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: | 10/31/12 |
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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 Connecticut Fund
The Fund
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, 2012, through October 31, 2012. 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.
The municipal bond market generally advanced during the reporting period in response to positive supply-and-demand dynamics, improving credit conditions, and investors’ changing expectations of global and domestic economic conditions.While monthly variations in economic data have been pronounced, the longer-term pace of U.S. economic growth has been relatively consistent at about half the average rate achieved in prior recoveries. However, a number of headwinds remain, including the potential effects of the European financial crisis and slower growing emerging markets on U.S. exports.
In light of current uncertainties surrounding fiscal policy and tax reforms, the U.S. economic recovery appears likely to persist at subpar levels over the first half of 2013. However, the nation’s easy monetary policy and a successful resolution of the fiscal debate may prompt corporate decision-makers to increase capital spending, which could have positive implications for the U.S. economy over the second half of the new year. As always, we encourage you to stay in touch with your financial advisor as new developments unfold.
Thank you for your continued confidence and support.
![](https://capedge.com/proxy/N-CSRS/0000806176-12-000042/smbctncsrx4x1.jpg)
Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
November 15, 2012
2
DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2012, through October 31, 2012, as provided by Daniel Barton and Jeffrey Burger, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended October 31, 2012, Class A shares of Dreyfus Connecticut Fund, a series of Dreyfus State Municipal Bond Funds, produced a total return of 3.23%, Class C shares returned 2.84%, Class I shares returned 3.45% and Class Z shares returned 3.42%.1 In comparison, the Barclays 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 3.34% for the same period.2
Falling long-term interest rates and favorable supply-and-demand dynamics continued to support municipal bond prices during the reporting period.The fund’s Class A and Class C shares produced lower returns than its benchmark, as Connecticut bonds generally lagged national market averages. In addition, overweighted exposure to Puerto Rico bonds undermined the fund’s relative performance.
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. For additional yield, the fund may invest up to 30% of its assets in municipal bonds rated below investment grade or the unrated equivalent as determined by Dreyfus. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
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,
The Fund | 3 |
DISCUSSION OF FUND PERFORMANCE (continued)
general obligation and revenue sectors, based on their apparent relative values.The fund generally will invest simultaneously in several of these sectors.
Supply-and-Demand Dynamics Buoyed Municipal Bonds
The reporting period began in the wake of several months of U.S. economic recovery, in which investors responded positively to employment gains and increased manufacturing activity. However, the sustainability of the recovery was called into question in the spring. Most notably, the U.S. labor market’s rebound slowed as the public sector shed jobs and the private sector’s employment gains proved more anemic than expected.
These headwinds sparked a renewed flight to perceived safe havens, such as U.S. Treasury securities. However, municipal bonds generally remained strong across the credit-quality range throughout the reporting period, in part due to robust demand as investors sought competitive levels of after-tax income in a low interest-rate environment. Municipal bond prices also responded positively to falling long-term interest rates stemming from quantitative easing and other stimulative measures by the Federal Reserve Board. Meanwhile, new issuance volumes remained relatively low when political pressure led to less borrowing for capital projects and municipalities primarily issued new bonds to refinance older debt, resulting in a net decrease in the national supply of tax-exempt securities. On a more negative note, Connecticut’s economic recovery has continued to trail those of most other states, undermining credit conditions within the state.
In this environment, lower-rated and longer maturity municipal bonds led the market higher, while highly rated and shorter-term securities generally produced lower returns than market averages.
Connecticut Bonds Lagged National Market Averages
The fund’s relative performance was hampered by the underperformance of Connecticut municipal securities compared to national averages, which was primarily due to the state’s struggles with a heavy debt load, unfunded pension liabilities and lower-than-projected tax revenues. In addition, the fund was hurt by overweighted exposure to municipal bonds from Puerto Rico, which are tax-exempt for Connecticut residents. Like Connecticut, Puerto Rico has contended with a weak local economy and unfunded pension liabilities.
4
The fund achieved better relative results through an emphasis on higher yielding, revenue-backed municipal bonds, particularly those with credit ratings toward the lower end of the investment-grade range. The fund received especially robust contributions from municipal bonds backed by revenues from hospitals, educational institutions, and industrial development projects. Moreover, the fund benefited from a relatively long average duration, which boosted its participation in market rallies when long-term interest rates declined.
Adjusting to Changing Market Conditions
We have been encouraged by recently improved data, but the U.S. economy remains vulnerable to uncertainty regarding future fiscal policies.We expect market volatility to increase at times amid potentially contentious negotiations to avert automatic federal tax hikes and spending cuts scheduled for early 2013.Therefore, while we have continued to favor income-oriented municipal bonds over their lower yielding counterparts, we have shortened the fund’s average duration toward a market-neutral position, and we have reduced its exposure to Puerto Rico bonds. In addition, we have continued to monitor the market for more attractive relative values among Connecticut municipal bonds.
November 15, 2012
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 charge imposed on | |
redemptions in the case of 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 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, 2012 to October 31, 2012. 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, 2012 | ||||||||
Class A | Class C | Class I | Class Z | |||||
Expenses paid per $1,000† | $ 4.61 | $ 8.54 | $ 3.28 | $ 3.59 | ||||
Ending value (after expenses) | $ 1,032.30 | $ 1,028.40 | $ 1,034.50 | $ 1,034.20 |
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, 2012 | ||||||||
Class A | Class C | Class I | Class Z | |||||
Expenses paid per $1,000† | $ 4.58 | $ 8.49 | $ 3.26 | $ 3.57 | ||||
Ending value (after expenses) | $ 1,020.67 | $ 1,016.79 | $ 1,021.98 | $ 1,021.68 |
† Expenses are equal to the fund’s annualized expense ratio of .90% for Class A, 1.67% for Class C, .64% for Class I and .70% for Class Z, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
October 31, 2012 (Unaudited) |
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments—97.4% | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut—78.4% | ||||
Connecticut, | ||||
GO | 5.00 | 12/1/16 | 5,000,000 | 5,860,000 |
Connecticut, | ||||
GO | 5.00 | 6/1/22 | 5,000,000 | 6,329,050 |
Connecticut, | ||||
GO | 5.00 | 9/15/22 | 4,500,000 | 5,714,955 |
Connecticut, | ||||
GO | 5.00 | 12/15/22 | 1,855,000 | 2,172,428 |
Connecticut, | ||||
GO | 5.00 | 4/15/23 | 5,000,000 | 6,232,250 |
Connecticut, | ||||
GO | 5.00 | 4/15/24 | 2,500,000 | 2,955,975 |
Connecticut, | ||||
GO | 5.00 | 11/1/27 | 5,000,000 | 6,036,300 |
Connecticut, | ||||
GO | 5.00 | 11/1/27 | 2,000,000 | 2,371,820 |
Connecticut, | ||||
GO | 5.00 | 11/1/28 | 3,000,000 | 3,540,300 |
Connecticut, | ||||
GO | 5.00 | 11/1/28 | 5,000,000 | 6,013,000 |
Connecticut, | ||||
GO | 5.00 | 11/1/31 | 5,000,000 | 5,937,550 |
Connecticut, | ||||
Special Tax Obligation | ||||
Revenue (Transportation | ||||
Infrastructure Purposes) | 5.00 | 12/1/21 | 5,000,000 | 6,332,250 |
Connecticut, | ||||
Special Tax Obligation | ||||
Revenue (Transportation | ||||
Infrastructure Purposes) | 5.00 | 11/1/22 | 5,000,000 | 6,098,900 |
Connecticut, | ||||
Special Tax Obligation Revenue | ||||
(Transportation Infrastructure | ||||
Purposes) (Insured; AMBAC) | 5.25 | 7/1/19 | 3,395,000 | 4,257,296 |
Connecticut, | ||||
State Revolving Fund | ||||
General Revenue | 5.00 | 1/1/23 | 1,250,000 | 1,557,337 |
Connecticut Development Authority, | ||||
Airport Facility Revenue | ||||
(Learjet Inc. Project) | 7.95 | 4/1/26 | 2,300,000 | 2,474,156 |
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 | 12/1/18 | 1,800,000 | 1,822,662 |
Connecticut Development Authority, | ||||
First Mortgage Gross Revenue | ||||
(The Elim Park Baptist | ||||
Home, Inc. Project) | 5.25 | 12/1/20 | 1,765,000 | 1,983,825 |
Connecticut Development Authority, | ||||
First Mortgage Gross Revenue | ||||
(The Elim Park Baptist | ||||
Home, Inc. Project) | 5.75 | 12/1/23 | 1,000,000 | 1,020,560 |
Connecticut Development Authority, | ||||
PCR (The Connecticut Light and | ||||
Power Company Project) | 4.38 | 9/1/28 | 3,000,000 | 3,270,480 |
Connecticut Development Authority, | ||||
Solid Waste Disposal Facility Revenue | ||||
(PSEG Power LLC Project) | 5.75 | 11/1/37 | 9,250,000 | 9,259,805 |
Connecticut Development Authority, | ||||
Water Facilities Revenue | ||||
(Aquarion Water Company of | ||||
Connecticut Project) | 5.50 | 4/1/21 | 4,500,000 | 5,272,740 |
Connecticut Development Authority, | ||||
Water Facilities Revenue (Aquarion | ||||
Water Company of Connecticut | ||||
Project) (Insured; XLCA) | 5.10 | 9/1/37 | 6,550,000 | 6,938,742 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Ascension Health Senior | ||||
Credit Group) | 5.00 | 11/15/40 | 12,000,000 | 13,260,000 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Bridgeport Hospital Issue) | 5.00 | 7/1/25 | 3,625,000 | 4,171,831 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Fairfield University Issue) | 5.00 | 7/1/25 | 1,340,000 | 1,492,693 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Fairfield University Issue) | 5.00 | 7/1/27 | 1,420,000 | 1,568,092 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut (continued) | ||||
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Fairfield University Issue) | 5.00 | 7/1/34 | 4,000,000 | 4,362,680 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Fairfield University Issue) | 5.00 | 7/1/35 | 2,000,000 | 2,216,420 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Fairfield University Issue) | 5.00 | 7/1/40 | 2,500,000 | 2,763,400 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Greenwich Academy Issue) | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.25 | 3/1/32 | 10,880,000 | 15,664,045 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Hartford HealthCare Issue) | 5.00 | 7/1/32 | 1,000,000 | 1,111,650 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Hartford HealthCare Issue) | 5.00 | 7/1/41 | 2,000,000 | 2,167,260 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Hospital for Special Care | ||||
Issue) (Insured; Radian) | 5.25 | 7/1/32 | 3,500,000 | 3,627,785 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Lawrence and Memorial | ||||
Hospital Issue) | 5.00 | 7/1/31 | 1,000,000 | 1,108,490 |
Connecticut Health and | ||||
Educational Facilities | ||||
Authority, Revenue | ||||
(Loomis Chaffee School | ||||
Issue) (Insured; AMBAC) | 5.25 | 7/1/28 | 1,760,000 | 2,358,330 |
Connecticut Health and | ||||
Educational Facilities | ||||
Authority, Revenue | ||||
(Quinnipiac University Issue) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.00 | 7/1/19 | 2,000,000 | 2,288,080 |
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 | ||||
(Quinnipiac University Issue) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.75 | 7/1/33 | 5,000,000 | 5,704,400 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Quinnipiac University Issue) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.00 | 7/1/37 | 2,000,000 | 2,169,480 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Sacred Heart University Issue) | 5.38 | 7/1/31 | 1,000,000 | 1,114,930 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Salisbury School Issue) | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 7/1/33 | 5,000,000 | 5,555,600 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Stamford Hospital Issue) | 5.00 | 7/1/30 | 6,750,000 | 7,427,767 |
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 | 2,274,120 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Trinity College Issue) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.00 | 7/1/22 | 1,000,000 | 1,064,050 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(University of Hartford Issue) | ||||
(Insured; Radian) | 5.00 | 7/1/17 | 1,220,000 | 1,341,927 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(University of Hartford Issue) | ||||
(Insured; Radian) | 5.25 | 7/1/36 | 5,070,000 | 5,205,521 |
10
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut (continued) | ||||
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Wesleyan University Issue) | 5.00 | 7/1/35 | 5,000,000 | 5,707,750 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Wesleyan University Issue) | 5.00 | 7/1/39 | 6,500,000 | 7,353,320 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Western Connecticut Health | ||||
