ||||
Water Facilities Revenue | ||||
(Bridgeport Hydraulic | ||||
Company Project) | 6.15 | 4/1/35 | 1,000,000 | 999,950 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut (continued) | ||||
Connecticut Development Authority, | ||||
Water Facilities Revenue | ||||
(Bridgeport Hydraulic Company | ||||
Project) (Insured; AMBAC) | 6.15 | 4/1/35 | 2,750,000 | 2,749,862 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Ascension Health Senior | ||||
Credit Group) | 5.00�� | 11/15/40 | 12,000,000 | 12,347,760 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Danbury Hospital Issue) | ||||
(Insured; AMBAC) | 5.75 | 7/1/29 | 2,000,000 | 2,000,580 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Fairfield University Issue) | 5.00 | 7/1/25 | 1,340,000 | 1,425,318 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Fairfield University Issue) | 5.00 | 7/1/27 | 1,420,000 | 1,492,548 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Fairfield University Issue) | 5.00 | 7/1/34 | 4,000,000 | 4,126,640 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Fairfield University Issue) | 5.00 | 7/1/35 | 2,000,000 | 2,092,180 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Fairfield University Issue) | 5.00 | 7/1/40 | 2,500,000 | 2,602,400 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Greenwich Academy Issue) (Insured; | ||||
Assured Guaranty Municipal Corp.) | 5.25 | 3/1/32 | 10,880,000 | 13,752,102 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Hartford HealthCare Issue) | 5.00 | 7/1/32 | 1,000,000 | 1,007,940 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Hospital for Special Care | ||||
Issue) (Insured; Radian) | 5.25 | 7/1/32 | 3,500,000 | 3,307,850 |
The Fund | 9 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut (continued) | ||||
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Lawrence and Memorial | ||||
Hospital Issue) | 5.00 | 7/1/31 | 1,000,000 | 1,017,970 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Loomis Chaffee School Issue) | ||||
(Insured; AMBAC) | 5.25 | 7/1/28 | 1,760,000 | 2,122,736 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Quinnipiac University Issue) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.00 | 7/1/19 | 2,000,000 | 2,210,240 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Quinnipiac University Issue) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.75 | 7/1/33 | 5,000,000 | 5,378,550 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Quinnipiac University Issue) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.00 | 7/1/37 | 2,000,000 | 2,056,340 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Sacred Heart University Issue) | 5.38 | 7/1/31 | 1,000,000 | 1,024,160 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Salisbury School Issue) | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 7/1/33 | 5,000,000 | 5,273,350 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Stamford Hospital Issue) | 5.00 | 7/1/30 | 6,750,000 | 6,875,482 |
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 | 2,184,660 |
10
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut (continued) | ||||
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Trinity College Issue) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.00 | 7/1/22 | 1,000,000 | 1,076,010 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(University of Hartford Issue) | ||||
(Insured; Radian) | 5.00 | 7/1/17 | 1,220,000 | 1,294,859 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(University of Hartford Issue) | ||||
(Insured; Radian) | 5.25 | 7/1/36 | 5,070,000 | 4,769,400 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Wesleyan University Issue) | 5.00 | 7/1/35 | 5,000,000 | 5,357,200 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Wesleyan University Issue) | 5.00 | 7/1/39 | 6,500,000 | 6,934,980 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Yale University Issue) | 5.00 | 7/1/40 | 5,000,000 | 5,440,750 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Yale-New Haven Hospital Issue) | 5.75 | 7/1/34 | 4,000,000 | 4,383,840 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Yale-New Haven Hospital | ||||
Issue) (Insured; AMBAC) | 5.00 | 7/1/31 | 2,500,000 | 2,585,425 |
Connecticut Health and Educational | ||||
Facilities Authority, State | ||||
Supported Child Care Revenue | 5.00 | 7/1/25 | 1,490,000 | 1,601,601 |
Connecticut Higher Education | ||||
Supplemental Loan Authority, | ||||
Senior Revenue (Connecticut | ||||
Family Education Loan Program) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 4.50 | 11/15/20 | 1,670,000 | 1,681,640 |
The Fund | 11 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut (continued) | ||||
Connecticut Higher Education | ||||
Supplemental Loan Authority, | ||||
Senior Revenue (Connecticut | ||||
Family Education Loan Program) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 4.80 | 11/15/22 | 3,920,000 | 4,003,614 |
Connecticut Housing Finance | ||||
Authority, Revenue (Housing | ||||
Mortgage Finance Program) | 5.00 | 11/15/21 | 3,190,000 | 3,270,133 |
Connecticut Housing Finance | ||||
Authority, Revenue (Housing | ||||
Mortgage Finance Program) | 5.45 | 11/15/29 | 4,550,000 | 4,551,638 |
Connecticut Housing Finance | ||||
Authority, Revenue (Housing | ||||
Mortgage Finance Program) | 5.00 | 11/15/35 | 2,475,000 | 2,473,218 |
Connecticut Housing Finance | ||||
Authority, Revenue (Housing | ||||
Mortgage Finance Program) | ||||
(Insured; AMBAC) | 5.10 | 11/15/33 | 2,500,000 | 2,525,025 |
Connecticut Resources Recovery | ||||
Authority, RRR (American Ref-Fuel | ||||
Company of Southeastern | ||||
Connecticut Project) | 5.50 | 11/15/15 | 1,000,000 | 1,003,830 |
Connecticut Resources Recovery | ||||
Authority, RRR (American Ref-Fuel | ||||
Company of Southeastern | ||||
Connecticut Project) | 5.50 | 11/15/15 | 3,250,000 | 3,262,447 |
Eastern Connecticut Resource | ||||
Recovery Authority, Solid | ||||
Waste Revenue (Wheelabrator | ||||
Lisbon Project) | 5.50 | 1/1/14 | 2,565,000 | 2,571,823 |
Eastern Connecticut Resource | ||||
Recovery Authority, Solid | ||||
Waste Revenue (Wheelabrator | ||||
Lisbon Project) | 5.50 | 1/1/20 | 7,000,000 | 6,999,370 |
Greater New Haven Water Pollution | ||||
Control Authority, Regional | ||||
Wastewater System Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 11/15/37 | 1,800,000 | 1,856,484 |
12
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 | 11/15/30 | 5,000,000 | 5,161,150 |
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 | 2,047,260 |
Greenwich Housing Authority, | ||||
MFHR (Greenwich Close | ||||
Apartments) | 6.25 | 9/1/17 | 3,285,000 | 3,132,050 |
Hamden, | ||||
GO (Insured; National Public | ||||
Finance Guarantee Corp.) | 5.25 | 8/15/14 | 5,000 | 5,631 |
Meriden, | ||||
GO (Insured; National Public | ||||
Finance Guarantee Corp.) | 5.00 | 8/1/16 | 2,090,000 | 2,448,310 |
New Britain, | ||||
GO (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 4/1/24 | 4,500,000 | 5,329,575 |
New Haven, | ||||
GO | 5.00 | 3/1/17 | 1,425,000 | 1,634,304 |
New Haven, | ||||
GO (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 3/1/29 | 1,000,000 | 1,059,370 |
South Central Connecticut Regional | ||||
Water Authority, Water | ||||
System Revenue | 5.00 | 8/1/31 | 3,940,000 | 4,260,243 |
South Central Connecticut Regional | ||||
Water Authority, Water System | ||||
Revenue (Insured; National | ||||
Public Finance Guarantee Corp.) | 5.25 | 8/1/24 | 2,000,000 | 2,406,360 |
South Central Connecticut | ||||
Regional Water Authority, | ||||
Water System Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.25 | 8/1/31 | 2,000,000 | 2,140,760 |
The Fund | 13 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Connecticut (continued) | |||||
Stamford, | |||||
GO | 5.00 | 7/1/21 | 4,410,000 | 5,419,449 | |
University of Connecticut, | |||||
GO | 5.00 | 2/15/25 | 1,000,000 | 1,124,520 | |
University of Connecticut, | |||||
GO | 5.00 | 2/15/27 | 1,000,000 | 1,106,220 | |
University of Connecticut, | |||||
GO | 5.00 | 2/15/28 | 1,000,000 | 1,098,750 | |
University of Connecticut, | |||||
GO (Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 2/15/24 | 1,225,000 | 1,342,037 | |
U.S. Related—22.8% | |||||
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 5.50 | 5/15/39 | 3,000,000 | 2,504,400 | |
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 0.00 | 5/15/50 | 12,000,000 | b | 553,080 |
Government of Guam, | |||||
LOR (Section 30) | 5.63 | 12/1/29 | 1,000,000 | 1,016,820 | |
Guam Economic Development | |||||
Authority, Tobacco Settlement | |||||
Asset-Backed Bonds | 5.20 | 5/15/12 | 795,000 | 816,354 | |
Guam Economic Development | |||||
Authority, Tobacco Settlement | |||||
Asset-Backed Bonds | 5.45 | 5/15/16 | 1,445,000 | 1,700,649 | |
Guam Power Authority, | |||||
Revenue | 5.50 | 10/1/30 | 1,750,000 | 1,731,870 | |
Guam Waterworks Authority, | |||||
Water and Wastewater | |||||
System Revenue | 5.50 | 7/1/16 | 750,000 | 762,870 | |
Guam Waterworks Authority, | |||||
Water and Wastewater | |||||
System Revenue | 5.63 | 7/1/40 | 2,000,000 | 1,910,920 | |
Puerto Rico Aqueduct and Sewer | |||||
Authority, Senior Lien Revenue | 6.00 | 7/1/38 | 6,000,000 | 6,241,320 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | 5.25 | 7/1/25 | 1,500,000 | 1,516,890 |
14
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
U.S. Related (continued) | |||||
Puerto Rico Commonwealth, | |||||
Public Improvement GO | |||||
(Insured; FGIC) | 5.50 | 7/1/16 | 3,270,000 | 3,572,704 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.50 | 7/1/13 | 6,500,000 | 6,902,480 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 7/1/14 | 4,925,000 | 5,299,990 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.25 | 7/1/28 | 5,000,000 | 5,148,700 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.25 | 7/1/40 | 3,000,000 | 3,029,940 | |
Puerto Rico Highways | |||||
and Transportation | |||||
Authority, Highway | |||||
Revenue (Prerefunded) | 5.50 | 7/1/16 | 5,000,000 | a | 5,994,200 |
Puerto Rico Highways and | |||||
Transportation Authority, | |||||
Highway Revenue (Insured; | |||||
National Public Finance | |||||
Guarantee Corp.) | 5.50 | 7/1/13 | 2,400,000 | 2,530,944 | |
Puerto Rico Highways and | |||||
Transportation Authority, | |||||
Transportation Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 7/1/33 | 7,750,000 | 7,744,420 | |
Puerto Rico Infrastructure | |||||
Financing Authority, Special | |||||
Tax Revenue (Insured; AMBAC) | 0.00 | 7/1/35 | 5,500,000 | b | 1,110,230 |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 5.38 | 8/1/39 | 1,500,000 | 1,536,000 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/39 | 4,000,000 | 4,357,240 |
The Fund | 15 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
U.S. Related (continued) | |||||
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/42 | 3,450,000 | 3,728,898 | |
Virgin Islands Public Finance | |||||
Authority, Revenue (Virgin | |||||
Islands Gross Receipts | |||||
Taxes Loan Note) | 6.38 | 10/1/19 | 4,550,000 | 4,558,554 | |
Virgin Islands Public Finance | |||||
Authority, Revenue (Virgin Islands | |||||
Matching Fund Loan Note) | 5.00 | 10/1/25 | 5,000,000 | 5,080,700 | |
Total Long-Term Municipal Investments | |||||
(cost $329,097,908) | 338,859,455 | ||||
Short-Term Municipal | |||||
Investment—.1% | |||||
Connecticut; | |||||
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Edgehill Issue) (LOC; | |||||
JPMorgan Chase Bank) | |||||
(cost $400,000) | 0.18 | 11/1/11 | 400,000 | c | 400,000 |
Total Investments (cost $329,497,908) | 97.4 | % | 339,259,455 | ||
Cash and Receivables (Net) | 2.6 | % | 9,136,278 | ||
Net Assets | 100.0 | % | 348,395,733 |
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, 2011. 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 |
The Fund | 17 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Combined Ratings (Unaudited) | |||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† |
AAA | Aaa | AAA | 22.4 | ||
AA | Aa | AA | 29.5 | ||
A | A | A | 16.6 | ||
BBB | Baa | BBB | 22.8 | ||
BB | Ba | BB | 2.8 | ||
F1 | MIG1/P1 | SP1/A1 | .1 | ||
Not Ratedd | Not Ratedd | Not Ratedd | 5.8 | ||
100.0 |
† | Based on total investments. |
d | Securities which, while not rated by Fitch, Moody’s and Standard & Poor’s, have been determined by the Manager to |
be of comparable quality to those rated securities in which the fund may invest. | |
See notes to financial statements. |
18
STATEMENT OF ASSETS AND LIABILITIES |
October 31, 2011 (Unaudited) |
Cost | Value | |||||
Assets ($): | ||||||
Investments in securities—See Statement of Investments | 329,497,908 | 339,259,455 | ||||
Cash | 4,377,903 | |||||
Interest receivable | 5,322,084 | |||||
Receivable for shares of Beneficial Interest subscribed | 98,291 | |||||
Prepaid expenses | 19,655 | |||||
349,077,388 | ||||||
Liabilities ($): | ||||||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 265,286 | |||||
Payable for shares of Beneficial Interest redeemed | 363,550 | |||||
Accrued expenses | 52,819 | |||||
681,655 | ||||||
Net Assets ($) | 348,395,733 | |||||
Composition of Net Assets ($): | ||||||
Paid-in capital | 339,304,210 | |||||
Accumulated undistributed investment income—net | 19,731 | |||||
Accumulated net realized gain (loss) on investments | (689,755 | ) | ||||
Accumulated net unrealized appreciation | ||||||
(depreciation) on investments | 9,761,547 | |||||
Net Assets ($) | 348,395,733 | |||||
Net Asset Value Per Share | ||||||
Class A | Class B | Class C | Class I | Class Z | ||
Net Assets ($) | 217,387,919 | 160,802 | 16,236,921 | 6,400,898 | 108,209,193 | |
Shares Outstanding | 18,462,193 | 13,665 | 1,381,141 | 543,699 | 9,191,946 | |
Net Asset Value | ||||||
Per Share ($) | 11.77 | 11.77 | 11.76 | 11.77 | 11.77 | |
See notes to financial statements. |
The Fund | 19 |
STATEMENT OF OPERATIONS |
Six Months Ended October 31, 2011 (Unaudited) |
Investment Income ($): | ||
Interest Income | 8,333,369 | |
Expenses: | ||
Management fee—Note 3(a) | 961,248 | |
Shareholder servicing costs—Note 3(c) | 408,312 | |
Distribution fees—Note 3(b) | 63,107 | |
Professional fees | 35,287 | |
Registration fees | 20,659 | |
Custodian fees—Note 3(c) | 15,528 | |
Prospectus and shareholders’ reports | 8,698 | |
Trustees’ fees and expenses—Note 3(d) | 7,556 | |
Loan commitment fees—Note 2 | 3,895 | |
Miscellaneous | 14,842 | |
Total Expenses | 1,539,132 | |
Less—reduction in fees due to earnings credits—Note 3(c) | (68 | ) |
Net Expenses | 1,539,064 | |
Investment Income—Net | 6,794,305 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | 303,360 | |
Net unrealized appreciation (depreciation) on investments | 13,439,837 | |
Net Realized and Unrealized Gain (Loss) on Investments | 13,743,197 | |
Net Increase in Net Assets Resulting from Operations | 20,537,502 | |
See notes to financial statements. |
20
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2011 | Year Ended | |||
(Unaudited) | April 30, 2011 | |||
Operations ($): | ||||
Investment income—net | 6,794,305 | 14,619,028 | ||
Net realized gain (loss) on investments | 303,360 | 2,161,819 | ||
Net unrealized appreciation | ||||
(depreciation) on investments | 13,439,837 | (14,329,203 | ) | |
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 20,537,502 | 2,451,644 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (4,189,762 | ) | (9,119,939 | ) |
Class B Shares | (2,926 | ) | (22,199 | ) |
Class C Shares | (258,264 | ) | (555,814 | ) |
Class I Shares | (133,173 | ) | (308,745 | ) |
Class Z Shares | (2,190,449 | ) | (4,562,009 | ) |
Total Dividends | (6,774,574 | ) | (14,568,706 | ) |
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 3,304,631 | 10,559,528 | ||
Class B Shares | 418 | 620 | ||
Class C Shares | 159,841 | 2,490,158 | ||
Class I Shares | 144,703 | 5,830,927 | ||
Class Z Shares | 2,076,401 | 5,066,925 | ||
Dividends reinvested: | ||||
Class A Shares | 2,925,818 | 6,139,560 | ||
Class B Shares | 1,831 | 15,439 | ||
Class C Shares | 197,581 | 443,327 | ||
Class I Shares | 28,367 | 84,186 | ||
Class Z Shares | 1,669,710 | 3,375,833 | ||
Cost of shares redeemed: | ||||
Class A Shares | (12,564,219 | ) | (40,179,377 | ) |
Class B Shares | (200,611 | ) | (779,713 | ) |
Class C Shares | (1,102,371 | ) | (4,478,346 | ) |
Class I Shares | (334,506 | ) | (4,691,453 | ) |
Class Z Shares | (5,865,396 | ) | (11,523,718 | ) |
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | (9,557,802 | ) | (27,646,104 | ) |
Total Increase (Decrease) in Net Assets | 4,205,126 | (39,763,166 | ) | |
Net Assets ($): | ||||
Beginning of Period | 344,190,607 | 383,953,773 | ||
End of Period | 348,395,733 | 344,190,607 | ||
Undistributed investment income—net | 19,731 | — |
The Fund | 21 |
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||||
October 31, 2011 | Year Ended | |||
(Unaudited) | April 30, 2011 | |||
Capital Share Transactions: | ||||
Class Aa | ||||
Shares sold | 283,186 | 911,610 | ||
Shares issued for dividends reinvested | 250,826 | 531,948 | ||
Shares redeemed | (1,082,928 | ) | (3,515,669 | ) |
Net Increase (Decrease) in Shares Outstanding | (548,916 | ) | (2,072,111 | ) |
Class Ba | ||||
Shares sold | 36 | 54 | ||
Shares issued for dividends reinvested | 157 | 1,328 | ||
Shares redeemed | (17,502 | ) | (67,082 | ) |
Net Increase (Decrease) in Shares Outstanding | (17,309 | ) | (65,700 | ) |
Class C | ||||
Shares sold | 13,734 | 214,017 | ||
Shares issued for dividends reinvested | 16,966 | 38,434 | ||
Shares redeemed | (94,239 | ) | (391,724 | ) |
Net Increase (Decrease) in Shares Outstanding | (63,539 | ) | (139,273 | ) |
Class I | ||||
Shares sold | 12,327 | 499,896 | ||
Shares issued for dividends reinvested | 2,433 | 7,275 | ||
Shares redeemed | (28,694 | ) | (415,567 | ) |
Net Increase (Decrease) in Shares Outstanding | (13,934 | ) | 91,604 | |
Class Z | ||||
Shares sold | 177,646 | 437,420 | ||
Shares issued for dividends reinvested | 143,168 | 292,626 | ||
Shares redeemed | (504,804 | ) | (1,010,115 | ) |
Net Increase (Decrease) in Shares Outstanding | (183,990 | ) | (280,069 | ) |
a | During the period ended October 31, 2011, 4,065 Class B shares representing $46,362, were automatically |
converted to 4,064 Class A shares and during the period ended April 30, 2011, 24,420 Class B shares | |
representing $285,875, were automatically converted to 24,408 Class A shares. | |
See notes to financial statements. |
22
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.32 | 11.68 | 11.16 | 11.55 | 11.87 | 11.78 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .23 | .45 | .47 | .47 | .48 | .49 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .45 | (.36 | ) | .52 | (.39 | ) | (.30 | ) | .09 | |||
Total from Investment Operations | .68 | .09 | .99 | .08 | .18 | .58 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.23 | ) | (.45 | ) | (.47 | ) | (.47 | ) | (.48 | ) | (.49 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | — | — | — | (.02 | ) | — | |||||
Total Distributions | (.23 | ) | (.45 | ) | (.47 | ) | (.47 | ) | (.50 | ) | (.49 | ) |
Net asset value, end of period | 11.77 | 11.32 | 11.68 | 11.16 | 11.55 | 11.87 | ||||||
Total Return (%)b | 6.00 | c | .75 | 8.98 | .86 | 1.54 | 5.04 | |||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .91 | d | .91 | .90 | .93 | 1.10 | 1.20 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .91 | d | .91 | .90 | .93 | 1.09 | 1.19 | |||||
Ratio of interest and expense related | ||||||||||||
to floating rate notes issued | ||||||||||||
to average net assets | — | — | — | .02 | .20 | .30 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.86 | d | 3.90 | 4.07 | 4.29 | 4.12 | 4.17 | |||||
Portfolio Turnover Rate | 5.37 | c | 17.05 | 11.42 | 26.41 | 44.96 | 43.87 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 217,388 | 215,132 | 246,190 | 238,183 | 248,300 | 257,627 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
The Fund | 23 |
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class B Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.31 | 11.67 | 11.15 | 11.54 | 11.86 | 11.77 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .15 | .35 | .38 | .40 | .41 | .43 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .47 | (.35 | ) | .53 | (.38 | ) | (.30 | ) | .09 | |||
Total from Investment Operations | .62 | — | .91 | .02 | .11 | .52 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.16 | ) | (.36 | ) | (.39 | ) | (.41 | ) | (.41 | ) | (.43 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | — | — | — | (.02 | ) | — | |||||
Total Distributions | (.16 | ) | (.36 | ) | (.39 | ) | (.41 | ) | (.43 | ) | (.43 | ) |
Net asset value, end of period | 11.77 | 11.31 | 11.67 | 11.15 | 11.54 | 11.86 | ||||||
Total Return (%)b | 5.55 | c | .00 | d | 8.31 | .26 | .97 | 4.50 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.93 | e | 1.56 | 1.54 | 1.52 | 1.66 | 1.72 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.93 | e | 1.56 | 1.54 | 1.52 | 1.65 | 1.71 | |||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | — | — | — | .02 | .20 | .30 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 2.86 | e | 3.11 | 3.47 | 3.68 | 3.56 | 3.66 | |||||
Portfolio Turnover Rate | 5.37 | c | 17.05 | 11.42 | 26.41 | 44.96 | 43.87 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 161 | 350 | 1,128 | 2,825 | 7,541 | 17,314 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Amount represents less than .01%. |
e | Annualized. |
See notes to financial statements. |
24
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.30 | 11.66 | 11.14 | 11.53 | 11.85 | 11.76 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .18 | .36 | .38 | .39 | .39 | .40 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .46 | (.36 | ) | .52 | (.39 | ) | (.30 | ) | .09 | |||
Total from Investment Operations | .64 | — | .90 | — | .09 | .49 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.18 | ) | (.36 | ) | (.38 | ) | (.39 | ) | (.39 | ) | (.40 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | — | — | — | (.02 | ) | — | |||||
Total Distributions | (.18 | ) | (.36 | ) | (.38 | ) | (.39 | ) | (.41 | ) | (.40 | ) |
Net asset value, end of period | 11.76 | 11.30 | 11.66 | 11.14 | 11.53 | 11.85 | ||||||
Total Return (%)b | 5.70 | c | (.01 | ) | 8.17 | .09 | .76 | 4.25 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.66 | d | 1.67 | 1.66 | 1.69 | 1.86 | 1.96 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.66 | d | 1.66 | 1.66 | 1.68 | 1.85 | 1.95 | |||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | — | — | — | .02 | .20 | .30 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.11 | d | 3.14 | 3.30 | 3.53 | 3.35 | 3.41 | |||||
Portfolio Turnover Rate | 5.37 | c | 17.05 | 11.42 | 26.41 | 44.96 | 43.87 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 16,237 | 16,322 | 18,466 | 15,045 | 12,640 | 11,021 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
The Fund | 25 |
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||||
October 31, 2011 | Year Ended April 30, | |||||||
Class I Shares | (Unaudited) | 2011 | 2010 | 2009 | a | |||
Per Share Data ($): | ||||||||
Net asset value, beginning of period | 11.31 | 11.68 | 11.16 | 10.13 | ||||
Investment Operations: | ||||||||
Investment income—netb | .24 | .48 | .44 | .19 | ||||
Net realized and unrealized | ||||||||
gain (loss) on investments | .46 | (.37 | ) | .58 | 1.03 | |||
Total from Investment Operations | .70 | .11 | 1.02 | 1.22 | ||||
Distributions: | ||||||||
Dividends from investment income—net | (.24 | ) | (.48 | ) | (.50 | ) | (.19 | ) |
Net asset value, end of period | 11.77 | 11.31 | 11.68 | 11.16 | ||||
Total Return (%) | 6.24 | c | .92 | 9.27 | 12.10 | c | ||
Ratios/Supplemental Data (%): | ||||||||
Ratio of total expenses to average net assets | .64 | d | .63 | .70 | .64 | d | ||
Ratio of net expenses to average net assets | .64 | d | .63 | .65 | .63 | d | ||
Ratio of interest and expense related | ||||||||
to floating rate notes issued | ||||||||
to average net assets | — | — | — | .02 | ||||
Ratio of net investment income | ||||||||
to average net assets | 4.14 | d | 4.16 | 4.30 | 4.70 | d | ||
Portfolio Turnover Rate | 5.37 | c | 17.05 | 11.42 | 26.41 | |||
Net Assets, end of period ($ x 1,000) | 6,401 | 6,309 | 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. |
See notes to financial statements. |
26
Six Months Ended | |||||||||||
October 31, 2011 | Year Ended April 30, | ||||||||||
Class Z Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | a | |||||
Per Share Data ($): | |||||||||||
Net asset value, beginning of period | 11.31 | 11.67 | 11.16 | 11.55 | 11.79 | ||||||
Investment Operations: | |||||||||||
Investment income—netb | .24 | .48 | .49 | .49 | .46 | ||||||
Net realized and unrealized | |||||||||||
gain (loss) on investments | .46 | (.37 | ) | .51 | (.39 | ) | (.22 | ) | |||
Total from Investment Operations | .70 | .11 | 1.00 | .10 | .24 | ||||||
Distributions: | |||||||||||
Dividends from investment income—net | (.24 | ) | (.47 | ) | (.49 | ) | (.49 | ) | (.46 | ) | |
Dividends from net realized | |||||||||||
gain on investments | — | — | — | — | (.02 | ) | |||||
Total Distributions | (.24 | ) | (.47 | ) | (.49 | ) | (.49 | ) | (.48 | ) | |
Net asset value, end of period | 11.77 | 11.31 | 11.67 | 11.16 | 11.55 | ||||||
Total Return (%) | 6.20 | c | .97 | 9.11 | 1.03 | 2.04 | c | ||||
Ratios/Supplemental Data (%): | |||||||||||
Ratio of total expenses to average net assets | .71 | d | .70 | .70 | .76 | .94 | d | ||||
Ratio of net expenses to average net assets | .71 | d | .70 | .70 | .76 | .93 | d | ||||
Ratio of interest and expense related | |||||||||||
to floating rate notes issued | |||||||||||
to average net assets | — | — | — | .02 | .20 | ||||||
Ratio of net investment income | |||||||||||
to average net assets | 4.06 | d | 4.11 | 4.27 | 4.46 | 4.31 | d | ||||
Portfolio Turnover Rate | 5.37 | c | 17.05 | 11.42 | 26.41 | 44.96 | |||||
Net Assets, end of period ($ x 1,000) | 108,209 | 106,076 | 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. |
See notes to financial statements. |
The Fund | 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 Connecticut Fund (the “fund”).The fund’s investment objective is to maximize current income exempt from federal income tax and from Connecticut 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, 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 no longer offers Class B shares, except in connection with dividend reinvestment and permitted exchanges of Class B shares and, effective on or about March 13, 2012, all outstanding Class B shares will automatically convert to Class A shares. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Class I shares are sold at net asset value per share only to institutional investors. 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
28
include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class) and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The 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: The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The Fund | 29 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. Valuation techniques used to value the fund’s investments are as follows:
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,
30
coupon, maturity and type; indications as to values from dealers; and general market conditions. All preceding securities are categorized within Level 2 of the fair value hierarchy.
When market quotations or official closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Trustees. Certain factors may be considered when fair valuing investments such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers.These securities are either categorized as Level 2 or 3 depending on the relevant inputs used.
For restricted securities where observable inputs are limited, assumptions about market activity and risk are used and are categorized within Level 3 of the fair value hierarchy.
The following is a summary of the inputs used as of October 31, 2011 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 | — | 339,259,455 | — | 339,259,455 |
In May 2011, FASB issued Accounting Standards Update (“ASU”) No. 2011-04 “Amendments to Achieve Common FairValue Measurement and Disclosure Requirements in GAAP and International Financial
The Fund | 31 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Reporting Standards (“IFRS”)” (“ASU 2011-04”). ASU 2011-04 includes common requirements for measurement of and disclosure about fair value between GAAP and IFRS. ASU 2011-04 will require reporting entities to disclose the following information for fair value measurements categorized within Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs used in the fair value measurement, the valuation processes used by the reporting entity and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, ASU 2011-04 will require reporting entities to make disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value mea-surements.The new and revised disclosures are effective for interim and annual reporting periods beginning after December 15, 2011. At this time, management is evaluating the implications of ASU 2011-04 and its impact on the financial statements.
(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 declared and paid annually, but the fund may make distributions on a
32
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, 2011, 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, 2011 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $1,049,850 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to April 30, 2011. If not applied, $469,665 of the carryover expires in fiscal 2017 and $580,185 expires in fiscal 2018.
Under the recently enacted Regulated Investment Company Modernization Act of 2010 (the “2010 Act”), the fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 (“post-enactment losses”) for an unlimited period. However, the 2010 Act requires post-enactment losses to be
The Fund | 33 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
utilized before the utilization of losses incurred in taxable years prior to the effective date of the 2010 Act. As a result of this ordering rule, capital loss carryovers related to taxable years beginning prior to the effective date of the 2010 Act may be more likely to expire unused.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2011 was as follows: tax exempt income $14,528,279 and ordinary income $40,427.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, 2011, 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, 2011, the Distributor retained $8,689 from commissions earned on sales of the fund’s Class A shares and $6,220 and $1 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
34
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, 2011, Class B and Class C shares were charged $513 and $62,594, respectively, pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay the Distributor at an annual rate of .25% of the value of the average daily net assets of their shares for the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor 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, 2011, Class A, Class B and Class C shares were charged $272,370, $257, and $20,864, 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, 2011, Class Z shares were charged $28,852 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, 2011, the fund was charged $38,336 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The Fund | 35 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The fund has arrangements with the custodian and cash management bank whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset custody and cash management fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
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, 2011, the fund was charged $4,203 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 $68.
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, 2011, the fund was charged $15,528 pursuant to the custody agreement.
During the period ended October 31, 2011, the fund was charged $2,981 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 $161,984, Rule 12b-1 distribution plan fees $10,482, shareholder services plan fees $49,435, custodian fees $8,389, chief compliance officer fees $4,246 and transfer agency per account fees $30,750.
(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.
36
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended October 31, 2011, amounted to $18,343,581 and $30,135,728, respectively.
At October 31, 2011, accumulated net unrealized appreciation on investments was $9,761,547, consisting of $14,093,999 gross unrealized appreciation and $4,332,452 gross unrealized depreciation.
At October 31, 2011, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
The Fund | 37 |
INFORMATION ABOUT THE RENEWAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the fund’s Board of Trustees held on July 26, 2011 the Board considered the renewal of the fund’s Management Agreement pursuant to which Dreyfus provides the fund with investment advisory and administrative services (the “Agreement”). 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 Dreyfus. In considering the renewal of the Agreement, the Board considered all factors that it believed to be relevant, including those discussed below.The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund.The Board members considered information previously provided to them in presentations from representatives of Dreyfus regarding the nature, extent, and quality of the services provided to funds in the Dreyfus fund complex, and representatives of Dreyfus confirmed that there had been no material changes in this information. Dreyfus provided the number of open accounts in the fund, the fund’s asset size and the allocation of fund assets among distribution channels. Dreyfus also had previously provided information regarding the diverse intermediary relationships and distribution channels of funds in the Dreyfus fund complex and Dreyfus’ corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including the distribution channel(s) for the fund.
The Board members also considered research support available to, and portfolio management capabilities of, the fund’s portfolio management personnel and that Dreyfus 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 Dreyfus’ extensive administrative, accounting, and compliance infrastructures.
38
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio.The Board members reviewed reports prepared by Lipper, Inc. (“Lipper”), an independent provider of investment company data, which included information comparing (1) the fund’s performance with the performance of a group of comparable funds (the “Performance Group”) and with a broader group of funds (the “Performance Universe”), all for various periods ended June 30, 2011, and (2) the fund’s actual and contractual management fees and total expenses with those of a group of comparable funds (the “Expense Group”) and with a broader group of funds (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Lipper as of June 30, 2011. Dreyfus previously had furnished the Board with a description of the methodology Lipper used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.
Dreyfus representatives stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations that may be applicable to the fund and comparison funds.The Board members discussed the results of the comparisons and noted that the fund’s total return performance was generally below the Performance Group medians and above the Performance Universe medians.The Board also noted that the fund’s yield performance was below the Performance Group medians for eight of the ten one-year periods ended June 30th, and that the fund’s yield performance was above the Performance Universe medians for all of the ten one-year periods. Dreyfus also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s Lipper category average.The Board noted that the fund outperformed its Lipper category average in nine of the past ten calendar years.The Board members discussed with the Dreyfus representatives the reasons for the fund’s underperfor-mance compared to the Performance Group medians for the applicable
The Fund | 39 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
periods, and Dreyfus’ 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 reviewed the range of actual and contractual management fees and total expenses of the Expense Group and Expense Universe funds and discussed the results of the comparisons. They noted that the fund’s contractual management fee was above the Expense Group median and the fund’s actual management fee and total expense ratio were above the Expense Group and Expense Universe medians.
Representatives of Dreyfus reviewed with the Board members the management or investment advisory fees (1) paid by funds advised or administered by Dreyfus that are in the same Lipper category as the fund and (2) paid to Dreyfus or the Dreyfus-affiliated primary employer of the fund’s primary portfolio manager for advising any separate accounts and/or other types of client portfolios that are considered to have similar investment strategies and policies as the fund (the “Similar Clients”), and explained the nature of the Similar Clients.They discussed differences in fees paid and the relationship of the fees paid in light of any differences in the services provided and other relevant factors. The Board members considered the relevance of the fee information provided for the Similar Clients to evaluate the appropriateness and reasonableness of the fund’s management fee.
Analysis of Profitability and Economies of Scale. Dreyfus’ representatives reviewed the expenses allocated and profit received by Dreyfus and the resulting profitability percentage for managing the fund, and the method used to determine the expenses and profit. The Board concluded that the profitability results were not unreasonable, given
40
the services rendered and service levels provided by Dreyfus. The Board previously had been provided with information prepared by an independent consulting firm regarding Dreyfus’ approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus fund complex. The consulting firm also had analyzed where any economies of scale might emerge in connection with the management of a fund.
The Board’s counsel stated that the Board members should consider the profitability analysis (1) as part of their evaluation of whether the fees under the Agreement bear a reasonable relationship to the mix of services provided by Dreyfus, including the nature, extent and quality of such services, and (2) 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. Dreyfus representatives noted that a discussion of economies of scale is predicated on a fund having achieved a substantial size with increasing assets and that, if a fund’s assets had been stable or decreasing, the possibility that Dreyfus may have realized any economies of scale would be less. They also noted that, as a result of shared and allocated costs among funds in the Dreyfus fund complex, the extent of economies of scale could depend substantially on the level of assets in the complex as a whole, so that increases and decreases in complex-wide assets can affect potential economies of scale in a manner that is disproportionate to, or even in the opposite direction from, changes in the fund’s asset level. The Board members also considered potential benefits to Dreyfus from acting as investment adviser and noted that there were no soft dollar arrangements in effect for trading the fund’s investments.
The Fund | 41 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to the renewal of the Agreement. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
The Board concluded that the nature, extent and quality of the services provided by Dreyfus are adequate and appropriate.
The Board generally was satisfied with the fund’s overall perfor- mance in light of the considerations described above, but determined to closely monitor performance relative to the Performance Group.
The Board concluded that the fee paid to Dreyfus was reasonable in light of the considerations described above.
The Board determined that the economies of scale which may accrue to Dreyfus and its affiliates in connection with the management of the fund had been adequately considered by Dreyfus in connection with the fee rate charged to the fund pursuant to the Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year. In addition, it should be noted that the Board’s consideration of the contractual fee arrangements for this fund had the benefit of a number of years of reviews of prior or similar agreements during which lengthy discussions took place between the Board members and Dreyfus representatives. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board members’ conclusions may be based, in part, on their consideration of the same or similar arrangements in prior years. The Board members determined that renewal of the Agreement was in the best interests of the fund and its shareholders.
42
NOTES
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
16 | Statement of Assets and Liabilities |
17 | Statement of Operations |
18 | Statement of Changes in Net Assets |
20 | Financial Highlights |
23 | Notes to Financial Statements |
33 | Information About the Renewal 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 Maryland Fund, a series of Dreyfus State Municipal Bond Funds, covering the six-month period from May 1, 2011, through October 31, 2011. 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.
Investors were encouraged by expectations of a more robust economic recovery into the first quarter of 2011, but sentiment subsequently deteriorated due to disappointing economic data, rising commodity prices, an escalating sovereign debt crisis in Europe and a contentious debate regarding taxes, spending and borrowing in the United States. Market volatility was particularly severe during August and September after a major credit rating agency downgraded U.S. long-term debt. While most fixed-income securities proved volatile in this tumultuous environment, municipal bonds held up relatively well due to robust demand for a limited supply of newly issued securities.
The economic outlook currently remains clouded by market turbulence and political infighting, but we believe that a continued subpar global expansion is more likely than a return to recession. In addition, municipal bonds remain attractively valued despite recent issuer events, as fundamental measures of quality, including liquidity and revenue stabilization, support a stable outlook for the broad municipal market in general.With tax season considerations in mind, we encourage you, as always, to speak with your financial advisor in order to help evaluate the tax-efficiency of your portfolio.
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, 2011
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2011, through October 31, 2011, as provided by Jeffrey Burger and James Welch, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended October 31, 2011, 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 5.55%, 5.11% and 5.13%, respectively.1 In comparison, the Barclays Capital Municipal Bond Index, the fund’s benchmark index, which is composed of bonds issued nationally and not solely within Maryland, achieved a total return of 5.56% for the same period.2
Despite intensifying economic uncertainty during the reporting period, municipal bonds fared relatively well as a reduced supply of newly issued securities was met by robust investor demand.The fund’s Class A shares produced returns that were roughly in line with the benchmark, due primarily to positive contributions from revenue bonds.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax and Maryland state income tax without undue risk. To pursue its goal, the fund normally invests substantially all of its assets in municipal bonds that provide income exempt from federal income tax and 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.
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 our apparent relative values.The fund generally will invest simultaneously in several of these sectors.
The Fund | 3 |
DISCUSSION OF FUND PERFORMANCE (continued)
Municipal Bonds Held Up Relatively Well Amid Uncertainty
Investor confidence generally was shaken in the spring of 2011 when Greece appeared headed for default on its sovereign debt, U.S. economic data disappointed and a contentious political debate regarding U.S. government spending and borrowing intensified. Consequently, investors shifted their focus from relatively speculative asset classes to traditionally defensive investments, producing bouts of heightened volatility in many financial markets.Turbulence among stocks and lower-rated bonds was particularly severe in August and September, after a major credit-rating agency downgraded its assessment of long-term U.S. debt securities. In contrast, securities that had been hard-hit in late summer rebounded to a significant degree in October as certain macroeconomic concerns eased.
Positive supply-and-demand forces helped municipal bonds hold up relatively well despite these developments. New issuance volumes fell sharply in 2011 after a flood of new issuance in late 2010 when issuers sought to lock in federal subsidies provided by the expiring Build America Bonds program. Political pressure to reduce spending and borrowing also led to fewer capital projects requiring financing.Yet, demand for municipal bonds remained robust from investors seeking competitive levels of tax-exempt income.
Maryland’s fiscal condition has continued to be stronger than many other states as it recovers from recession, primarily due to economic benefits related to the state’s proximity to the federal government in Washington D.C.Tax revenues have increased, and the state cut spending in some areas to pass a balanced budget for its current fiscal year.
Revenue Bonds Supported Relative Performance
The fund’s results compared to its benchmark were bolstered by bonds backed by dedicated revenues from municipal projects. Such securities generally have been less sensitive to economic concerns than their general obligation counterparts. The fund received especially strong results during the reporting period from an overweighted position in revenue bonds backed by hospitals and dedicated taxes. The fund also was supported by relatively robust income from its core holdings, which were purchased with higher coupon rates than are available today.Although the
4
fund encountered relatively few disappointments during the reporting period, an emphasis on intermediate-term holdings detracted mildly from relative performance as longer-dated bonds fared better in a falling interest-rate environment.
We continued our efforts to upgrade the fund’s overall credit quality and reduce its sensitivity to interest-rate volatility.We have gradually reduced the fund’s exposure to bonds with early redemption provisions that can be exercised over the next several years, replacing them with more attractively valued bonds with greater call protection.
Adjusting to a Slower-Growth Environment
Ongoing economic uncertainty has convinced us to maintain a relatively cautious investment posture, including a bias toward higher-quality securities with strong liquidity characteristics.We have identified particularly attractive values among revenue bonds. In our view, municipal bonds backed by dedicated revenue streams are likely to be the focus of demand from individual investors seeking tax-advantaged income and muted volatility as they grow more concerned about persistently low interest rates and potential tax increases in a slow-growth economy.
November 15, 2011
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. |
The Fund | 5 |
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus State Municipal Bond Funds, Dreyfus Maryland Fund from May 1, 2011 to October 31, 2011. 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, 2011 | ||||||
Class A | Class B | Class C | ||||
Expenses paid per $1,000† | $ | 4.86 | $ | 8.56 | $ | 8.87 |
Ending value (after expenses) | $ | 1,055.50 | $ | 1,051.10 | $ | 1,051.30 |
COMPARING YOUR FUND’S EXPENSES |
WITH THOSE OF OTHER FUNDS (Unaudited) |
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment | ||||||
assuming a hypothetical 5% annualized return for the six months ended October 31, 2011 | ||||||
Class A | Class B | Class C | ||||
Expenses paid per $1,000† | $ | 4.77 | $ | 8.42 | $ | 8.72 |
Ending value (after expenses) | $ | 1,020.41 | $ | 1,016.79 | $ | 1,016.49 |
Expenses are equal to the fund’s annualized expense ratio of .94% for Class A, 1.66% for Class B and 1.72% |
for Class C, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the |
one-half year period). |
6
STATEMENT OF INVESTMENTS |
October 31, 2011 (Unaudited) |
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments—98.5% | Rate (%) | Date | Amount ($) | Value ($) |
Maryland—83.6% | ||||
Anne Arundel County, | ||||
Consolidated General | ||||
Improvements GO | 5.00 | 4/1/19 | 1,575,000 | 1,911,247 |
Anne Arundel County, | ||||
EDR (Anne Arundel Community | ||||
College Project) | 5.00 | 9/1/17 | 2,255,000 | 2,341,141 |
Baltimore, | ||||
Consolidated Public | ||||
Improvement GO | 5.00 | 10/15/24 | 1,480,000 | 1,714,876 |
Baltimore, | ||||
Project Revenue | ||||
(Wastewater Projects) | 5.00 | 7/1/23 | 1,000,000 | 1,180,510 |
Baltimore, | ||||
Project Revenue (Wastewater | ||||
Projects) (Insured; National | ||||
Public Finance Guarantee Corp.) | 5.00 | 7/1/22 | 630,000 | 695,759 |
Baltimore, | ||||
Subordinate Project Revenue | ||||
(Water Projects) | 5.75 | 7/1/39 | 750,000 | 843,518 |
Frederick County, | ||||
Educational Facilities Revenue | ||||
(Mount Saint Mary’s University) | 4.50 | 9/1/25 | 3,000,000 | 2,603,820 |
Gaithersburg, | ||||
Hospital Facilities Improvement | ||||
Revenue (Shady Grove Adventist | ||||
Hospital) (Insured; Assured | ||||
Guaranty Municipal Corp.) | 6.50 | 9/1/12 | 420,000 | 440,811 |
Harford County, | ||||
MFHR (Affinity Old Post | ||||
Apartments Projects) | ||||
(Collateralized; GNMA) | 5.00 | 11/20/25 | 1,460,000 | 1,477,827 |
Howard County, | ||||
COP | 8.15 | 2/15/20 | 605,000 | 855,549 |
Howard County, | ||||
GO (Metropolitan District Project) | 5.25 | 8/15/19 | 1,545,000 | 1,565,641 |
Hyattsville, | ||||
Special Obligation Revenue | ||||
(University Town Center Project) | 5.75 | 7/1/34 | 3,000,000 | 2,795,160 |
Maryland, | ||||
GO (State and Local | ||||
Facilities Loan) | 5.00 | 8/1/19 | 2,000,000 | 2,440,420 |
The Fund | 7 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Maryland (continued) | ||||
Maryland, | ||||
GO (State and Local | ||||
Facilities Loan) | 5.00 | 3/15/20 | 2,000,000 | 2,394,320 |
Maryland Community Development | ||||
Administration, Department of | ||||
Housing and Community | ||||
Development, Housing Revenue | 5.95 | 7/1/23 | 705,000 | 705,656 |
Maryland Community Development | ||||
Administration, Department of | ||||
Housing and Community | ||||
Development, Housing Revenue | ||||
(Collateralized; GNMA) | 5.05 | 7/1/47 | 2,550,000 | 2,403,477 |
Maryland Community Development | ||||
Administration, Department | ||||
of Housing and Community | ||||
Development, Residential Revenue | 5.38 | 9/1/22 | 985,000 | 985,699 |
Maryland Community Development | ||||
Administration, Department | ||||
of Housing and Community | ||||
Development, Residential Revenue | 4.85 | 9/1/47 | 4,175,000 | 4,026,328 |
Maryland Economic Development | ||||
Corporation, EDR | ||||
(Terminal Project) | 5.75 | 6/1/35 | 2,000,000 | 1,988,900 |
Maryland Economic Development | ||||
Corporation, EDR (Transportation | ||||
Facilities Project) | 5.75 | 6/1/35 | 1,000,000 | 994,450 |
Maryland Economic Development | ||||
Corporation, LR (Maryland | ||||
Aviation Administration | ||||
Facilities) (Insured; Assured | ||||
Guaranty Municipal Corp.) | 5.50 | 6/1/16 | 3,120,000 | 3,289,697 |
Maryland Economic Development | ||||
Corporation, LR (Maryland | ||||
Aviation Administration | ||||
Facilities) (Insured; Assured | ||||
Guaranty Municipal Corp.) | 5.50 | 6/1/18 | 2,535,000 | 2,664,741 |
Maryland Economic Development | ||||
Corporation, LR (Maryland | ||||
Aviation Administration | ||||
Facilities) (Insured; Assured | ||||
Guaranty Municipal Corp.) | 5.38 | 6/1/19 | 7,000,000 | 7,344,750 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Maryland (continued) | ||||
Maryland Economic Development | ||||
Corporation, LR (Montgomery | ||||
County Wayne Avenue Parking | ||||
Garage Project) | 5.25 | 9/15/16 | 2,940,000 | 3,054,689 |
Maryland Economic Development | ||||
Corporation, PCR (Potomac | ||||
Electric Project) | 6.20 | 9/1/22 | 2,500,000 | 2,939,300 |
Maryland Economic Development | ||||
Corporation, Port Facilities | ||||
Revenue (CNX Marine Terminals | ||||
Inc. Port of Baltimore Facility) | 5.75 | 9/1/25 | 2,000,000 | 2,013,440 |
Maryland Economic Development | ||||
Corporation, Senior Student | ||||
Housing Revenue (Towson | ||||
University Project) | 5.00 | 7/1/39 | 450,000 | 411,624 |
Maryland Economic Development | ||||
Corporation, Student Housing | ||||
Revenue (University of Maryland, | ||||
College Park Projects) | 5.75 | 6/1/33 | 1,000,000 | 1,033,940 |
Maryland Economic Development | ||||
Corporation, Student Housing | ||||
Revenue (University Village at | ||||
Sheppard Pratt) (Insured; ACA) | 5.88 | 7/1/21 | 1,750,000 | 1,679,475 |
Maryland Economic Development | ||||
Corporation, Student Housing | ||||
Revenue (University Village at | ||||
Sheppard Pratt) (Insured; ACA) | 6.00 | 7/1/33 | 1,750,000 | 1,543,728 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Anne | ||||
Arundel Health System Issue) | 5.00 | 7/1/32 | 1,000,000 | 1,020,680 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Anne | ||||
Arundel Health System Issue) | 6.75 | 7/1/39 | 2,500,000 | 2,817,100 |
Maryland Health and | ||||
Higher Educational | ||||
Facilities Authority, | ||||
Revenue (Charlestown | ||||
Community Issue) | 6.13 | 1/1/30 | 1,250,000 | 1,325,400 |
The Fund 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 (Doctors | ||||
Community Hospital Issue) | 5.75 | 7/1/38 | 1,000,000 | 905,470 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue | ||||
(Greater Baltimore | ||||
Medical Center Issue) | 5.38 | 7/1/26 | 1,500,000 | 1,561,860 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Mercy | ||||
Medical Center Issue) | 5.50 | 7/1/42 | 1,000,000 | 928,200 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Peninsula | ||||
Regional Medical Center Issue) | 5.00 | 7/1/26 | 1,630,000 | 1,658,721 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Peninsula | ||||
Regional Medical Center Issue) | 5.00 | 7/1/36 | 3,350,000 | 3,355,996 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (The Johns | ||||
Hopkins Health System | ||||
Obligated Group Issue) | 5.00 | 5/15/26 | 1,000,000 | 1,080,700 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (The Johns | ||||
Hopkins Health System | ||||
Obligated Group Issue) | 5.00 | 5/15/40 | 4,945,000 | 5,106,207 |
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 | 5,389,874 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Upper | ||||
Chesapeake Hospitals Issue) | 6.00 | 1/1/38 | 3,005,000 | 3,166,609 |
10
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Maryland (continued) | |||||
Maryland Health and Higher | |||||
Educational Facilities Authority, | |||||
Revenue (Washington | |||||
Christian Academy Issue) | 5.25 | 7/1/18 | 500,000 | a | 218,750 |
Maryland Health and Higher | |||||
Educational Facilities Authority, | |||||
Revenue (Washington | |||||
Christian Academy Issue) | 5.50 | 7/1/38 | 3,540,000 | a | 1,548,750 |
Maryland Health and Higher | |||||
Educational Facilities Authority, | |||||
Revenue (Washington | |||||
County Hospital Issue) | 5.75 | 1/1/38 | 2,500,000 | 2,464,850 | |
Maryland Industrial Development | |||||
Financing Authority, EDR (Our | |||||
Lady of Good Counsel High | |||||
School Facility) | 6.00 | 5/1/35 | 1,600,000 | 1,608,496 | |
Montgomery County, | |||||
Consolidated Public | |||||
Improvement GO | 5.00 | 7/1/20 | 1,455,000 | 1,779,319 | |
Montgomery County, | |||||
Revenue (Trinity Health | |||||
Credit Group Issue) | 5.00 | 12/1/40 | 1,000,000 | 1,022,620 | |
Montgomery County, | |||||
Special Obligation Revenue | |||||
(West Germantown Development | |||||
District) (Insured; Radian) | 5.50 | 7/1/27 | 1,475,000 | 1,492,538 | |
Montgomery County Housing | |||||
Opportunities Commission, SFMR | 0.00 | 7/1/28 | 24,000,000 | b | 9,486,480 |
Montgomery County Housing | |||||
Opportunities Commission, SFMR | 0.00 | 7/1/33 | 3,060,000 | b | 870,386 |
Montgomery County Housing | |||||
Opportunities Commission, SFMR | 5.00 | 7/1/36 | 1,595,000 | 1,602,576 | |
Northeast Waste Disposal | |||||
Authority, RRR (Hartford | |||||
County Resource Recovery | |||||
Facility) (Insured; AMBAC) | 5.25 | 3/15/14 | 1,220,000 | 1,223,758 | |
Northeast Waste Disposal | |||||
Authority, Solid Waste Revenue | |||||
(Montgomery County Solid Waste | |||||
Disposal System) (Insured; AMBAC) | 5.50 | 4/1/15 | 7,000,000 | 7,371,490 |
The Fund | 11 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Maryland (continued) | ||||
Northeast Waste Disposal | ||||
Authority, Solid Waste Revenue | ||||
(Montgomery County | ||||
Solid Waste Disposal | ||||
System) (Insured; AMBAC) | 5.50 | 4/1/16 | 8,000,000 | 8,424,560 |
Prince Georges County, | ||||
Special Obligation Revenue | ||||
(National Harbor Project) | 5.20 | 7/1/34 | 4,000,000 | 3,656,760 |
University System of Maryland, | ||||
Auxiliary Facility and | ||||
Tuition Revenue | 5.00 | 4/1/26 | 1,000,000 | 1,145,760 |
Washington Metropolitan Area | ||||
Transit Authority, Gross | ||||
Transit Revenue | 5.25 | 7/1/29 | 1,750,000 | 1,906,975 |
U.S. Related—14.9% | ||||
Guam Power Authority, | ||||
Revenue | 5.50 | 10/1/30 | 1,000,000 | 989,640 |
Guam Waterworks Authority, | ||||
Water and Wastewater | ||||
System Revenue | 6.00 | 7/1/25 | 1,000,000 | 1,005,440 |
Puerto Rico Aqueduct and Sewer | ||||
Authority, Senior Lien Revenue | 6.00 | 7/1/44 | 1,000,000 | 1,037,380 |
Puerto Rico Aqueduct and Sewer | ||||
Authority, Senior Lien Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 7/1/28 | 2,000,000 | 2,037,880 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | 5.25 | 7/1/26 | 1,000,000 | 1,014,240 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | 6.00 | 7/1/28 | 1,000,000 | 1,073,850 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | 6.00 | 7/1/38 | 1,000,000 | 1,036,530 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.13 | 7/1/30 | 100,000 | 100,021 |
12
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
U.S. Related (continued) | |||||
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.50 | 7/1/38 | 3,500,000 | 3,577,035 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.25 | 7/1/40 | 1,000,000 | 1,009,980 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 7/1/30 | 1,110,000 | 1,141,302 | |
Puerto Rico Infrastructure | |||||
Financing Authority, Special | |||||
Tax Revenue | 5.00 | 7/1/25 | 1,250,000 | 1,241,975 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/39 | 1,580,000 | 1,721,110 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/42 | 2,500,000 | 2,702,100 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.50 | 8/1/44 | 1,500,000 | 1,693,290 | |
Virgin Islands Public Finance | |||||
Authority, Revenue (Virgin | |||||
Islands Matching Fund Loan Note) | 5.00 | 10/1/25 | 2,500,000 | 2,540,350 | |
Total Investments (cost $156,240,883) | 98.5 | % | 158,403,501 | ||
Cash and Receivables (Net) | 1.5 | % | 2,384,032 | ||
Net Assets | 100.0 | % | 160,787,533 |
a Non-income producing security; interest payments in default. |
b Security issued with a zero coupon. Income is recognized through the accretion of discount. |
The Fund | 13 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Abbreviations | |||
ABAG | Association of Bay Area Governments | ACA | American Capital Access |
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company |
AMBAC | American Municipal Bond | 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 | 31.6 | ||
AA | Aa | AA | 25.2 | ||
A | A | A | 18.2 | ||
BBB | Baa | BBB | 13.2 | ||
BB | Ba | BB | 3.6 | ||
Not Ratedc | Not Ratedc | Not Ratedc | 8.2 | ||
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. |
The Fund | 15 |
STATEMENT OF ASSETS AND LIABILITIES |
October 31, 2011 (Unaudited) |
Cost | Value | |||
Assets ($): | ||||
Investments in securities—See Statement of Investments | 156,240,883 | 158,403,501 | ||
Cash | 1,450,999 | |||
Interest receivable | 2,102,564 | |||
Receivable for shares of Beneficial Interest subscribed | 56,226 | |||
Prepaid expenses | 14,114 | |||
Other assets | 106,905 | |||
162,134,309 | ||||
Liabilities ($): | ||||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 129,978 | |||
Payable for investment securities purchased | 1,078,470 | |||
Payable for shares of Beneficial Interest redeemed | 91,657 | |||
Accrued expenses | 46,671 | |||
1,346,776 | ||||
Net Assets ($) | 160,787,533 | |||
Composition of Net Assets ($): | ||||
Paid-in capital | 168,397,874 | |||
Accumulated undistributed investment income—net | 10,901 | |||
Accumulated net realized gain (loss) on investments | (9,783,860 | ) | ||
Accumulated net unrealized appreciation | ||||
(depreciation) on investments | 2,162,618 | |||
Net Assets ($) | 160,787,533 | |||
Net Asset Value Per Share | ||||
Class A | Class B | Class C | ||
Net Assets ($) | 155,688,660 | 351,798 | 4,747,075 | |
Shares Outstanding | 12,928,514 | 29,226 | 393,954 | |
Net Asset Value Per Share ($) | 12.04 | 12.04 | 12.05 | |
See notes to financial statements. |
16
STATEMENT OF OPERATIONS |
Six Months Ended October 31, 2011 (Unaudited) |
Investment Income ($): | ||
Interest Income | 4,044,103 | |
Expenses: | ||
Management fee—Note 3(a) | 445,116 | |
Shareholder servicing costs—Note 3(c) | 244,627 | |
Professional fees | 28,986 | |
Distribution fees—Note 3(b) | 17,358 | |
Registration fees | 13,851 | |
Custodian fees—Note 3(c) | 8,910 | |
Prospectus and shareholders’ reports | 6,583 | |
Loan commitment fees—Note 2 | 1,799 | |
Miscellaneous | 14,987 | |
Total Expenses | 782,217 | |
Less—reduction in fees due to earnings credits—Note 3(c) | (31 | ) |
Net Expenses | 782,186 | |
Investment Income—Net | 3,261,917 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | (842,063 | ) |
Net unrealized appreciation (depreciation) on investments | 6,268,675 | |
Net Realized and Unrealized Gain (Loss) on Investments | 5,426,612 | |
Net Increase in Net Assets Resulting from Operations | 8,688,529 | |
See notes to financial statements. |
The Fund | 17 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2011 | Year Ended | |||
(Unaudited) | April 30, 2011 | |||
Operations ($): | ||||
Investment income—net | 3,261,917 | 7,148,209 | ||
Net realized gain (loss) on investments | (842,063 | ) | 1,161,486 | |
Net unrealized appreciation | ||||
(depreciation) on investments | 6,268,675 | (6,249,548 | ) | |
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 8,688,529 | 2,060,147 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (3,173,489 | ) | (6,946,008 | ) |
Class B Shares | (7,783 | ) | (38,405 | ) |
Class C Shares | (69,744 | ) | (134,893 | ) |
Total Dividends | (3,251,016 | ) | (7,119,306 | ) |
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 2,931,826 | 7,086,903 | ||
Class B Shares | 471 | 2,310 | ||
Class C Shares | 717,146 | 996,143 | ||
Dividends reinvested: | ||||
Class A Shares | 2,377,431 | 5,345,810 | ||
Class B Shares | 5,469 | 28,467 | ||
Class C Shares | 47,511 | 90,727 | ||
Cost of shares redeemed: | ||||
Class A Shares | (9,823,333 | ) | (23,210,463 | ) |
Class B Shares | (380,949 | ) | (788,226 | ) |
Class C Shares | (121,740 | ) | (657,314 | ) |
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | (4,246,168 | ) | (11,105,643 | ) |
Total Increase (Decrease) in Net Assets | 1,191,345 | (16,164,802 | ) | |
Net Assets ($): | ||||
Beginning of Period | 159,596,188 | 175,760,990 | ||
End of Period | 160,787,533 | 159,596,188 | ||
Undistributed investment income—net | 10,901 | — |
18
Six Months Ended | ||||
October 31, 2011 | Year Ended | |||
(Unaudited) | April 30, 2011 | |||
Capital Share Transactions: | ||||
Class Aa | ||||
Shares sold | 245,446 | 591,343 | ||
Shares issued for dividends reinvested | 198,965 | 449,136 | ||
Shares redeemed | (822,784 | ) | (1,971,803 | ) |
Net Increase (Decrease) in Shares Outstanding | (378,373 | ) | (931,324 | ) |
Class Ba | ||||
Shares sold | 40 | 194 | ||
Shares issued for dividends reinvested | 459 | 2,388 | ||
Shares redeemed | (32,148 | ) | (66,273 | ) |
Net Increase (Decrease) in Shares Outstanding | (31,649 | ) | (63,691 | ) |
Class C | ||||
Shares sold | 59,747 | 83,428 | ||
Shares issued for dividends reinvested | 3,973 | 7,642 | ||
Shares redeemed | (10,170 | ) | (55,654 | ) |
Net Increase (Decrease) in Shares Outstanding | 53,550 | 35,416 |
a During the period ended October 31, 2011, 25,487 Class B shares representing $301,996 were automatically |
converted to 25,487 Class A shares and during the period ended April 30, 2011, 33,202 Class B shares |
representing $395,123 were automatically converted to 33,198 Class A shares. |
The Fund | 19 |
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.64 | 11.98 | 11.29 | 11.83 | 12.24 | 12.12 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .24 | .50 | .51 | .51 | .49 | .48 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .40 | (.34 | ) | .68 | (.54 | ) | (.41 | ) | .12 | |||
Total from Investment Operations | .64 | .16 | 1.19 | (.03 | ) | .08 | .60 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.24 | ) | (.50 | ) | (.50 | ) | (.51 | ) | (.49 | ) | (.48 | ) |
Net asset value, end of period | 12.04 | 11.64 | 11.98 | 11.29 | 11.83 | 12.24 | ||||||
Total Return (%)b | 5.55 | c | 1.29 | 10.74 | (.13 | ) | .67 | 5.04 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .94 | d | .95 | .94 | .95 | .93 | .91 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .94 | d | .95 | .94 | .94 | .92 | .91 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 4.05 | d | 4.19 | 4.31 | 4.54 | 4.07 | 3.94 | |||||
Portfolio Turnover Rate | 9.29 | c | 12.19 | 9.96 | 14.86 | 17.25 | 5.67 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 155,689 | 154,922 | 170,612 | 162,311 | 178,268 | 186,327 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
20
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class B Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.64 | 11.98 | 11.29 | 11.84 | 12.24 | 12.12 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .18 | .42 | .41 | .44 | .41 | .42 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .41 | (.33 | ) | .71 | (.54 | ) | (.38 | ) | .12 | |||
Total from Investment Operations | .59 | .09 | 1.12 | (.10 | ) | .03 | .54 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.19 | ) | (.43 | ) | (.43 | ) | (.45 | ) | (.43 | ) | (.42 | ) |
Net asset value, end of period | 12.04 | 11.64 | 11.98 | 11.29 | 11.84 | 12.24 | ||||||
Total Return (%)b | 5.11 | c | .70 | 10.06 | (.76 | ) | .22 | 4.51 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.66 | d | 1.56 | 1.55 | 1.50 | 1.46 | 1.41 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.66 | d | 1.56 | 1.55 | 1.50 | 1.45 | 1.41 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.26 | d | 3.59 | 3.73 | 3.94 | 3.53 | 3.43 | |||||
Portfolio Turnover Rate | 9.29 | c | 12.19 | 9.96 | 14.86 | 17.25 | 5.67 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 352 | 709 | 1,492 | 3,640 | 10,266 | 21,524 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
The Fund | 21 |
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.65 | 11.99 | 11.30 | 11.84 | 12.25 | 12.12 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .19 | .41 | .41 | .42 | .39 | .39 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .41 | (.35 | ) | .69 | (.54 | ) | (.41 | ) | .13 | |||
Total from Investment Operations | .60 | .06 | 1.10 | (.12 | ) | (.02 | ) | .52 | ||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.20 | ) | (.40 | ) | (.41 | ) | (.42 | ) | (.39 | ) | (.39 | ) |
Net asset value, end of period | 12.05 | 11.65 | 11.99 | 11.30 | 11.84 | 12.25 | ||||||
Total Return (%)b | 5.13 | c | .52 | 9.88 | (.90 | ) | (.12 | ) | 4.33 | |||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.72 | d | 1.72 | 1.72 | 1.73 | 1.72 | 1.67 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.72 | d | 1.72 | 1.72 | 1.73 | 1.71 | 1.67 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.25 | d | 3.41 | 3.52 | 3.76 | 3.28 | 3.18 | |||||
Portfolio Turnover Rate | 9.29 | c | 12.19 | 9.96 | 14.86 | 17.25 | 5.67 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 4,747 | 3,966 | 3,657 | 3,698 | 3,713 | 4,025 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
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 no longer offers Class B shares, except in connection with dividend reinvestment and permitted exchanges of Class B shares and, effective on or about March 13, 2012, all outstanding Class B shares will automatically convert to Class A shares. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting
The Fund | 23 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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.