Network Issue) | 5.38 | 7/1/41 | 1,000,000 | 1,144,300 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Yale University Issue) | 5.00 | 7/1/40 | 5,000,000 | 5,821,550 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Yale-New Haven Hospital Issue) | 5.75 | 7/1/34 | 4,000,000 | 4,786,040 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Yale-New Haven Hospital | ||||
Issue) (Insured; AMBAC) | 5.00 | 7/1/31 | 2,500,000 | 2,701,725 |
Connecticut Health and Educational | ||||
Facilities Authority, State | ||||
Supported Child Care Revenue | 5.00 | 7/1/25 | 1,490,000 | 1,720,801 |
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 | 1,683,744 |
Connecticut Higher Education | ||||
Supplemental Loan Authority, | ||||
Senior Revenue (Connecticut | ||||
Family Education Loan Program) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 4.80 | 11/15/22 | 3,675,000 | 3,875,545 |
Connecticut Housing Finance | ||||
Authority, Revenue (Housing | ||||
Mortgage Finance Program) | 5.00 | 11/15/21 | 1,355,000 | 1,429,823 |
The Fund | 11 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut (continued) | ||||
Connecticut Housing Finance | ||||
Authority, Revenue (Housing | ||||
Mortgage Finance Program) | 5.00 | 11/15/35 | 2,430,000 | 2,477,798 |
Connecticut Housing Finance | ||||
Authority, Revenue (Housing | ||||
Mortgage Finance Program) | ||||
(Insured; AMBAC) | 5.10 | 11/15/33 | 2,500,000 | 2,632,425 |
Connecticut Resources Recovery | ||||
Authority, RRR (American | ||||
Ref-Fuel Company of Southeastern | ||||
Connecticut Project) | 5.50 | 11/15/15 | 1,000,000 | 1,012,100 |
Connecticut Resources Recovery | ||||
Authority, RRR (American | ||||
Ref-Fuel Company of Southeastern | ||||
Connecticut Project) | 5.50 | 11/15/15 | 3,250,000 | 3,289,325 |
Connecticut Transmission Municipal | ||||
Electric Energy Cooperative, | ||||
Transmission System Revenue | 5.00 | 1/1/42 | 3,000,000 | 3,417,000 |
Eastern Connecticut Resource | ||||
Recovery Authority, Solid | ||||
Waste Revenue (Wheelabrator | ||||
Lisbon Project) | 5.50 | 1/1/14 | 1,795,000 | 1,801,552 |
Eastern Connecticut Resource | ||||
Recovery Authority, Solid | ||||
Waste Revenue (Wheelabrator | ||||
Lisbon Project) | 5.50 | 1/1/20 | 7,000,000 | 7,026,880 |
Greater New Haven Water Pollution | ||||
Control Authority, Regional | ||||
Wastewater System Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 11/15/37 | 1,800,000 | 1,979,928 |
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 | 5,482,750 |
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 | 2,196,220 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut (continued) | ||||
Hamden, | ||||
GO (Insured; National Public | ||||
Finance Guarantee Corp.) | 5.25 | 8/15/14 | 5,000 | 5,443 |
Hartford, | ||||
GO | 5.00 | 7/15/16 | 1,775,000 | 2,017,128 |
Hartford, | ||||
GO | 5.00 | 4/1/17 | 2,325,000 | 2,682,027 |
Hartford, | ||||
GO (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 4/1/32 | 850,000 | 970,930 |
Meriden, | ||||
GO (Insured; National Public | ||||
Finance Guarantee Corp.) | 5.00 | 8/1/16 | 2,090,000 | 2,435,979 |
New Britain, | ||||
GO (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 4/1/24 | 4,500,000 | 5,783,175 |
New Haven, | ||||
GO | 5.00 | 3/1/17 | 1,425,000 | 1,643,638 |
New Haven, | ||||
GO (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 3/1/29 | 1,000,000 | 1,123,430 |
Norwalk, | ||||
GO | 5.00 | 7/15/24 | 1,000,000 | 1,261,210 |
South Central Connecticut Regional | ||||
Water Authority, Water | ||||
System Revenue | 5.00 | 8/1/31 | 3,940,000 | 4,640,177 |
South Central Connecticut Regional | ||||
Water Authority, Water | ||||
System Revenue | 5.00 | 8/1/32 | 1,370,000 | 1,628,779 |
South Central Connecticut Regional | ||||
Water Authority, Water | ||||
System Revenue | 5.00 | 8/1/33 | 4,000,000 | 4,725,560 |
South Central Connecticut Regional | ||||
Water Authority, Water System | ||||
Revenue (Insured; National | ||||
Public Finance Guarantee Corp.) | 5.25 | 8/1/24 | 2,000,000 | 2,633,860 |
South Central Connecticut Regional | ||||
Water Authority, Water System | ||||
Revenue (Insured; National | ||||
Public Finance Guarantee Corp.) | 5.25 | 8/1/31 | 2,000,000 | 2,264,500 |
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 | 5,653,752 | |
University of Connecticut, | |||||
GO | 5.00 | 2/15/25 | 1,000,000 | 1,196,600 | |
University of Connecticut, | |||||
GO | 5.00 | 2/15/27 | 1,000,000 | 1,197,000 | |
University of Connecticut | |||||
GO | 5.00 | 2/15/28 | 1,000,000 | 1,197,000 | |
University of Connecticut, | |||||
GO (Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 2/15/24 | 1,225,000 | 1,345,834 | |
U.S. Related—19.0% | |||||
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 5.50 | 5/15/39 | 3,000,000 | 3,003,180 | |
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 0.00 | 5/15/50 | 12,000,000 | a | 921,960 |
Guam, | |||||
LOR (Section 30) | 5.63 | 12/1/29 | 1,000,000 | 1,123,920 | |
Guam Economic Development | |||||
Authority, Tobacco Settlement | |||||
Asset-Backed Bonds | 5.45 | 5/15/16 | 1,445,000 | 1,685,043 | |
Guam Power Authority, | |||||
Revenue | 5.50 | 10/1/30 | 1,750,000 | 1,939,088 | |
Guam Power Authority, | |||||
Revenue | 5.00 | 10/1/34 | 2,000,000 | 2,169,660 | |
Guam Waterworks Authority, | |||||
Water and Wastewater | |||||
System Revenue | 5.50 | 7/1/16 | 750,000 | 774,307 | |
Guam Waterworks Authority, | |||||
Water and Wastewater | |||||
System Revenue | 5.63 | 7/1/40 | 2,000,000 | 2,113,840 | |
Puerto Rico Aqueduct and Sewer | |||||
Authority, Senior Lien Revenue | 5.13 | 7/1/37 | 1,000,000 | 999,930 |
14
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
U.S. Related (continued) | |||||
Puerto Rico Aqueduct and Sewer | |||||
Authority, Senior Lien Revenue | 6.00 | 7/1/38 | 6,000,000 | 6,284,880 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | |||||
(Insured; FGIC) | 5.50 | 7/1/16 | 3,270,000 | 3,579,080 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 7/1/14 | 4,925,000 | 5,183,119 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.25 | 7/1/28 | 5,000,000 | 5,235,600 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.25 | 7/1/40 | 3,000,000 | 3,053,760 | |
Puerto Rico Highways and | |||||
Transportation Authority, | |||||
Highway Revenue (Prerefunded) | 5.50 | 7/1/16 | 5,000,000 | b | 5,922,200 |
Puerto Rico Highways and | |||||
Transportation Authority, | |||||
Highway Revenue (Insured; | |||||
National Public Finance | |||||
Guarantee Corp.) | 5.50 | 7/1/13 | 1,005,000 | 1,040,366 | |
Puerto Rico Highways and | |||||
Transportation Authority, | |||||
Transportation Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 7/1/33 | 7,750,000 | 8,303,815 | |
Puerto Rico Infrastructure | |||||
Financing Authority, Special | |||||
Tax Revenue (Insured; AMBAC) | 0.00 | 7/1/35 | 5,500,000 | a | 1,316,865 |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 5.38 | 8/1/39 | 1,500,000 | 1,597,020 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/39 | 4,000,000 | 4,484,440 |
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 | 3,821,082 | |
Virgin Islands Public Finance | |||||
Authority, Revenue (Virgin | |||||
Islands Gross Receipts Taxes | |||||
Loan Note) | 6.38 | 10/1/19 | 4,095,000 | 4,109,742 | |
Virgin Islands Public Finance | |||||
Authority, Revenue (Virgin | |||||
Islands Matching Fund Loan Note) | 5.00 | 10/1/25 | 5,000,000 | 5,588,950 | |
Total Investments (cost $352,120,362) | 97.4 | % | 379,669,377 | ||
Cash and Receivables (Net) | 2.6 | % | 9,964,174 | ||
Net Assets | 100.0 | % | 389,633,551 |
a Security issued with a zero coupon. Income is recognized through the accretion of discount. |
b 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. |
16
Summary of Abbreviations | |||
ABAG | Association of Bay Area | ACA | American Capital Access |
Governments | |||
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company |
AMBAC | American Municipal Bond | ARRN | Adjustable Rate |
Assurance Corporation | Receipt Notes | ||
BAN | Bond Anticipation Notes | BPA | Bond Purchase Agreement |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | DRIVERS | Derivative Inverse |
Tax-Exempt Receipts | |||
EDR | Economic Development | EIR | Environmental Improvement |
Revenue | Revenue | ||
FGIC | Financial Guaranty | FHA | Federal Housing |
Insurance Company | Administration | ||
FHLB | Federal Home | FHLMC | Federal Home Loan Mortgage |
Loan Bank | Corporation | ||
FNMA | Federal National | GAN | Grant Anticipation Notes |
Mortgage Association | |||
GIC | Guaranteed Investment | GNMA | Government National Mortgage |
Contract | Association | ||
GO | General Obligation | HR | Hospital Revenue |
IDB | Industrial Development Board | IDC | Industrial Development Corporation |
IDR | Industrial Development | LIFERS | Long Inverse Floating |
Revenue | Exempt Receipts | ||
LOC | Letter of Credit | LOR | Limited Obligation Revenue |
LR | Lease Revenue | MERLOTS | Municipal Exempt Receipt |
Liquidity Option Tender | |||
MFHR | Multi-Family Housing Revenue | MFMR | Multi-Family Mortgage Revenue |
PCR | Pollution Control Revenue | PILOT | Payment in Lieu of Taxes |
P-FLOATS | Puttable Floating Option | PUTTERS | Puttable Tax-Exempt Receipts |
Tax-Exempt Receipts | |||
RAC | Revenue Anticipation Certificates | RAN | Revenue Anticipation Notes |
RAW | Revenue Anticipation Warrants | ROCS | Reset Options Certificates |
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 |
SPEARS | Short Puttable Exempt | SWDR | Solid Waste Disposal Revenue |
Adjustable Receipts | |||
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 | 7.0 | ||
AA | Aa | AA | 45.0 | ||
A | A | A | 18.8 | ||
BBB | Baa | BBB | 24.1 | ||
BB | Ba | BB | 2.8 | ||
Not Ratedc | Not Ratedc | Not Ratedc | 2.3 | ||
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, 2012 (Unaudited) |
Cost | Value | |||
Assets ($): | ||||
Investments in securities—See Statement of Investments | 352,120,362 | 379,669,377 | ||
Cash | 4,931,775 | |||
Interest receivable | 5,539,471 | |||
Receivable for shares of Beneficial Interest subscribed | 90,792 | |||
Prepaid expenses | 22,730 | |||
390,254,145 | ||||
Liabilities ($): | ||||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 274,636 | |||
Payable for shares of Beneficial Interest redeemed | 273,277 | |||
Accrued expenses | 72,681 | |||
620,594 | ||||
Net Assets ($) | 389,633,551 | |||
Composition of Net Assets ($): | ||||
Paid-in capital | 361,144,729 | |||
Accumulated undistributed investment income—net | 13,233 | |||
Accumulated net realized gain (loss) on investments | 926,574 | |||
Accumulated net unrealized appreciation | ||||
(depreciation) on investments | 27,549,015 | |||
Net Assets ($) | 389,633,551 | |||
Net Asset Value Per Share | ||||
Class A | Class C | Class I | Class Z | |
Net Assets ($) | 240,904,273 | 16,882,847 | 13,999,550 | 117,846,881 |
Shares Outstanding | 19,391,800 | 1,361,139 | 1,126,899 | 9,488,179 |
Net Asset Value Per Share ($) | 12.42 | 12.40 | 12.42 | 12.42 |
See notes to financial statements. |
The Fund | 19 |
STATEMENT OF OPERATIONS |
Six Months Ended October 31, 2012 (Unaudited) |
Investment Income ($): | ||
Interest Income | 7,959,699 | |
Expenses: | ||
Management fee—Note 3(a) | 1,051,694 | |
Shareholder servicing costs—Note 3(c) | 416,676 | |
Distribution fees—Note 3(b) | 61,121 | |
Professional fees | 45,096 | |
Registration fees | 21,076 | |
Custodian fees—Note 3(c) | 17,681 | |
Prospectus and shareholders’ reports | 11,602 | |
Trustees’ fees and expenses—Note 3(d) | 8,454 | |
Loan commitment fees—Note 2 | 2,211 | |
Miscellaneous | 20,606 | |
Total Expenses | 1,656,217 | |
Less—reduction in fees due to earnings credits—Note 3(c) | (176 | ) |
Net Expenses | 1,656,041 | |
Investment Income—Net | 6,303,658 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | 773,978 | |
Net unrealized appreciation (depreciation) on investments | 5,255,884 | |
Net Realized and Unrealized Gain (Loss) on Investments | 6,029,862 | |
Net Increase in Net Assets Resulting from Operations | 12,333,520 | |
See notes to financial statements. |
20
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2012 | Year Ended | |||
(Unaudited) | April 30, 2012a | |||
Operations ($): | ||||
Investment income—net | 6,303,658 | 13,203,016 | ||
Net realized gain (loss) on investments | 773,978 | 1,113,866 | ||
Net unrealized appreciation | ||||
(depreciation) on investments | 5,255,884 | 25,971,421 | ||
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 12,333,520 | 40,288,303 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (3,846,458 | ) | (8,104,790 | ) |
Class B Shares | — | (3,566 | ) | |
Class C Shares | (203,079 | ) | (473,633 | ) |
Class I Shares | (216,225 | ) | (324,165 | ) |
Class Z Shares | (2,024,663 | ) | (4,260,884 | ) |
Total Dividends | (6,290,425 | ) | (13,167,038 | ) |
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 16,101,439 | 14,060,787 | ||
Class B Shares | — | 473 | ||
Class C Shares | 1,295,252 | 916,850 | ||
Class I Shares | 4,725,817 | 7,663,190 | ||
Class Z Shares | 2,971,878 | 7,463,443 | ||
Dividends reinvested: | ||||
Class A Shares | 2,791,734 | 5,718,231 | ||
Class B Shares | — | 2,149 | ||
Class C Shares | 147,302 | 355,214 | ||
Class I Shares | 109,651 | 120,150 | ||
Class Z Shares | 1,518,932 | 3,252,196 | ||
Cost of shares redeemed: | ||||
Class A Shares | (9,133,372 | ) | (24,394,934 | ) |
Class B Shares | — | (365,169 | ) | |
Class C Shares | (637,933 | ) | (3,017,366 | ) |
Class I Shares | (4,018,861 | ) | (1,672,086 | ) |
Class Z Shares | (3,392,874 | ) | (10,303,509 | ) |
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | 12,478,965 | (200,381 | ) | |
Total Increase (Decrease) in Net Assets | 18,522,060 | 26,920,884 | ||
Net Assets ($): | ||||
Beginning of Period | 371,111,491 | 344,190,607 | ||
End of Period | 389,633,551 | 371,111,491 | ||
Undistributed investment income—net | 13,233 | — |
The Fund | 21 |
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||||