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: 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).
24
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.
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. Valuation techniques used to value the fund’s investments are as follows:
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
The Fund | 25 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. All preceding securities are categorized within Level 2 of the fair value hierarchy.
When market quotations or official closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Trustees. Certain factors may be considered when fair valuing investments such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers.These securities are either categorized as Level 2 or 3 depending on the relevant inputs used.
For restricted securities where observable inputs are limited, assumptions about market activity and risk are used and are categorized within Level 3 of the fair value hierarchy.
The following is a summary of the inputs used as of October 31, 2011 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 | — | 156,636,001 | 1,767,500 | 158,403,501 |
26
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Municipal Bonds ($) | |
Balance as of 4/30/2011 | — |
Realized gain (loss) | — |
Change in unrealized appreciation (depreciation) | 152,996 |
Purchases | — |
Sales | — |
Transfers into Level 3 † | 1,614,504 |
Transfers out of Level 3 | — |
Balance as of 10/31/2011 | 1,767,500 |
The amount of total gains (losses) for the | |
period included in earnings attributable | |
to the change in unrealized gains (losses) | |
relating to investments still held at 10/31/2011 | 153,279 |
† Transfers into or out of Level 3 represent the value at the date of transfer.The transfer into Level 3 | |
for the current period was due to the lack of observable inputs following the issuer’s default. |
In May 2011, FASB issued Accounting Standards Update (“ASU”) No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in GAAP and International Financial Reporting Standards (“IFRS”)” (“ASU 2011-04”). ASU 2011-04 includes common requirements for measurement of and disclosure about fair value between GAAP and IFRS. ASU 2011-04 will require reporting entities to disclose the following information for fair value measurements categorized within Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs used in the fair value measurement, the valuation processes used by the reporting entity and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, ASU 2011-04 will require reporting entities to make disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value
The Fund | 27 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
measurements.The new and revised disclosures are effective for interim and annual reporting periods beginning after December 15, 2011. At this time, management is evaluating the implications of ASU 2011-04 and its impact on the financial statements.
(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 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.
28
As of and during the period ended October 31, 2011, 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, 2011 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $9,003,817 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to April 30, 2011. If not applied, $747,084 of the carryover expires in fiscal 2012, $6,917,527 expires in fiscal 2013, $625,584 expires in fiscal 2017 and $713,622 expires in fiscal 2018.
Under the recently enacted Regulated Investment Company Modernization Act of 2010 (the “2010 Act”), the fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 (“post-enactment losses”) for an unlimited period. However, the 2010 Act requires post-enactment losses to be utilized before the utilization of losses incurred in taxable years prior to the effective date of the 2010 Act. As a result of this ordering rule, capital loss carryovers related to taxable years beginning prior to the effective date of the 2010 Act may be more likely to expire unused.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2011 was as follows: tax exempt income $7,098,442 and ordinary income $20,864.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
The Fund | 29 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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, 2011, 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, 2011, the Distributor retained $2,086 from commissions earned on sales of the fund’s Class A shares and $23 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, 2011, Class B and Class C shares were charged $1,198 and $16,160, respectively, pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts.The Distributor may make pay-
30
ments 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, 2011, Class A, Class B and Class C shares were charged $196,340, $599 and $5,386, 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, 2011, the fund was charged $29,246 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, 2011, the fund was charged $1,931 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 $31.
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, 2011, the fund was charged $8,910 pursuant to the custody agreement.
During the period ended October 31, 2011, the fund was charged $2,981 for services performed by the Chief Compliance Officer.
The Fund | 31 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $74,752, Rule 12b-1 distribution plan fees $3,162, shareholder services plan fees $33,978, custodian fees $4,350, chief compliance officer fees $4,246 and transfer agent per account fees $9,490.
(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, 2011, amounted to $14,687,151 and $19,384,717, respectively.
At October 31, 2011, accumulated net unrealized appreciation on investments was $2,162,618, consisting of $5,390,943 gross unrealized appreciation and $3,228,325 gross unrealized depreciation.
At October 31, 2011, 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).
32
INFORMATION ABOUT THE RENEWAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the fund’s Board of Trustees held on July 26, 2011 the Board considered the renewal of the fund’s Management Agreement pursuant to which Dreyfus provides the fund with investment advisory and administrative services (the “Agreement”). 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 Dreyfus. In considering the renewal of the Agreement, the Board considered all factors that it believed to be relevant, including those discussed below.The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund.The Board members considered information previously provided to them in presentations from representatives of Dreyfus regarding the nature, extent, and quality of the services provided to funds in the Dreyfus fund complex, and representatives of Dreyfus confirmed that there had been no material changes in this information. Dreyfus provided the number of open accounts in the fund, the fund’s asset size and the allocation of fund assets among distribution channels. Dreyfus also had previously provided information regarding the diverse intermediary relationships and distribution channels of funds in the Dreyfus fund complex and Dreyfus’ corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including the distribution channel(s) for the fund.
The Board members also considered research support available to, and portfolio management capabilities of, the fund’s portfolio management personnel and that Dreyfus 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 Dreyfus’ extensive administrative, accounting, and compliance infrastructures.
The Fund | 33 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board members reviewed reports prepared by Lipper, Inc. (“Lipper”), an independent provider of investment company data, which included information comparing (1) the fund’s performance with the performance of a group of comparable funds (the “Performance Group”) and with a broader group of funds (the “Performance Universe”), all for various periods ended June 30, 2011, and (2) the fund’s actual and contractual management fees and total expenses with those of a group of comparable funds (the “Expense Group”) and with a broader group of funds (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Lipper as of June 30, 2011. Dreyfus previously had furnished the Board with a description of the methodology Lipper used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.
Dreyfus representatives stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations that may be applicable to the fund and comparison funds.The Board members discussed the results of the comparisons and noted that the fund’s total return performance was above the Performance Group and Performance Universe medians for the various periods, except for the four- and ten-year periods when the fund’s performance was at the Performance Group median, and below the Performance Group median, respectively.The Board also noted that the fund’s yield performance was at or above the Performance Group medians for seven of the ten one-year periods ended June 30th, and that the fund’s yield performance was above the Performance Universe medians for all of the ten one-year periods. Dreyfus also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s Lipper category average.
The Board members also reviewed the range of actual and contractual management fees and total expenses of the Expense Group and Expense Universe funds and discussed the results of the comparisons.They noted
34
that the fund’s contractual management fee was above the Expense Group median and the fund’s actual management fee and total expense ratio were above the Expense Group and Expense Universe medians.
Representatives of Dreyfus reviewed with the Board members the management or investment advisory fees (1) paid by funds advised or administered by Dreyfus that are in the same Lipper category as the fund and (2) paid to Dreyfus or the Dreyfus-affiliated primary employer of the fund’s primary portfolio manager for advising any separate and/or other types of client portfolios that are considered to have similar investment strategies and policies as the fund (the “Similar Clients”), and explained the nature of the Similar Clients.They discussed differences in fees paid and the relationship of the fees paid in light of any differences in the services provided and other relevant factors. The Board members considered the relevance of the fee information provided for the Similar Clients to evaluate the appropriateness and reasonableness of the fund’s management fee.
Analysis of Profitability and Economies of Scale. Dreyfus’ representatives reviewed the expenses allocated and profit received by Dreyfus and the resulting profitability percentage for managing the fund, and the method used to determine the expenses and profit. The Board concluded that the profitability results were not unreasonable, given the services rendered and service levels provided by Dreyfus.The Board previously had been provided with information prepared by an independent consulting firm regarding Dreyfus’ approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus fund complex. The consulting firm also had analyzed where any economies of scale might emerge in connection with the management of a fund.
The Board’s counsel stated that the Board members should consider the profitability analysis (1) as part of their evaluation of whether the fees under the Agreement bear a reasonable relationship to the mix of services provided by Dreyfus, including the nature, extent and quality of such services, and (2) in light of the relevant circumstances for the
The Fund | 35 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
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. Dreyfus representatives noted that a discussion of economies of scale is predicated on a fund having achieved a substantial size with increasing assets and that, if a fund’s assets had been stable or decreasing, the possibility that Dreyfus may have realized any economies of scale would be less. They also noted that, as a result of shared and allocated costs among funds in the Dreyfus fund complex, the extent of economies of scale could depend substantially on the level of assets in the complex as a whole, so that increases and decreases in complex-wide assets can affect potential economies of scale in a manner that is disproportionate to, or even in the opposite direction from, changes in the fund’s asset level. The Board members also considered potential benefits to Dreyfus from acting as investment adviser and noted that there were no soft dollar arrangements in effect for trading the fund’s investments.
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 the renewal of the Agreement. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
The Board concluded that the nature, extent and quality of the services provided by Dreyfus are adequate and appropriate.
The Board was satisfied with the fund’s performance.
The Board concluded that the fee paid to Dreyfus was reasonable in light of the considerations described above.
The Board determined that the economies of scale which may accrue to Dreyfus and its affiliates in connection with the management of the fund had been adequately considered by Dreyfus in connection with the fee rate charged to the fund pursuant to the Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
36
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year. In addition, it should be noted that the Board’s consideration of the contractual fee arrangements for this fund had the benefit of a number of years of reviews of prior or similar agreements during which lengthy discussions took place between the Board members and Dreyfus representatives. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board members’ conclusions may be based, in part, on their consideration of the same or similar arrangements in prior years. The Board members determined that renewal of the Agreement was in the best interests of the fund and its shareholders.
The Fund | 37 |
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
19 | Statement of Assets and Liabilities |
20 | Statement of Operations |
21 | Statement of Changes in Net Assets |
23 | Financial Highlights |
27 | Notes to Financial Statements |
36 | Information About the Renewal 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 Massachusetts Fund, a series of Dreyfus State Municipal Bond Funds, covering the six-month period from May 1, 2011, through October 31, 2011. 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.
Investors were encouraged by expectations of a more robust economic recovery into the first quarter of 2011, but sentiment subsequently deteriorated due to disappointing economic data, rising commodity prices, an escalating sovereign debt crisis in Europe and a contentious debate regarding taxes, spending and borrowing in the United States. Market volatility was particularly severe during August and September after a major credit rating agency downgraded U.S. long-term debt. While most fixed-income securities proved volatile in this tumultuous environment, municipal bonds held up relatively well due to robust demand for a limited supply of newly issued securities.
The economic outlook currently remains clouded by market turbulence and political infighting, but we believe that a continued subpar global expansion is more likely than a return to recession. In addition, municipal bonds remain attractively valued despite recent issuer events, as fundamental measures of quality, including liquidity and revenue stabilization, support a stable outlook for the broad municipal market in general.With tax season considerations in mind, we encourage you, as always, to speak with your financial advisor in order to help evaluate the tax-efficiency of your portfolio.
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, 2011
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2011, through October 31, 2011, as provided by Thomas Casey and James Welch, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended October 31, 2011, the Class A, Class B, Class C and Class Z shares of Dreyfus Massachusetts Fund, a series of Dreyfus State Municipal Bond Funds, produced total returns of 5.92%, 5.43%, 5.51% and 6.03%, respectively.1 In comparison, the Barclays Capital Municipal Bond Index, the fund’s benchmark index, which is composed of bonds issued nationally and not solely within Massachusetts, achieved a total return of 5.56% for the same period.2
Despite intensifying economic uncertainty during the reporting period, municipal bonds fared relatively well as a reduced supply of newly issued securities was met by robust investor demand.The fund’s returns for its Class A and Class Z shares generally were higher than its benchmark, due primarily to positive contributions from revenue bonds.
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 among the market’s various sectors, such as the pre-refunded, general obligation and revenue sectors, based on their apparent relative values. The fund generally will invest simultaneously in several of these sectors.
The Fund | 3 |
DISCUSSION OF FUND PERFORMANCE (continued)
Municipal Bonds Held Up Relatively Well Amid Uncertainty
Investor confidence generally was shaken in the spring of 2011, when Greece appeared headed for default on its sovereign debt, U.S. economic data disappointed and a contentious political debate regarding U.S. government spending and borrowing intensified. Consequently, investors shifted their focus from relatively speculative asset classes to traditionally defensive investments, producing bouts of heightened volatility in many financial markets.Turbulence among stocks and lower-rated bonds was particularly severe in August and September, after a major credit-rating agency downgraded its assessment of long-term U.S. debt securities. In contrast, securities that had been hard-hit in late summer rebounded to a significant degree in October as certain macroeconomic concerns eased.
Positive supply-and-demand forces helped municipal bonds hold up relatively well despite these developments. New issuance volumes fell sharply in 2011 after a flood of new issuance in late 2010 when issuers sought to lock in federal subsidies provided by the expiring Build America Bonds program. Political pressure to reduce spending and borrowing also led to fewer capital projects requiring financing.Yet, demand for municipal bonds remained robust from investors seeking competitive levels of tax-exempt income.
Massachusetts’s fiscal condition has continued to be stronger than many other states as it recovers from recession. Tax revenues have increased, and the state cut spending in some areas to pass a balanced budget for its current fiscal year.
Revenue Bonds Supported Relative Performance
The fund’s results compared to its benchmark were bolstered by income-oriented bonds backed by dedicated revenues from municipal projects. Such securities generally have been less sensitive to economic concerns than their general obligation counterparts.The fund received especially strong results during the reporting period from an overweighted position in revenue bonds backed by hospitals. In addition, municipal bonds issued by Puerto Rico, which produce income exempt from state and federal taxes, fared well as investors reached for higher yields. Although the fund encountered relatively few disappointments
4
during the reporting period, its shorter-dated holdings and escrowed bonds generally lagged market averages.
We continued our efforts to upgrade the fund’s overall credit quality and reduce its sensitivity to interest-rate volatility during the reporting period. We generally reduced the fund’s holdings of lower-rated and longer-dated credits, including general obligation bonds from Massachusetts issuers, that had reached richer valuations.We replaced them with shorter-maturity revenue bonds backed by essential services facilities, such as sewer systems and waterworks.
Adjusting to a Slower-Growth Environment
Ongoing market turbulence and general economic uncertainty have convinced us to maintain a relatively cautious investment posture, including a neutral duration and a bias toward higher-quality securities with strong liquidity characteristics. We have identified particularly attractive values among lower-yielding revenue bonds. In our view, municipal bonds with relatively defensive characteristics are likely to be the focus of demand from individual investors seeking tax-advantaged income and muted volatility as they grow more concerned about persistently low interest rates and potential tax increases in a slow-growth economy.
November 15, 2011
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. |
The Fund | 5 |
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus State Municipal Bond Funds, Dreyfus Massachusetts Fund from May 1, 2011 to October 31, 2011. 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, 2011 | ||||||||
Class A | Class B | Class C | Class Z | |||||
Expenses paid per $1,000† | $ | 4.97 | $ | 8.83 | $ | 8.83 | $ | 3.83 |
Ending value (after expenses) | $ | 1,059.20 | $ | 1,054.30 | $ | 1,055.10 | $ | 1,060.30 |
COMPARING YOUR FUND’S EXPENSES |
WITH THOSE OF OTHER FUNDS (Unaudited) |
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment | ||||||||
assuming a hypothetical 5% annualized return for the six months ended October 31, 2011 | ||||||||
Class A | Class B | Class C | Class Z | |||||
Expenses paid per $1,000† | $ | 4.88 | $ | 8.67 | $ | 8.67 | $ | 3.76 |
Ending value (after expenses) | $ | 1,020.31 | $ | 1,016.54 | $ | 1,016.54 | $ | 1,021.42 |
† Expenses are equal to the fund’s annualized expense ratio of .96% for Class A, 1.71% for Class B, 1.71% for Class C and .74% for Class Z; multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
October 31, 2011 (Unaudited) |
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments—97.1% | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts—82.0% | |||||
Boston, | |||||
Convention Center Loan, | |||||
Special Obligation Bonds | |||||
(Insured; AMBAC) (Prerefunded) | 5.00 | 5/1/12 | 1,750,000 | a | 1,791,737 |
Boston Housing Authority, | |||||
Capital Program Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 4/1/24 | 1,900,000 | 2,005,203 | |
Boston Industrial Development | |||||
Financing Authority, Sewage | |||||
Facility Revenue (Harbor Electric | |||||
Energy Company Project) | 7.38 | 5/15/15 | 970,000 | 974,249 | |
Boston Water and Sewer Commission, | |||||
Revenue | 5.00 | 11/1/20 | 2,000,000 | 2,222,040 | |
Holliston, | |||||
GO (Insured; National Public | |||||
Finance Guarantee Corp.) | |||||
(Prerefunded) | 5.25 | 4/1/12 | 1,655,000 | a | 1,706,355 |
Holyoke, | |||||
Gas and Electric Department | |||||
Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 5.38 | 12/1/15 | 1,245,000 | 1,286,882 | |
Marblehead, | |||||
GO (Prerefunded) | 5.00 | 8/15/14 | 1,835,000 | a | 2,053,071 |
Marblehead, | |||||
GO (Prerefunded) | 5.00 | 8/15/14 | 1,925,000 | a | 2,153,767 |
Massachusetts, | |||||
GO | 5.25 | 8/1/22 | 2,650,000 | 3,270,630 | |
Massachusetts, | |||||
GO | 0.72 | 11/1/25 | 5,000,000 | b | 4,077,450 |
Massachusetts, | |||||
GO (Insured; AMBAC) | 5.50 | 8/1/30 | 1,750,000 | 2,147,600 | |
Massachusetts, | |||||
GO (Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.25 | 9/1/23 | 1,000,000 | 1,235,970 | |
Massachusetts, | |||||
Special Obligation Dedicated | |||||
Tax Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 5.50 | 1/1/23 | 3,000,000 | 3,500,610 |
The Fund | 7 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts (continued) | |||||
Massachusetts Bay Transportation | |||||
Authority, Assessment Revenue | 5.00 | 7/1/21 | 2,400,000 | 2,692,152 | |
Massachusetts Bay Transportation | |||||
Authority, Assessment Revenue | 5.25 | 7/1/34 | 2,500,000 | 2,707,750 | |
Massachusetts Bay Transportation | |||||
Authority, GO (General | |||||
Transportation System) | 6.20 | 3/1/16 | 2,055,000 | 2,293,380 | |
Massachusetts Bay Transportation | |||||
Authority, GO (General | |||||
Transportation System) | 7.00 | 3/1/21 | 425,000 | 503,493 | |
Massachusetts Bay Transportation | |||||
Authority, GO (General | |||||
Transportation System) | 7.00 | 3/1/21 | 575,000 | 708,072 | |
Massachusetts Bay Transportation | |||||
Authority, Senior Sales | |||||
Tax Revenue | 5.00 | 7/1/21 | 1,000,000 | 1,201,100 | |
Massachusetts Bay Transportation | |||||
Authority, Senior Sales Tax | |||||
Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 5.50 | 7/1/27 | 3,000,000 | 3,741,450 | |
Massachusetts College Building | |||||
Authority, Project Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 0.00 | 5/1/26 | 5,385,000 | c | 3,236,600 |
Massachusetts College Building | |||||
Authority, Project Revenue | |||||
(Insured; XLCA) | 5.50 | 5/1/28 | 1,450,000 | d | 1,747,337 |
Massachusetts Department of | |||||
Transportation, Metropolitan | |||||
Highway System Senior Revenue | 5.00 | 1/1/27 | 4,000,000 | 4,263,200 | |
Massachusetts Development Finance | |||||
Agency, Higher Education | |||||
Revenue (Emerson College Issue) | 5.00 | 1/1/22 | 1,000,000 | d | 1,050,260 |
Massachusetts Development Finance | |||||
Agency, Revenue (Assumption | |||||
College Issue) (Insured; Radian) | 6.00 | 3/1/30 | 1,905,000 | d | 1,908,562 |
Massachusetts Development Finance | |||||
Agency, Revenue (Berklee | |||||
College of Music Issue) | 5.00 | 10/1/31 | 1,000,000 | d | 1,030,320 |
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 | d | 1,338,000 |
Massachusetts Development Finance | |||||
Agency, Revenue (Brandeis | |||||
University Issue) | 5.00 | 10/1/29 | 1,475,000 | d | 1,547,142 |
Massachusetts Development Finance | |||||
Agency, Revenue (Milton | |||||
Academy Issue) | 5.00 | 9/1/30 | 2,000,000 | d | 2,188,780 |
Massachusetts Development Finance | |||||
Agency, Revenue (Noble and | |||||
Greenough School Issue) | 5.00 | 4/1/21 | 600,000 | d | 709,296 |
Massachusetts Development Finance | |||||
Agency, Revenue (Partners | |||||
HealthCare System Issue) | 5.38 | 7/1/41 | 4,000,000 | 4,197,400 | |
Massachusetts Development Finance | |||||
Agency, Revenue (Suffolk | |||||
University Issue) | 5.00 | 7/1/30 | 1,000,000 | d | 991,550 |
Massachusetts Development Finance | |||||
Agency, Revenue (Tufts Medical | |||||
Center Issue) | 5.50 | 1/1/22 | 1,500,000 | 1,576,455 | |
Massachusetts Development Finance | |||||
Agency, Revenue (UMass | |||||
Memorial Issue) | 5.50 | 7/1/31 | 500,000 | 507,260 | |
Massachusetts Development Finance | |||||
Agency, Revenue (Wheelock | |||||
College Issue) | 5.25 | 10/1/37 | 2,500,000 | d | 2,390,825 |
Massachusetts Development Finance | |||||
Agency, Revenue (Whitehead | |||||
Institute for Biomedical | |||||
Research Issue) | 5.00 | 6/1/23 | 1,350,000 | d | 1,566,810 |
Massachusetts Development | |||||
Finance Agency, RRR | |||||
(SEMASS System) | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.63 | 1/1/14 | 2,000,000 | 2,028,000 | |
Massachusetts Development Finance | |||||
Agency, SWDR (Dominion Energy | |||||
Brayton Point Issue) | 5.00 | 2/1/36 | 2,000,000 | 1,995,660 |
The Fund | 9 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts (continued) | |||||
Massachusetts Educational | |||||
Financing Authority, Education | |||||
Loan Revenue (Insured; AMBAC) | 5.00 | 1/1/13 | 1,440,000 | d | 1,443,096 |
Massachusetts Educational | |||||
Financing Authority, Education | |||||
Loan Revenue (Insured; AMBAC) | 4.70 | 1/1/27 | 10,000,000 | d | 9,238,800 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Healthcare System | |||||
Revenue (Covenant Health | |||||
Systems Obligated Group Issue) | 6.50 | 7/1/17 | 1,175,000 | 1,192,061 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Healthcare System | |||||
Revenue (Covenant Health | |||||
Systems Obligated Group Issue) | 6.00 | 7/1/22 | 1,030,000 | 1,042,494 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Healthcare System | |||||
Revenue (Covenant Health | |||||
Systems Obligated Group | |||||
Issue) (Prerefunded) | 6.50 | 1/1/12 | 310,000 | a | 316,358 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Community | |||||
Colleges Program Issue) | |||||
(Insured; AMBAC) | 5.25 | 10/1/26 | 2,845,000 | d | 2,845,711 |
Massachusetts Health and | |||||
Educational Facilities Authority, | |||||
Revenue (Dana-Farber Cancer | |||||
Institute Issue) | 5.25 | 12/1/27 | 1,000,000 | 1,041,630 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Harvard University Issue) | 5.00 | 12/15/24 | 2,350,000 | d | 2,739,536 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Massachusetts Eye and | |||||
Ear Infirmary Issue) | 5.00 | 7/1/20 | 1,000,000 | 1,048,300 |
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 | 981,540 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Massachusetts Institute of | |||||
Technology Issue) | 5.25 | 7/1/33 | 4,000,000 | d | 4,935,280 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Milford-Whitinsville Regional | |||||
Hospital Issue) (Prerefunded) | 6.50 | 7/15/12 | 2,250,000 | a | 2,371,658 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Partners | |||||
HealthCare System Issue) | 6.00 | 7/1/16 | 55,000 | 55,756 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Partners | |||||
HealthCare System Issue) | 6.00 | 7/1/17 | 45,000 | 45,614 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Partners | |||||
HealthCare System Issue) | 5.25 | 7/1/29 | 2,000,000 | 2,127,560 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Partners | |||||
HealthCare System Issue) | 5.75 | 7/1/32 | 60,000 | 60,512 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Partners | |||||
HealthCare System Issue) | 5.00 | 7/1/47 | 4,950,000 | 4,979,007 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Springfield College Issue) | |||||
(Insured; Radian) | 5.13 | 10/15/23 | 1,100,000 | d | 1,108,206 |
The Fund | 11 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts (continued) | |||||
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Suffolk University Issue) | 6.00 | 7/1/24 | 1,000,000 | d | 1,082,130 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Tufts University Issue) | 5.50 | 8/15/18 | 1,625,000 | d | 1,970,881 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Tufts University Issue) | 5.38 | 8/15/38 | 3,000,000 | d | 3,291,900 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(UMass Memorial Issue) | 5.25 | 7/1/25 | 1,895,000 | d | 1,895,474 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(UMass Memorial Issue) | 5.00 | 7/1/33 | 1,070,000 | d | 1,000,739 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Wheaton College Issue) | 5.00 | 1/1/30 | 2,405,000 | d | 2,532,465 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Winchester Hospital Issue) | 5.25 | 7/1/38 | 1,000,000 | 936,660 | |
Massachusetts Housing | |||||
Finance Agency, Housing | |||||
Development Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.40 | 6/1/20 | 345,000 | 345,321 | |
Massachusetts Housing Finance | |||||
Agency, Housing Revenue | 5.00 | 12/1/24 | 1,160,000 | 1,171,275 | |
Massachusetts Housing Finance | |||||
Agency, Housing Revenue | 5.00 | 12/1/26 | 1,200,000 | 1,208,760 | |
Massachusetts Housing Finance | |||||
Agency, Housing Revenue | 5.00 | 12/1/28 | 2,000,000 | 2,011,960 | |