October 31, 2012 | Year Ended | |||
(Unaudited) | April 30, 2012a | |||
Capital Share Transactions: | ||||
Class Ab | ||||
Shares sold | 1,304,793 | 1,168,015 | ||
Shares issued for dividends reinvested | 225,593 | 481,247 | ||
Shares redeemed | (739,522 | ) | (2,059,435 | ) |
Net Increase (Decrease) in Shares Outstanding | 790,864 | (410,173 | ) | |
Class Bb | ||||
Shares sold | — | 41 | ||
Shares issued for dividends reinvested | — | 184 | ||
Shares redeemed | — | (31,199 | ) | |
Net Increase (Decrease) in Shares Outstanding | — | (30,974 | ) | |
Class C | ||||
Shares sold | 104,845 | 76,190 | ||
Shares issued for dividends reinvested | 11,924 | 30,001 | ||
Shares redeemed | (51,990 | ) | (254,511 | ) |
Net Increase (Decrease) in Shares Outstanding | 64,779 | (148,320 | ) | |
Class I | ||||
Shares sold | 381,088 | 634,801 | ||
Shares issued for dividends reinvested | 8,858 | 9,969 | ||
Shares redeemed | (326,352 | ) | (139,098 | ) |
Net Increase (Decrease) in Shares Outstanding | 63,594 | 505,672 | ||
Class Z | ||||
Shares sold | 240,565 | 622,167 | ||
Shares issued for dividends reinvested | 122,794 | 273,823 | ||
Shares redeemed | (275,232 | ) | (871,874 | ) |
Net Increase (Decrease) in Shares Outstanding | 88,127 | 24,116 |
a | Effective as of the close of business on March 13, 2012, the fund no longer offers Class B shares. |
b | During the period ended April 30, 2012, 6,687 Class B shares representing $78,217, were automatically converted |
to 6,685 Class A shares . | |
See notes to financial statements. |
22
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2012 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 12.23 | 11.32 | 11.68 | 11.16 | 11.55 | 11.87 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .20 | .44 | .45 | .47 | .47 | .48 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .19 | .91 | (.36 | ) | .52 | (.39 | ) | (.30 | ) | |||
Total from Investment Operations | .39 | 1.35 | .09 | .99 | .08 | .18 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.20 | ) | (.44 | ) | (.45 | ) | (.47 | ) | (.47 | ) | (.48 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | — | — | — | — | (.02 | ) | |||||
Total Distributions | (.20 | ) | (.44 | ) | (.45 | ) | (.47 | ) | (.47 | ) | (.50 | ) |
Net asset value, end of period | 12.42 | 12.23 | 11.32 | 11.68 | 11.16 | 11.55 | ||||||
Total Return (%)b | 3.23 | c | 12.07 | .75 | 8.98 | .86 | 1.54 | |||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .90 | d | .91 | .91 | .90 | .93 | 1.10 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .90 | d | .91 | .91 | .90 | .93 | 1.09 | |||||
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 | 3.26 | d | 3.69 | 3.90 | 4.07 | 4.29 | 4.12 | |||||
Portfolio Turnover Rate | 8.26 | c | 13.77 | 17.05 | 11.42 | 26.41 | 44.96 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 240,904 | 227,398 | 215,132 | 246,190 | 238,183 | 248,300 |
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, 2012 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 12.21 | 11.30 | 11.66 | 11.14 | 11.53 | 11.85 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .15 | .35 | .36 | .38 | .39 | .39 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .19 | .91 | (.36 | ) | .52 | (.39 | ) | (.30 | ) | |||
Total from Investment Operations | .34 | 1.26 | — | .90 | — | .09 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.15 | ) | (.35 | ) | (.36 | ) | (.38 | ) | (.39 | ) | (.39 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | — | — | — | — | (.02 | ) | |||||
Total Distributions | (.15 | ) | (.35 | ) | (.36 | ) | (.38 | ) | (.39 | ) | (.41 | ) |
Net asset value, end of period | 12.40 | 12.21 | 11.30 | 11.66 | 11.14 | 11.53 | ||||||
Total Return (%)b | 2.84 | c | 11.25 | (.01 | ) | 8.17 | .09 | .76 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.67 | d | 1.67 | 1.67 | 1.66 | 1.69 | 1.86 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.67 | d | 1.67 | 1.66 | 1.66 | 1.68 | 1.85 | |||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | — | — | — | — | .02 | .20 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 2.50 | d | 2.94 | 3.14 | 3.30 | 3.53 | 3.35 | |||||
Portfolio Turnover Rate | 8.26 | c | 13.77 | 17.05 | 11.42 | 26.41 | 44.96 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 16,883 | 15,823 | 16,322 | 18,466 | 15,045 | 12,640 |
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, 2012 | Year Ended April 30, | |||||||||
Class I Shares | (Unaudited) | 2012 | 2011 | 2010 | 2009 | a | ||||
Per Share Data ($): | ||||||||||
Net asset value, beginning of period | 12.22 | 11.31 | 11.68 | 11.16 | 10.13 | |||||
Investment Operations: | ||||||||||
Investment income—netb | .21 | .46 | .48 | .44 | .19 | |||||
Net realized and unrealized | ||||||||||
gain (loss) on investments | .21 | .92 | (.37 | ) | .58 | 1.03 | ||||
Total from Investment Operations | .42 | 1.38 | .11 | 1.02 | 1.22 | |||||
Distributions: | ||||||||||
Dividends from investment income—net | (.22 | ) | (.47 | ) | (.48 | ) | (.50 | ) | (.19 | ) |
Net asset value, end of period | 12.42 | 12.22 | 11.31 | 11.68 | 11.16 | |||||
Total Return (%) | 3.45 | c | 12.38 | .92 | 9.27 | 12.10 | c | |||
Ratios/Supplemental Data (%): | ||||||||||
Ratio of total expenses to average net assets | .64 | d | .65 | .63 | .70 | .64 | d | |||
Ratio of net expenses to average net assets | .64 | d | .65 | .63 | .65 | .63 | d | |||
Ratio of interest and expense related | ||||||||||
to floating rate notes issued | ||||||||||
to average net assets | — | — | — | — | .02 | |||||
Ratio of net investment income | ||||||||||
to average net assets | 3.50 | d | 3.90 | 4.16 | 4.30 | 4.70 | d | |||
Portfolio Turnover Rate | 8.26 | c | 13.77 | 17.05 | 11.42 | 26.41 | ||||
Net Assets, end of period ($ x 1,000) | 14,000 | 12,999 | 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. |
The Fund | 25 |
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||||||||
October 31, 2012 | Year Ended April 30, | |||||||||||
Class Z Shares | (Unaudited) | 2012 | 2011 | 2010 | 2009 | 2008 | a | |||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 12.22 | 11.31 | 11.67 | 11.16 | 11.55 | 11.79 | ||||||
Investment Operations: | ||||||||||||
Investment income—netb | .22 | .46 | .48 | .49 | .49 | .46 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .20 | .91 | (.37 | ) | .51 | (.39 | ) | (.22 | ) | |||
Total from Investment Operations | .42 | 1.37 | .11 | 1.00 | .10 | .24 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.22 | ) | (.46 | ) | (.47 | ) | (.49 | ) | (.49 | ) | (.46 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | — | — | — | — | (.02 | ) | |||||
Total Distributions | (.22 | ) | (.46 | ) | (.47 | ) | (.49 | ) | (.49 | ) | (.48 | ) |
Net asset value, end of period | 12.42 | 12.22 | 11.31 | 11.67 | 11.16 | 11.55 | ||||||
Total Return (%) | 3.42 | c | 12.31 | .97 | 9.11 | 1.03 | 2.04 | c | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .70 | d | .71 | .70 | .70 | .76 | .94 | d | ||||
Ratio of net expenses | ||||||||||||
to average net assets | .70 | d | .71 | .70 | .70 | .76 | .93 | d | ||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | — | — | — | — | .02 | .20 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.46 | d | 3.89 | 4.11 | 4.27 | 4.46 | 4.31 | d | ||||
Portfolio Turnover Rate | 8.26 | c | 13.77 | 17.05 | 11.42 | 26.41 | 44.96 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 117,847 | 114,892 | 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. |
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 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 C, Class I and Class Z. Class A shares are subject to a sales charge imposed at the time of purchase. Class C shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class C shares redeemed within one year of purchase. Class I shares are sold at net asset value per share 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 include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class) and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The Fund | 27 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The 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 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.
28
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 Company’s Board of Trustees (the “Board”). 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 the following: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions.All of the preceding securities are categorized within Level 2 of the fair value hierarchy.
The Fund | 29 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The Service’s procedures are reviewed by Dreyfus under the general supervision of the Board.
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, 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. 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, 2012 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 | — | 379,669,377 | — | 379,669,377 |
At October 31, 2012, there were no transfers between Level 1 and Level 2 of the fair value hierarchy.
(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
30
on investments, is earned from settlement date and recognized on the accrual basis. Securities purchased or sold on a when issued or delayed delivery basis may be settled a month or more after the trade date.
The fund follows an investment policy of investing primarily in municipal obligations of one state. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the fund.
(c) Dividends to shareholders: It is the policy of the fund to declare dividends daily from investment income-net. Such dividends are paid monthly. Dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”).To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(d) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax-exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended October 31, 2012, 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.
Each of the tax years in the three-year period ended April 30, 2012 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The Fund | 31 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2012 was as follows: tax-exempt income $13,167,038. 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 NewYork 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. Effective October 10, 2012, the $225 million unsecured credit facility with Citibank, N.A., was decreased to $210 million. 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, 2012, 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, 2012, the Distributor retained $10,682 from commissions earned on sales of the fund’s Class A shares.
(b) Under the Distribution Plan adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of.75% of the value of the average daily net assets. During the period ended October 31, 2012, Class C shares were charged $61,121, pursuant to the Distribution Plan.
32
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of 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 (securities dealers, financial institutions or other industry professionals) in respect of these services.The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2012, Class A and Class C shares were charged $295,797 and $20,374, 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, 2012, Class Z shares were charged $27,768 pursuant to the Shareholder Services Plan.
The fund has arrangements with the transfer agent and the custodian whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset transfer agency and custody fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
The fund compensates Dreyfus Transfer, Inc. (“DTI”), a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing transfer agency services for the fund and, since May 29, 2012,
The Fund | 33 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2012, the fund was charged $39,492 for transfer agency services and $1,164 for cash management services. Cash management fees were partially offset by earnings credits of $136.These fees are included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended October 31, 2012, the fund was charged $17,681 pursuant to the custody agreement.
Prior to May 29, 2012, the fund compensated The Bank of New York Mellon under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. Subsequent to May 29, 2012,The Bank of NewYork Mellon has continued to provide shareholder redemption draft processing services. During the period ended October 31, 2012, the fund was charged $1,292 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 $40.
During the period ended October 31, 2012, the fund was charged $3,981 for services performed by the Chief Compliance Officer and his staff.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $180,961, Distribution Plan fees $10,591, Shareholder Services Plan fees $54,346, custodian fees $8,565, Chief Compliance Officer fees $2,654 and transfer agency per account fees $17,519.
34
(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, 2012, amounted to $35,379,957 and $30,727,305, respectively.
At October 31, 2012, accumulated net unrealized appreciation on investments was $27,549,015 consisting of $28,733,624 gross unrealized appreciation and $1,184,609 gross unrealized depreciation.
At October 31, 2012, 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 24, 2012, 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 Dreyfus representatives. 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 considered information previously provided to them in presentations from Dreyfus representatives regarding the nature, extent, and quality of the services provided to funds in the Dreyfus fund complex, and Dreyfus representatives 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 (such as retail direct or intermediary, in which intermediaries typically are paid by the fund and/or Dreyfus) and Dreyfus’ corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each intermediary or distribution channel, as applicable to the fund.
The Board 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 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 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, 2012, 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 the date of its analysis. 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 discussed the results of the comparisons and noted that the fund’s total return performance was at or below the Performance Group median for all periods, ranking third and second of four funds in the Performance Group for the one- and two-year periods, respectively, and ranking fourth for the other periods, and at or above the Performance Universe median for most periods.The Board also noted that the fund’s yield performance was ranked first, second or third of four funds in the Performance Group for all of the one-year periods ended June 30th, and above the Performance Universe median for all ten of the one-year periods ended June 30th. Dreyfus also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s Lipper category average, noting that the fund outperformed its Lipper category average in nine of the past ten calendar
The Fund | 37 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
years, including 2011. Dreyfus representatives discussed with the Board the reasons for the relative underperformance of the fund’s total return compared to the Performance Group medians for the applicable periods, and Dreyfus’ efforts to improve performance. The Board also received a presentation from the fund’s portfolio managers during which they discussed the fund’s investment strategy, including the emphasis on quality given the current market environment, and the factors that affected the fund’s performance.
The Board 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.The Board 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.
Dreyfus representatives reviewed with the Board 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(s) 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 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
38
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 should consider the profitability analysis (1) as part of the 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, 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 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 generally was satisfied with fund management’s efforts to improve performance, in light of the considerations described above.
The Fund | 39 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
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.
In evaluating the Agreement, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with Dreyfus and its affiliates, of the fund and the services provided to the fund by Dreyfus.The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreement, including information on the investment performance of the fund in comparison to similar mutual funds and benchmark performance indices; general market outlook as applicable to the fund; and compliance reports. 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 and Dreyfus representatives. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on their consideration of the same or similar arrangements in prior years. The Board 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 |
22 | Notes to Financial Statements |
31 | 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
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, 2012, through October 31, 2012. 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.
The municipal bond market generally advanced during the reporting period in response to positive supply-and-demand dynamics, improving credit conditions, and investors’ changing expectations of global and domestic economic conditions.While monthly variations in economic data have been pronounced, the longer-term pace of U.S. economic growth has been relatively consistent at about half the average rate achieved in prior recoveries. However, a number of headwinds remain, including the potential effects of the European financial crisis and slower growing emerging markets on U.S. exports.
In light of current uncertainties surrounding fiscal policy and tax reforms, the U.S. economic recovery appears likely to persist at subpar levels over the first half of 2013. However, the nation’s easy monetary policy and a successful resolution of the fiscal debate may prompt corporate decision-makers to increase capital spending, which could have positive implications for the U.S. economy over the second half of the new year. As always, we encourage you to stay in touch with your financial advisor as new developments unfold.
Thank you for your continued confidence and support.
![](https://capedge.com/proxy/N-CSRS/0000806176-12-000042/smbmdncsrx4x1.jpg)
Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
November 15, 2012
2
DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2012, through October 31, 2012, as provided by Jeffrey Burger and David Belton, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended October 31, 2012, Class A shares of Dreyfus Maryland Fund, a series of Dreyfus State Municipal Bond Funds, produced a total return of 3.18%, and Class C shares returned 2.70%.1 In comparison, the Barclays 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 3.34% for the same period.2
Falling long-term interest rates and favorable supply-and-demand dynamics continued to support municipal bond prices during the reporting period. The fund produced lower returns than its benchmark, as Maryland bonds generally lagged national market averages. In addition, the fund’s modestly short average duration undermined its relative performance.
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. For additional yield, the fund may invest up to 30% of its assets in municipal bonds rated below investment grade or the unrated equivalent as determined by Dreyfus. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
In managing the fund, we focus on identifying undervalued sectors and securities, and we minimize the use of interest rate forecasting.We select municipal bonds by using fundamental credit analysis to estimate the relative value of various sectors and securities and to exploit pricing inefficiencies in the municipal bond market. Additionally, we trade among various sectors, such as pre-refunded, general obligation and revenue sectors, based on their apparent relative values. The fund generally will invest simultaneously in several of these sectors.
The Fund | 3 |
DISCUSSION OF FUND PERFORMANCE (continued)
Supply-and-Demand Dynamics Buoyed Municipal Bonds
The reporting period began in the wake of several months of U.S. economic recovery, in which investors responded positively to employment gains and increased manufacturing activity. However, the sustainability of the recovery was called into question in the spring. Most notably, the U.S. labor market’s rebound slowed as the public sector shed jobs and the private sector’s employment gains proved more anemic than expected.
These headwinds sparked a renewed flight to perceived safe havens, such as U.S. Treasury securities. However, municipal bonds generally remained strong across the credit-quality range throughout the reporting period, in part due to robust demand as investors sought competitive levels of after-tax income in a low interest-rate environment. Municipal bond prices also responded positively to falling long-term interest rates stemming from quantitative easing and other stimulative measures by the Federal Reserve Board. Meanwhile, new issuance volumes remained relatively low when political pressure led to less borrowing for capital projects and municipalities primarily issued new bonds to refinance older debt, resulting in a net decrease in the national supply of tax-exempt securities. Finally, like many other states, Maryland has taken the difficult steps necessary to balance its budget, and credit conditions in the state generally have remained sound.
In this constructive environment, lower-rated and longer maturity municipal bonds led the market higher, while highly rated and shorter-term securities generally lagged market averages.
Maryland Bonds Lagged National Market Averages
The fund’s relative performance was hampered by the underperformance of Maryland municipal securities compared to national averages. Maryland primarily issues high-grade securities, which lagged when investors sought higher yields from lower rated securities. In addition, relatively low issuance volumes in Maryland prevented the fund from establishing an average duration that was more in line with national averages, and a relatively short duration posture limited its participation in market rallies. Finally, exposure to higher quality, lower yielding market segments, such as securities backed by revenues from essential municipal services, weighed on the fund’s performance compared to the benchmark.
4
The fund achieved better relative results through an emphasis on higher yielding, revenue-backed municipal bonds. The fund received especially robust contributions from municipal bonds backed by revenues from hospitals and industrial development projects. Moreover, the fund benefited from tactical trades among municipal bonds that had been punished by economic concerns and rallied as those worries eased.
Adjusting to Changing Market Conditions
We have been encouraged by recently improved data, but the U.S. economy remains vulnerable to uncertainty regarding future fiscal policies.We expect market volatility to increase at times amid potentially contentious negotiations to avert automatic federal tax hikes and spending cuts scheduled for early 2013. Therefore, while we have continued to favor income-oriented municipal bonds over their lower yielding counterparts, we are looking for opportunities to set the fund’s average duration in a range that is roughly in line with market averages. In addition, we have continued to monitor the market for more attractive relative values among Maryland municipal bonds.
November 15, 2012
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 charge imposed on | |
redemptions in the case of 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 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, 2012 to October 31, 2012. 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, 2012 | ||||
Class A | Class C | |||
Expenses paid per $1,000† | $ 4.92 | $ 8.79 | ||
Ending value (after expenses) | $ 1,031.80 | $ 1,027.00 |
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, 2012 | ||||
Class A | Class C | |||
Expenses paid per $1,000† | $ 4.89 | $ 8.74 | ||
Ending value (after expenses) | $ 1,020.37 | $ 1,016.53 |
† Expenses are equal to the fund’s annualized expense ratio of .96% for Class A and 1.72% for Class C, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
October 31, 2012 (Unaudited) |
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments—96.1% | Rate (%) | Date | Amount ($) | Value ($) |
Maryland—80.6% | ||||
Anne Arundel County, | ||||
Consolidated General | ||||
Improvements GO | 5.00 | 4/1/19 | 1,575,000 | 1,960,056 |
Anne Arundel County, | ||||
Consolidated General | ||||
Improvements GO | 5.00 | 4/1/24 | 1,520,000 | 1,908,558 |
Baltimore, | ||||
Consolidated Public | ||||
Improvement GO | 5.00 | 10/15/24 | 1,480,000 | 1,811,520 |
Baltimore, | ||||
Project Revenue | ||||
(Wastewater Projects) | 5.00 | 7/1/23 | 1,000,000 | 1,238,500 |
Baltimore, | ||||
Project Revenue (Wastewater | ||||
Projects) (Insured; National | ||||
Public Finance Guarantee Corp.) | 5.00 | 7/1/22 | 630,000 | 753,423 |
Baltimore, | ||||
Subordinate Project Revenue | ||||
(Water Projects) | 5.75 | 7/1/39 | 750,000 | 894,990 |
Howard County, | ||||
COP | 8.15 | 2/15/20 | 605,000 | 884,238 |
Hyattsville, | ||||
Special Obligation Revenue | ||||
(University Town Center Project) | 5.75 | 7/1/34 | 3,000,000 | 3,059,220 |
Maryland, | ||||
GO (State and Loan | ||||
Facilities Loan) | 5.00 | 11/1/18 | 3,000,000 | 3,733,920 |
Maryland, | ||||
GO (State and Local | ||||
Facilities Loan) | 5.00 | 3/15/20 | 2,000,000 | 2,475,240 |
Maryland Community Development | ||||
Administration, Department of | ||||
Housing and Community | ||||
Development, Housing Revenue | 5.95 | 7/1/23 | 625,000 | 626,169 |
Maryland Community Development | ||||
Administration, Department of | ||||
Housing and Community | ||||
Development, Residential Revenue | 4.85 | 9/1/47 | 4,095,000 | 4,212,076 |
Maryland Economic Development | ||||
Corporation, EDR | ||||
(Terminal Project) | 5.75 | 6/1/35 | 2,000,000 | 2,263,240 |
The Fund | 7 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Maryland (continued) | |||||
Maryland Economic Development | |||||
Corporation, EDR (Transportation | |||||
Facilities Project) | 5.75 | 6/1/35 | 1,000,000 | 1,131,620 | |
Maryland Economic Development | |||||
Corporation, LR (Maryland | |||||
Aviation Administration | |||||
Facilities) (Insured; Assured | |||||
Guaranty Municipal Corp.) | |||||
(Prerefunded) | 5.38 | 6/1/13 | 7,000,000 | a | 7,207,480 |
Maryland Economic Development | |||||
Corporation, LR (Maryland | |||||
Aviation Administration | |||||
Facilities) (Insured; Assured | |||||
Guaranty Municipal Corp.) | |||||
(Prerefunded) | 5.50 | 6/1/13 | 2,535,000 | a | 2,611,988 |
Maryland Economic Development | |||||
Corporation, LR (Maryland | |||||
Public Health Laboratory Project) | 5.00 | 6/1/20 | 1,000,000 | 1,242,120 | |
Maryland Economic Development | |||||
Corporation, PCR (Potomac | |||||
Electric Project) | 6.20 | 9/1/22 | 2,500,000 | 3,069,500 | |
Maryland Economic Development | |||||
Corporation, Port Facilities | |||||
Revenue (CNX Marine Terminals | |||||
Inc. Port of Baltimore Facility) | 5.75 | 9/1/25 | 2,000,000 | 2,184,060 | |
Maryland Economic Development | |||||
Corporation, Student Housing | |||||
Revenue (University of Maryland, | |||||
College Park Projects) | 5.75 | 6/1/33 | 1,000,000 | 1,098,550 | |
Maryland Economic Development | |||||
Corporation, Student Housing | |||||
Revenue (University Village at | |||||
Sheppard Pratt) (Insured; ACA) | 5.88 | 7/1/21 | 1,615,000 | 1,619,603 | |
Maryland Economic Development | |||||
Corporation, Student Housing | |||||
Revenue (University Village at | |||||
Sheppard Pratt) (Insured; ACA) | 6.00 | 7/1/33 | 1,750,000 | 1,751,645 | |
Maryland Health and Higher | |||||
Educational Facilities | |||||
Authority, Revenue (Anne | |||||
Arundel Health System Issue) | 5.00 | 7/1/23 | 835,000 | 992,322 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Maryland (continued) | ||||
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Anne | ||||
Arundel Health System Issue) | 5.00 | 7/1/32 | 1,000,000 | 1,091,870 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Anne | ||||
Arundel Health System Issue) | 6.75 | 7/1/39 | 2,500,000 | 3,039,775 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Carroll | ||||
Hospital Center Issue) | 5.00 | 7/1/37 | 500,000 | 553,470 |
Maryland Health and Higher | ||||
Educational Facilities Authority, | ||||
Revenue (Charlestown | ||||
Community Issue) | 6.13 | 1/1/30 | 1,250,000 | 1,465,262 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Goucher | ||||
College Issue) | 5.00 | 7/1/34 | 1,000,000 | 1,133,920 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Greater | ||||
Baltimore Medical Center Issue) | 5.38 | 7/1/26 | 1,500,000 | 1,738,395 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (MedStar | ||||
Health Issue) | 5.00 | 8/15/41 | 500,000 | 556,895 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Mercy | ||||
Medical Center Issue) | 5.00 | 7/1/31 | 500,000 | 551,755 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Mercy | ||||
Medical Center Issue) | 5.50 | 7/1/42 | 1,000,000 | 1,066,950 |
Maryland Health and Higher | ||||
Educational Facilities | ||||
Authority, Revenue (Peninsula | ||||
Regional Medical Center Issue) | 5.00 | 7/1/26 | 1,630,000 | 1,733,880 |
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 | |||||
(Peninsula Regional | |||||
Medical Center Issue) | 5.00 | 7/1/36 | 2,100,000 | 2,219,637 | |
Maryland Health and Higher | |||||
Educational Facilities | |||||
Authority, Revenue (The Johns | |||||
Hopkins Health System | |||||
Obligated Group Issue) | 5.00 | 5/15/26 | 1,000,000 | 1,188,690 | |
Maryland Health and Higher | |||||