Massachusetts Housing Finance | |||||
Agency, Housing Revenue | 5.00 | 6/1/30 | 900,000 | 911,484 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Massachusetts (continued) | ||||
Massachusetts Housing Finance | ||||
Agency, Housing Revenue | 5.25 | 12/1/33 | 1,350,000 | 1,350,851 |
Massachusetts Housing Finance | ||||
Agency, Housing Revenue | 5.10 | 6/1/37 | 745,000 | 731,903 |
Massachusetts Housing Finance | ||||
Agency, Housing Revenue | 5.10 | 12/1/37 | 2,130,000 | 2,135,091 |
Massachusetts Housing Finance | ||||
Agency, Housing Revenue | 5.20 | 12/1/37 | 2,000,000 | 2,011,940 |
Massachusetts Housing Finance | ||||
Agency, Rental Housing Mortgage | ||||
Revenue (Insured; AMBAC) | 5.70 | 7/1/20 | 60,000 | 60,041 |
Massachusetts Housing Finance | ||||
Agency, SFHR | 4.75 | 12/1/30 | 1,315,000 | 1,275,603 |
Massachusetts Industrial Finance | ||||
Agency, Water Treatment | ||||
Revenue (Massachusetts-American | ||||
Hingham Project) | 6.95 | 12/1/35 | 2,790,000 | 2,790,391 |
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 | 2,030,840 |
Massachusetts Port Authority, | ||||
Revenue | 5.00 | 7/1/27 | 5,475,000 | 6,026,059 |
Massachusetts School Building | ||||
Authority, Senior Dedicated | ||||
Sales Tax Revenue | 5.00 | 10/15/35 | 4,000,000 | 4,307,040 |
Massachusetts Water Pollution | ||||
Abatement Trust (Pool Program) | 5.38 | 8/1/27 | 1,000,000 | 1,003,270 |
Massachusetts Water Pollution | ||||
Abatement Trust, State | ||||
Revolving Fund Bonds | 5.00 | 8/1/27 | 1,535,000 | 1,752,080 |
Massachusetts Water Resources | ||||
Authority, General Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.25 | 8/1/21 | 1,500,000 | 1,711,230 |
Massachusetts Water Resources | ||||
Authority, General Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.25 | 8/1/26 | 2,000,000 | 2,222,000 |
The Fund | 13 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts (continued) | |||||
Metropolitan Boston Transit | |||||
Parking Corporation, Systemwide | |||||
Senior Lien Parking Revenue | 5.00 | 7/1/24 | 1,320,000 | 1,479,984 | |
Pittsfield, | |||||
GO (Insured; National Public | |||||
Finance Guarantee Corp.) | |||||
(Prerefunded) | 5.13 | 4/15/12 | 1,000,000 | a | 1,031,870 |
Sandwich, | |||||
GO (Insured; National Public | |||||
Finance Guarantee Corp.) | 5.00 | 7/15/19 | 1,000,000 | 1,132,260 | |
U.S. Related—15.1% | |||||
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 5.38 | 5/15/33 | 1,780,000 | 1,675,087 | |
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 5.50 | 5/15/39 | 1,245,000 | 1,039,326 | |
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 0.00 | 5/15/50 | 5,000,000 | c | 230,450 |
Guam, | |||||
Hotel Occupancy Tax Revenue | 5.00 | 11/1/17 | 1,000,000 | 1,067,220 | |
Guam Power Authority, | |||||
Revenue | 5.50 | 10/1/30 | 1,000,000 | 989,640 | |
Puerto Rico Aqueduct and Sewer | |||||
Authority, Senior Lien Revenue | 6.00 | 7/1/38 | 2,000,000 | 2,080,440 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | 5.25 | 7/1/25 | 1,500,000 | 1,516,890 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 6.00 | 7/1/27 | 1,000,000 | 1,055,150 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | |||||
(Insured; XLCA) | 5.25 | 7/1/17 | 1,460,000 | 1,584,757 |
14
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
U.S. Related (continued) | |||||
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.25 | 7/1/27 | 2,500,000 | 2,585,100 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.25 | 7/1/40 | 1,000,000 | 1,009,980 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 7/1/30 | 1,000,000 | 1,028,200 | |
Puerto Rico Infrastructure | |||||
Financing Authority, Special | |||||
Tax Revenue (Insured; AMBAC) | 0.00 | 7/1/35 | 6,840,000 | c | 1,380,722 |
Puerto Rico Infrastructure | |||||
Financing Authority, Special | |||||
Tax Revenue (Insured; FGIC) | 5.50 | 7/1/19 | 1,225,000 | 1,332,996 | |
Puerto Rico Public Buildings | |||||
Authority, Guaranteed | |||||
Government Facilities Revenue | 5.75 | 7/1/22 | 1,900,000 | 2,058,251 | |
Puerto Rico Public Buildings | |||||
Authority, Guaranteed | |||||
Government Facilities | |||||
Revenue (Insured; AMBAC) | 6.25 | 7/1/15 | 1,100,000 | 1,302,796 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 5.38 | 8/1/39 | 1,000,000 | 1,024,000 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/39 | 2,500,000 | 2,723,275 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/42 | 2,000,000 | 2,161,680 | |
Virgin Islands Public Finance | |||||
Authority, Revenue (Virgin Islands | |||||
Matching Fund Loan Note) | 5.00 | 10/1/25 | 2,500,000 | 2,540,350 | |
Total Long-Term Municipal Investments | |||||
(cost $191,200,002) | 195,917,349 |
The Fund | 15 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Short-Term Municipal | Coupon | Maturity | Principal | |||
Investment—3.2% | Rate (%) | Date | Amount ($) | Value ($) | ||
Massachusetts; | ||||||
Massachusetts Development Finance | ||||||
Agency, Revenue (Boston | ||||||
University Issue) (LOC; | ||||||
JPMorgan Chase Bank) | ||||||
(cost $6,400,000) | 0.13 | 11/1/11 | 6,400,000 | d,e | 6,400,000 | |
Total Investments (cost $197,600,002) | 100.3 | % | 202,317,349 | |||
Liabilities, Less Cash and Receivables | (.3 | %) | (555,778 | ) | ||
Net Assets | 100.0 | % | 201,761,571 |
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 Security issued with a zero coupon. Income is recognized through the accretion of discount. |
d At October 31, 2011, the fund had $56,953,100 or 28.2% of net assets invested in securities whose payment of |
principal and interest is dependent upon revenues generated from education. |
e Variable rate demand note—rate shown is the interest rate in effect at October 31, 2011. 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 |
The Fund | 17 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Combined Ratings (Unaudited) | |||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† |
AAA | Aaa | AAA | 27.4 | ||
AA | Aa | AA | 32.8 | ||
A | A | A | 18.4 | ||
BBB | Baa | BBB | 14.2 | ||
F1 | MIG1/P1 | SP1/A1 | 3.2 | ||
Not Ratedf | Not Ratedf | Not Ratedf | 4.0 | ||
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, 2011 (Unaudited) |
Cost | Value | |||
Assets ($): | ||||
Investments in securities—See Statement of Investments | 197,600,002 | 202,317,349 | ||
Cash | 1,188,326 | |||
Interest receivable | 2,772,928 | |||
Receivable for shares of Beneficial Interest subscribed | 9,258 | |||
Prepaid expenses | 19,296 | |||
206,307,157 | ||||
Liabilities ($): | ||||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 128,567 | |||
Payable for investment securities purchased | 4,281,480 | |||
Payable for shares of Beneficial Interest redeemed | 89,776 | |||
Accrued expenses | 45,763 | |||
4,545,586 | ||||
Net Assets ($) | 201,761,571 | |||
Composition of Net Assets ($): | ||||
Paid-in capital | 196,188,034 | |||
Accumulated undistributed investment income—net | 7,342 | |||
Accumulated net realized gain (loss) on investments | 848,848 | |||
Accumulated net unrealized appreciation | ||||
(depreciation) on investments | 4,717,347 | |||
Net Assets ($) | 201,761,571 | |||
Net Asset Value Per Share | ||||
Class A | Class B | Class C | Class Z | |
Net Assets ($) | 38,395,810 | 183,619 | 3,539,245 | 159,642,897 |
Shares Outstanding | 3,342,417 | 16,004 | 307,834 | 13,898,560 |
Net Asset Value Per Share ($) | 11.49 | 11.47 | 11.50 | 11.49 |
See notes to financial statements. |
The Fund | 19 |
STATEMENT OF OPERATIONS |
Six Months Ended October 31, 2011 (Unaudited) |
Investment Income ($): | ||
Interest Income | 4,639,556 | |
Expenses: | ||
Management fee—Note 3(a) | 550,268 | |
Shareholder servicing costs—Note 3(c) | 147,303 | |
Professional fees | 26,661 | |
Registration fees | 18,379 | |
Distribution fees—Note 3(b) | 13,490 | |
Custodian fees—Note 3(c) | 10,761 | |
Prospectus and shareholders’ reports | 6,475 | |
Trustees’ fees and expenses—Note 3(d) | 6,162 | |
Loan commitment fees—Note 2 | 2,182 | |
Miscellaneous | 20,222 | |
Total Expenses | 801,903 | |
Less—reduction in fees due to earnings credits—Note 3(c) | (48 | ) |
Net Expenses | 801,855 | |
Investment Income—Net | 3,837,701 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | 316,495 | |
Net unrealized appreciation (depreciation) on investments | 7,276,144 | |
Net Realized and Unrealized Gain (Loss) on Investments | 7,592,639 | |
Net Increase in Net Assets Resulting from Operations | 11,430,340 | |
See notes to financial statements. |
20
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2011 | Year Ended | |||
(Unaudited) | April 30, 2011 | |||
Operations ($): | ||||
Investment income—net | 3,837,701 | 8,179,670 | ||
Net realized gain (loss) on investments | 316,495 | 1,372,377 | ||
Net unrealized appreciation | ||||
(depreciation) on investments | 7,276,144 | (7,267,187 | ) | |
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 11,430,340 | 2,284,860 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (696,594 | ) | (1,506,278 | ) |
Class B Shares | (2,747 | ) | (9,702 | ) |
Class C Shares | (50,539 | ) | (105,122 | ) |
Class Z Shares | (3,080,479 | ) | (6,534,467 | ) |
Net realized gain on investments: | ||||
Class A Shares | — | (224,595 | ) | |
Class B Shares | — | (1,402 | ) | |
Class C Shares | — | (20,351 | ) | |
Class Z Shares | — | (919,345 | ) | |
Total Dividends | (3,830,359 | ) | (9,321,262 | ) |
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 1,612,505 | 3,053,747 | ||
Class B Shares | 518 | 9 | ||
Class C Shares | 162,244 | 480,975 | ||
Class Z Shares | 2,832,863 | 4,113,072 | ||
Dividends reinvested: | ||||
Class A Shares | 520,466 | 1,316,134 | ||
Class B Shares | 1,667 | 8,048 | ||
Class C Shares | 19,535 | 62,125 | ||
Class Z Shares | 2,371,273 | 5,768,376 | ||
Cost of shares redeemed: | ||||
Class A Shares | (1,403,455 | ) | (8,705,443 | ) |
Class B Shares | (12,588 | ) | (324,953 | ) |
Class C Shares | (150,718 | ) | (398,069 | ) |
Class Z Shares | (5,101,798 | ) | (18,135,822 | ) |
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | 852,512 | (12,761,801 | ) | |
Total Increase (Decrease) in Net Assets | 8,452,493 | (19,798,203 | ) | |
Net Assets ($): | ||||
Beginning of Period | 193,309,078 | 213,107,281 | ||
End of Period | 201,761,571 | 193,309,078 | ||
Undistributed investment income—net | 7,342 | — |
The Fund | 21 |
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||||
October 31, 2011 | Year Ended | |||
(Unaudited) | April 30, 2011 | |||
Capital Share Transactions: | ||||
Class Aa | ||||
Shares sold | 142,300 | 266,861 | ||
Shares issued for dividends reinvested | 45,741 | 116,743 | ||
Shares redeemed | (123,450 | ) | (769,089 | ) |
Net Increase (Decrease) in Shares Outstanding | 64,591 | (385,485 | ) | |
Class Ba | ||||
Shares sold | 46 | 1 | ||
Shares issued for dividends reinvested | 146 | 710 | ||
Shares redeemed | (1,107 | ) | (28,482 | ) |
Net Increase (Decrease) in Shares Outstanding | (915 | ) | (27,771 | ) |
Class C | ||||
Shares sold | 14,187 | 41,972 | ||
Shares issued for dividends reinvested | 1,716 | 5,487 | ||
Shares redeemed | (13,348 | ) | (35,781 | ) |
Net Increase (Decrease) in Shares Outstanding | 2,555 | 11,678 | ||
Class Z | ||||
Shares sold | 248,878 | 362,995 | ||
Shares issued for dividends reinvested | 208,394 | 511,942 | ||
Shares redeemed | (448,185 | ) | (1,613,264 | ) |
Net Increase (Decrease) in Shares Outstanding | 9,087 | (738,327 | ) |
a | During the period ended April 30, 2011, 13,107 Class B shares representing $152,173, were automatically |
converted to 13,091 Class A shares. | |
See notes to financial statements. |
22
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.05 | 11.44 | 10.91 | 11.29 | 11.66 | 11.56 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .21 | .43 | .45 | .46 | .46 | .47 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .44 | (.33 | ) | .54 | (.36 | ) | (.36 | ) | .12 | |||
Total from Investment Operations | .65 | .10 | .99 | .10 | .10 | .59 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.21 | ) | (.43 | ) | (.45 | ) | (.46 | ) | (.46 | ) | (.46 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.06 | ) | (.01 | ) | (.02 | ) | (.01 | ) | (.03 | ) | |
Total Distributions | (.21 | ) | (.49 | ) | (.46 | ) | (.48 | ) | (.47 | ) | (.49 | ) |
Net asset value, end of period | 11.49 | 11.05 | 11.44 | 10.91 | 11.29 | 11.66 | ||||||
Total Return (%)b | 5.92 | c | .94 | 9.16 | 1.07 | .92 | 5.23 | |||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .96 | d | .94 | .94 | .94 | .93 | .92 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .96 | d | .94 | .94 | .94 | .92 | .92 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.68 | d | 3.84 | 4.00 | 4.25 | 4.01 | 3.99 | |||||
Portfolio Turnover Rate | 6.89 | c | 15.03 | 12.60 | 9.04 | 18.21 | 30.97 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 38,396 | 36,232 | 41,909 | 39,079 | 44,178 | 49,034 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
The Fund | 23 |
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class B Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.04 | 11.43 | 10.90 | 11.28 | 11.65 | 11.54 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .17 | .33 | .36 | .39 | .39 | .40 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .43 | (.32 | ) | .55 | (.35 | ) | (.36 | ) | .14 | |||
Total from Investment Operations | .60 | .01 | .91 | .04 | .03 | .54 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.17 | ) | (.34 | ) | (.37 | ) | (.40 | ) | (.39 | ) | (.40 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.06 | ) | (.01 | ) | (.02 | ) | (.01 | ) | (.03 | ) | |
Total Distributions | (.17 | ) | (.40 | ) | (.38 | ) | (.42 | ) | (.40 | ) | (.43 | ) |
Net asset value, end of period | 11.47 | 11.04 | 11.43 | 10.90 | 11.28 | 11.65 | ||||||
Total Return (%)b | 5.43 | c | .15 | 8.45 | .50 | .36 | 4.77 | |||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.71 | d | 1.56 | 1.57 | 1.52 | 1.48 | 1.45 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.71 | d | 1.56 | 1.57 | 1.52 | 1.47 | 1.45 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 2.93 | d | 3.03 | 3.34 | 3.68 | 3.46 | 3.47 | |||||
Portfolio Turnover Rate | 6.89 | c | 15.03 | 12.60 | 9.04 | 18.21 | 30.97 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 184 | 187 | 511 | 1,404 | 2,910 | 3,893 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
24
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.06 | 11.45 | 10.92 | 11.30 | 11.67 | 11.56 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .17 | .35 | .36 | .38 | .37 | .38 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .44 | (.33 | ) | .54 | (.36 | ) | (.36 | ) | .14 | |||
Total from Investment Operations | .61 | .02 | .90 | .02 | .01 | .52 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.17 | ) | (.35 | ) | (.36 | ) | (.38 | ) | (.37 | ) | (.38 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.06 | ) | (.01 | ) | (.02 | ) | (.01 | ) | (.03 | ) | |
Total Distributions | (.17 | ) | (.41 | ) | (.37 | ) | (.40 | ) | (.38 | ) | (.41 | ) |
Net asset value, end of period | 11.50 | 11.06 | 11.45 | 10.92 | 11.30 | 11.67 | ||||||
Total Return (%)b | 5.51 | c | .20 | 8.33 | .32 | .17 | 4.53 | |||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.71 | d | 1.68 | 1.70 | 1.69 | 1.68 | 1.67 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.71 | d | 1.68 | 1.70 | 1.69 | 1.67 | 1.67 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 2.92 | d | 3.09 | 3.21 | 3.51 | 3.26 | 3.24 | |||||
Portfolio Turnover Rate | 6.89 | c | 15.03 | 12.60 | 9.04 | 18.21 | 30.97 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 3,539 | 3,377 | 3,362 | 3,163 | 3,314 | 3,520 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
The Fund | 25 |
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class Z Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.05 | 11.44 | 10.91 | 11.29 | 11.66 | 11.55 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .22 | .46 | .47 | .48 | .48 | .48 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .44 | (.33 | ) | .54 | (.36 | ) | (.36 | ) | .15 | |||
Total from Investment Operations | .66 | .13 | 1.01 | .12 | .12 | .63 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.22 | ) | (.46 | ) | (.47 | ) | (.48 | ) | (.48 | ) | (.49 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.06 | ) | (.01 | ) | (.02 | ) | (.01 | ) | (.03 | ) | |
Total Distributions | (.22 | ) | (.52 | ) | (.48 | ) | (.50 | ) | (.49 | ) | (.52 | ) |
Net asset value, end of period | 11.49 | 11.05 | 11.44 | 10.91 | 11.29 | 11.66 | ||||||
Total Return (%) | 6.03 | b | 1.16 | 9.39 | 1.28 | 1.14 | 5.54 | |||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .74 | c | .73 | .73 | .73 | .71 | .71 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .74 | c | .73 | .73 | .73 | .70 | .71 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.89 | c | 4.05 | 4.18 | 4.46 | 4.23 | 4.20 | |||||
Portfolio Turnover Rate | 6.89 | b | 15.03 | 12.60 | 9.04 | 18.21 | 30.97 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 159,643 | 153,513 | 167,326 | 160,394 | 177,652 | 195,667 |
a | Based on average shares outstanding at each month end. |
b | Not annualized. |
c | Annualized. |
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 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 no longer offers Class B shares, except in connection with dividend reinvestment and permitted exchanges of Class B shares and, effective on or about March 13, 2012, all outstanding Class B shares will automatically convert to Class A 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
The Fund | 27 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The 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: 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).
28
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.
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. Valuation techniques used to value the fund’s investments are as follows:
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
The Fund | 29 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Service, based on methods which include consideration of: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. All preceding securities are categorized within Level 2 of the fair value hierarchy.
When market quotations or official closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Trustees. Certain factors may be considered when fair valuing investments such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers.These securities are either categorized as Level 2 or 3 depending on the relevant inputs used.
For restricted securities where observable inputs are limited, assumptions about market activity and risk are used and are categorized within Level 3 of the fair value hierarchy.
The following is a summary of the inputs used as of October 31, 2011 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 | — | 202,317,349 | — | 202,317,349 |
In May 2011, FASB issued Accounting Standards Update (“ASU”) No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in GAAP and International Financial
30
Reporting Standards (“IFRS”)” (“ASU 2011-04”). ASU 2011-04 includes common requirements for measurement of and disclosure about fair value between GAAP and IFRS. ASU 2011-04 will require reporting entities to disclose the following information for fair value measurements categorized within Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs used in the fair value measurement, the valuation processes used by the reporting entity and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, ASU 2011-04 will require reporting entities to make disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements.The new and revised disclosures are effective for interim and annual reporting periods beginning after December 15, 2011. At this time, management is evaluating the implications of ASU 2011-04 and its impact on the financial statements.
(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 more frequent basis to comply with the distribution requirements of
The Fund | 31 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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, 2011, 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, 2011 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2011 was as follows: tax exempt income $8,155,569, ordinary income $97,291 and long-term capital gains $1,068,402. 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
32
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, 2011, 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.
(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, 2011, Class B and Class C shares were charged $470 and $13,020, respectively, pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay the Distributor at an annual rate of .25% of the value of the average daily net assets of their shares for the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor 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, 2011, Class A, Class B and Class C shares were charged $47,443, $235 and $4,340, respectively, pursuant to the Shareholder Services Plan.
The Fund | 33 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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, 2011, Class Z shares were charged $36,706 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, 2011, the fund was charged $47,785 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, 2011, the fund was charged $2,973 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 $48.
34
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, 2011, the fund was charged $10,761 pursuant to the custody agreement.
During the period ended October 31, 2011, the fund was charged $2,981 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 $93,544, Rule 12b-1 distribution plan fees $2,302, shareholder services plan fees $8,858, custodian fees $5,175, chief compliance officer fees $4,246 and transfer agency per account fees $14,442.
(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, 2011, amounted to $13,378,920 and $14,708,540, respectively.
At October 31, 2011, accumulated net unrealized appreciation on investments was $4,717,347, consisting of $7,869,539 gross unrealized appreciation and $3,152,192 gross unrealized depreciation.
At October 31, 2011, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
The Fund | 35 |
INFORMATION ABOUT THE RENEWAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the fund’s Board of Trustees held on July 26, 2011, the Board considered the renewal of the fund’s Management Agreement pursuant to which Dreyfus provides the fund with investment advisory and administrative services (the “Agreement”). 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 Dreyfus. In considering the renewal of the Agreement, the Board considered all factors that it believed to be relevant, including those discussed below.The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund.The Board members considered information previously provided to them in presentations from representatives of Dreyfus regarding the nature, extent, and quality of the services provided to funds in the Dreyfus fund complex, and representatives of Dreyfus confirmed that there had been no material changes in this information. Dreyfus provided the number of open accounts in the fund, the fund’s asset size and the allocation of fund assets among distribution channels. Dreyfus also had previously provided information regarding the diverse intermediary relationships and distribution channels of funds in the Dreyfus fund complex and Dreyfus’ corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including the distribution channel(s) for the fund.
The Board members also considered research support available to, and portfolio management capabilities of, the fund’s portfolio management personnel and that Dreyfus 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 Dreyfus’ extensive administrative, accounting, and compliance infrastructures.
36
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board members reviewed reports prepared by Lipper, Inc. (“Lipper”), an independent provider of investment company data, which included information comparing (1) the fund’s performance with the performance of a group of comparable funds (the “Performance Group”) and with a broader group of funds (the “Performance Universe”), all for various periods ended June 30, 2011, and (2) the fund’s actual and contractual management fees and total expenses with those of a group of comparable funds (the “Expense Group”) and with a broader group of funds (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Lipper as of June 30, 2011. Dreyfus previously had furnished the Board with a description of the methodology Lipper used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.
Dreyfus representatives stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations that may be applicable to the fund and comparison funds.The Board members discussed the results of the comparisons and noted that the fund’s total return performance was below the Performance Group medians for the various periods, except for the one-year period when the fund’s performance was above the Performance Group median (ranked first in the Performance Group), and the two-year period when the fundís performance was at the median.The Board members also noted that the fund’s total return performance was above the Performance Universe medians for all periods.
The Board also noted that the fund’s yield performance was below the Performance Group medians for all of the ten one-year periods ended June 30th and at or above the Performance Universe medians for seven of the ten one-year periods. Dreyfus also provided a comparison of the fund’s calendar year total returns to the returns of the fundís
The Fund | 37 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
Lipper category average, and the Board members noted that the fund outperformed its Lipper category in eight of the past ten calendar years.The Board members discussed with Dreyfus representatives the reasons for the underperformance of the fund compared to the Performance Group and Performance Universe medians during the applicable periods and Dreyfus’ 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 fund performance.
The Board members also reviewed the range of actual and contractual management fees and total expenses of the Expense Group and Expense Universe funds and discussed the results of the comparisons. They noted that the fund’s contractual management fee and total expense ratio were above the Expense Group medians.
Representatives of Dreyfus reviewed with the Board members the management or investment advisory fees (1) paid by funds advised or administered by Dreyfus that are in the same Lipper category as the fund and (2) paid to Dreyfus or the Dreyfus-affiliated primary employer of the fundís primary portfolio manager for advising any separate accounts and/or other types of client portfolios that are considered to have similar investment strategies and policies as the fund (the “Similar Clients”), and explained the nature of the Similar Clients.They discussed differences in fees paid and the relationship of the fees paid in light of any differences in the services provided and other relevant factors. The Board members considered the relevance of the fee information provided for the Similar Clients to evaluate the appropriateness and reasonableness of the fund’s management fee.
Analysis of Profitability and Economies of Scale. Dreyfus’ representatives reviewed the expenses allocated and profit received by Dreyfus and the resulting profitability percentage for managing the fund, and the method
38
used to determine the expenses and profit. The Board concluded that the profitability results were not unreasonable, given the services rendered and service levels provided by Dreyfus.The Board previously had been provided with information prepared by an independent consulting firm regarding Dreyfus’ approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus fund complex. The consulting firm also had analyzed where any economies of scale might emerge in connection with the management of a fund.
The Board’s counsel stated that the Board members should consider the profitability analysis (1) as part of their evaluation of whether the fees under the Agreement bear a reasonable relationship to the mix of services provided by Dreyfus, including the nature, extent and quality of such services, and (2) 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. Dreyfus representatives noted that a discussion of economies of scale is predicated on a fund having achieved a substantial size with increasing assets and that, if a fund’s assets had been stable or decreasing, the possibility that Dreyfus may have realized any economies of scale would be less. They also noted that, as a result of shared and allocated costs among funds in the Dreyfus fund complex, the extent of economies of scale could depend substantially on the level of assets in the complex as a whole, so that increases and decreases in complex-wide assets can affect potential economies of scale in a manner that is disproportionate to, or even in the opposite direction from, changes in the fund’s asset level. The Board members also considered potential benefits to Dreyfus from acting as investment adviser and noted that there were no soft dollar arrangements in effect for trading the fund’s investments.
The Fund 39
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to the renewal of the Agreement. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
The Board concluded that the nature, extent and quality of the services provided by Dreyfus are adequate and appropriate.
The Board noted Dreyfusí efforts to continue to improve perfor- mance and agreed to closely monitor fund performance.
The Board concluded that the fee paid to Dreyfus was reasonable in light of the considerations described above.
The Board determined that the economies of scale which may accrue to Dreyfus and its affiliates in connection with the management of the fund had been adequately considered by Dreyfus in connection with the fee rate charged to the fund pursuant to the Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year. In addition, it should be noted that the Board’s consideration of the contractual fee arrangements for this fund had the benefit of a number of years of reviews of prior or similar agreements during which lengthy discussions took place between the Board members and Dreyfus representatives. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board members’ conclusions may be based, in part, on their consideration of the same or similar arrangements in prior years. The Board members determined that renewal of the Agreement was in the best interests of the fund and its shareholders.
40
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
16 | Statement of Assets and Liabilities |
17 | Statement of Operations |
18 | Statement of Changes in Net Assets |
20 | Financial Highlights |
23 | Notes to Financial Statements |
32 | Information About the Renewal 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 Minnesota Fund, a series of Dreyfus State Municipal Bond Funds, covering the six-month period from May 1, 2011, through October 31, 2011. 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.