Educational Facilities | |||||
Authority, Revenue (The Johns | |||||
Hopkins Health System | |||||
Obligated Group Issue) | 5.00 | 7/1/29 | 1,000,000 | 1,202,520 | |
Maryland Health and Higher | |||||
Educational Facilities | |||||
Authority, Revenue (The Johns | |||||
Hopkins Health System | |||||
Obligated Group Issue) | 5.00 | 5/15/40 | 4,945,000 | 5,496,714 | |
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 | 4,350,000 | 5,351,674 | |
Maryland Health and Higher | |||||
Educational Facilities | |||||
Authority, Revenue (Upper | |||||
Chesapeake Hospitals Issue) | 6.00 | 1/1/38 | 3,005,000 | 3,417,166 | |
Maryland Health and Higher | |||||
Educational Facilities Authority, | |||||
Revenue (Washington | |||||
Christian Academy Issue) | 5.25 | 7/1/18 | 500,000 | b | 199,975 |
Maryland Health and Higher | |||||
Educational Facilities | |||||
Authority, Revenue (Washington | |||||
Christian Academy Issue) | 5.50 | 7/1/38 | 3,540,000 | b | 1,415,823 |
Maryland Health and Higher | |||||
Educational Facilities | |||||
Authority, Revenue (Washington | |||||
County Hospital Issue) | 5.75 | 1/1/38 | 2,500,000 | 2,717,425 |
10
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Maryland (continued) | |||||
Maryland Industrial Development | |||||
Financing Authority, EDR (Our | |||||
Lady of Good Counsel High | |||||
School Facility) | 6.00 | 5/1/35 | 1,600,000 | 1,677,744 | |
Maryland Transportation Authority, | |||||
Passenger Facility Charge | |||||
Revenue (Baltimore/Washington | |||||
International Thurgood | |||||
Marshall Airport) | 5.00 | 6/1/22 | 2,345,000 | 2,801,618 | |
Maryland Transportation Authority, | |||||
Transportation Facilities | |||||
Projects Revenue | 5.00 | 7/1/25 | 2,000,000 | 2,483,220 | |
Montgomery County, | |||||
Consolidated Public | |||||
Improvement GO | 5.00 | 7/1/20 | 1,455,000 | 1,851,473 | |
Montgomery County, | |||||
Consolidated Public | |||||
Improvement GO | 5.00 | 11/1/21 | 2,000,000 | 2,524,300 | |
Montgomery County, | |||||
Revenue (Trinity Health | |||||
Credit Group Issue) | 5.00 | 12/1/40 | 1,000,000 | 1,125,350 | |
Montgomery County, | |||||
Special Obligation Revenue | |||||
(West Germantown Development | |||||
District) (Insured; Radian) | 5.50 | 7/1/27 | 1,475,000 | 1,492,479 | |
Montgomery County Housing | |||||
Opportunities Commission, SFMR | 0.00 | 7/1/28 | 24,000,000 | c | 10,040,640 |
Montgomery County Housing | |||||
Opportunities Commission, SFMR | 0.00 | 7/1/33 | 2,945,000 | c | 886,386 |
Montgomery County Housing | |||||
Opportunities Commission, SFMR | 5.00 | 7/1/36 | 1,580,000 | 1,624,951 | |
Northeast Waste Disposal | |||||
Authority, Solid Waste Revenue | |||||
(Montgomery County Solid Waste | |||||
Disposal System) (Insured; AMBAC) | 5.50 | 4/1/16 | 8,000,000 | 8,171,120 | |
Prince Georges County, | |||||
Special Obligation Revenue | |||||
(National Harbor Project) | 5.20 | 7/1/34 | 3,000,000 | 3,072,030 | |
University System of Maryland, | |||||
Auxiliary Facility and | |||||
Tuition Revenue | 5.00 | 10/1/22 | 2,000,000 | 2,584,100 |
The Fund | 11 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Maryland (continued) | ||||
University System of Maryland, | ||||
Auxiliary Facility and | ||||
Tuition Revenue | 5.00 | 4/1/26 | 1,000,000 | 1,218,770 |
Washington Metropolitan Area | ||||
Transit Authority, Gross | ||||
Transit Revenue | 5.25 | 7/1/29 | 1,750,000 | 2,035,023 |
Wicomico County, | ||||
Consolidated Public | ||||
Improvement GO | 4.00 | 9/1/15 | 2,155,000 | 2,371,922 |
U.S. Related—15.5% | ||||
Guam, | ||||
Business Privilege Tax Revenue | 5.00 | 1/1/42 | 1,000,000 | 1,104,740 |
Guam, | ||||
Business Privilege Tax Revenue | 5.13 | 1/1/42 | 860,000 | 958,384 |
Guam Power Authority, | ||||
Revenue | 5.50 | 10/1/30 | 1,000,000 | 1,108,050 |
Guam Waterworks Authority, | ||||
Water and Wastewater | ||||
System Revenue | 6.00 | 7/1/25 | 1,000,000 | 1,044,130 |
Puerto Rico Aqueduct and Sewer | ||||
Authority, Senior Lien Revenue | 6.00 | 7/1/44 | 1,000,000 | 1,046,480 |
Puerto Rico Aqueduct and Sewer | ||||
Authority, Senior Lien Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 7/1/28 | 500,000 | 541,030 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | 5.25 | 7/1/26 | 1,000,000 | 1,039,360 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | 6.00 | 7/1/28 | 1,000,000 | 1,097,940 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | 6.00 | 7/1/38 | 1,000,000 | 1,064,710 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | 5.50 | 7/1/38 | 3,500,000 | 3,601,675 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | 5.25 | 7/1/40 | 1,000,000 | 1,017,920 |
12
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
U.S. Related (continued) | |||||
Puerto Rico Electric Power | |||||
Authority, Power Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 7/1/30 | 1,110,000 | 1,184,725 | |
Puerto Rico Infrastructure | |||||
Financing Authority, Special | |||||
Tax Revenue | 5.00 | 7/1/25 | 1,250,000 | 1,285,512 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/39 | 1,580,000 | 1,771,354 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/42 | 2,500,000 | 2,768,900 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.50 | 8/1/44 | 1,500,000 | 1,761,945 | |
Virgin Islands Public Finance | |||||
Authority, Revenue (Virgin | |||||
Islands Matching Fund Loan Note) | 5.00 | 10/1/25 | 2,500,000 | 2,794,475 | |
Total Investments (cost $148,662,977) | 96.1 | % | 156,024,290 | ||
Cash and Receivables (Net) | 3.9 | % | 6,374,570 | ||
Net Assets | 100.0 | % | 162,398,860 |
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 Non-income producing security; interest payments in default. |
c 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 | ACA | American Capital Access |
Governments | |||
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company |
AMBAC | American Municipal Bond | ARRN | Adjustable Rate |
Assurance Corporation | Receipt Notes | ||
BAN | Bond Anticipation Notes | BPA | Bond Purchase Agreement |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | DRIVERS | Derivative Inverse |
Tax-Exempt Receipts | |||
EDR | Economic Development | EIR | Environmental Improvement |
Revenue | Revenue | ||
FGIC | Financial Guaranty | FHA | Federal Housing |
Insurance Company | Administration | ||
FHLB | Federal Home | FHLMC | Federal Home Loan Mortgage |
Loan Bank | Corporation | ||
FNMA | Federal National | GAN | Grant Anticipation Notes |
Mortgage Association | |||
GIC | Guaranteed Investment | GNMA | Government National Mortgage |
Contract | Association | ||
GO | General Obligation | HR | Hospital Revenue |
IDB | Industrial Development Board | IDC | Industrial Development Corporation |
IDR | Industrial Development | LIFERS | Long Inverse Floating |
Revenue | Exempt Receipts | ||
LOC | Letter of Credit | LOR | Limited Obligation Revenue |
LR | Lease Revenue | MERLOTS | Municipal Exempt Receipt |
Liquidity Option Tender | |||
MFHR | Multi-Family Housing Revenue | MFMR | Multi-Family Mortgage Revenue |
PCR | Pollution Control Revenue | PILOT | Payment in Lieu of Taxes |
P-FLOATS | Puttable Floating Option | PUTTERS | Puttable Tax-Exempt Receipts |
Tax-Exempt Receipts | |||
RAC | Revenue Anticipation Certificates | RAN | Revenue Anticipation Notes |
RAW | Revenue Anticipation Warrants | ROCS | Reset Options Certificates |
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 |
SPEARS | Short Puttable Exempt | SWDR | Solid Waste Disposal Revenue |
Adjustable Receipts | |||
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 | 9.8 | ||
AA | Aa | AA | 39.5 | ||
A | A | A | 22.8 | ||
BBB | Baa | BBB | 17.6 | ||
BB | Ba | BB | 2.1 | ||
Not Ratedd | Not Ratedd | Not Ratedd | 8.2 | ||
100.0 |
† | Based on total investments. |
d | Securities which, while not rated by Fitch, Moody’s and Standard & Poor’s, have been determined by the Manager to |
be of comparable quality to those rated securities in which the fund may invest. | |
See notes to financial statements. |
The Fund | 15 |
STATEMENT OF ASSETS AND LIABILITIES |
October 31, 2012 (Unaudited) |
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments | 148,662,977 | 156,024,290 | |
Cash | 5,554,439 | ||
Interest receivable | 2,028,727 | ||
Receivable for shares of Beneficial Interest subscribed | 2,189 | ||
Prepaid expenses | 14,044 | ||
163,623,689 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 127,639 | ||
Payable for investment securities purchased | 991,153 | ||
Payable for shares of Beneficial Interest redeemed | 43,072 | ||
Accrued expenses | 62,965 | ||
1,224,829 | |||
Net Assets ($) | 162,398,860 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 162,731,659 | ||
Accumulated undistributed investment income—net | 927 | ||
Accumulated net realized gain (loss) on investments | (7,695,039 | ) | |
Accumulated net unrealized appreciation | |||
(depreciation) on investments | 7,361,313 | ||
Net Assets ($) | 162,398,860 | ||
Net Asset Value Per Share | |||
Class A | Class C | ||
Net Assets ($) | 156,703,706 | 5,695,154 | |
Shares Outstanding | 12,481,354 | 453,349 | |
Net Asset Value Per Share ($) | 12.56 | 12.56 | |
See notes to financial statements. |
16
STATEMENT OF OPERATIONS |
Six Months Ended October 31, 2012 (Unaudited) |
Investment Income ($): | ||
Interest Income | 3,659,660 | |
Expenses: | ||
Management fee—Note 3(a) | 450,027 | |
Shareholder servicing costs—Note 3(c) | 254,341 | |
Professional fees | 30,065 | |
Distribution fees—Note 3(b) | 21,651 | |
Registration fees | 11,749 | |
Custodian fees—Note 3(c) | 11,369 | |
Prospectus and shareholders’ reports | 8,225 | |
Trustees’ fees and expenses—Note 3(d) | 3,201 | |
Loan commitment fees—Note 2 | 1,329 | |
Miscellaneous | 15,396 | |
Total Expenses | 807,353 | |
Less—reduction in fees due to earnings credits—Note 3(c) | (77 | ) |
Net Expenses | 807,276 | |
Investment Income—Net | 2,852,384 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | 495,618 | |
Net unrealized appreciation (depreciation) on investments | 1,672,969 | |
Net Realized and Unrealized Gain (Loss) on Investments | 2,168,587 | |
Net Increase in Net Assets Resulting from Operations | 5,020,971 | |
See notes to financial statements. |
The Fund | 17 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2012 | Year Ended | |||
(Unaudited) | April 30, 2012a | |||
Operations ($): | ||||
Investment income—net | 2,852,384 | 6,129,697 | ||
Net realized gain (loss) on investments | 495,618 | 204,727 | ||
Net unrealized appreciation | ||||
(depreciation) on investments | 1,672,969 | 9,794,401 | ||
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 5,020,971 | 16,128,825 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (2,772,352 | ) | (5,962,957 | ) |
Class B Shares | — | (9,744 | ) | |
Class C Shares | (79,105 | ) | (141,211 | ) |
Total Dividends | (2,851,457 | ) | (6,113,912 | ) |
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 2,705,721 | 6,181,698 | ||
Class B Shares | — | 485 | ||
Class C Shares | 811,732 | 1,686,504 | ||
Dividends reinvested: | ||||
Class A Shares | 2,097,423 | 4,473,067 | ||
Class B Shares | — | 6,828 | ||
Class C Shares | 41,834 | 86,775 | ||
Cost of shares redeemed: | ||||
Class A Shares | (6,374,734 | ) | (19,102,340 | ) |
Class B Shares | — | (741,806 | ) | |
Class C Shares | (574,055 | ) | (680,887 | ) |
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | (1,292,079 | ) | (8,089,676 | ) |
Total Increase (Decrease) in Net Assets | 877,435 | 1,925,237 | ||
Net Assets ($): | ||||
Beginning of Period | 161,521,425 | 159,596,188 | ||
End of Period | 162,398,860 | 161,521,425 | ||
Unidstributed investment income—net | 927 | — |
18
Six Months Ended | ||||
October 31, 2012 | Year Ended | |||
(Unaudited) | April 30, 2012a | |||
Capital Share Transactions: | ||||
Class Ab | ||||
Shares sold | 216,524 | 509,274 | ||
Shares issued for dividends reinvested | 167,597 | 369,070 | ||
Shares redeemed | (510,044 | ) | (1,577,954 | ) |
Net Increase (Decrease) in Shares Outstanding | (125,923 | ) | (699,610 | ) |
Class Bb | ||||
Shares sold | — | 40 | ||
Shares issued for dividends reinvested | — | 570 | ||
Shares redeemed | — | (61,485 | ) | |
Net Increase (Decrease) in Shares Outstanding | — | (60,875 | ) | |
Class C | ||||
Shares sold | 65,094 | 139,014 | ||
Shares issued for dividends reinvested | 3,340 | 7,160 | ||
Shares redeemed | (45,889 | ) | (55,774 | ) |
Net Increase (Decrease) in Shares Outstanding | 22,545 | 90,400 |
a | Effectuve as of the close of business on March 13, 2012, the fund no longer offers Class B shares. |
b | During the period ended April 30, 2012, 44,454 Class B shares representing $534,493 were automatically |
converted to 44,453 Class A shares. | |
See notes to financial statements. |
The Fund | 19 |
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2012 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 12.39 | 11.64 | 11.98 | 11.29 | 11.83 | 12.24 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .22 | .46 | .50 | .51 | .51 | .49 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .17 | .75 | (.34 | ) | .68 | (.54 | ) | (.41 | ) | |||
Total from Investment Operations | .39 | 1.21 | .16 | 1.19 | (.03 | ) | .08 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.22 | ) | (.46 | ) | (.50 | ) | (.50 | ) | (.51 | ) | (.49 | ) |
Net asset value, end of period | 12.56 | 12.39 | 11.64 | 11.98 | 11.29 | 11.83 | ||||||
Total Return (%)b | 3.18 | c | 10.56 | 1.29 | 10.74 | (.13 | ) | .67 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .96 | d | .95 | .95 | .94 | .95 | .93 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .96 | d | .95 | .95 | .94 | .94 | .92 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.51 | d | 3.82 | 4.19 | 4.31 | 4.54 | 4.07 | |||||
Portfolio Turnover Rate | 10.55 | c | 16.01 | 12.19 | 9.96 | 14.86 | 17.25 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 156,704 | 156,181 | 154,922 | 170,612 | 162,311 | 178,268 |
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, 2012 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 12.40 | 11.65 | 11.99 | 11.30 | 11.84 | 12.25 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .17 | .36 | .41 | .41 | .42 | .39 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .16 | .76 | (.35 | ) | .69 | (.54 | ) | (.41 | ) | |||
Total from Investment Operations | .33 | 1.12 | .06 | 1.10 | (.12 | ) | (.02 | ) | ||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.17 | ) | (.37 | ) | (.40 | ) | (.41 | ) | (.42 | ) | (.39 | ) |
Net asset value, end of period | 12.56 | 12.40 | 11.65 | 11.99 | 11.30 | 11.84 | ||||||
Total Return (%)b | 2.70 | c | 9.70 | .52 | 9.88 | (.90 | ) | (.12 | ) | |||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.72 | d | 1.72 | 1.72 | 1.72 | 1.73 | 1.72 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.72 | d | 1.72 | 1.72 | 1.72 | 1.73 | 1.71 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 2.74 | d | 3.01 | 3.41 | 3.52 | 3.76 | 3.28 | |||||
Portfolio Turnover Rate | 10.55 | c | 16.01 | 12.19 | 9.96 | 14.86 | 17.25 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 5,695 | 5,340 | 3,966 | 3,657 | 3,698 | 3,713 |
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 |
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 ofThe Bank of NewYork Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares.The fund is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in each of the following classes of shares: Class A and Class C. Class A shares are subject to a sales charge imposed at the time of purchase. Class C shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class C shares redeemed within one year of purchase. 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 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 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
22
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.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The Fund | 23 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
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 Company’s Board of Trustees (the “Board”). 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 the following: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market condi-tions.All of the preceding securities are categorized within Level 2 of the fair value hierarchy. These securities are generally categorized within Level 2 of the fair value hierarchy.
The Service’s procedures are reviewed by Dreyfus under the general supervision of the Board.
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, 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. 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
24
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, 2012 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 | — | 154,408,492 | 1,615,798 | 156,024,290 |
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 4/30/2012 | 1,615,960 | |
Realized gain (loss) | — | |
Change in unrealized appreciation (depreciation) | (162 | ) |
Purchases | — | |
Sales | — | |
Transfers into Level 3 | — | |
Transfers out of Level 3 | — | |
Balance as of 10/31/2012 | 1,615,798 | |
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 10/31/2012 | (162 | ) |
At October 31, 2012, there were no transfers between Level 1 and Level 2 of the fair value hierarchy.
The Fund | 25 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized 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 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 policy of the fund to declare dividends daily from investment income-net. Such dividends are paid monthly. Dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”).To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(d) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax-exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended October 31, 2012, 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.
26
Each of the tax years in the three-year period ended April 30, 2012 remains subject to examination by the Internal Revenue Service and state taxing authorities.
Under the Regulated Investment Company Modernization Act of 2010 (the “2010 Act”), the fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 (“post-enactment losses”) for an unlimited period. Furthermore, post-enactment capital loss carryovers retain their character as either short-term or long-term capital losses rather than short-term as they were under previous statute. 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 (“pre-enactment losses”).As a result of this ordering rule, pre-enactment losses may be more likely to expire unused.
The fund has an unused capital loss carryover of $8,256,733 available for federal income tax purposes to be applied against future net realized capital gains, if any, realized subsequent to April 30, 2012. If not applied, $6,917,527 of the carryover expires in fiscal year 2013, $625,584 expires in fiscal year 2017 and $713,622 expires in fiscal year 2018.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2012 was as follows: tax-exempt income $6,113,912. 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. Effective October 10, 2012, the $225 million unsecured credit facility with Citibank, N.A., was decreased to $210 million. In connection there-
The Fund | 27 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
with, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended on October 31, 2012, 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 31,2012, the Distributor retained $2,631 from commissions earned on sales of the fund’s Class A shares and $3,501 from CDSCs on redemptions of the fund’s Class C shares.
(b) Under the Distribution Plan adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of .75% of the value of the average daily net assets of Class C shares. During the period ended October 31, 2012, Class C shares were charged $21,651, pursuant to the Distribution Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts.The Distributor may make payments to Service Agents (securities dealers, financial institutions or other industry professionals) in respect of these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2012, Class A and Class C shares were charged $197,341 and $7,217, respectively, pursuant to the Shareholder Services Plan.
The fund has arrangements with the transfer agent and the custodian whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset transfer agency and
28
custody fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
The fund compensates Dreyfus Transfer, Inc. (“DTI”), a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing transfer agency services for the fund and, since May 29, 2012, cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2012, the fund was charged $17,878 for transfer agency services and $505 for cash management services. Cash management fees were partially offset by earnings credits of $59.These fees are included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended October 31, 2012, the fund was charged $11,369 pursuant to the custody agreement.
Prior to May 29, 2012, the fund compensated The Bank of NewYork Mellon under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. Subsequent to May 29, 2012,The Bank of NewYork Mellon has continued to provide shareholder redemption draft processing services. During the period ended October 31, 2012, the fund was charged $563 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 $18.
During the period ended October 31, 2012, the fund was charged $3,981 for services performed by the Chief Compliance Officer and his staff.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $75,808, Distribution Plan fees $3,617, Shareholder Services Plan fees $34,458, custodian fees $4,566, Chief Compliance Officer fees $2,654 and transfer agency fees $6,536.
The Fund | 29 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(d) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended October 31, 2012, amounted to $16,780,445 and $20,880,708, respectively.
At October 31, 2012, accumulated net unrealized appreciation on investments was $7,361,313 consisting of $9,583,077 gross unrealized appreciation and $2,221,764 gross unrealized depreciation.
At October 31, 2012, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
NOTE 5—Subsequent Event:
On November 7, 2012, the Board of Trustees, on behalf of the fund and on November 6, 2012, the Board of Directors of Dreyfus AMT-Free Municipal Bond Fund (the “Acquiring Fund”), approved an Agreement and Plan of Reorganization.The merger is subject to the approval of the shareholders of the fund at a meeting to be held on or about February 28, 2013. If approved, the merger is anticipated to occur on or about April 12, 2013.The merger provides for the fund to transfer all of its assets, subject to its liabilities, to the Acquiring Fund, in exchange for a number of Class A and Class C shares of the Acquiring Fund’s equal value to the assets less liabilities of the fund. The Acquiring Fund’s Class A and Class C shares will then be distributed to the fund’s shareholders on a pro rata basis in liquidation of the fund.The fund will be closed to new investors on November 26, 2012.
30
INFORMATION ABOUT THE RENEWAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the fund’s Board of Trustees held on July 24, 2012, 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 Dreyfus representatives. 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 considered information previously provided to them in presentations from Dreyfus representatives regarding the nature, extent, and quality of the services provided to funds in the Dreyfus fund complex, and Dreyfus representatives 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 (such as retail direct or intermediary, in which intermediaries typically are paid by the fund and/or Dreyfus) and Dreyfus’ corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each intermediary or distribution channel, as applicable to the fund.
The Board 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 also considered Dreyfus’ extensive administrative, accounting, and compliance infrastructures.
The Fund | 31 |
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 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, 2012, 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 the date of its analysis. 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 performance. The Board discussed the results of the comparisons and noted that the fund’s total return performance was at or below the Performance Group median and variously above, at and below the Performance Universe median for the various periods.The Board also noted that the fund’s yield performance was at or above the Performance Group median for six of the ten one-year periods ended June 30th and above the Performance Universe median for all ten of the one-year periods ended June 30th. Dreyfus also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s Lipper category average, noting that the fund outperformed its Lipper category average in eight of the ten calendar years. Dreyfus representatives discussed with the Board the reasons for the relative underperformance of the fund’s total return compared to the
32
Performance Group and Performance Universe medians for the applicable periods and Dreyfus’ efforts to improve performance. The Board also received a presentation from the fund’s portfolio managers during which they discussed the fund’s investment strategy, including the emphasis on quality given the current market environment, and the factors that affected the fund’s performance.
The Board 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.The Board noted that the fund’s contractual management fee was at the Expense Group median and the fund’s actual management fee and total expense ratio were above the Expense Group and Expense Universe medians.
Dreyfus representatives reviewed with the Board 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(s) 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 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
The Fund | 33 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
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 should consider the profitability analysis (1) as part of the 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. Dreyfus representatives 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 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 ser- vices provided by Dreyfus are adequate and appropriate.
The Board generally was satisfied with fund management’s efforts to improve performance, in light of the considerations described above.
34
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.
In evaluating the Agreement, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with Dreyfus and its affiliates, of the fund and the services provided to the fund by Dreyfus.The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreement, including information on the investment performance of the fund in comparison to similar mutual funds and benchmark performance indices; general market outlook as applicable to the fund; and compliance reports. 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 and Dreyfus representatives. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on their consideration of the same or similar arrangements in prior years. The Board determined that renewal of the Agreement was in the best interests of the fund and its shareholders.
The Fund | 35 |
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 |
18 | Statement of Assets and Liabilities |
19 | Statement of Operations |
20 | Statement of Changes in Net Assets |
22 | Financial Highlights |
25 | Notes to Financial Statements |
34 | 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
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, 2012, through October 31, 2012. 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.
The municipal bond market generally advanced during the reporting period in response to positive supply-and-demand dynamics, improving credit conditions, and investors’ changing expectations of global and domestic economic conditions.While monthly variations in economic data have been pronounced, the longer-term pace of U.S. economic growth has been relatively consistent at about half the average rate achieved in prior recoveries. However, a number of headwinds remain, including the potential effects of the European financial crisis and slower growing emerging markets on U.S. exports.
In light of current uncertainties surrounding fiscal policy and tax reforms, the U.S. economic recovery appears likely to persist at subpar levels over the first half of 2013. However, the nation’s easy monetary policy and a successful resolution of the fiscal debate may prompt corporate decision-makers to increase capital spending, which could have positive implications for the U.S. economy over the second half of the new year. As always, we encourage you to stay in touch with your financial advisor as new developments unfold.
Thank you for your continued confidence and support.
![](https://capedge.com/proxy/N-CSRS/0000806176-12-000042/smbmancsrx4x1.jpg)
Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
November 15, 2012
2
DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2012, through October 31, 2012, as provided by Thomas Casey and David Belton, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended October 31, 2012, Class A shares of Dreyfus Massachusetts Fund, a series of Dreyfus State Municipal Bond Funds, produced a total return of 3.13%, Class C shares returned 2.73%, and Class Z shares returned 3.15%.1 In comparison, the Barclays 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 3.34% for the same period.2
Falling long-term interest rates and favorable supply-and-demand dynamics continued to support municipal bond prices during the reporting period. The fund produced lower returns than its benchmark, as Massachusetts bonds generally lagged national market averages. In addition, the fund’s exposure to escrowed securities and Puerto Rico bonds undermined its relative performance.
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. For additional yield, the fund may invest up to 30% of its assets in municipal bonds rated below investment grade or the unrated equivalent as determined by Dreyfus. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
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,
The Fund | 3 |
DISCUSSION OF FUND PERFORMANCE (continued)
general obligation and revenue sectors, based on their apparent relative values.The fund generally will invest simultaneously in several of these sectors.
Supply-and-Demand Dynamics Supported Municipal Bonds
The reporting period began in the wake of several months of U.S. economic recovery, in which investors responded positively to employment gains and increased manufacturing activity. However, the recovery’s sustainability was called into question in the spring, when the U.S. labor market’s rebound slowed as the public sector shed jobs and the private sector’s employment gains proved more anemic than expected.