Investors were encouraged by expectations of a more robust economic recovery into the first quarter of 2011, but sentiment subsequently deteriorated due to disappointing economic data, rising commodity prices, an escalating sovereign debt crisis in Europe and a contentious debate regarding taxes, spending and borrowing in the United States. Market volatility was particularly severe during August and September after a major credit rating agency downgraded U.S. long-term debt. While most fixed-income securities proved volatile in this tumultuous environment, municipal bonds held up relatively well due to robust demand for a limited supply of newly issued securities.
The economic outlook currently remains clouded by market turbulence and political infighting, but we believe that a continued subpar global expansion is more likely than a return to recession. In addition, municipal bonds remain attractively valued despite recent issuer events, as fundamental measures of quality, including liquidity and revenue stabilization, support a stable outlook for the broad municipal market in general.With tax season considerations in mind, we encourage you, as always, to speak with your financial advisor in order to help evaluate the tax-efficiency of your portfolio.
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, 2011
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2011, through October 31, 2011, as provided by David Belton, Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended October 31, 2011, 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 5.46%, 4.98% and 5.05%, respectively.1 In comparison, the Barclays Capital Municipal Bond Index, the fund’s benchmark index, which is composed of bonds issued nationally and not solely within Minnesota, achieved a total return of 5.56% for the same period.2
Despite intensifying economic uncertainty during the reporting period, municipal bonds fared relatively well as a reduced supply of newly issued securities was met by robust investor demand. The fund’s Class A shares produced returns that were roughly in line with the benchmark, as positive contributions from revenue bonds were balanced by shortfalls in other areas.
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 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.
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
Municipal Bonds Held Up Relatively Well Amid Uncertainty
In the wake of a period of economic optimism, investor confidence generally was shaken in the spring of 2011 when Greece appeared headed for default on its sovereign debt, U.S. economic data disappointed and a contentious political debate regarding U.S. government spending and borrowing intensified. Consequently, investors shifted their focus from relatively speculative asset classes to traditionally defensive investments, producing bouts of heightened volatility in many markets.Turbulence among stocks and lower-rated bonds was particularly severe in August and September, after a major credit-rating agency downgraded its assessment of long-term U.S. debt securities. In contrast, securities that had been hard-hit in late summer rebounded to a significant degree in October as certain macroeconomic concerns eased.
Municipal bonds held up relatively well despite these developments due to positive supply-and-demand forces. New issuance volumes fell sharply in 2011 after a flood of new supply in late 2010 when issuers sought to lock in federal subsidies provided by the expiring Build America Bonds program. Political pressure to reduce spending also led to fewer capital projects requiring financing during the reporting period. Yet, demand for municipal bonds remained robust from investors seeking competitive levels of tax-exempt income.
Like other states, Minnesota demonstrated progress in its recovery from recession during the reporting period. Tax revenues have increased, and the state cut spending in some areas to pass a balanced budget for its current fiscal year.
Revenue Bonds Supported Relative Performance
The fund’s relative performance was bolstered by bonds backed by revenues from essential-services facilities, such as waterworks and sewer projects. Such securities generally have been less sensitive to economic concerns than their general obligation counterparts. The fund received especially strong results during the reporting period from an overweighted position in revenue bonds backed by hospitals. Conversely, underweighted exposure to general obligation bonds cushioned the impact of one of the municipal bond market’s weaker
4
areas.The fund’s emphasis on longer maturities also proved beneficial, boosting participation in the market rally when longer-term interest rates declined.
Disappointments during the reporting period included holdings of escrowed bonds, which generated relatively anemic returns. Bonds backed by housing projects also lagged market averages, and the fund was hurt by a relatively short average duration during the market rally.
Maintaining a Cautious Investment Posture
Ongoing economic uncertainty has convinced us to maintain a relatively cautious investment posture, including a bias toward higher-quality securities with strong liquidity characteristics.We have identified particularly attractive values among revenue bonds, including those backed by electric utilities, educational institutions and well-capitalized health care facilities. In our view, revenue-supported municipal bonds are likely to be the focus of demand from individual investors seeking tax-advantaged income and muted volatility as they grow more concerned about persistently low interest rates and potential tax increases in a slow-growth economy.
November 15, 2011
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. Return figures provided | |
reflect the absorption of certain fund expenses by The Dreyfus Corporation. Had these expenses not | |
been absorbed, returns would have been lower. 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. |
The Fund | 5 |
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus State Municipal Bond Funds, Dreyfus Minnesota Fund from May 1, 2011 to October 31, 2011. 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, 2011 | ||||||
Class A | Class B | Class C | ||||
Expenses paid per $1,000† | $ | 4.85 | $ | 8.55 | $ | 8.76 |
Ending value (after expenses) | $ | 1,054.60 | $ | 1,049.80 | $ | 1,050.50 |
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, 2011 | ||||||
Class A | Class B | Class C | ||||
Expenses paid per $1,000† | $ | 4.77 | $ | 8.42 | $ | 8.62 |
Ending value (after expenses) | $ | 1,020.41 | $ | 1,016.79 | $ | 1,016.59 |
† Expenses are equal to the fund’s annualized expense ratio of .94% for Class A, 1.66% for Class B and 1.70% for Class C, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
October 31, 2011 (Unaudited) |
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments—98.4% | Rate (%) | Date | Amount ($) | Value ($) | |
Minnesota—95.1% | |||||
Andover Economic Development | |||||
Authority, Public Facility LR (City | |||||
of Andover Community Center) | 5.20 | 2/1/34 | 885,000 | 957,588 | |
Andover Economic Development | |||||
Authority, Public Facility LR (City | |||||
of Andover Community Center) | 5.20 | 2/1/34 | 615,000 | 665,442 | |
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 | 2,010,827 | |
Columbia Heights, | |||||
MFHR (Crest View Opportunity | |||||
Neighborhood Development | |||||
Corporation 1 Project) | |||||
(Collateralized; GNMA) | |||||
(Prerefunded) | 6.63 | 10/20/12 | 1,455,000 | a | 1,615,603 |
Coon Rapids, | |||||
Multifamily Rental Housing | |||||
Revenue (GNMA Collateralized | |||||
Mortgage Loan—Mississippi | |||||
View Apartments Project) | |||||
(Collateralized; FHA) | 4.95 | 10/20/41 | 2,700,000 | 2,636,064 | |
Dakota County Community | |||||
Development Agency, SFMR | |||||
(Mortgage-Backed Securities | |||||
Program) (Collateralized: | |||||
FHLMC, FNMA and GNMA) | 5.30 | 12/1/39 | 539,467 | 572,515 | |
Hennepin County, | |||||
Second Lien Sales Tax Revenue | |||||
(Ballpark Project) | 5.00 | 12/15/29 | 1,500,000 | 1,620,825 | |
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 | 2,645,916 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Minnesota (continued) | |||||
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 | 2,782,956 | |
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 | 9,184,764 | |
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 | 1,145,830 |
Minneapolis, | |||||
GO | 0.00 | 12/1/14 | 1,825,000 | b | 1,771,892 |
Minneapolis, | |||||
Health Care System Revenue | |||||
(Fairview Health Services) | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 6.50 | 11/15/38 | 3,000,000 | 3,369,060 | |
Minneapolis, | |||||
MFHR (Sumner Field Phase II, L.P. | |||||
Project) (Collateralized; GNMA) | 5.15 | 2/20/45 | 1,575,000 | 1,576,087 | |
Minneapolis, | |||||
Tax Increment Revenue (Saint | |||||
Anthony Falls Project) | 5.75 | 2/1/27 | 1,000,000 | 932,580 | |
Minneapolis and Saint Paul Housing | |||||
and Redevelopment Authority, | |||||
Health Care Facilities Revenue | |||||
(Childrens’s Health Care) | 5.25 | 8/15/35 | 1,000,000 | 1,049,070 | |
Minneapolis and Saint Paul Housing | |||||
and Redevelopment Authority, | |||||
Health Care Facility Revenue | |||||
(HealthPartners Obligated | |||||
Group Project) | 6.00 | 12/1/18 | 1,000,000 | 1,072,030 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Minnesota (continued) | ||||
Minneapolis and Saint Paul Housing | ||||
and Redevelopment Authority, | ||||
Health Care Facility Revenue | ||||
(HealthPartners Obligated | ||||
Group Project) | 6.00 | 12/1/20 | 2,290,000 | 2,454,949 |
Minneapolis and Saint Paul Housing | ||||
and Redevelopment Authority, | ||||
Health Care System Revenue | ||||
(Allina Health System) | 5.25 | 11/15/29 | 1,000,000 | 1,030,710 |
Minneapolis and Saint Paul | ||||
Metropolitan Airports Commission, | ||||
Senior Airport Revenue | 5.00 | 1/1/22 | 2,000,000 | 2,156,380 |
Minneapolis and Saint Paul | ||||
Metropolitan Airports Commission, | ||||
Subordinate Airport Revenue | ||||
(Insured; AMBAC) | 5.00 | 1/1/25 | 2,140,000 | 2,167,649 |
Minnesota, | ||||
911 Revenue (Public Safety | ||||
Radio Communications | ||||
System Project) | 5.00 | 6/1/25 | 1,000,000 | 1,116,260 |
Minnesota, | ||||
GO (Various Purpose) | 5.00 | 8/1/25 | 2,500,000 | 2,969,575 |
Minnesota, | ||||
Retirement System | ||||
Building Revenue | 6.00 | 6/1/30 | 1,475,000 | 1,480,767 |
Minnesota Agricultural and | ||||
Economic Development | ||||
Board, Health Care | ||||
System Revenue (Fairview | ||||
Health Care Systems) | 6.38 | 11/15/29 | 150,000 | 150,137 |
Minnesota Agricultural and | ||||
Economic Development Board, | ||||
Revenue (Evangelical | ||||
Lutheran Project) | 6.00 | 2/1/22 | 1,130,000 | 1,145,865 |
Minnesota Agricultural and | ||||
Economic Development Board, | ||||
Revenue (Evangelical | ||||
Lutheran Project) | 6.00 | 2/1/27 | 1,750,000 | 1,771,210 |
The Fund | 9 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Minnesota (continued) | ||||
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(Carleton College) | 5.00 | 3/1/30 | 1,000,000 | 1,081,780 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(College of Saint Scholastica, Inc.) | 5.13 | 12/1/40 | 750,000 | 743,242 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(Gustavus Adolphus College) | 5.00 | 10/1/31 | 750,000 | 780,547 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(Macalester College) | 5.00 | 6/1/35 | 1,635,000 | 1,769,413 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(Saint Olaf College) | 5.00 | 10/1/21 | 1,000,000 | 1,133,200 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(University of Saint Thomas) | 5.00 | 4/1/29 | 1,000,000 | 1,047,990 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(University of Saint Thomas) | 5.00 | 10/1/29 | 1,500,000 | 1,600,350 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(University of Saint Thomas) | 5.00 | 10/1/39 | 1,700,000 | 1,792,497 |
Minnesota Housing Finance | ||||
Agency, Residential Housing | ||||
Finance Revenue | 5.00 | 1/1/20 | 2,275,000 | 2,277,684 |
Minnesota Housing Finance | ||||
Agency, Residential Housing | ||||
Finance Revenue | 4.65 | 7/1/22 | 2,275,000 | 2,295,680 |
Minnesota Housing Finance | ||||
Agency, Residential Housing | ||||
Finance Revenue | 4.85 | 7/1/31 | 2,000,000 | 1,988,580 |
Minnesota Housing Finance | ||||
Agency, Residential Housing | ||||
Finance Revenue | 5.10 | 7/1/38 | 1,950,000 | 1,951,170 |
Minnesota Housing Finance Agency, | ||||
SFMR (Insured; National Public | ||||
Finance Guarantee Corp.) | 5.45 | 1/1/22 | 280,000 | 293,320 |
10
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Minnesota (continued) | |||||
Minnesota Municipal Power Agency, | |||||
Electric Revenue | 5.00 | 10/1/37 | 2,000,000 | 2,064,460 | |
Minnesota Office of Higher | |||||
Education, Supplemental | |||||
Student Loan Program Revenue | 5.00 | 11/1/29 | 1,750,000 | 1,829,328 | |
Northern Municipal Power Agency, | |||||
Electric System Revenue | 5.00 | 1/1/20 | 2,500,000 | 2,854,825 | |
Northfield, | |||||
HR | 5.38 | 11/1/31 | 1,240,000 | 1,240,000 | |
Ramsey, | |||||
LR (Pact Charter School Project) | 6.75 | 12/1/33 | 1,000,000 | 962,800 | |
Rochester, | |||||
Health Care Facilities Revenue | |||||
(Mayo Clinic) | 4.50 | 11/15/21 | 1,000,000 | 1,100,750 | |
Rochester, | |||||
Health Care Facilities Revenue | |||||
(Mayo Clinic) | 5.00 | 11/15/38 | 1,000,000 | 1,055,050 | |
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 | 2,897,514 |
Saint Cloud, | |||||
Health Care Revenue | |||||
(CentraCare Health System) | 5.13 | 5/1/30 | 1,000,000 | 1,032,680 | |
Saint Cloud, | |||||
Health Care Revenue | |||||
(CentraCare Health System | |||||
Project) (Insured; Assured | |||||
Guaranty Municipal Corp.) | 5.50 | 5/1/39 | 2,000,000 | 2,096,540 | |
Saint Cloud Housing and | |||||
Redevelopment Authority, | |||||
Revenue (State University | |||||
Foundation Project) | 5.13 | 5/1/18 | 1,000,000 | 1,018,250 | |
Saint Louis Park, | |||||
Health Care Facilities Revenue | |||||
(Park Nicollet Health Services) | 5.75 | 7/1/30 | 1,000,000 | 1,031,420 |
The Fund | 11 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Minnesota (continued) | |||||
Saint Louis Park, | |||||
Health Care Facilities Revenue | |||||
(Park Nicollet Health Services) | 5.75 | 7/1/39 | 3,000,000 | 3,050,820 | |
Saint Paul Housing and | |||||
Redevelopment Authority, MFHR | |||||
(Wellington Project) | |||||
(Collateralized; FHLMC) | 5.10 | 2/1/24 | 2,000,000 | 2,001,880 | |
Saint Paul Housing and | |||||
Redevelopment Authority, | |||||
Parking Revenue (Parking | |||||
Facilities Project) | 5.00 | 8/1/35 | 650,000 | 669,221 | |
Saint Paul Housing and | |||||
Redevelopment Authority, | |||||
Recreational Facility LR | |||||
(Jimmy Lee Recreational Center) | 5.00 | 12/1/32 | 750,000 | 773,558 | |
Saint Paul Port Authority, | |||||
Revenue (Amherst H. Wilder | |||||
Foundation Project) | 5.00 | 12/1/29 | 2,000,000 | 2,092,800 | |
Southern Minnesota Municipal Power | |||||
Agency, Power Supply System | |||||
Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 0.00 | 1/1/25 | 4,505,000 | b | 2,489,733 |
Southern Minnesota Municipal Power | |||||
Agency, Power Supply System | |||||
Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 0.00 | 1/1/26 | 4,625,000 | b | 2,406,526 |
Todd, Morrison, Cass and Wadena | |||||
Counties United Hospital District, | |||||
Health Care Facility Revenue | |||||
(Lakewood Health System) | 5.00 | 12/1/21 | 1,000,000 | 1,051,730 | |
Vadnais Heights Economic | |||||
Development Authority, | |||||
Recovery Zone Facility LR | |||||
(Community and Recreational | |||||
Sports Facilities Project) | 5.25 | 2/1/41 | 2,460,000 | 2,591,881 |
12
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Minnesota (continued) | |||||
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 | 2,006,180 | |
Winona, | |||||
Health Care Facilities Revenue | |||||
(Winona Health Obligated Group) | 5.15 | 7/1/31 | 1,500,000 | 1,388,865 | |
Winona, | |||||
Health Care Facilities Revenue | |||||
(Winona Health Obligated Group) | 6.00 | 7/1/34 | 2,500,000 | 2,507,975 | |
U.S. Related—3.3% | |||||
Government of Guam, | |||||
GO | 6.75 | 11/15/29 | 500,000 | 516,740 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.50 | 7/1/38 | 2,000,000 | 2,044,020 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/42 | 1,250,000 | 1,351,050 | |
Total Investments (cost $109,695,335) | 98.4 | % | 116,934,600 | ||
Cash and Receivables (Net) | 1.6 | % | 1,950,375 | ||
Net Assets | 100.0 | % | 118,884,975 |
a This security is prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are |
collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on |
the municipal issue and to retire the bonds in full at the earliest refunding date. |
b Security issued with a zero coupon. Income is recognized through the accretion of discount. |
The Fund | 13 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Abbreviations | |||
ABAG | Association of Bay Area Governments | ACA | American Capital Access |
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company |
AMBAC | American Municipal Bond | 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 | 13.3 | ||
AA | Aa | AA | 45.4 | ||
A | A | A | 32.8 | ||
BBB | Baa | BBB | 5.0 | ||
B | B | B | .5 | ||
Not Ratedc | Not Ratedc | Not Ratedc | 3.0 | ||
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. |
The Fund | 15 |
STATEMENT OF ASSETS AND LIABILITIES |
October 31, 2011 (Unaudited) |
Cost | Value | |||
Assets ($): | ||||
Investments in securities—See Statement of Investments | 109,695,335 | 116,934,600 | ||
Cash | 528,312 | |||
Interest receivable | 1,592,224 | |||
Receivable for shares of Beneficial Interest subscribed | 23,567 | |||
Prepaid expenses | 11,960 | |||
119,090,663 | ||||
Liabilities ($): | ||||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 89,886 | |||
Payable for shares of Beneficial Interest redeemed | 77,510 | |||
Accrued expenses | 38,292 | |||
205,688 | ||||
Net Assets ($) | 118,884,975 | |||
Composition of Net Assets ($): | ||||
Paid-in capital | 112,902,970 | |||
Accumulated undistributed investment income—net | 21,563 | |||
Accumulated net realized gain (loss) on investments | (1,278,823 | ) | ||
Accumulated net unrealized appreciation | ||||
(depreciation) on investments | 7,239,265 | |||
Net Assets ($) | 118,884,975 | |||
Net Asset Value Per Share | ||||
Class A | Class B | Class C | ||
Net Assets ($) | 111,709,161 | 98,893 | 7,076,921 | |
Shares Outstanding | 7,334,498 | 6,483 | 463,898 | |
Net Asset Value Per Share ($) | 15.23 | 15.25 | 15.26 | |
See notes to financial statements. |
16
STATEMENT OF OPERATIONS |
Six Months Ended October 31, 2011 (Unaudited) |
Investment Income ($): | ||
Interest Income | 2,947,233 | |
Expenses: | ||
Management fee—Note 3(a) | 329,232 | |
Shareholder servicing costs—Note 3(c) | 181,874 | |
Distribution fees—Note 3(b) | 27,378 | |
Professional fees | 27,302 | |
Registration fees | 13,184 | |
Custodian fees—Note 3(c) | 7,168 | |
Prospectus and shareholders’ reports | 6,006 | |
Trustees’ fees and expenses—Note 3(d) | 3,945 | |
Loan commitment fees—Note 2 | 1,345 | |
Miscellaneous | 14,475 | |
Total Expenses | 611,909 | |
Less—reduction in management fee due to undertaking—Note 3(a) | (19,872 | ) |
Less—reduction in fees due to earnings credits—Note 3(c) | (17 | ) |
Net Expenses | 592,020 | |
Investment Income—Net | 2,355,213 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | 37,458 | |
Net unrealized appreciation (depreciation) on investments | 3,898,174 | |
Net Realized and Unrealized Gain (Loss) on Investments | 3,935,632 | |
Net Increase in Net Assets Resulting from Operations | 6,290,845 | |
See notes to financial statements. |
The Fund | 17 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2011 | Year Ended | |||
(Unaudited) | April 30, 2011 | |||
Operations ($): | ||||
Investment income—net | 2,355,213 | 5,114,005 | ||
Net realized gain (loss) on investments | 37,458 | (172,230 | ) | |
Net unrealized appreciation | ||||
(depreciation) on investments | 3,898,174 | (3,814,444 | ) | |
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 6,290,845 | 1,127,331 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (2,216,288 | ) | (4,816,772 | ) |
Class B Shares | (3,595 | ) | (14,670 | ) |
Class C Shares | (113,767 | ) | (241,492 | ) |
Total Dividends | (2,333,650 | ) | (5,072,934 | ) |
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 2,524,558 | 8,045,285 | ||
Class B Shares | — | 15 | ||
Class C Shares | 279,605 | 1,742,595 | ||
Dividends reinvested: | ||||
Class A Shares | 1,817,348 | 3,923,862 | ||
Class B Shares | 3,365 | 13,767 | ||
Class C Shares | 81,338 | 170,973 | ||
Cost of shares redeemed: | ||||
Class A Shares | (7,230,901 | ) | (20,746,996 | ) |
Class B Shares | (266,671 | ) | (153,174 | ) |
Class C Shares | (529,666 | ) | (1,709,604 | ) |
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | (3,321,024 | ) | (8,713,277 | ) |
Total Increase (Decrease) in Net Assets | 636,171 | (12,658,880 | ) | |
Net Assets ($): | ||||
Beginning of Period | 118,248,804 | 130,907,684 | ||
End of Period | 118,884,975 | 118,248,804 | ||
Undistributed investment income—net | 21,563 | — |
18
Six Months Ended | ||||
October 31, 2011 | Year Ended | |||
(Unaudited) | April 30, 2011 | |||
Capital Share Transactions: | ||||
Class Aa | ||||
Shares sold | 166,882 | 530,914 | ||
Shares issued for dividends reinvested | 120,127 | 260,972 | ||
Shares redeemed | (478,741 | ) | (1,397,916 | ) |
Net Increase (Decrease) in Shares Outstanding | (191,732 | ) | (606,030 | ) |
Class Ba | ||||
Shares sold | — | 1 | ||
Shares issued for dividends reinvested | 223 | 914 | ||
Shares redeemed | (17,645 | ) | (10,265 | ) |
Net Increase (Decrease) in Shares Outstanding | (17,422 | ) | (9,350 | ) |
Class C | ||||
Shares sold | 18,407 | 114,681 | ||
Shares issued for dividends reinvested | 5,368 | 11,357 | ||
Shares redeemed | (35,010 | ) | (114,213 | ) |
Net Increase (Decrease) in Shares Outstanding | (11,235 | ) | 11,825 |
a | During the period ended October 31, 2011, 15,932 Class B shares representing $241,183 were automatically |
converted to 15,959 Class A shares and during the period ended April 30, 2011, 1,683 Class B shares | |
representing $24,547 were automatically converted to 1,686 Class A shares. | |
See notes to financial statements. |
The Fund | 19 |
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 14.73 | 15.17 | 14.67 | 14.96 | 15.32 | 15.17 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .30 | .61 | .60 | .63 | .64 | .64 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .50 | (.45 | ) | .50 | (.24 | ) | (.36 | ) | .17 | |||
Total from Investment Operations | .80 | .16 | 1.10 | (.39 | ) | .28 | .81 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.30 | ) | (.60 | ) | (.60 | ) | (.62 | ) | (.64 | ) | (.64 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | — | — | (.06 | ) | — | (.02 | ) | ||||
Total Distributions | (.30 | ) | (.60 | ) | (.60 | ) | (.68 | ) | (.64 | ) | (.66 | ) |
Net asset value, end of period | 15.23 | 14.73 | 15.17 | 14.67 | 14.96 | 15.32 | ||||||
Total Return (%)b | 5.46 | c | 1.04 | 7.61 | 2.89 | 1.86 | 5.44 | |||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .98 | d | .96 | .94 | .98 | 1.11 | 1.10 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .94 | d | .96 | .94 | .98 | 1.10 | 1.09 | |||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | — | — | — | .02 | .15 | .17 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.98 | d | 4.01 | 4.02 | 4.35 | 4.21 | 4.18 | |||||
Portfolio Turnover Rate | .95 | c | 15.17 | 12.88 | 14.21 | 14.69 | 5.27 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 111,709 | 110,885 | 123,363 | 114,357 | 105,393 | 103,737 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
20
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class B Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 14.76 | 15.19 | 14.70 | 14.98 | 15.35 | 15.19 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .23 | .50 | .49 | .54 | .56 | .56 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .50 | (.43 | ) | .50 | (.21 | ) | (.37 | ) | .18 | |||
Total from Investment Operations | .73 | .07 | .99 | .33 | .19 | .74 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.24 | ) | (.50 | ) | (.50 | ) | (.55 | ) | (.56 | ) | (.56 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | — | — | (.06 | ) | — | (.02 | ) | ||||
Total Distributions | (.24 | ) | (.50 | ) | (.50 | ) | (.61 | ) | (.56 | ) | (.58 | ) |
Net asset value, end of period | 15.25 | 14.76 | 15.19 | 14.70 | 14.98 | 15.35 | ||||||
Total Return (%)b | 4.98 | c | .45 | 6.85 | 2.41 | 1.26 | 4.98 | |||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.68 | d | 1.56 | 1.57 | 1.52 | 1.62 | 1.61 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.66 | d | 1.56 | 1.57 | 1.52 | 1.61 | 1.59 | |||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | — | — | — | .02 | .15 | .17 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.26 | d | 3.35 | 3.41 | 3.83 | 3.70 | 3.67 | |||||
Portfolio Turnover Rate | .95 | c | 15.17 | 12.88 | 14.21 | 14.69 | 5.27 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 99 | 353 | 505 | 1,720 | 5,046 | 9,088 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
The Fund | 21 |
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 14.76 | 15.19 | 14.70 | 14.98 | 15.35 | 15.19 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .25 | .49 | .49 | .51 | .52 | .53 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .49 | (.43 | ) | .48 | (.21 | ) | (.37 | ) | .18 | |||
Total from Investment Operations | .74 | .06 | .97 | .30 | .15 | .71 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.24 | ) | (.49 | ) | (.48 | ) | (.52 | ) | (.52 | ) | (.53 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | — | — | (.06 | ) | — | (.02 | ) | ||||
Total Distributions | (.24 | ) | (.49 | ) | (.48 | ) | (.58 | ) | (.52 | ) | (.55 | ) |
Net asset value, end of period | 15.26 | 14.76 | 15.19 | 14.70 | 14.98 | 15.35 | ||||||
Total Return (%)b | 5.05 | c | .35 | 6.72 | 2.18 | 1.03 | 4.72 | |||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.74 | d | 1.72 | 1.71 | 1.75 | 1.86 | 1.85 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.70 | d | 1.72 | 1.71 | 1.75 | 1.86 | 1.84 | |||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | — | — | — | .02 | .15 | .17 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.22 | d | 3.25 | 3.25 | 3.57 | 3.44 | 3.43 | |||||
Portfolio Turnover Rate | .95 | c | 15.17 | 12.88 | 14.21 | 14.69 | 5.27 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 7,077 | 7,012 | 7,039 | 6,057 | 4,867 | 4,148 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
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 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 no longer offers Class B shares, except in connection with dividend reinvestment and permitted exchanges of Class B shares and, effective on or about March 13, 2012, all outstanding Class B shares will automatically convert to Class A shares. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The Fund | 23 |
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: 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.
24
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.
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. Valuation techniques used to value the fund’s investments are as follows:
Investments in securities are valued each business day by an independent pricing service (the “Service”) approved by the Board ofTrustees. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. All preceding securities are categorized within Level 2 of the fair value hierarchy.
The Fund | 25 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
When market quotations or official closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Trustees. Certain factors may be considered when fair valuing investments such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers.These securities are either categorized as Level 2 or 3 depending on the relevant inputs used.
For restricted securities where observable inputs are limited, assumptions about market activity and risk are used and are categorized within Level 3 of the fair value hierarchy.
The following is a summary of the inputs used as of October 31, 2011 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 | — | 116,934,600 | — | 116,934,600 |
In May 2011, FASB issued Accounting Standards Update (“ASU”) No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in GAAP and International Financial Reporting Standards (“IFRS”)” (“ASU 2011-04”). ASU 2011-04 includes common requirements for measurement of and disclosure about fair value between GAAP and IFRS. ASU 2011-04 will require reporting entities to disclose the following information for fair value measurements categorized within Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs used in the fair
26
value measurement, the valuation processes used by the reporting entity and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, ASU 2011-04 will require reporting entities to make disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements.The new and revised disclosures are effective for interim and annual reporting periods beginning after December 15, 2011. At this time, management is evaluating the implications of ASU 2011-04 and its impact on the financial statements.
(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 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.
The Fund | 27 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(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, 2011, 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, 2011 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $1,045,813 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to April 30, 2011. If not applied, the carryover expires in fiscal 2018.
Under the recently enacted Regulated Investment Company Modernization Act of 2010 (the “2010 Act”), the fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 (“post-enactment losses”) for an unlimited period. However, the 2010 Act requires post-enactment losses to be utilized before the utilization of losses incurred in taxable years prior to the effective date of the 2010 Act. As a result of this ordering rule, capital loss carryovers related to taxable years beginning prior to the effective date of the 2010 Act may be more likely to expire unused.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2011 was as follows: tax exempt income $5,072,934. 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, 2011, the fund did not borrow under the Facilities.
NOTE 3—Management Fee and Other Transactions with Affiliates:
(a) Pursuant to a management agreement with the Manager, the management fee is computed at the annual rate of .55% of the value of the fund’s average daily net assets and is payable monthly.
The Manager has agreed, from September 1, 2011 through July 31, 2012, to waive receipt of a portion of the fund’s management fee, in the amount of .10% of the value of the fund’s average daily net assets. The reduction in management fee, pursuant to the undertaking, amounted to $19,872 during the period ended October 31, 2011.
During the period ended October 31, 2011, the Distributor retained $1,011 from commissions earned on sales of the fund’s Class A shares and $3 and $103 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
The Fund | 29 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
average daily net assets of Class C shares. During the period ended October 31, 2011, Class B and Class C shares were charged $558 and $26,820, respectively, pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts.The Distributor may make payments to Service Agents (a securities dealer, financial institution or other industry professional) in respect of these services.The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2011, Class A, Class B and Class C shares were charged $140,432, $279 and $8,940, 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, 2011, the fund was charged $22,389 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, 2011, the fund was charged $1,042 pursuant to the
30
cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations.These fees were partially offset by earnings credits of $17.