Although these headwinds sparked a renewed flight to perceived safe havens, such as U.S. Treasury securities, municipal bonds generally remained strong across the credit-quality range throughout the reporting period, in part due to robust demand from investors seeking higher levels of after-tax income. Municipal bond prices also responded positively to falling long-term interest rates stemming from quantitative easing and other stimulative measures by the Federal Reserve Board. Meanwhile, new issuance volumes remained relatively low when political pressure led to less borrowing for capital projects and municipalities primarily issued new bonds to refinance older debt, resulting in a net decrease in the national supply of tax-exempt securities. From a credit quality perspective, Massachusetts has continued to fare better than most other states due to a diverse economic base and prudent fiscal management.
In this environment, lower-rated and longer maturity municipal bonds led the market higher, while highly rated and shorter-term securities generally lagged market averages.
Massachusetts Bonds Trailed National Market Averages
The fund’s relative performance was hampered by the underperformance of Massachusetts municipal securities compared to national averages. Massachusetts primarily issues high-grade debt, which lagged at a time when investors sought higher yields from riskier bonds. In addition, the fund’s holdings of Puerto Rico bonds, which are tax-exempt for Massachusetts residents, dampened returns as the U.S. territory struggled with unfunded pension liabilities and a weak economy. Finally, overweighted exposure to high quality escrowed bonds weighed on relative performance.
4
The fund achieved better relative results through a focus on higher yielding, revenue-backed municipal bonds and a corresponding de-emphasis on lower yielding general obligation bonds. The fund received especially robust contributions from municipal bonds backed by revenues from hospitals, educational institutions and the state’s settlement of litigation with U.S. tobacco companies. Moreover, a relatively long average duration boosted the fund’s participation in market rallies when long-term interest rates declined.
Adjusting to Changing Market Conditions
We have been encouraged by recently improved data, but the U.S. economy remains vulnerable to uncertainty regarding future fiscal policies.We expect market volatility to increase at times amid potentially contentious negotiations to avert automatic federal tax hikes and spending cuts scheduled for early 2013. However, the Massachusetts economy has continued to fare well, and we expect the state’s credit condition to remain sound. Therefore, we have continued to favor income-oriented municipal bonds, and we have maintained the fund’s average duration in a range we consider slightly longer than market averages. In addition, we have continued to monitor the market for more attractive relative values among Massachusetts municipal bonds.
November 15, 2012
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 charge imposed |
on redemptions in the case of 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 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, 2012 to October 31, 2012. 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, 2012 | ||||||
Class A | Class C | Class Z | ||||
Expenses paid per $1,000† | $ 4.81 | $ 8.74 | $ 3.74 | |||
Ending value (after expenses) | $ 1,031.30 | $ 1,027.30 | $ 1,031.50 |
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, 2012 | ||||||
Class A | Class C | Class I | ||||
Expenses paid per $1,000† | $ 4.79 | $ 8.69 | $ 3.72 | |||
Ending value (after expenses) | $ 1,020.47 | $ 1,016.59 | $ 1,021.53 |
† Expenses are equal to the fund’s annualized expense ratio of .94% for Class A, 1.71% for Class C and .73% for Class Z; multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
October 31, 2012 (Unaudited) |
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments—97.5% | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts—82.5% | |||||
Boston Housing Authority, | |||||
Capital Program Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 4/1/24 | 1,900,000 | 2,096,118 | |
Boston Industrial Development | |||||
Financing Authority, Sewage | |||||
Facility Revenue (Harbor Electric | |||||
Energy Company Project) | 7.38 | 5/15/15 | 805,000 | 808,961 | |
Boston Water and Sewer Commission, | |||||
Revenue (Prerefunded) | 5.00 | 11/1/14 | 2,000,000 | a | 2,186,360 |
Cambridge, | |||||
GO | 5.00 | 1/1/20 | 3,255,000 | 4,085,383 | |
Holyoke, | |||||
Gas and Electric Department | |||||
Revenue (Insured; National | |||||
Public Finance Guarantee | |||||
Corp.) (Prerefunded) | 5.38 | 12/1/12 | 1,245,000 | a | 1,250,316 |
Marblehead, | |||||
GO (Prerefunded) | 5.00 | 8/15/14 | 1,835,000 | a | 1,989,268 |
Marblehead, | |||||
GO (Prerefunded) | 5.00 | 8/15/14 | 1,925,000 | a | 2,086,835 |
Massachusetts, | |||||
GO | 5.25 | 8/1/22 | 2,650,000 | 3,436,096 | |
Massachusetts, | |||||
GO | 0.85 | 11/1/25 | 5,000,000 | b | 4,635,550 |
Massachusetts, | |||||
GO (Insured; AMBAC) | 5.50 | 8/1/30 | 1,750,000 | 2,429,752 | |
Massachusetts, | |||||
GO (Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.25 | 9/1/23 | 2,500,000 | 3,270,175 | |
Massachusetts, | |||||
Special Obligation Dedicated | |||||
Tax Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 5.50 | 1/1/23 | 3,000,000 | 3,765,120 | |
Massachusetts Bay Transportation | |||||
Authority, Assessment Revenue | 5.25 | 7/1/34 | 2,500,000 | 2,914,950 | |
Massachusetts Bay Transportation | |||||
Authority, Assessment | |||||
Revenue (Prerefunded) | 5.00 | 7/1/15 | 2,400,000 | a | 2,696,280 |
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, GO (General | |||||
Transportation System) | 6.20 | 3/1/16 | 2,055,000 | 2,217,941 | |
Massachusetts Bay Transportation | |||||
Authority, GO (General | |||||
Transportation System) | 7.00 | 3/1/21 | 425,000 | 485,401 | |
Massachusetts Bay Transportation | |||||
Authority, GO (General | |||||
Transportation System) | 7.00 | 3/1/21 | 500,000 | 662,885 | |
Massachusetts Bay Transportation | |||||
Authority, Senior Sales | |||||
Tax Revenue | 5.00 | 7/1/21 | 1,000,000 | 1,274,110 | |
Massachusetts Bay Transportation | |||||
Authority, Senior Sales Tax | |||||
Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 5.50 | 7/1/27 | 3,000,000 | 4,066,140 | |
Massachusetts College Building | |||||
Authority, Project Revenue | 5.00 | 5/1/27 | 2,000,000 | c | 2,415,220 |
Massachusetts College Building | |||||
Authority, Project Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 0.00 | 5/1/26 | 5,385,000 | c,d | 3,793,463 |
Massachusetts College Building | |||||
Authority, Project Revenue | |||||
(Insured; XLCA) | 5.50 | 5/1/28 | 1,450,000 | c | 1,887,233 |
Massachusetts Department of | |||||
Transportation, Metropolitan | |||||
Highway System Senior Revenue | 5.00 | 1/1/27 | 4,000,000 | 4,535,720 | |
Massachusetts Development Finance | |||||
Agency, Higher Education | |||||
Revenue (Emerson College Issue) | 5.00 | 1/1/22 | 1,000,000 | c | 1,087,350 |
Massachusetts Development | |||||
Finance Agency, Revenue | |||||
(Assumption College Issue) | |||||
(Insured; Radian) | 6.00 | 3/1/30 | 1,905,000 | c | 1,907,877 |
Massachusetts Development Finance | |||||
Agency, Revenue (Berklee | |||||
College of Music Issue) | 5.00 | 10/1/31 | 1,000,000 | c | 1,156,700 |
Massachusetts Development Finance | |||||
Agency, Revenue (Brandeis | |||||
University Issue) | 5.00 | 10/1/26 | 1,250,000 | c | 1,430,512 |
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 | 10/1/29 | 1,475,000 | c | 1,668,328 |
Massachusetts Development Finance | |||||
Agency, Revenue (Milton | |||||
Academy Issue) | 5.00 | 9/1/30 | 2,000,000 | c | 2,362,220 |
Massachusetts Development Finance | |||||
Agency, Revenue (Noble and | |||||
Greenough School Issue) | 5.00 | 4/1/21 | 600,000 | c | 743,928 |
Massachusetts Development Finance | |||||
Agency, Revenue (Partners | |||||
HealthCare System Issue) | 5.38 | 7/1/41 | 4,000,000 | 4,553,640 | |
Massachusetts Development Finance | |||||
Agency, Revenue (Suffolk | |||||
University Issue) | 5.00 | 7/1/30 | 1,000,000 | c | 1,107,500 |
Massachusetts Development Finance | |||||
Agency, Revenue (Tufts Medical | |||||
Center Issue) | 5.50 | 1/1/22 | 1,500,000 | 1,722,330 | |
Massachusetts Development Finance | |||||
Agency, Revenue (UMass | |||||
Memorial Issue) | 5.50 | 7/1/31 | 500,000 | 573,570 | |
Massachusetts Development Finance | |||||
Agency, Revenue (Wheelock | |||||
College Issue) | 5.25 | 10/1/37 | 2,500,000 | c | 2,605,275 |
Massachusetts Development Finance | |||||
Agency, Revenue (Whitehead | |||||
Institute for Biomedical | |||||
Research Issue) | 5.00 | 6/1/23 | 1,350,000 | c | 1,636,632 |
Massachusetts Development Finance | |||||
Agency, RRR (SEMASS System) | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.63 | 1/1/14 | 2,000,000 | 2,010,600 | |
Massachusetts Development Finance | |||||
Agency, SWDR (Dominion Energy | |||||
Brayton Point Issue) | 5.00 | 2/1/36 | 2,000,000 | 2,069,240 | |
Massachusetts Educational | |||||
Financing Authority, Education | |||||
Loan Revenue (Insured; AMBAC) | 5.00 | 1/1/13 | 735,000 | c | 737,029 |
Massachusetts Educational | |||||
Financing Authority, Education | |||||
Loan Revenue (Insured; AMBAC) | 4.70 | 1/1/27 | 4,750,000 | c | 4,882,192 |
The Fund | 9 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts (continued) | |||||
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Community | |||||
Colleges Program Issue) | |||||
(Insured; AMBAC) | 5.25 | 10/1/26 | 2,845,000 | c | 2,848,414 |
Massachusetts Health and | |||||
Educational Facilities Authority, | |||||
Revenue (Dana-Farber Cancer | |||||
Institute Issue) | 5.25 | 12/1/27 | 1,000,000 | 1,140,700 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Harvard University Issue) | 5.00 | 12/15/24 | 2,350,000 | c | 2,884,884 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Massachusetts Eye and | |||||
Ear Infirmary Issue) | 5.00 | 7/1/20 | 1,000,000 | 1,118,950 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Massachusetts Eye and | |||||
Ear Infirmary Issue) | 5.38 | 7/1/35 | 1,000,000 | 1,086,180 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Massachusetts Institute of | |||||
Technology Issue) | 5.25 | 7/1/33 | 4,000,000 | c | 5,706,320 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Partners | |||||
HealthCare System Issue) | 5.25 | 7/1/29 | 2,000,000 | 2,287,520 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Partners | |||||
HealthCare System Issue) | 5.00 | 7/1/47 | 4,950,000 | 5,331,645 |
10
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts (continued) | |||||
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Springfield College Issue) | |||||
(Insured; Radian) | 5.13 | 10/15/23 | 1,100,000 | c | 1,127,379 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Suffolk University Issue) | 6.00 | 7/1/24 | 1,000,000 | c | 1,180,330 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Tufts | |||||
University Issue) | 5.50 | 8/15/18 | 1,625,000 | c | 2,023,255 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Tufts | |||||
University Issue) | 5.38 | 8/15/38 | 3,000,000 | c | 3,643,110 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (UMass | |||||
Memorial Issue) | 5.25 | 7/1/25 | 1,895,000 | c | 1,977,414 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (UMass | |||||
Memorial Issue) | 5.00 | 7/1/33 | 1,070,000 | c | 1,098,526 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Wheaton College Issue) | 5.00 | 1/1/30 | 2,405,000 | c | 2,713,850 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Winchester Hospital Issue) | 5.25 | 7/1/38 | 1,000,000 | 1,093,170 | |
Massachusetts Housing Finance | |||||
Agency, Housing Revenue | 5.00 | 12/1/24 | 1,160,000 | 1,187,712 |
The Fund | 11 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Massachusetts (continued) | ||||
Massachusetts Housing Finance | ||||
Agency, Housing Revenue | 5.00 | 12/1/26 | 1,200,000 | 1,227,192 |
Massachusetts Housing Finance | ||||
Agency, Housing Revenue | 5.00 | 12/1/28 | 2,000,000 | 2,062,180 |
Massachusetts Housing Finance | ||||
Agency, Housing Revenue | 5.00 | 6/1/30 | 350,000 | 359,314 |
Massachusetts Housing Finance | ||||
Agency, Housing Revenue | 5.25 | 12/1/33 | 1,350,000 | 1,358,532 |
Massachusetts Housing Finance | ||||