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, 2011, the fund was charged $7,168 pursuant to the custody agreement.
During the period ended October 31, 2011, the fund was charged $2,981 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 $55,262, Rule 12b-1 distribution plan fees $4,613, shareholder services plan fees $25,119, custodian fees $3,759, chief compliance officer fees $4,246 and transfer agency per account fees $6,934, which are offset against an expense reimbursement currently in effect in the amount of $10,047.
(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, 2011, amounted to $1,116,120 and $5,192,343, respectively.
At October 31, 2011, accumulated net unrealized appreciation on investments was $7,239,265 consisting of $7,485,517 gross unrealized appreciation and $246,252 gross unrealized depreciation.
At October 31, 2011, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
The Fund | 31 |
INFORMATION ABOUT THE RENEWAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the fund’s Board of Trustees held on July 26, 2011, the Board considered the renewal of the fund’s Management Agreement pursuant to which Dreyfus provides the fund with investment advisory and administrative services (the “Agreement”). 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 Dreyfus. In considering the renewal of the Agreement, the Board considered all factors that it believed to be relevant, including those discussed below.The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund.The Board members considered information previously provided to them in presentations from representatives of Dreyfus regarding the nature, extent, and quality of the services provided to funds in the Dreyfus fund complex, and representatives of Dreyfus confirmed that there had been no material changes in this information. Dreyfus provided the number of open accounts in the fund, the fund’s asset size and the allocation of fund assets among distribution channels. Dreyfus also had previously provided information regarding the diverse intermediary relationships and distribution channels of funds in the Dreyfus fund complex and Dreyfus’ corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including the distribution channel(s) for the fund.
The Board members also considered research support available to, and portfolio management capabilities of, the fund’s portfolio management personnel and that Dreyfus 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 Dreyfus’ extensive administrative, accounting, and compliance infrastructures.
32
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board members reviewed reports prepared by Lipper, Inc. (“Lipper”), an independent provider of investment company data, which included information comparing (1) the fund’s performance with the performance of a group of comparable funds (the “Performance Group”) and with a broader group of funds (the “Performance Universe”), all for various periods ended June 30, 2011, and (2) the fund’s actual and contractual management fees and total expenses with those of a group of comparable funds (the “Expense Group”) and with a broader group of funds (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Lipper as of June 30, 2011. Dreyfus previously had furnished the Board with a description of the methodology Lipper used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.
Dreyfus representatives stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations that may be applicable to the fund and comparison funds.They also noted that performance generally should be considered over longer periods of time, although it is possible that long-term performance can be adversely affected by even one period of significant underperformance so that a single investment decision or theme has the ability to affect disproportionately long term perfor-mance.The Board members discussed the results of the comparisons and noted that the fund’s total return performance was below the Performance Group medians for all periods, except for the ten-year period when the fund’s performance was above the Performance Group median, and that the fund’s total return performance was above the Performance Universe medians for the various periods, except for the one- and two-year periods when the fund’s performance was below the Performance Universe medians.
The Fund | 33 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
The Board also noted that the fund’s yield performance was above the Performance Group medians for seven of the ten one-year periods ended June 30th and above the Performance Universe medians for all of the ten one-year periods. Dreyfus also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s Lipper category average .
The Board members also reviewed the range of actual and contractual management fees and total expenses of the Expense Group and Expense Universe funds and discussed the results of the comparisons.They noted that the fund’s contractual management fee was above the Expense Group median, the fund’s actual management fee was above the Expense Group and Expense Universe medians and the fund’s total expense ratio was above the Expense Group and Expense Universe medians.
A representative of Dreyfus noted that Dreyfus has contractually agreed to waive .10% of the fund’s management fee from August 1, 2011 through July 31, 2012.
Representatives of Dreyfus reviewed with the Board members the management or investment advisory fees (1) paid by funds advised or administered by Dreyfus that are in the same Lipper category as the fund and (2) paid to Dreyfus or the Dreyfus-affiliated primary employer of the fund’s primary portfolio manager for advising any separate accounts and/or other types of client portfolios that are considered to have similar investment strategies and policies as the fund (the “Similar Clients”), and explained the nature of the Similar Clients. They discussed differences in fees paid and the relationship of the fees paid in light of any differences in the services provided and other relevant factors.The Board members considered the relevance of the fee information provided for the Similar Clients to evaluate the appropriateness and reasonableness of the fund’s management fee.
Analysis of Profitability and Economies of Scale. Dreyfus’ representatives reviewed the expenses allocated and profit received by Dreyfus and the resulting profitability percentage for managing the fund, and
34
the method used to determine the expenses and profit. The Board concluded that the profitability results were not unreasonable, given the services rendered and service levels provided by Dreyfus. The Board previously had been provided with information prepared by an independent consulting firm regarding Dreyfus’ approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus fund complex. The consulting firm also had analyzed where any economies of scale might emerge in connection with the management of a fund.
The Board’s counsel stated that the Board members should consider the profitability analysis (1) as part of their evaluation of whether the fees under the Agreement bear a reasonable relationship to the mix of services provided by Dreyfus, including the nature, extent and quality of such services, and (2) 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. Dreyfus representatives noted that a discussion of economies of scale is predicated on a fund having achieved a substantial size with increasing assets and that, if a fund’s assets had been stable or decreasing, the possibility that Dreyfus may have realized any economies of scale would be less. They also noted that, as a result of shared and allocated costs among funds in the Dreyfus fund complex, the extent of economies of scale could depend substantially on the level of assets in the complex as a whole, so that increases and decreases in complex-wide assets can affect potential economies of scale in a manner that is disproportionate to, or even in the opposite direction from, changes in the fund’s asset level. The Board members also considered potential benefits to Dreyfus from acting as investment adviser and noted that there were no soft dollar arrangements in effect for trading the fund’s investments.
The Fund | 35 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to the renewal of the Agreement. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
The Board concluded that the nature, extent and quality of the services provided by Dreyfus are adequate and appropriate.
The Board generally was satisfied with the fund’s overall performance, in light of the considerations described above, but determined to closely monitor relative performance.
The Board concluded that the fee paid to Dreyfus was reasonable in light of the considerations described above.
The Board determined that the economies of scale which may accrue to Dreyfus and its affiliates in connection with the management of the fund had been adequately considered by Dreyfus in connection with the fee rate charged to the fund pursuant to the Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year. In addition, it should be noted that the Board’s consideration of the contractual fee arrangements for this fund had the benefit of a number of years of reviews of prior or similar agreements during which lengthy discussions took place between the Board members and Dreyfus representatives. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board members’ conclusions may be based, in part, on their consideration of the same or similar arrangements in prior years. The Board members determined that renewal of the Agreement was in the best interests of the fund and its shareholders.
36
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
16 | Statement of Assets and Liabilities |
17 | Statement of Operations |
18 | Statement of Changes in Net Assets |
20 | Financial Highlights |
23 | Notes to Financial Statements |
32 | Information About the Renewal 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 Ohio Fund, a series of Dreyfus State Municipal Bond Funds, covering the six-month period from May 1, 2011, through October 31, 2011. 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.
Investors were encouraged by expectations of a more robust economic recovery into the first quarter of 2011, but sentiment subsequently deteriorated due to disappointing economic data, rising commodity prices, an escalating sovereign debt crisis in Europe and a contentious debate regarding taxes, spending and borrowing in the United States. Market volatility was particularly severe during August and September after a major credit rating agency downgraded U.S. long-term debt. While most fixed-income securities proved volatile in this tumultuous environment, municipal bonds held up relatively well due to robust demand for a limited supply of newly issued securities.
The economic outlook currently remains clouded by market turbulence and political infighting, but we believe that a continued subpar global expansion is more likely than a return to recession. In addition, municipal bonds remain attractively valued despite recent issuer events, as fundamental measures of quality, including liquidity and revenue stabilization, support a stable outlook for the broad municipal market in general.With tax season considerations in mind, we encourage you, as always, to speak with your financial advisor in order to help evaluate the tax-efficiency of your portfolio.
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, 2011
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2011, through October 31, 2011, as provided by David Belton, Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended October 31, 2011, 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 5.95%, 5.64% and 5.55%, respectively.1 In comparison, the Barclays Capital Municipal Bond Index, the fund’s benchmark index, which is composed of bonds issued nationally and not solely within Ohio, achieved a total return of 5.56% for the same period.2
Despite intensifying economic uncertainty during the reporting period, municipal bonds fared relatively well as a reduced supply of newly issued securities was met by robust investor demand.The fund produced higher returns than its benchmark, mainly due to positive contributions from revenue bonds.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax and Ohio state income tax without undue risk.To pursue its goal, the fund normally invests substantially all of its assets in municipal bonds that provide income exempt from federal income tax and from Ohio state income tax.The fund invests at least 70% of its assets in investment-grade municipal bonds or the unrated equivalent as determined by Dreyfus. 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. In addition, 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 health care, water and sewer and municipal electric or dedicated tax-secured, based on our appraisal of relative values.
The Fund | 3 |
DISCUSSION OF FUND PERFORMANCE (continued)
Municipal Bonds Held Up Relatively Well Amid Uncertainty
In the wake of a period of economic optimism, investor confidence generally was shaken in the spring of 2011 when Greece appeared headed for default on its sovereign debt, U.S. economic data disappointed and a contentious political debate regarding U.S. government spending and borrowing intensified. Consequently, investors shifted their focus from relatively speculative asset classes to traditionally defensive investments, producing bouts of heightened volatility in many markets. Turbulence among stocks and lower-rated bonds was particularly severe in August and September, after a major credit-rating agency downgraded its assessment of long-term U.S. debt securities. In contrast, securities that had been hard-hit in late summer rebounded to a significant degree in October as certain macroeconomic concerns eased.
Municipal bonds held up relatively well despite these developments due to positive supply-and-demand forces. New issuance volumes fell sharply in 2011 after a flood of new issuance prior in late 2010 when issuers sought to lock in federal subsidies provided by the expiring Build America Bonds program. Political pressure to reduce spending also led to fewer capital projects requiring financing during the reporting period. Yet, demand for municipal bonds remained robust from investors seeking competitive levels of tax-exempt income.
Although Ohio has struggled with fiscal pressures more than many other states, it demonstrated some progress in its recovery from recession during the reporting period.Tax revenues have increased, and the state cut spending to pass a balanced budget for its current fiscal year.
Revenue Bonds Supported Relative Performance
The fund’s relative performance was bolstered by bonds backed by revenues from essential-services facilities, particularly those backed by hospitals and public power utilities. Such securities generally have been less sensitive to economic concerns than their general obligation counterparts. The fund received especially strong results during the reporting period from an overweighted position in revenue bonds backed by hospitals. Conversely, underweighted exposure to general obligation bonds cushioned the impact of one of the municipal bond market’s weaker areas.The fund’s relatively long average duration also proved beneficial, boosting participation in the market rally when longer-term interest rates declined.
4
Disappointments during the reporting period included holdings of escrowed bonds, which generated relatively anemic returns. Modestly underweighted exposure to municipal bonds with long-term maturities also undermined relative performance during the market rally.
Maintaining a Cautious Investment Posture
Ongoing economic uncertainty has convinced us to maintain a relatively cautious investment posture, including a bias toward higher-quality securities with strong liquidity characteristics. We also have attempted to reduce the fund’s exposure to bonds with early redemption provisions that can be exercised over the next several years, as such securities tend to exhibit heightened price volatility when interest rates change. Instead, we have identified attractive values among call-protected revenue bonds. In our view, revenue-supported bonds are likely to be the focus of demand from individual investors seeking tax-advantaged income and muted volatility as they grow more concerned about persistently low interest rates and potential tax increases in a slow-growth economy.
November 15, 2011
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. |
The Fund | 5 |
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus State Municipal Bond Funds, Dreyfus Ohio Fund from May 1, 2011 to October 31, 2011. 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, 2011 | |||||||
Class A | Class B | Class C | |||||
Expenses paid per $1,000† | $ | 4.97 | $ | 8.53 | $ | 8.89 | |
Ending value (after expenses) | $ | 1,059.50 | $ | 1,056.40 | $ | 1,055.50 |
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, 2011 | ||||||||
Class A | Class B | Class C | ||||||
Expenses paid per $1,000† | $ | 4.88 | $ | 8.36 | $ | 8.72 | ||
Ending value (after expenses) | $ | 1,020.31 | $ | 1,016.84 | $ | 1,016.49 |
† Expenses are equal to the fund’s annualized expense ratio of .96% for Class A, 1.65% for Class B, and 1.72% for Class C; multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
October 31, 2011 (Unaudited) |
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments—98.5% | Rate (%) | Date | Amount ($) | Value ($) | |
Ohio—82.8% | |||||
Akron, | |||||
GO | 6.00 | 12/1/12 | 690,000 | 710,672 | |
Akron, | |||||
GO (Insured; National Public | |||||
Finance Guarantee Corp.) | |||||
(Prerefunded) | 5.50 | 12/1/11 | 460,000 | a | 462,038 |
Allen County, | |||||
Hospital Facilities Revenue | |||||
(Catholic Healthcare Partners) | 5.25 | 9/1/27 | 2,500,000 | 2,568,275 | |
Blue Ash, | |||||
Tax Increment Financing Revenue | |||||
(Duke Realty Ohio Project) | 5.00 | 12/1/16 | 710,000 | 721,587 | |
Blue Ash, | |||||
Tax Increment Financing Revenue | |||||
(Duke Realty Ohio Project) | 5.00 | 12/1/21 | 730,000 | 749,630 | |
Blue Ash, | |||||
Tax Increment Financing Revenue | |||||
(Duke Realty Ohio Project) | 5.00 | 12/1/25 | 500,000 | 489,835 | |
Blue Ash, | |||||
Tax Increment Financing Revenue | |||||
(Duke Realty Ohio Project) | 5.00 | 12/1/30 | 400,000 | 367,012 | |
Blue Ash, | |||||
Tax Increment Financing Revenue | |||||
(Duke Realty Ohio Project) | 5.00 | 12/1/35 | 1,000,000 | 875,140 | |
Buckeye Tobacco Settlement | |||||
Financing Authority, Tobacco | |||||
Settlement Asset-Backed Bonds | 5.13 | 6/1/24 | 2,475,000 | 1,907,012 | |
Butler County, | |||||
Hospital Facilities Revenue | |||||
(Kettering Health Network | |||||
Obligated Group Project) | 6.38 | 4/1/36 | 2,000,000 | 2,141,600 | |
Butler County, | |||||
Hospital Facilities Revenue | |||||
(UC Health) | 5.50 | 11/1/40 | 2,000,000 | 1,917,620 | |
Cincinnati, | |||||
EDR (Baldwin 300 Project) | 5.00 | 11/1/28 | 2,565,000 | 2,706,639 | |
Cincinnati, | |||||
Water System Revenue | 5.00 | 12/1/23 | 2,275,000 | 2,683,726 |
The Fund | 7 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Ohio (continued) | |||||
Cincinnati State Technical and | |||||
Community College, General | |||||
Receipts Bonds (Insured; AMBAC) | 5.25 | 10/1/22 | 2,375,000 | 2,432,166 | |
Cleveland, | |||||
Waterworks Revenue (Insured; | |||||
National Public Finance | |||||
Guarantee Corp.) | 5.50 | 1/1/21 | 8,000,000 | 9,581,520 | |
Cleveland-Cuyahoga County Port | |||||
Authority, Cultural Facility | |||||
Revenue (The Cleveland Museum | |||||
of Art Project) | 5.00 | 10/1/22 | 2,500,000 | 2,825,500 | |
Cleveland-Cuyahoga County Port | |||||
Authority, Senior Special | |||||
Assessment/Tax Increment | |||||
Revenue (University Heights— | |||||
Public Parking Garage Project) | 7.00 | 12/1/18 | 1,870,000 | 1,908,784 | |
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 | 3,669,912 | |
Cuyahoga Community College | |||||
District, General Receipts Bonds | 5.00 | 8/1/25 | 2,500,000 | 2,750,575 | |
Fairfield City School District, | |||||
GO School Improvement Bonds | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.38 | 12/1/20 | 1,400,000 | 1,405,502 | |
Franklin County, | |||||
Hospital Facilities Revenue | |||||
(OhioHealth Corporation) | 5.00 | 11/15/20 | 700,000 | 796,978 | |
Franklin County, | |||||
Hospital Improvement Revenue | |||||
(Nationwide Children’s | |||||
Hospital Project) | 5.00 | 11/1/34 | 3,850,000 | 3,907,057 | |
Hamilton County, | |||||
Sales Tax Revenue (Insured; | |||||
AMBAC) | 0.00 | 12/1/27 | 17,940,000 | b | 7,826,146 |
Hancock County, | |||||
Hospital Facilities Revenue | |||||
(Blanchard Valley Regional | |||||
Health Center) | 5.00 | 12/1/21 | 1,500,000 | 1,598,325 |
8
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Ohio (continued) | |||||
Hilliard City School District, | |||||
GO School Improvement Bonds | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 0.00 | 12/1/13 | 1,655,000 | b | 1,622,132 |
Hilliard City School District, | |||||
GO School Improvement Bonds | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 0.00 | 12/1/14 | 1,655,000 | b | 1,590,571 |
Kent State University, | |||||
General Receipts Bonds | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 5/1/25 | 2,000,000 | 2,173,300 | |
Lebanon City School District, | |||||
GO (School Facilities | |||||
Construction and | |||||
Improvement) (Insured; | |||||
Assured Guaranty Municipal | |||||
Corp.) (Prerefunded) | 5.50 | 12/1/11 | 4,050,000 | a | 4,067,942 |
Lucas County, | |||||
HR (ProMedica Healthcare | |||||
Obligated Group) | 5.75 | 11/15/31 | 1,200,000 | 1,293,420 | |
Mason City School District, | |||||
GO Unlimited Tax Bonds | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.25 | 12/1/31 | 5,000,000 | 6,184,450 | |
Massillon City School District, | |||||
GO (Various Purpose | |||||
Improvement) (Insured; | |||||
National Public Finance | |||||
Guarantee Corp.) (Prerefunded) | 5.00 | 12/1/12 | 1,150,000 | a | 1,208,420 |
Montgomery County, | |||||
Revenue (Miami Valley Hospital) | 6.25 | 11/15/33 | 2,500,000 | 2,630,525 | |
Ohio, | |||||
HR (Cleveland Clinic Health | |||||
System Obligated Group) | 5.00 | 1/1/25 | 1,210,000 | 1,294,833 | |
Ohio Higher Educational Facility | |||||
Commission, Higher | |||||
Educational Facility Revenue | |||||
(Xavier University | |||||
Project) (Insured; | |||||
FGIC) (Prerefunded) | 5.00 | 5/1/13 | 2,000,000 | a | 2,138,460 |
The Fund | 9 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Ohio (continued) | |||||
Ohio Higher Educational Facility | |||||
Commission, HR (Cleveland | |||||
Clinic Health System | |||||
Obligated Group) | 5.50 | 1/1/43 | 3,000,000 | 3,108,300 | |
Ohio State University, | |||||
General Receipts Bonds | 5.25 | 6/1/23 | 525,000 | 555,812 | |
Ohio State University, | |||||
General Receipts Bonds | 5.00 | 12/1/23 | 1,000,000 | 1,164,020 | |
Ohio State University, | |||||
General Receipts Bonds | |||||
(Prerefunded) | 5.25 | 6/1/13 | 2,100,000 | a | 2,261,553 |
Ohio Water Development Authority, | |||||
Water Pollution Control Loan | |||||
Fund Revenue | |||||
(Water Quality Series) | 5.00 | 12/1/18 | 3,710,000 | 4,422,691 | |
Ohio Water Development Authority, | |||||
Water Pollution Control Loan | |||||
Fund Revenue | |||||
(Water Quality Series) | 5.00 | 12/1/23 | 2,000,000 | 2,296,160 | |
Port of Greater Cincinnati | |||||
Development Authority, Special | |||||
Obligation Development Revenue | |||||
(Cooperative Public Parking | |||||
and Infrastructure Project) | 6.30 | 2/15/24 | 2,215,000 | c | 1,495,369 |
Port of Greater Cincinnati | |||||
Development Authority, Special | |||||
Obligation Development Revenue | |||||
(Cooperative Public Parking | |||||
and Infrastructure Project) | 6.40 | 2/15/34 | 2,500,000 | c | 1,490,200 |
Port of Greater Cincinnati | |||||
Development Authority, Tax | |||||
Increment Development Revenue | |||||
(Fairfax Village Red Bank | |||||
Infrastructure Project) | 5.50 | 2/1/25 | 2,085,000 | d | 1,726,088 |
Richland County, | |||||
GO Correctional Facilities | |||||
Bonds (Insured; Assured | |||||
Guaranty Municipal Corp.) | 6.00 | 12/1/28 | 400,000 | 450,616 | |
Strongsville, | |||||
GO Library Improvement Bonds | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.50 | 12/1/20 | 1,700,000 | 1,706,919 |
10
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Ohio (continued) | |||||
Summit County Port Authority, | |||||
Development Revenue (Bond Fund | |||||
Program-Twinsburg | |||||
Township Project) | 5.13 | 5/15/25 | 385,000 | 343,382 | |
Summit County Port Authority, | |||||
Revenue (Civic Theatre | |||||
Project) (Insured; AMBAC) | 5.50 | 12/1/26 | 1,000,000 | 904,980 | |
Toledo-Lucas County Port | |||||
Authority, Development Revenue | |||||
(Northwest Ohio Bond Fund— | |||||
Midwest Terminals Project) | 6.00 | 11/15/27 | 1,645,000 | 1,536,627 | |
Toledo-Lucas County Port | |||||
Authority, Development Revenue | |||||
(Northwest Ohio Bond Fund— | |||||
Toledo Express Airport Project) | 6.38 | 11/15/32 | 2,425,000 | 2,389,595 | |
University of Akron, | |||||
General Receipts Bonds | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 1/1/29 | 1,000,000 | 1,057,250 | |
University of Cincinnati, | |||||
General Receipts Bonds | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | |||||
(Prerefunded) | 5.00 | 6/1/12 | 3,040,000 | a | 3,124,755 |
University of Toledo, | |||||
General Receipts Bonds | 5.00 | 6/1/24 | 1,665,000 | 1,788,993 | |
Warren, | |||||
Waterworks Revenue (Insured; | |||||
National Public Finance | |||||
Guarantee Corp.) | 5.50 | 11/1/15 | 1,450,000 | 1,525,835 | |
U.S. Related—15.7% | |||||
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 0.00 | 5/15/50 | 12,500,000 | b | 576,125 |
Government of Guam, | |||||
GO | 6.75 | 11/15/29 | 500,000 | 516,740 | |
Guam Power Authority, | |||||
Revenue | 5.50 | 10/1/30 | 1,000,000 | 989,640 | |
Guam Waterworks Authority, | |||||
Water and Wastewater | |||||
System Revenue | 5.88 | 7/1/35 | 900,000 | 893,664 |
The Fund | 11 |
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 | 5.25 | 7/1/17 | 1,000,000 | 1,071,580 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | 5.50 | 7/1/38 | 2,500,000 | 2,555,025 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.50 | 7/1/15 | 1,000,000 | 1,104,490 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.00 | 7/1/23 | 1,000,000 | 1,018,410 |
Puerto Rico Highways and | ||||
Transportation Authority, | ||||
Highway Revenue (Insured; | ||||
Assured Guaranty Municipal Corp.) | 5.50 | 7/1/31 | 3,370,000 | 3,647,654 |
Puerto Rico Sales Tax Financing | ||||
Corporation, Sales Tax Revenue | ||||
(First Subordinate Series) | 5.38 | 8/1/39 | 1,000,000 | 1,024,000 |
Puerto Rico Sales Tax Financing | ||||
Corporation, Sales Tax Revenue | ||||
(First Subordinate Series) | 6.00 | 8/1/39 | 2,000,000 | 2,178,620 |
Puerto Rico Sales Tax Financing | ||||
Corporation, Sales Tax Revenue | ||||
(First Subordinate Series) | 6.00 | 8/1/42 | 1,750,000 | 1,891,470 |
Virgin Islands Public Finance | ||||
Authority, Revenue (Virgin | ||||
Islands Gross Receipts Taxes | ||||
Loan Note) | 6.38 | 10/1/19 | 2,800,000 | 2,805,264 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||
U.S. Related (continued) | ||||||
Virgin Islands Public Finance | ||||||
Authority, Revenue (Virgin | ||||||
Islands Matching Fund Loan Note) | 5.00 | 10/1/25 | 1,500,000 | 1,524,210 | ||
Total Long-Term Municipal Investments | ||||||
(cost $133,689,850) | 136,353,341 | |||||
Short-Term Municipal | ||||||
Investment—1.7% | ||||||
Ohio; | ||||||
Allen County, | ||||||
Hospital Facilities Revenue | ||||||
(Catholic Healthcare Partners) | ||||||
(LOC; JPMorgan Chase Bank) | ||||||
(cost $2,300,000) | 0.14 | 11/1/11 | 2,300,000 | e | 2,300,000 | |
Total Investments (cost $135,989,850) | 100.2 | % | 138,653,341 | |||
Liabilities, Less Cash and Receivables | (.2 | %) | (212,720 | ) | ||
Net Assets | 100.0 | % | 138,440,621 |
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 Non-income producing—security in default. |
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, 2011, this security |
was valued at $1,726,088 or 1.2% of net assets. |
e Variable rate demand note—rate shown is the interest rate in effect at October 31, 2011. Maturity date represents |
the next demand date, or the ultimate maturity date if earlier. |
The Fund | 13 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Abbreviations | |||
ABAG | Association of Bay Area Governments | ACA | American Capital Access |
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company |
AMBAC | American Municipal Bond | 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 | 17.7 | ||
AA | Aa | AA | 34.8 | ||
A | A | A | 16.7 | ||
BBB | Baa | BBB | 11.4 | ||
BB | Ba | BB | 2.0 | ||
B | B | B | .4 | ||
F1 | MIG1/P1 | SP1/A1 | 1.7 | ||
Not Ratedf | Not Ratedf | Not Ratedf | 15.3 | ||
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. |
The Fund | 15 |
STATEMENT OF ASSETS AND LIABILITIES |
October 31, 2011 (Unaudited) |
Cost | Value | |||
Assets ($): | ||||
Investments in securities—See Statement of Investments | 135,989,850 | 138,653,341 | ||
Cash | 641,980 | |||
Interest receivable | 2,199,885 | |||
Receivable for shares of Beneficial Interest subscribed | 4,406 | |||
Prepaid expenses | 11,214 | |||
Other assets | 248,816 | |||
141,759,642 | ||||
Liabilities ($): | ||||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 117,046 | |||
Payable for investment securities purchased | 3,071,458 | |||
Payable for shares of Beneficial Interest redeemed | 88,746 | |||
Accrued expenses | 41,771 | |||
3,319,021 | ||||
Net Assets ($) | 138,440,621 | |||
Composition of Net Assets ($): | ||||
Paid-in capital | 139,909,791 | |||
Accumulated undistributed investment income—net | 13,382 | |||
Accumulated net realized gain (loss) on investments | (4,146,043 | ) | ||
Accumulated net unrealized appreciation | ||||
(depreciation) on investments | 2,663,491 | |||
Net Assets ($) | 138,440,621 | |||
Net Asset Value Per Share | ||||
Class A | Class B | Class C | ||
Net Assets ($) | 131,747,288 | 269,426 | 6,423,907 | |
Shares Outstanding | 10,985,513 | 22,472 | 534,719 | |
Net Asset Value Per Share ($) | 11.99 | 11.99 | 12.01 | |
See notes to financial statements. |
16
STATEMENT OF OPERATIONS |
Six Months Ended October 31, 2011 (Unaudited) |
Investment Income ($): | ||
Interest Income | 3,416,362 | |
Expenses: | ||
Management fee—Note 3(a) | 385,019 | |
Shareholder servicing costs—Note 3(c) | 214,773 | |
Professional fees | 26,239 | |
Distribution fees—Note 3(b) | 24,347 | |
Registration fees | 11,854 | |
Custodian fees—Note 3(c) | 7,546 | |
Prospectus and shareholders’ reports | 6,818 | |
Loan commitment fees—Note 2 | 1,565 | |
Trustees’ fees and expenses—Note 3(d) | 473 | |
Miscellaneous | 16,276 | |
Total Expenses | 694,910 | |
Less—reduction in fees due to earnings credits—Note 3(c) | (27 | ) |
Net Expenses | 694,883 | |
Investment Income—Net | 2,721,479 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | (228,905 | ) |
Net unrealized appreciation (depreciation) on investments | 5,618,834 | |
Net Realized and Unrealized Gain (Loss) on Investments | 5,389,929 | |
Net Increase in Net Assets Resulting from Operations | 8,111,408 | |
See notes to financial statements. |
The Fund | 17 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2011 | Year Ended | |||
(Unaudited) | April 30, 2011 | |||
Operations ($): | ||||
Investment income—net | 2,721,479 | 6,336,225 | ||
Net realized gain (loss) on investments | (228,905 | ) | 1,505,777 | |
Net unrealized appreciation | ||||
(depreciation) on investments | 5,618,834 | (7,553,992 | ) | |
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 8,111,408 | 288,010 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (2,604,449 | ) | (6,051,110 | ) |
Class B Shares | (4,499 | ) | (18,188 | ) |
Class C Shares | (99,149 | ) | (237,028 | ) |
Total Dividends | (2,708,097 | ) | (6,306,326 | ) |
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 566,540 | 3,125,217 | ||
Class B Shares | 356 | 1,354 | ||
Class C Shares | 330,921 | 412,950 | ||
Dividends reinvested: | ||||
Class A Shares | 2,052,442 | 4,751,657 | ||
Class B Shares | 3,793 | 15,486 | ||
Class C Shares | 84,479 | 193,976 | ||
Cost of shares redeemed: | ||||
Class A Shares | (7,922,635 | ) | (20,279,883 | ) |
Class B Shares | (60,116 | ) | (355,671 | ) |
Class C Shares | (242,988 | ) | (1,845,421 | ) |
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | (5,187,208 | ) | (13,980,335 | ) |
Total Increase (Decrease) in Net Assets | 216,103 | (19,998,651 | ) | |
Net Assets ($): | ||||
Beginning of Period | 138,224,518 | 158,223,169 | ||
End of Period | 138,440,621 | 138,224,518 | ||
Undistributed investment income—net | 13,382 | — |
18
Six Months Ended | ||||
October 31, 2011 | Year Ended | |||
(Unaudited) | April 30, 2011 | |||
Capital Share Transactions: | ||||
Class Aa | ||||
Shares sold | 47,525 | 262,963 | ||
Shares issued for dividends reinvested | 172,750 | 402,314 | ||
Shares redeemed | (667,505 | ) | (1,739,032 | ) |
Net Increase (Decrease) in Shares Outstanding | (447,230 | ) | (1,073,755 | ) |
Class Ba | ||||
Shares sold | 30 | 113 | ||
Shares issued for dividends reinvested | 320 | 1,307 | ||
Shares redeemed | (5,098 | ) | (30,287 | ) |
Net Increase (Decrease) in Shares Outstanding | (4,748 | ) | (28,867 | ) |
Class C | ||||
Shares sold | 27,713 | 34,351 | ||
Shares issued for dividends reinvested | 7,097 | 16,386 | ||
Shares redeemed | (20,449 | ) | (158,291 | ) |
Net Increase (Decrease) in Shares Outstanding | 14,361 | (107,554 | ) |
a | During the period ended October 31, 2011, 1,012 Class B shares representing $12,102 were automatically |
converted to 1,012 Class A shares and during the period ended April 30, 2011, 4,334 Class B shares representing | |
$50,966 were automatically converted to 4,332 Class A shares. | |
See notes to financial statements. |
The Fund | 19 |
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.54 | 11.99 | 11.53 | 12.20 | 12.63 | 12.50 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .23 | .50 | .53 | .54 | .52 | .51 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .45 | (.45 | ) | .46 | (.67 | ) | (.43 | ) | .13 | |||
Total from Investment Operations | .68 | .05 | .99 | (.13 | ) | .09 | .64 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.23 | ) | (.50 | ) | (.53 | ) | (.54 | ) | (.52 | ) | (.51 | ) |
Net asset value, end of period | 11.99 | 11.54 | 11.99 | 11.53 | 12.20 | 12.63 | ||||||
Total Return (%)b | 5.95 | c | .38 | 8.71 | (1.00 | ) | .74 | 5.22 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .96 | d | .96 | .97 | 1.06 | 1.07 | 1.05 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .96 | d | .96 | .97 | 1.06 | 1.06 | 1.03 | |||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | — | .02 | .04 | .11 | .14 | .14 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.92 | d | 4.24 | 4.47 | 4.64 | 4.19 | 4.07 | |||||
Portfolio Turnover Rate | 6.30 | c | 15.63 | 15.70 | 7.73 | 12.00 | 31.65 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 131,747 | 131,897 | 150,006 | 150,007 | 167,683 | 183,157 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
20
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class B Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.53 | 11.99 | 11.53 | 12.21 | 12.63 | 12.50 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .19 | .42 | .44 | .45 | .45 | .44 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .46 | (.46 | ) | .47 | (.66 | ) | (.42 | ) | .14 | |||
Total from Investment Operations | .65 | (.04 | ) | .91 | (.21 | ) | .03 | .58 | ||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.19 | ) | (.42 | ) | (.45 | ) | (.47 | ) | (.45 | ) | (.45 | ) |
Net asset value, end of period | 11.99 | 11.53 | 11.99 | 11.53 | 12.21 | 12.63 | ||||||
Total Return (%)b | 5.64 | c | (.37 | ) | 8.02 | (1.66 | ) | .28 | 4.68 | |||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.65 | d | 1.60 | 1.56 | 1.62 | 1.61 | 1.57 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.65 | d | 1.60 | 1.56 | 1.62 | 1.60 | 1.55 | |||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | — | .02 | .04 | .11 | .14 | .14 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.19 | d | 3.56 | 3.86 | 4.00 | 3.64 | 3.55 | |||||
Portfolio Turnover Rate | 6.30 | c | 15.63 | 15.70 | 7.73 | 12.00 | 31.65 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 269 | 314 | 673 | 1,954 | 6,375 | 14,720 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
The Fund | 21 |
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.56 | 12.02 | 11.55 | 12.23 | 12.65 | 12.52 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .19 | .41 | .44 | .45 | .43 | .42 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .45 | (.46 | ) | .47 | (.68 | ) | (.42 | ) | .13 | |||
Total from Investment Operations | .64 | (.05 | ) | .91 | (.23 | ) | .01 | .55 | ||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.19 | ) | (.41 | ) | (.44 | ) | (.45 | ) | (.43 | ) | (.42 | ) |
Net asset value, end of period | 12.01 | 11.56 | 12.02 | 11.55 | 12.23 | 12.65 | ||||||
Total Return (%)b | 5.55 | c | (.44 | ) | 7.97 | (1.82 | ) | .07 | 4.42 | |||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.72 | d | 1.72 | 1.73 | 1.82 | 1.83 | 1.81 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.72 | d | 1.72 | 1.73 | 1.81 | 1.83 | 1.79 | |||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | — | .02 | .04 | .11 | .14 | .14 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.16 | d | 3.48 | 3.71 | 3.88 | 3.43 | 3.31 | |||||
Portfolio Turnover Rate | 6.30 | c | 15.63 | 15.70 | 7.73 | 12.00 | 31.65 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 6,424 | 6,014 | 7,545 | 7,044 | 7,805 | 9,053 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
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 no longer offers Class B shares, except in connection with dividend reinvestment and permitted exchanges of Class B shares and, effective on or about March 13, 2012, all outstanding Class B shares will automatically convert to Class A shares. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The Fund | 23 |
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: 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.
24
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.
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. Valuation techniques used to value the fund’s investments are as follows:
Investments in securities are valued each business day by an independent pricing service (the “Service”) approved by the Board ofTrustees. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. All preceding securities are categorized within Level 2 of the fair value hierarchy.
The Fund | 25 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
When market quotations or official closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Trustees. Certain factors may be considered when fair valuing investments such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers.These securities are either categorized as Level 2 or 3 depending on the relevant inputs used.
For restricted securities where observable inputs are limited, assumptions about market activity and risk are used and are categorized within Level 3 of the fair value hierarchy.
The following is a summary of the inputs used as of October 31, 2011 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 | — | 138,653,341 | — | 138,653,341 |
In May 2011, FASB issued Accounting Standards Update (“ASU”) No. 2011-04 “Amendments to Achieve Common FairValue Measurement and Disclosure Requirements in GAAP and International Financial Reporting Standards (“IFRS”)” (“ASU 2011-04”). ASU 2011-04 includes common requirements for measurement of and disclosure about fair value between GAAP and IFRS. ASU 2011-04 will require reporting entities to disclose the following information for fair value
26
measurements categorized within Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs used in the fair value measurement, the valuation processes used by the reporting entity and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, ASU 2011-04 will require reporting entities to make disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value mea-surements.The new and revised disclosures are effective for interim and annual reporting periods beginning after December 15, 2011. At this time, management is evaluating the implications of ASU 2011-04 and its impact on the financial statements.
(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 more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”).To the extent that net realized capital gains can be offset by capital loss carry-
The Fund | 27 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
overs, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(d) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended October 31, 2011, 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, 2011 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $3,970,991 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to April 30, 2011. If not applied, $306,171 of the carryover expires in fiscal 2013, $91,735 expires in fiscal 2016, $197,779 expires in fiscal 2017 and $3,375,306 expires in fiscal 2018.
Under the recently enacted Regulated Investment Company Modernization Act of 2010 (the “2010 Act”), the fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 (“post-enactment losses”) for an unlimited period. However, the 2010 Act requires post-enactment losses to be utilized before the utilization of losses incurred in taxable years prior to the effective date of the 2010 Act. As a result of this ordering rule, capital loss carryovers related to taxable years beginning prior to the effective date of the 2010 Act may be more likely to expire unused.
28
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2011 was as follows: tax exempt income $6,296,704 and ordinary income $9,622.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, 2011, 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, 2011, the Distributor retained $1,231 from commissions earned on sales of the fund’s Class A shares and $98 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, 2011, Class B and Class C shares were charged $709 and $23,638, respectively, pursuant to the Plan.
The Fund | 29 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(c) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (a securities dealer, financial institution or other industry professional) in respect of these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2011, Class A, Class B and Class C shares were charged $166,775, $355 and $7,879, 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, 2011, the fund was charged $31,450 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, 2011, the fund was charged $1,670 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 $27.
30
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, 2011, the fund was charged $7,546 pursuant to the custody agreement.
During the period ended October 31, 2011, the fund was charged $2,981 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 $64,429, Rule 12b-1 distribution plan fees $4,179, shareholder services plan fees $29,286, custodian fees $4,069, chief compliance officer fees $4,246 and transfer agent per account fees $10,837.
(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, 2011, amounted to $8,551,554 and $13,461,727, respectively.
At October 31, 2011, accumulated net unrealized appreciation on investments was $2,663,491, consisting of $6,341,812 gross unrealized appreciation and $3,678,321 gross unrealized depreciation.
At October 31, 2011, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
The Fund | 31 |
INFORMATION ABOUT THE RENEWAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the fund’s Board of Trustees held on July 26, 2011, the Board considered the renewal of the fund’s Management Agreement pursuant to which Dreyfus provides the fund with investment advisory and administrative services (the “Agreement”). 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 Dreyfus. In considering the renewal of the Agreement, the Board considered all factors that it believed to be relevant, including those discussed below.The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund.The Board members considered information previously provided to them in presentations from representatives of Dreyfus regarding the nature, extent, and quality of the services provided to funds in the Dreyfus fund complex, and representatives of Dreyfus confirmed that there had been no material changes in this information. Dreyfus provided the number of open accounts in the fund, the fund’s asset size and the allocation of fund assets among distribution channels. Dreyfus also had previously provided information regarding the diverse intermediary relationships and distribution channels of funds in the Dreyfus fund complex and Dreyfus’ corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including the distribution channel(s) for the fund.
The Board members also considered research support available to, and portfolio management capabilities of, the fund’s portfolio management personnel and that Dreyfus 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 Dreyfus’ extensive administrative, accounting, and compliance infrastructures.
32
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio.The Board members reviewed reports prepared by Lipper, Inc. (“Lipper”), an independent provider of investment company data, which included information comparing (1) the fund’s performance with the performance of a group of comparable funds (the “Performance Group”) and with a broader group of funds (the “Performance Universe”), all for various periods ended June 30, 2011, and (2) the fund’s actual and contractual management fees and total expenses with those of a group of comparable funds (the “Expense Group”) and with a broader group of funds (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Lipper as of June 30, 2011. Dreyfus previously had furnished the Board with a description of the methodology Lipper used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.
Dreyfus representatives stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations that may be applicable to the fund and comparison funds. The Board members discussed the results of the comparisons and noted that the fund’s total return performance was below the Performance Group and Performance Universe medians for the various periods, except for the one- and two-year periods when the fund’s performance was above the Performance Group and Performance Universe medians.
The Board also noted that the fund’s yield performance was at or above the Performance Group medians for nine of the ten one-year periods ended June 30th, and that the fund’s yield performance was above the Performance Universe medians for all of the ten one-year periods. Dreyfus also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s Lipper category average and the Board members noted that the fund outperformed its Lipper category
The Fund | 33 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
average in six of the past ten calendar years.The Board members discussed with Dreyfus representatives the reasons for the underperfor-mance of the fund’s total return compared to the Performance Group and Performance Universe medians for the applicable periods and Dreyfus’ 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 fund performance.
The Board members also reviewed the range of actual and contractual management fees and total expenses of the Expense Group and Expense Universe funds and discussed the results of the comparisons.They noted that the fund’s contractual management fee was at the Expense Group median, that the fund’s actual management fee and total expenses were above the Expense Group and Expense Universe medians.
Representatives of Dreyfus reviewed with the Board members the management or investment advisory fees (1) paid by funds advised or administered by Dreyfus that are in the same Lipper category as the fund and (2) paid to Dreyfus or the Dreyfus-affiliated primary employer of the fund’s primary portfolio manager for advising any separate accounts and/or other types of client portfolios that are considered to have similar investment strategies and policies as the fund (the “Similar Clients”), and explained the nature of the Similar Clients.They discussed differences in fees paid and the relationship of the fees paid in light of any differences in the services provided and other relevant factors.The Board members considered the relevance of the fee information provided for the Similar Clients to evaluate the appropriateness and reasonableness of the fund’s management fee.
Analysis of Profitability and Economies of Scale. Dreyfus’ representatives reviewed the expenses allocated and profit received by Dreyfus and the resulting profitability percentage for managing the fund, and
34
the method used to determine the expenses and profit. The Board concluded that the profitability results were not unreasonable, given the services rendered and service levels provided by Dreyfus. The Board previously had been provided with information prepared by an independent consulting firm regarding Dreyfus’ approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus fund complex. The consulting firm also had analyzed where any economies of scale might emerge in connection with the management of a fund.
The Board’s counsel stated that the Board members should consider the profitability analysis (1) as part of their evaluation of whether the fees under the Agreement bear a reasonable relationship to the mix of services provided by Dreyfus, including the nature, extent and quality of such services, and (2) 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. Dreyfus representatives noted that a discussion of economies of scale is predicated on a fund having achieved a substantial size with increasing assets and that, if a fund’s assets had been stable or decreasing, the possibility that Dreyfus may have realized any economies of scale would be less. They also noted that, as a result of shared and allocated costs among funds in the Dreyfus fund complex, the extent of economies of scale could depend substantially on the level of assets in the complex as a whole, so that increases and decreases in complex-wide assets can affect potential economies of scale in a manner that is disproportionate to, or even in the opposite direction from, changes in the fund’s asset level. The Board members also considered potential benefits to Dreyfus from acting as investment adviser and noted that there were no soft dollar arrangements in effect for trading the fund’s investments.
The Fund | 35 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to the renewal of the Agreement. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
The Board concluded that the nature, extent and quality of the services provided by Dreyfus are adequate and appropriate.
The Board generally was satisfied with the fund’s overall performance in light of the considerations described above.
The Board concluded that the fee paid to Dreyfus was reasonable in light of the considerations described above.
The Board determined that the economies of scale which may accrue to Dreyfus and its affiliates in connection with the management of the fund had been adequately considered by Dreyfus in connection with the fee rate charged to the fund pursuant to the Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year. In addition, it should be noted that the Board’s consideration of the contractual fee arrangements for this fund had the benefit of a number of years of reviews of prior or similar agreements during which lengthy discussions took place between the Board members and Dreyfus representatives. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board members’ conclusions may be based, in part, on their consideration of the same or similar arrangements in prior years. The Board members determined that renewal of the Agreement was in the best interests of the fund and its shareholders.
36
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
19 | Statement of Assets and Liabilities |
20 | Statement of Operations |
21 | Statement of Changes in Net Assets |
23 | Financial Highlights |
27 | Notes to Financial Statements |
36 | Information About the Renewal 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 Pennsylvania Fund, a series of Dreyfus State Municipal Bond Funds, covering the six-month period from May 1, 2011, through October 31, 2011. 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.
Investors were encouraged by expectations of a more robust economic recovery into the first quarter of 2011, but sentiment subsequently deteriorated due to disappointing economic data, rising commodity prices, an escalating sovereign debt crisis in Europe and a contentious debate regarding taxes, spending and borrowing in the United States. Market volatility was particularly severe during August and September after a major credit rating agency downgraded U.S. long-term debt. While most fixed-income securities proved volatile in this tumultuous environment, municipal bonds held up relatively well due to robust demand for a limited supply of newly issued securities.
The economic outlook currently remains clouded by market turbulence and political infighting, but we believe that a continued subpar global expansion is more likely than a return to recession. In addition, municipal bonds remain attractively valued despite recent issuer events, as fundamental measures of quality, including liquidity and revenue stabilization, support a stable outlook for the broad municipal market in general.With tax season considerations in mind, we encourage you, as always, to speak with your financial advisor in order to help evaluate the tax-efficiency of your portfolio.
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, 2011
2
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DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2011, through October 31, 2011, as provided by Steven Harvey and James Welch, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended October 31, 2011, the Class A, Class B, Class C and Class Z shares of Dreyfus Pennsylvania Fund, a series of Dreyfus State Municipal Bond Funds, produced total returns of 5.46%, 4.98%, 5.00% and 5.51%, respectively.1 In comparison, the Barclays Capital Municipal Bond Index, the fund’s benchmark index, which is composed of bonds issued nationally and not solely within Pennsylvania, achieved a total return of 5.56% for the same period.2
Despite intensifying economic uncertainty during the reporting period, municipal bonds fared relatively well as a reduced supply of newly issued securities was met by robust investor demand.The fund’s returns were slightly lower than the benchmark, as positive contributions from income-oriented revenue bonds were balanced by unfortunate timing in our efforts to reduce the fund’s interest-rate sensitivity and enhance its overall credit quality.
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
The Fund | 3 |
DISCUSSION OF FUND PERFORMANCE (continued)
revenue sectors, based on their apparent relative values.The fund generally will invest simultaneously in several of these sectors.
Municipal Bonds Held Up Relatively Well Amid Uncertainty
In the wake of a period of economic optimism and rallying financial markets, investor confidence generally was shaken in the spring of 2011 when Greece appeared headed for default on its sovereign debt, U.S. economic data disappointed and a contentious political debate regarding U.S. government spending and borrowing intensified. Consequently, investors shifted their focus from relatively speculative asset classes to traditionally defensive investments, producing bouts of heightened volatility in many markets. Turbulence among stocks and lower-rated bonds was particularly severe in August and September, after a major credit-rating agency downgraded its assessment of long-term U.S. debt securities. In contrast, securities that had been hard-hit in late summer rebounded to a significant degree in October as certain macroeconomic concerns eased.
Municipal bonds held up relatively well amid these developments due to positive supply-and-demand forces. New issuance volumes fell sharply in 2011 after a flood of new issuance in late 2010 when issuers sought to lock in federal subsidies provided by the expiring Build America Bonds program. Political pressure to reduce spending and borrowing also led to fewer capital projects requiring financing during the reporting period. Yet, demand for municipal bonds remained robust from investors seeking competitive levels of tax-exempt income.
Like other states, Pennsylvania demonstrated progress in its recovery from recession during the reporting period. Tax revenues have increased, and the state cut spending in some areas to pass a balanced budget for its current fiscal year.
Revenue Bonds Supported Relative Performance
The fund’s results compared to its benchmark were bolstered by income-oriented bonds backed by revenues from essential-services facilities, such as waterworks and sewer projects. Such securities generally have been less sensitive to economic concerns than their general obligation counterparts. The fund received especially strong results
4
during the reporting period from an overweighted position in revenue bonds backed by hospitals.
We continued our efforts to upgrade the fund’s overall credit quality and reduce its sensitivity to interest-rate volatility during the reporting period, selling lower-rated and longer-dated credits that had reached richer valuations and replacing them with shorter-maturity essential services revenue bonds. However, this shift proved ill timed, as bonds with longer maturities rallied strongly when interest rates fell late in the reporting period.
Adjusting to a Slower-Growth Environment
Ongoing market turbulence and general economic uncertainty convinced us to maintain a relatively cautious investment posture, including a bias toward higher-quality securities with strong liquidity characteristics.We have identified particularly attractive values among lower yielding revenue bonds. In our view, municipal bonds with relatively defensive characteristics are likely to be the focus of demand from individual investors seeking tax-advantaged income and muted volatility as they grow more concerned about persistently low interest rates and potential tax increases in a slow-growth economy.
November 15, 2011
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- | |
Pennsylvania residents, and some income may be subject to the federal alternative minimum tax | |
(AMT) for certain investors. Capital gains, if any, are taxable. | |
2 | SOURCE: LIPPER INC. — Reflects reinvestment of dividends and, where applicable, capital |
gain distributions.The Barclays Capital Municipal Bond Index is a widely accepted, unmanaged | |
total return performance benchmark for the long-term, investment-grade, tax-exempt bond market. | |
Index returns do not reflect fees and expenses associated with operating a mutual fund. Investors | |
cannot invest directly in any index. |
The Fund | 5 |
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus State Municipal Bond Funds, Dreyfus Pennsylvania Fund from May 1, 2011 to October 31, 2011. 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, 2011 | ||||||||
Class A | Class B | Class C | Class Z | |||||
Expenses paid per $1,000† | $ | 4.96 | $ | 9.48 | $ | 8.76 | $ | 3.82 |
Ending value (after expenses) | $ | 1,054.60 | $ | 1,049.80 | $ | 1,050.00 | $ | 1,055.10 |
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, 2011 | ||||||||
Class A | Class B | Class C | Class Z | |||||
Expenses paid per $1,000† | $ | 4.88 | $ | 9.32 | $ | 8.62 | $ | 3.76 |
Ending value (after expenses) | $ | 1,020.31 | $ | 1,015.89 | $ | 1,016.59 | $ | 1,021.42 |
† Expenses are equal to the fund’s annualized expense ration of .96% for Class A, 1.84% for Class B, 1.70% for Class C and .74% for Class Z, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
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STATEMENT OF INVESTMENTS | |||||
October 31, 2011 (Unaudited) | |||||
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments—98.2% | Rate (%) | Date | Amount ($) | Value ($) | |
Pennsylvania—86.5% | |||||
Adams County Industrial | |||||
Development Authority, Revenue | |||||
(Gettysburg College) | 5.00 | 8/15/25 | 1,000,000 | 1,079,970 | |
Adams County Industrial | |||||
Development Authority, Revenue | |||||
(Gettysburg College) | 5.00 | 8/15/26 | 1,000,000 | 1,072,280 | |
Allegheny County Airport | |||||
Authority, Airport Revenue | |||||
(Pittsburgh International | |||||
Airport) (Insured; Assured | |||||
Guaranty Municipal Corp.) | 5.00 | 1/1/17 | 1,000,000 | 1,072,000 | |
Allegheny County Hospital | |||||
Development Authority, HR | |||||
(South Hills Health System) | 5.13 | 5/1/29 | 1,100,000 | 993,828 | |
Allegheny County Port Authority, | |||||
Special Transportation Revenue | 5.25 | 3/1/22 | 1,305,000 | 1,483,211 | |
Allegheny County Sanitary | |||||
Authority, Sewer Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 12/1/19 | 1,500,000 | 1,707,765 | |
Bethel Park School District, | |||||
GO | 5.00 | 8/1/29 | 2,000,000 | 2,251,840 | |
Butler County Industrial | |||||
Development Authority, Health | |||||
Care Facilities Revenue (Saint | |||||
John Lutheran Care Center | |||||
Project) (Collateralized; GNMA) | 5.80 | 4/20/29 | 5,310,000 | 5,415,722 | |
Butler County Industrial | |||||
Development Authority, MFHR | |||||
(Greenview Gardens Apartments) | 6.00 | 7/1/23 | 475,000 | 474,952 | |
Butler County Industrial | |||||
Development Authority, MFHR | |||||
(Greenview Gardens Apartments) | 6.25 | 7/1/33 | 880,000 | 843,682 | |
Centre County Hospital Authority, | |||||
HR (Mount Nittany Medical | |||||
Center Project) (Insured; Assured | |||||
Guaranty Municipal Corp.) | 6.13 | 11/15/39 | 2,000,000 | 2,070,980 | |
Charleroi Area School Authority, | |||||
School Revenue (Insured; | |||||
National Public Finance | |||||
Guarantee Corp.) | 0.00 | 10/1/20 | 2,000,000 | a | 1,411,340 |
The Fund | 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 | 1,425,696 |
Chester County School Authority, | ||||
School LR (Chester County | ||||
Intermediate Unit Project) | ||||
(Insured; AMBAC) | 5.00 | 4/1/25 | 2,195,000 | 2,287,102 |
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 | 892,638 |
Dauphin County General | ||||
Authority, Office and | ||||
Parking Revenue (Riverfront | ||||
Office Center Project) | 6.00 | 1/1/25 | 2,910,000 | 2,335,799 |
Delaware County Industrial | ||||
Development Authority, Water | ||||
Facilities Revenue (Aqua | ||||
Pennsylvania, Inc. Project) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.00 | 11/1/37 | 3,165,000 | 3,203,296 |
Delaware River Port Authority, | ||||
Revenue | 5.00 | 1/1/30 | 1,500,000 | 1,576,335 |
Delaware River Port Authority, | ||||
Revenue | 5.00 | 1/1/35 | 1,500,000 | 1,559,535 |
Donegal School District, | ||||
GO (Limited Tax Obligations) | 5.00 | 6/1/23 | 2,080,000 | 2,323,734 |
Erie Higher Education Building | ||||
Authority, College Revenue | ||||
(Mercyhurst College Project) | 5.35 | 3/15/28 | 1,000,000 | 1,030,930 |
Harrisburg Authority, | ||||
University Revenue (The | ||||
Harrisburg University of Science | ||||
and Technology Project) | 6.00 | 9/1/36 | 1,000,000 | 886,110 |
8
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Pennsylvania (continued) | |||||
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 11/1/16 | 1,000,000 | a | 755,530 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 5/1/18 | 2,750,000 | a | 1,805,512 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 11/1/18 | 2,750,000 | a | 1,743,527 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 11/1/19 | 2,750,000 | a | 1,625,690 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 5/1/20 | 2,750,000 | a | 1,567,335 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 11/1/20 | 2,500,000 | a | 1,371,900 |
McKeesport Area School District, | |||||
GO (Insured; AMBAC) | 0.00 | 10/1/21 | 2,915,000 | a | 2,182,023 |
McKeesport Municipal Authority, | |||||
Sewer Revenue (Insured; Assured | |||||
Guaranty Municipal Corp.) | 5.00 | 12/15/20 | 1,230,000 | 1,393,615 | |
Monroe County Hospital Authority, | |||||
HR (Pocono Medical Center) | |||||
(Insured; Radian) | 5.50 | 1/1/12 | 385,000 | 386,871 | |
Monroe County Hospital Authority, | |||||
HR (Pocono Medical Center) | |||||
(Insured; Radian) | 5.50 | 1/1/22 | 1,455,000 | 1,458,259 | |
Monroeville Municipal Authority, | |||||
Sanitary Sewer Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 12/1/15 | 1,035,000 | 1,061,506 |
The Fund | 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 | 51,130 | |
Neshaminy School District, | |||||
GO (Insured; National Public | |||||
Finance Guarantee Corp.) | 5.00 | 4/15/16 | 1,250,000 | 1,355,363 | |
Norristown, | |||||
GO (Insured; Radian) | 0.00 | 12/15/11 | 1,465,000 | a | 1,462,700 |
Norristown, | |||||
GO (Insured; Radian) | 0.00 | 12/15/13 | 735,000 | a | 698,243 |
North Allegheny School District, | |||||
GO (Insured; National Public | |||||
Finance Guarantee Corp.) | 5.05 | 11/1/21 | 1,455,000 | 1,455,000 | |
Northampton County Industrial | |||||
Development Authority, | |||||
Mortgage Revenue (Moravian | |||||
Hall Square Project) | |||||
(Insured; Radian) | 5.00 | 7/1/17 | 1,890,000 | 1,842,580 | |
Pennsylvania, | |||||
GO (Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.38 | 7/1/18 | 1,525,000 | 1,859,051 | |
Pennsylvania Economic Development | |||||
Financing Authority, Sewage | |||||
Sludge Disposal Revenue | |||||
(Philadelphia Biosolids | |||||
Facility Project) | 6.25 | 1/1/32 | 1,000,000 | 1,052,080 | |
Pennsylvania Finance Authority, | |||||
Guaranteed Revenue (Penn Hills | |||||
Project) (Insured; National | |||||
Public Finance Guarantee Corp.) | 5.25 | 12/1/13 | 1,105,000 | 1,107,995 | |
Pennsylvania Finance Authority, | |||||
Guaranteed Revenue (Penn Hills | |||||
Project) (Insured; National | |||||
Public Finance Guarantee Corp.) | 0.00 | 12/1/22 | 1,200,000 | a | 705,684 |
Pennsylvania Finance Authority, | |||||
Guaranteed Revenue (Penn Hills | |||||
Project) (Insured; National | |||||
Public Finance Guarantee Corp.) | 0.00 | 12/1/23 | 3,790,000 | a | 2,087,039 |
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 | 12/1/24 | 3,790,000 | a | 1,953,556 |
Pennsylvania Finance Authority, | |||||
Guaranteed Revenue (Penn Hills | |||||
Project) (Insured; National | |||||
Public Finance Guarantee Corp.) | 0.00 | 12/1/25 | 3,790,000 | a | 1,833,526 |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(Carnegie Mellon University) | 5.00 | 8/1/21 | 3,000,000 | 3,428,730 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(Edinboro University | |||||
Foundation Student | |||||
Housing Project at Edinboro | |||||
University of Pennsylvania) | 5.88 | 7/1/38 | 2,000,000 | 1,982,520 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(The Trustees of the | |||||
University of Pennsylvania) | 5.00 | 9/1/31 | 1,300,000 | 1,416,571 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(Thomas Jefferson University) | 5.00 | 3/1/40 | 1,000,000 | 1,041,780 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(University of Pennsylvania | |||||
Health System) | 5.25 | 8/15/25 | 1,000,000 | 1,085,590 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(University of Pennsylvania | |||||
Health System) | 6.00 | 8/15/26 | 2,500,000 | 2,814,300 | |
Pennsylvania Housing Finance | |||||
Agency, Capital Fund | |||||
Securitization Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 12/1/25 | 2,285,000 | 2,377,040 | |
Pennsylvania Housing Finance | |||||
Agency, SFMR | 5.10 | 10/1/20 | 1,380,000 | 1,388,970 |
The Fund | 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 | 4.70 | 10/1/25 | 805,000 | 805,298 |
Pennsylvania Housing Finance | ||||
Agency, SFMR | 4.60 | 10/1/27 | 5,000,000 | 4,892,100 |
Pennsylvania Housing Finance | ||||
Agency, SFMR | 4.88 | 10/1/31 | 3,000,000 | 2,992,290 |
Pennsylvania Housing Finance | ||||
Agency, SFMR | 4.70 | 10/1/37 | 1,875,000 | 1,854,694 |
Pennsylvania Industrial | ||||
Development Authority, EDR | 5.50 | 7/1/23 | 1,000,000 | 1,122,690 |
Pennsylvania State University, | ||||
Revenue | 5.00 | 3/1/35 | 2,000,000 | 2,151,460 |
Pennsylvania Turnpike Commission, | ||||
Oil Franchise Tax Senior | ||||
Revenue (Insured; AMBAC) | 5.25 | 12/1/18 | 4,125,000 | 4,399,354 |
Pennsylvania Turnpike Commission, | ||||
Turnpike Revenue | ||||
(Insured; AMBAC) | 5.00 | 12/1/22 | 1,815,000 | 1,962,215 |
Pennsylvania Turnpike Commission, | ||||
Turnpike Subordinate Revenue | 5.25 | 6/1/39 | 1,030,000 | 1,056,162 |
Pennsylvania Turnpike Commission, | ||||
Turnpike Subordinate Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 6.00 | 6/1/28 | 3,000,000 | 3,393,240 |
Philadelphia, | ||||
Airport Revenue | 5.25 | 6/15/25 | 2,500,000 | 2,544,075 |
Philadelphia, | ||||
Airport Revenue (Insured; | ||||
National Public Finance | ||||
Guarantee Corp.) | 5.00 | 6/15/25 | 510,000 | 510,056 |
Philadelphia, | ||||
Gas Works Revenue (Insured; | ||||
Assured Guaranty Municipal Corp.) | 5.25 | 8/1/22 | 2,000,000 | 2,058,560 |
Philadelphia, | ||||
GO (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.25 | 12/15/23 | 1,500,000 | 1,630,545 |
Philadelphia, | ||||
GO (Insured; XLCA) | 5.25 | 2/15/14 | 2,000,000 | 2,084,300 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Pennsylvania (continued) | ||||
Philadelphia, | ||||
Water and Wastewater Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.60 | 8/1/18 | 800,000 | 955,976 |
Philadelphia Authority for | ||||
Industrial Development, | ||||
Revenue (Independence | ||||
Charter School Project) | 5.50 | 9/15/37 | 1,700,000 | 1,411,017 |
Philadelphia Authority for | ||||
Industrial Development, | ||||
Revenue (Russell Byers | ||||
Charter School Project) | 5.15 | 5/1/27 | 1,230,000 | 1,034,910 |
Philadelphia Authority for | ||||
Industrial Development, | ||||
Revenue (Russell Byers | ||||
Charter School Project) | 5.25 | 5/1/37 | 1,715,000 | 1,374,144 |
Philadelphia Hospitals and | ||||
Higher Education | ||||
Facilities Authority, HR | ||||
(The Children’s Hospital of | ||||
Philadelphia Project) | 5.00 | 7/1/25 | 1,800,000 | 1,954,314 |
Philadelphia Housing Authority, | ||||
Capital Fund Program Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 12/1/21 | 1,685,000 | 1,731,675 |
Philadelphia Municipal Authority, | ||||
LR (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.25 | 11/15/15 | 2,115,000 | 2,241,604 |
Philadelphia Redevelopment | ||||
Authority, Revenue | ||||
(Philadelphia Neighborhood | ||||
Transformation Initiative) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.50 | 4/15/18 | 3,600,000 | 3,659,940 |
Philadelphia School District, | ||||
GO | 5.25 | 9/1/23 | 1,000,000 | 1,094,690 |
Philadelphia School District, | ||||
GO | 6.00 | 9/1/38 | 1,000,000 | 1,088,250 |
The Fund | 13 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Pennsylvania (continued) | |||||
Pittsburgh Urban Redevelopment | |||||
Authority, MFHR (West | |||||
Park Court Project) | |||||
(Collateralized; GNMA) | 4.90 | 11/20/47 | 1,270,000 | 1,234,796 | |
Sayre Health Care Facilities | |||||
Authority, Revenue (Guthrie | |||||
Health Issue) (Prerefunded) | 5.75 | 12/1/11 | 1,165,000 | b | 1,182,032 |
Sayre Health Care Facilities | |||||
Authority, Revenue (Guthrie | |||||
Health Issue) (Prerefunded) | 6.25 | 12/1/11 | 250,000 | b | 253,760 |
Schuylkill County Industrial | |||||
Development Authority, Revenue | |||||
(Charity Obligation Group) | 5.00 | 11/1/14 | 1,495,000 | 1,499,590 | |
State Public School Building | |||||
Authority, Community College | |||||
Revenue (Community College of | |||||
Philadelphia Project) | 6.00 | 6/15/28 | 3,000,000 | 3,297,330 | |
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 | 1,144,707 | |
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 | 1,201,220 | |
State Public School Building | |||||
Authority, School Revenue | |||||
(School District of Haverford | |||||
Township Project) (Insured; XLCA) | 5.25 | 3/15/25 | 3,360,000 | 3,578,803 | |
State Public School Building | |||||
Authority, School Revenue | |||||
(York School District Project) | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 5/1/18 | 545,000 | 570,359 | |
Susquehanna Area Regional | |||||
Airport Authority, | |||||
Airport System Revenue | 6.50 | 1/1/38 | 1,625,000 | 1,576,575 |
14
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Pennsylvania (continued) | ||||
University Area Joint Authority, | ||||
Sewer Revenue (Insured; | ||||
National Public Finance | ||||
Guarantee Corp.) | 5.00 | 11/1/18 | 1,010,000 | 1,013,656 |
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 | 2,199,605 |
West Mifflin Area School District, | ||||
GO (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 10/1/22 | 710,000 | 783,556 |
West Shore Area Authority, | ||||
HR (Holy Spirit Hospital of | ||||
the Sisters of Christian | ||||
Charity Project) | 6.00 | 1/1/26 | 2,000,000 | 2,104,160 |
Westmoreland County Industrial | ||||
Development Authority, Health | ||||
System Revenue (Excela | ||||
Health Project) | 5.00 | 7/1/25 | 2,390,000 | 2,423,412 |
Wilson Area School District, | ||||
GO (Insured; National Public | ||||
Finance Guarantee Corp.) | 5.13 | 3/15/16 | 1,300,000 | 1,350,466 |
U.S. Related—11.7% | ||||
Guam Power Authority, | ||||
Revenue | 5.50 | 10/1/30 | 1,000,000 | 989,640 |
Guam Waterworks Authority, | ||||
Water and Wastewater | ||||
System Revenue | 5.50 | 7/1/16 | 320,000 | 325,491 |
Guam Waterworks Authority, | ||||
Water and Wastewater | ||||
System Revenue | 6.00 | 7/1/25 | 1,000,000 | 1,005,440 |
Puerto Rico Aqueduct and Sewer | ||||
Authority, Senior Lien Revenue | 6.00 | 7/1/44 | 2,500,000 | 2,593,450 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | 5.25 | 7/1/23 | 1,000,000 | 1,016,040 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | 6.00 | 7/1/28 | 1,500,000 | 1,610,775 |
The Fund | 15 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
U.S. Related (continued) | |||||
Puerto Rico Commonwealth, | |||||
Public Improvement GO | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 6.00 | 7/1/27 | 1,000,000 | 1,055,150 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.25 | 7/1/27 | 2,000,000 | 2,068,080 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.50 | 7/1/38 | 1,185,000 | 1,211,082 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.25 | 7/1/40 | 1,500,000 | 1,514,970 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 7/1/30 | 1,170,000 | 1,202,994 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/39 | 1,690,000 | 1,840,934 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/42 | 1,500,000 | 1,621,260 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.50 | 8/1/44 | 2,500,000 | 2,822,150 | |
Virgin Islands Public Finance | |||||
Authority, Revenue (Virgin Islands | |||||
Matching Fund Loan Note) | 5.00 | 10/1/25 | 1,000,000 | 1,016,140 | |
Total Investments (cost $178,428,991) | 98.2 | % | 183,580,824 | ||
Cash and Receivables (Net) | 1.8 | % | 3,365,747 | ||
Net Assets | 100.0 | % | 186,946,571 |
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 |
The Fund | 17 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Combined Ratings (Unaudited) | |||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† |
AAA | Aaa | AAA | 16.8 | ||
AA | Aa | AA | 42.0 | ||
A | A | A | 16.6 | ||
BBB | Baa | BBB | 19.2 | ||
BB | Ba | BB | 1.5 | ||
Not Ratedc | Not Ratedc | Not Ratedc | 3.9 | ||
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. |
18
STATEMENT OF ASSETS AND LIABILITIES |
October 31, 2011 (Unaudited) |
Cost | Value | ||||
Assets ($): | |||||
Investments in securities—See Statement of Investments | 178,428,991 | 183,580,824 | |||
Cash | 1,395,577 | ||||
Interest receivable | 2,377,185 | ||||
Receivable for shares of Beneficial Interest subscribed | 4,298 | ||||
Prepaid expenses | 12,415 | ||||
187,370,299 | |||||
Liabilities ($): | |||||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 149,967 | ||||
Payable for shares of Beneficial Interest redeemed | 218,813 | ||||
Accrued expenses | 54,948 | ||||
423,728 | |||||
Net Assets ($) | 186,946,571 | ||||
Composition of Net Assets ($): | |||||
Paid-in capital | 182,976,770 | ||||
Accumulated undistributed investment income—net | 17,648 | ||||
Accumulated net realized gain (loss) on investments | (1,199,680 | ) | |||
Accumulated net unrealized appreciation | |||||
(depreciation) on investments | 5,151,833 | ||||
Net Assets ($) | 186,946,571 | ||||
Net Asset Value Per Share | |||||
Class A | Class B | Class C | Class Z | ||
Net Assets ($) | 126,848,893 | 229,448 | 5,008,357 | 54,859,873 | |
Shares Outstanding | 7,915,142 | 14,332 | 312,375 | 3,423,666 | |
Net Asset Value Per Share ($) | 16.03 | 16.01 | 16.03 | 16.02 | |
See notes to financial statements. |
The Fund | 19 |
STATEMENT OF OPERATIONS |
Six Months Ended October 31, 2011 (Unaudited) |
Investment Income ($): | ||
Interest Income | 4,701,154 | |
Expenses: | ||
Management fee—Note 3(a) | 517,755 | |
Shareholder servicing costs—Note 3(c) | 246,025 | |
Professional fees | 25,602 | |
Distribution fees—Note 3(b) | 19,826 | |
Registration fees | 12,925 | |
Custodian fees—Note 3(c) | 10,334 | |
Prospectus and shareholders’ reports | 5,470 | |
Trustees’ fees and expenses—Note 3(d) | 2,668 | |
Loan commitment fees—Note 2 | 2,069 | |
Miscellaneous | 17,110 | |
Total Expenses | 859,784 | |
Less—reduction in fees due to earnings credits—Note 3(c) | (49 | ) |
Net Expenses | 859,735 | |
Investment Income—Net | 3,841,419 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | 223,046 | |
Net unrealized appreciation (depreciation) on investments | 5,840,031 | |
Net Realized and Unrealized Gain (Loss) on Investments | 6,063,077 | |
Net Increase in Net Assets Resulting from Operations | 9,904,496 | |
See notes to financial statements. |
20
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2011 | Year Ended | |||
(Unaudited) | April 30, 2011 | |||
Operations ($): | ||||
Investment income—net | 3,841,419 | 8,055,270 | ||
Net realized gain (loss) on investments | 223,046 | 1,040,561 | ||
Net unrealized appreciation | ||||
(depreciation) on investments | 5,840,031 | (6,692,501 | ) | |
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 9,904,496 | 2,403,330 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (2,566,441 | ) | (5,376,793 | ) |
Class B Shares | (3,987 | ) | (24,006 | ) |
Class C Shares | (83,863 | ) | (190,171 | ) |
Class Z Shares | (1,169,480 | ) | (2,413,396 | ) |
Total Dividends | (3,823,771 | ) | (8,004,366 | ) |
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 2,615,807 | 4,994,963 | ||
Class B Shares | — | — | ||
Class C Shares | 187,092 | 891,982 | ||
Class Z Shares | 1,074,413 | 2,811,464 | ||
Dividends reinvested: | ||||
Class A Shares | 1,977,589 | 4,072,109 | ||
Class B Shares | 3,600 | 20,126 | ||
Class C Shares | 66,545 | 147,547 | ||
Class Z Shares | 907,027 | 1,933,123 | ||
Cost of shares redeemed: | ||||
Class A Shares | (6,153,450 | ) | (19,007,750 | ) |
Class B Shares | (111,108 | ) | (817,109 | ) |
Class C Shares | (537,884 | ) | (1,813,555 | ) |
Class Z Shares | (2,910,878 | ) | (6,248,916 | ) |
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | (2,881,247 | ) | (13,016,016 | ) |
Total Increase (Decrease) in Net Assets | 3,199,478 | (18,617,052 | ) | |
Net Assets ($): | ||||
Beginning of Period | 183,747,093 | 202,364,145 | ||
End of Period | 186,946,571 | 183,747,093 | ||
Undistributed investment income—net | 17,648 | — |
The Fund | 21 |
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||||
October 31, 2011 | Year Ended | |||
(Unaudited) | April 30, 2011 | |||
Capital Share Transactions: | ||||
Class Aa | ||||
Shares sold | 164,355 | 314,640 | ||
Shares issued for dividends reinvested | 124,074 | 256,706 | ||
Shares redeemed | (386,196 | ) | (1,202,914 | ) |
Net Increase (Decrease) in Shares Outstanding | (97,767 | ) | (631,568 | ) |
Class Ba | ||||
Shares issued for dividends reinvested | 226 | 1,261 | ||
Shares redeemed | (7,045 | ) | (51,232 | ) |
Net Increase (Decrease) in Shares Outstanding | (6,819 | ) | (49,971 | ) |
Class C | ||||
Shares sold | 11,741 | 54,981 | ||
Shares issued for dividends reinvested | 4,175 | 9,289 | ||
Shares redeemed | (33,944 | ) | (115,073 | ) |
Net Increase (Decrease) in Shares Outstanding | (18,028 | ) | (50,803 | ) |
Class Z | ||||
Shares sold | 67,742 | 178,294 | ||
Shares issued for dividends reinvested | 56,922 | 121,889 | ||
Shares redeemed | (183,407 | ) | (400,565 | ) |
Net Increase (Decrease) in Shares Outstanding | (58,743 | ) | (100,382 | ) |
a | During the period ended October 31, 2011, 6,810 Class B shares representing $107,355, were automatically |
converted to 6,801 Class A shares and during the period ended April 30, 2011, 33,362 Class B shares | |
representing $535,080 were automatically converted to 33,333 Class A shares. | |
See notes to financial statements. |
22
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 15.51 | 15.96 | 15.28 | 15.67 | 16.19 | 15.88 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .32 | .65 | .66 | .65 | .64 | .62 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .52 | (.46 | ) | .67 | (.40 | ) | (.53 | ) | .31 | |||
Total from Investment Operations | .84 | .19 | 1.33 | .25 | .11 | .93 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.32 | ) | (.64 | ) | (.65 | ) | (.64 | ) | (.63 | ) | (.62 | ) |
Net asset value, end of period | 16.03 | 15.51 | 15.96 | 15.28 | 15.67 | 16.19 | ||||||
Total Return (%)b | 5.46 | c | 1.21 | 8.85 | 1.75 | .71 | 5.95 | |||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .96 | d | .96 | .94 | .96 | .99 | .94 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .96 | d | .96 | .94 | .96 | .98 | .94 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 4.04 | d | 4.09 | 4.17 | 4.27 | 4.02 | 3.87 | |||||
Portfolio Turnover Rate | 5.02 | c | 18.40 | 10.93 | 16.60 | 15.47 | 8.82 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 126,849 | 124,286 | 137,969 | 130,611 | 138,054 | 145,897 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
The Fund | 23 |
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class B Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 15.49 | 15.94 | 15.27 | 15.66 | 16.18 | 15.87 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .27 | .51 | .53 | .54 | .53 | .54 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .50 | (.44 | ) | .68 | (.38 | ) | (.51 | ) | .31 | |||
Total from Investment Operations | .77 | .07 | 1.21 | .16 | .02 | .85 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.25 | ) | (.52 | ) | (.54 | ) | (.55 | ) | (.54 | ) | (.54 | ) |
Net asset value, end of period | 16.01 | 15.49 | 15.94 | 15.27 | 15.66 | 16.18 | ||||||
Total Return (%)b | 4.98 | c | .43 | 8.03 | 1.16 | .15 | 5.41 | |||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.84 | d | 1.60 | 1.56 | 1.55 | 1.56 | 1.45 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.84 | d | 1.60 | 1.56 | 1.54 | 1.55 | 1.45 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.49 | d | 3.29 | 3.49 | 3.67 | 3.47 | 3.35 | |||||
Portfolio Turnover Rate | 5.02 | c | 18.40 | 10.93 | 16.60 | 15.47 | 8.82 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 229 | 328 | 1,134 | 2,474 | 5,375 | 12,886 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
24
Six Months Ended | ||||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 15.52 | 15.97 | 15.29 | 15.68 | 16.20 | 15.89 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .26 | .53 | .54 | .53 | .52 | .50 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .51 | (.45 | ) | .67 | (.39 | ) | (.53 | ) | .31 | |||
Total from Investment Operations | .77 | .08 | 1.21 | .14 | (.01 | ) | .81 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.26 | ) | (.53 | ) | (.53 | ) | (.53 | ) | (.51 | ) | (.50 | ) |
Net asset value, end of period | 16.03 | 15.52 | 15.97 | 15.29 | 15.68 | 16.20 | ||||||
Total Return (%)b | 5.00 | c | .46 | 8.03 | 1.00 | (.04 | ) | 5.18 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.70 | d | 1.70 | 1.69 | 1.70 | 1.73 | 1.67 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.70 | d | 1.70 | 1.69 | 1.69 | 1.72 | 1.67 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.28 | d | 3.34 | 3.41 | 3.54 | 3.27 | 3.13 | |||||
Portfolio Turnover Rate | 5.02 | c | 18.40 | 10.93 | 16.60 | 15.47 | 8.82 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 5,008 | 5,127 | 6,087 | 4,983 | 3,875 | 3,599 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
The Fund | 25 |
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||||||
October 31, 2011 | Year Ended April 30, | |||||||||
Class Z Shares | (Unaudited) | 2011 | 2010 | 2009 | 2008 | a | ||||
Per Share Data ($): | ||||||||||
Net asset value, beginning of period | 15.51 | 15.96 | 15.28 | 15.67 | 15.98 | |||||
Investment Operations: | ||||||||||
Investment income—netb | .34 | .68 | .69 | .68 | .29 | |||||
Net realized and unrealized | ||||||||||
gain (loss) on investments | .51 | (.45 | ) | .68 | (.40 | ) | (.32 | ) | ||
Total from Investment Operations | .85 | .23 | 1.37 | .28 | (.03 | ) | ||||
Distributions: | ||||||||||
Dividends from investment income—net | (.34 | ) | (.68 | ) | (.69 | ) | (.67 | ) | (.28 | ) |
Net asset value, end of period | 16.02 | 15.51 | 15.96 | 15.28 | 15.67 | |||||
Total Return (%) | 5.51 | c | 1.41 | 9.10 | 1.96 | (.18 | )c | |||
Ratios/Supplemental Data (%): | ||||||||||
Ratio of total expenses to average net assets | .74 | d | .75 | .72 | .78 | .78 | d | |||
Ratio of net expenses to average net assets | .74 | d | .75 | .72 | .77 | .77 | d | |||
Ratio of net investment income | ||||||||||
to average net assets | 4.26 | d | 4.29 | 4.40 | 4.48 | 4.37 | d | |||
Portfolio Turnover Rate | 5.02 | c | 18.40 | 10.93 | 16.60 | 15.47 | ||||
Net Assets, end of period ($ x 1,000) | 54,860 | 54,006 | 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. |
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 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 no longer offers Class B shares, except in connection with dividend reinvestment and permitted exchanges of Class B shares and, effective on or about March 13, 2012, all outstanding Class B shares will automatically convert to Class A 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
The Fund | 27 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The 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: 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).
28
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.
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. Valuation techniques used to value the fund’s investments are as follows:
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
The Fund | 29 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
of: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. All preceding securities are categorized within Level 2 of the fair value hierarchy.
When market quotations or official closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Trustees. Certain factors may be considered when fair valuing investments such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers.These securities are either categorized as Level 2 or 3 depending on the relevant inputs used.
For restricted securities where observable inputs are limited, assumptions about market activity and risk are used and are categorized within Level 3 of the fair value hierarchy.
The following is a summary of the inputs used as of October 31, 2011 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 | — | 183,580,824 | — | 183,580,824 |
In May 2011, FASB issued Accounting Standards Update (“ASU”) No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in GAAP and International Financial Reporting Standards (“IFRS”)” (“ASU 2011-04”). ASU 2011-04
30
includes common requirements for measurement of and disclosure about fair value between GAAP and IFRS. ASU 2011-04 will require reporting entities to disclose the following information for fair value measurements categorized within Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs used in the fair value measurement, the valuation processes used by the reporting entity and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, ASU 2011-04 will require reporting entities to make disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements.The new and revised disclosures are effective for interim and annual reporting periods beginning after December 15, 2011. At this time, management is evaluating the implications of ASU 2011-04 and its impact on the financial statements.
(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 more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”).To the
The Fund | 31 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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, 2011, 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, 2011 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $1,476,047 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to April 30, 2011. If not applied, $1,330,059 of the carryover expires in fiscal 2013, $38,932 expires in fiscal 2014 and $107,056 expires in fiscal 2017.
Under the recently enacted Regulated Investment Company Modernization Act of 2010 (the “2010 Act”), the fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 (“post-enactment losses”) for an unlimited period. However, the 2010 Act requires post-enactment losses to be utilized before the utilization of losses incurred in taxable years prior to the effective date of the 2010 Act. As a result of this ordering rule, capital loss carryovers related to taxable years beginning prior to the effective date of the 2010 Act may be more likely to expire unused.
32
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2011 was as follows: tax exempt income $8,004,366. 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, 2011, 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, 2011, the Distributor retained $6,332 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, 2011, Class B and Class C shares were charged $639 and $19,187, respectively, pursuant to the Plan.
The Fund | 33 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(c) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts.The Distributor may make payments to Service Agents (a securities dealer, financial institution or other industry professional) in respect of these services.The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2011, Class A, Class B and Class C shares were charged $159,687, $320 and $6,396, 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, 2011, Class Z shares were charged $10,541 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, 2011, the fund was charged $28,973 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.
34
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, 2011, the fund was charged $3,030 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 $49.
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, 2011, the fund was charged $10,334 pursuant to the custody agreement.
During the period ended October 31, 2011, the fund was charged $2,981 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 $87,213, Rule 12b-1 distribution plan fees $3,282, shareholder services plan fees $28,145, custodian fees $5,197, chief compliance officer fees $4,246 and transfer agency per account fees $21,884.
(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, 2011, amounted to $9,210,455 and $13,158,054, respectively.
At October 31, 2011, accumulated net unrealized appreciation on investments was $5,151,833, consisting of $8,032,734 gross unrealized appreciation and $2,880,901 gross unrealized depreciation.
At October 31, 2011, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
The Fund | 35 |
INFORMATION ABOUT THE RENEWAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the fund’s Board of Trustees held on July 26, 2011 the Board considered the renewal of the fund’s Management Agreement pursuant to which Dreyfus provides the fund with investment advisory and administrative services (the “Agreement”). 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 Dreyfus. In considering the renewal of the Agreement, the Board considered all factors that it believed to be relevant, including those discussed below.The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund.The Board members considered information previously provided to them in presentations from representatives of Dreyfus regarding the nature, extent, and quality of the services provided to funds in the Dreyfus fund complex, and representatives of Dreyfus confirmed that there had been no material changes in this information. Dreyfus provided the number of open accounts in the fund, the fund’s asset size and the allocation of fund assets among distribution channels. Dreyfus also had previously provided information regarding the diverse intermediary relationships and distribution channels of funds in the Dreyfus fund complex and Dreyfus’ corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including the distribution channel(s) for the fund.
The Board members also considered research support available to, and portfolio management capabilities of, the fund’s portfolio management personnel and that Dreyfus 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 Dreyfus’ extensive administrative, accounting, and compliance infrastructures.
36
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board members reviewed reports prepared by Lipper, Inc. (“Lipper”), an independent provider of investment company data, which included information comparing (1) the fund’s performance with the performance of a group of comparable funds (the “Performance Group”) and with a broader group of funds (the “Performance Universe”), all for various periods ended June 30, 2011, and (2) the fund’s actual and contractual management fees and total expenses with those of a group of comparable funds (the “Expense Group”) and with a broader group of funds (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Lipper as of June 30, 2011. Dreyfus previously had furnished the Board with a description of the methodology Lipper used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.
Dreyfus representatives stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations that may be applicable to the fund and comparison funds. The Board members discussed the results of the comparisons and noted that the fund’s total return performance was above the Performance Group medians for the various periods, except for the two- and ten-year periods when the fund’s performance was below the Performance Group medians, and that the fund’s total return performance was above the Performance Universe medians for the various periods, except for the two-year period when it was below the Performance Group median.
The Board also noted that the fund’s yield performance was below Performance Group medians for all of the ten one-year periods ended June 30th and at or above the Performance Universe medians for five of the ten one-year periods. Dreyfus also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s Lipper
The Fund | 37 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
category average. The Board members discussed with Dreyfus representatives the reasons for the underperformance of the fund’s yield compared to the Performance Group medians for the applicable periods, and Dreyfus’ 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 fund yield.
The Board members also reviewed the range of actual and contractual management fees and total expenses of the Expense Group and Expense Universe funds and discussed the results of the comparisons.They noted that the fund’s contractual management fee was above the Expense Group median and the fund’s actual management fee and total expense ratio were above the Expense Group and Expense Universe medians.
Representatives of Dreyfus reviewed with the Board members the management or investment advisory fees (1) paid by funds advised or administered by Dreyfus that are in the same Lipper category as the fund and (2) paid to Dreyfus or the Dreyfus-affiliated primary employer of the fund’s primary portfolio manager for advising any separate accounts and/or other types of client portfolios that are considered to have similar investment strategies and policies as the fund (the “Similar Clients”), and explained the nature of the Similar Clients. They discussed differences in fees paid and the relationship of the fees paid in light of any differences in the services provided and other relevant factors. The Board members considered the relevance of the fee information provided for the Similar Clients to evaluate the appropriateness and reasonableness of the fund’s management fee.
Analysis of Profitability and Economies of Scale. Dreyfus’ representatives reviewed the expenses allocated and profit received by Dreyfus and the resulting profitability percentage for managing the fund, and the method used to determine the expenses and profit. The Board
38
concluded that the profitability results were not unreasonable, given the services rendered and service levels provided by Dreyfus. The Board previously had been provided with information prepared by an independent consulting firm regarding Dreyfus’ approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus fund complex. The consulting firm also had analyzed where any economies of scale might emerge in connection with the management of a fund.
The Board’s counsel stated that the Board members should consider the profitability analysis (1) as part of their evaluation of whether the fees under the Agreement bear a reasonable relationship to the mix of services provided by Dreyfus, including the nature, extent and quality of such services, and (2) 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. Dreyfus representatives noted that a discussion of economies of scale is predicated on a fund having achieved a substantial size with increasing assets and that, if a fund’s assets had been stable or decreasing, the possibility that Dreyfus may have realized any economies of scale would be less. They also noted that, as a result of shared and allocated costs among funds in the Dreyfus fund complex, the extent of economies of scale could depend substantially on the level of assets in the complex as a whole, so that increases and decreases in complex-wide assets can affect potential economies of scale in a manner that is disproportionate to, or even in the opposite direction from, changes in the fund’s asset level. The Board members also considered potential benefits to Dreyfus from acting as investment adviser and noted that there were no soft dollar arrangements in effect for trading the fund’s investments.
The Fund | 39 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to the renewal of the Agreement. Based on the discussions and considerations as described above, the Board concluded and determined as follows.
The Board concluded that the nature, extent and quality of the services provided by Dreyfus are adequate and appropriate.
The Board generally was satisfied with the fund’s overall performance, in light of the considerations described above.
The Board concluded that the fee paid to Dreyfus was reasonable in light of the considerations described above.
The Board determined that the economies of scale which may accrue to Dreyfus and its affiliates in connection with the management of the fund had been adequately considered by Dreyfus in connection with the fee rate charged to the fund pursuant to the Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year. In addition, it should be noted that the Board’s consideration of the contractual fee arrangements for this fund had the benefit of a number of years of reviews of prior or similar agreements during which lengthy discussions took place between the Board members and Dreyfus representatives. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board members’ conclusions may be based, in part, on their consideration of the same or similar arrangements in prior years. The Board members determined that renewal of the Agreement was in the best interests of the fund and its shareholders.
40
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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.
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
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Date: | December 19, 2011 |
| |
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 19, 2011 |
| |
By: /s/ James Windels | |
James Windels, Treasurer
| |
Date: | December 19, 2011 |
|
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)