Agency, Housing Revenue | 5.10 | 12/1/37 | 2,130,000 | 2,184,635 |
Massachusetts Housing Finance | ||||
Agency, Housing Revenue | 5.20 | 12/1/37 | 1,905,000 | 1,980,133 |
Massachusetts Housing Finance | ||||
Agency, SFHR | 4.75 | 12/1/30 | 1,315,000 | 1,336,724 |
Massachusetts Port Authority, | ||||
Revenue | 5.00 | 7/1/25 | 1,500,000 | 1,846,275 |
Massachusetts Port Authority, | ||||
Revenue | 5.00 | 7/1/27 | 5,475,000 | 6,603,233 |
Massachusetts School Building | ||||
Authority, Senior Dedicated | ||||
Sales Tax Revenue | 5.00 | 8/15/21 | 6,610,000 | 8,425,106 |
Massachusetts School Building | ||||
Authority, Senior Dedicated | ||||
Sales Tax Revenue | 5.00 | 8/15/22 | 2,000,000 | 2,560,640 |
Massachusetts School Building | ||||
Authority, Senior Dedicated | ||||
Sales Tax Revenue | 5.00 | 10/15/35 | 4,000,000 | 4,701,400 |
Massachusetts Water Pollution | ||||
Abatement Trust, State | ||||
Revolving Fund Bonds | 5.00 | 8/1/27 | 1,535,000 | 1,879,178 |
Massachusetts Water | ||||
Resources Authority, | ||||
General Revenue | 5.00 | 8/1/25 | 2,000,000 | 2,444,880 |
Massachusetts Water Resources | ||||
Authority, General Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.25 | 8/1/21 | 1,500,000 | 1,799,160 |
12
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts (continued) | |||||
Massachusetts Water Resources | |||||
Authority, General Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 8/1/26 | 2,000,000 | 2,350,100 | |
Metropolitan Boston Transit | |||||
Parking Corporation, Systemwide | |||||
Senior Lien Parking Revenue | 5.00 | 7/1/24 | 1,320,000 | 1,579,644 | |
Sandwich, | |||||
GO (Insured; National Public | |||||
Finance Guarantee Corp.) | 5.00 | 7/15/19 | 1,000,000 | 1,121,910 | |
U.S. Related—15.0% | |||||
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 5.38 | 5/15/33 | 1,725,000 | 1,726,828 | |
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 5.50 | 5/15/39 | 1,245,000 | 1,246,320 | |
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 0.00 | 5/15/50 | 5,000,000 | d | 384,150 |
Guam, | |||||
Business Privilege Tax Revenue | 5.13 | 1/1/42 | 1,000,000 | 1,114,400 | |
Guam, | |||||
Hotel Occupancy Tax Revenue | 5.00 | 11/1/17 | 1,000,000 | 1,117,370 | |
Guam Power Authority, | |||||
Revenue | 5.50 | 10/1/30 | 1,000,000 | 1,108,050 | |
Puerto Rico Aqueduct and Sewer | |||||
Authority, Senior Lien Revenue | 5.13 | 7/1/37 | 500,000 | 499,965 | |
Puerto Rico Aqueduct and Sewer | |||||
Authority, Senior Lien Revenue | 6.00 | 7/1/38 | 2,000,000 | 2,094,960 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 6.00 | 7/1/27 | 1,000,000 | 1,094,350 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | |||||
(Insured; XLCA) | 5.25 | 7/1/17 | 1,460,000 | 1,588,465 |
The Fund | 13 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
U.S. Related (continued) | |||||
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.25 | 7/1/27 | 2,500,000 | 2,624,425 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.25 | 7/1/40 | 1,000,000 | 1,017,920 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 7/1/30 | 1,000,000 | 1,067,320 | |
Puerto Rico Infrastructure | |||||
Financing Authority, Special | |||||
Tax Revenue (Insured; AMBAC) | 0.00 | 7/1/35 | 6,840,000 | d | 1,637,701 |
Puerto Rico Infrastructure | |||||
Financing Authority, Special | |||||
Tax Revenue (Insured; FGIC) | 5.50 | 7/1/19 | 1,225,000 | 1,364,491 | |
Puerto Rico Public Buildings | |||||
Authority, Guaranteed | |||||
Government Facilities Revenue | 5.75 | 7/1/22 | 1,900,000 | 2,119,089 | |
Puerto Rico Public Buildings | |||||
Authority, Guaranteed | |||||
Government Facilities Revenue | |||||
(Insured; AMBAC) | 6.25 | 7/1/15 | 1,100,000 | 1,266,540 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 5.38 | 8/1/39 | 1,000,000 | 1,064,680 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/39 | 2,500,000 | 2,802,775 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/42 | 2,000,000 | 2,215,120 | |
Virgin Islands Public Finance | |||||
Authority, Revenue (Virgin | |||||
Islands Matching Fund Loan Note) | 5.00 | 10/1/25 | 2,500,000 | 2,794,475 | |
Total Long-Term Municipal Investments | |||||
(cost $191,010,870) | 207,463,189 |
14
Short-Term Municipal | Coupon | Maturity | Principal | |||
Investments—1.5% | Rate (%) | Date | Amount ($) | Value ($) | ||
Massachusetts | ||||||
Massachusetts Development Finance | ||||||
Agency, Revenue (Boston | ||||||
University Issue) (LOC; | ||||||
JPMorgan Chase Bank) | 0.22 | 11/1/12 | 1,200,000 | c,e | 1,200,000 | |
Massachusetts Health and | ||||||
Educational Facilities | ||||||
Authority, Revenue (Stonehill | ||||||
College Issue) (LOC; | ||||||
JPMorgan Chase Bank) | 0.21 | 11/1/12 | 2,000,000 | c,e | 2,000,000 | |
Total Short-Term Municipal Investments | ||||||
(cost $3,200,000) | 3,200,000 | |||||
Total Investments (cost $194,210,870) | 99.0 | % | 210,663,189 | |||
Cash and Receivables (Net) | 1.0 | % | 2,155,912 | |||
Net Assets | 100.0 | % | 212,819,101 |
a These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are |
collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on |
the municipal issue and to retire the bonds in full at the earliest refunding date. |
b Variable rate security—interest rate subject to periodic change. |
c At October 31, 2012, the fund had $57,824,941 or 27.2% of net assets invested in securities whose payment of |
principal and interest is dependent upon revenues generated from education. |
d Security issued with a zero coupon. Income is recognized through the accretion of discount. |
e Variable rate demand note—rate shown is the interest rate in effect at October 31, 2012. Maturity date represents |
the next demand date, or the ultimate maturity date if earlier. |
The Fund | 15 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Abbreviations | |||
ABAG | Association of Bay Area | ACA | American Capital Access |
Governments | |||
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company |
AMBAC | American Municipal Bond | ARRN | Adjustable Rate |
Assurance Corporation | Receipt Notes | ||
BAN | Bond Anticipation Notes | BPA | Bond Purchase Agreement |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | DRIVERS | Derivative Inverse |
Tax-Exempt Receipts | |||
EDR | Economic Development | EIR | Environmental Improvement |
Revenue | Revenue | ||
FGIC | Financial Guaranty | FHA | Federal Housing |
Insurance Company | Administration | ||
FHLB | Federal Home | FHLMC | Federal Home Loan Mortgage |
Loan Bank | Corporation | ||
FNMA | Federal National | GAN | Grant Anticipation Notes |
Mortgage Association | |||
GIC | Guaranteed Investment | GNMA | Government National Mortgage |
Contract | Association | ||
GO | General Obligation | HR | Hospital Revenue |
IDB | Industrial Development Board | IDC | Industrial Development Corporation |
IDR | Industrial Development | LIFERS | Long Inverse Floating |
Revenue | Exempt Receipts | ||
LOC | Letter of Credit | LOR | Limited Obligation Revenue |
LR | Lease Revenue | MERLOTS | Municipal Exempt Receipt |
Liquidity Option Tender | |||
MFHR | Multi-Family Housing Revenue | MFMR | Multi-Family Mortgage Revenue |
PCR | Pollution Control Revenue | PILOT | Payment in Lieu of Taxes |
P-FLOATS | Puttable Floating Option | PUTTERS | Puttable Tax-Exempt Receipts |
Tax-Exempt Receipts | |||
RAC | Revenue Anticipation Certificates | RAN | Revenue Anticipation Notes |
RAW | Revenue Anticipation Warrants | ROCS | Reset Options Certificates |
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 |
SPEARS | Short Puttable Exempt | SWDR | Solid Waste Disposal Revenue |
Adjustable Receipts | |||
TAN | Tax Anticipation Notes | TAW | Tax Anticipation Warrants |
TRAN | Tax and Revenue Anticipation Notes | XLCA | XL Capital Assurance |
16
Summary of Combined Ratings (Unaudited) | |||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† |
AAA | Aaa | AAA | 14.0 | ||
AA | Aa | AA | 46.6 | ||
A | A | A | 14.7 | ||
BBB | Baa | BBB | 18.9 | ||
BB | Ba | BB | .2 | ||
F1 | MIG1/P1 | SP1/A1 | 1.5 | ||
Not Ratedf | Not Ratedf | Not Ratedf | 4.1 | ||
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 | 17 |
STATEMENT OF ASSETS AND LIABILITIES |
October 31, 2012 (Unaudited) |
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments | 194,210,870 | 210,663,189 | |
Interest receivable | 2,653,263 | ||
Receivable for shares of Beneficial Interest subscribed | 150 | ||
Prepaid expenses | 18,743 | ||
213,335,345 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 129,794 | ||
Cash overdraft due to Custodian | 65,691 | ||
Payable for shares of Beneficial Interest redeemed | 260,102 | ||
Accrued expenses | 60,657 | ||
516,244 | |||
Net Assets ($) | 212,819,101 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 196,224,783 | ||
Accumulated undistributed investment income—net | 7,306 | ||
Accumulated net realized gain (loss) on investments | 134,693 | ||
Accumulated net unrealized appreciation | |||
(depreciation) on investments | 16,452,319 | ||
Net Assets ($) | 212,819,101 | ||
Net Asset Value Per Share | |||
Class A | Class C | Class Z | |
Net Assets ($) | 40,334,612 | 4,170,014 | 168,314,475 |
Shares Outstanding | 3,329,211 | 343,898 | 13,894,172 |
Net Asset Value Per Share ($) | 12.12 | 12.13 | 12.11 |
See notes to financial statements. |
18
STATEMENT OF OPERATIONS |
Six Months Ended October 31, 2012 (Unaudited) |
Investment Income ($): | ||
Interest Income | 4,365,941 | |
Expenses: | ||
Management fee—Note 3(a) | 585,573 | |
Shareholder servicing costs—Note 3(c) | 146,748 | |
Professional fees | 32,846 | |
Registration fees | 17,408 | |
Distribution fees—Note 3(b) | 15,645 | |
Custodian fees—Note 3(c) | 11,829 | |
Trustees’ fees and expenses—Note 3(d) | 7,601 | |
Prospectus and shareholders’ reports | 7,094 | |
Loan commitment fees—Note 2 | 1,045 | |
Miscellaneous | 17,819 | |
Total Expenses | 843,608 | |
Less—reduction in fees due to earnings credits—Note 3(c) | (125 | ) |
Net Expenses | 843,483 | |
Investment Income—Net | 3,522,458 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | 120,075 | |
Net unrealized appreciation (depreciation) on investments | 2,975,869 | |
Net Realized and Unrealized Gain (Loss) on Investments | 3,095,944 | |
Net Increase in Net Assets Resulting from Operations | 6,618,402 | |
See notes to financial statements. |
The Fund | 19 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2012 | Year Ended | |||
(Unaudited) | April 30, 2012a | |||
Operations ($): | ||||
Investment income—net | 3,522,458 | 7,548,827 | ||
Net realized gain (loss) on investments | 120,075 | 273,655 | ||
Net unrealized appreciation | ||||
(depreciation) on investments | 2,975,869 | 16,035,247 | ||
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 6,618,402 | 23,857,729 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (638,369 | ) | (1,367,965 | ) |
Class B Shares | — | (4,543 | ) | |
Class C Shares | (49,785 | ) | (101,732 | ) |
Class Z Shares | (2,826,998 | ) | (6,059,925 | ) |
Net realized gain on investments: | ||||
Class A Shares | — | (154,086 | ) | |
Class B Shares | — | (735 | ) | |
Class C Shares | — | (14,342 | ) | |
Class Z Shares | — | (637,769 | ) | |
Total Dividends | (3,515,152 | ) | (8,341,097 | ) |
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 1,039,560 | 2,897,391 | ||
Class B Shares | — | 541 | ||
Class C Shares | 149,382 | 519,271 | ||
Class Z Shares | 3,079,473 | 5,483,597 | ||
Dividends reinvested: | ||||
Class A Shares | 487,888 | 1,154,936 | ||
Class B Shares | — | 3,105 | ||
Class C Shares | 20,382 | 46,132 | ||
Class Z Shares | 2,170,436 | 5,197,001 | ||
Cost of shares redeemed: | ||||
Class A Shares | (1,487,250 | ) | (3,511,581 | ) |
Class B Shares | — | (204,324 | ) | |
Class C Shares | (114,620 | ) | (164,594 | ) |
Class Z Shares | (5,639,352 | ) | (10,237,233 | ) |
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | (294,101 | ) | 1,184,242 | |
Total Increase (Decrease) in Net Assets | 2,809,149 | 16,700,874 | ||
Net Assets ($): | ||||
Beginning of Period | 210,009,952 | 193,309,078 | ||
End of Period | 212,819,101 | 210,009,952 | ||
Undistributed investment income—net | 7,306 | — |
20
Six Months Ended | ||||
October 31, 2012 | Year Ended | |||
(Unaudited) | April 30, 2012a | |||
Capital Share Transactions: | ||||
Class Ab | ||||
Shares sold | 86,146 | 251,067 | ||
Shares issued for dividends reinvested | 40,417 | 99,624 | ||
Shares redeemed | (123,317 | ) | (302,552 | ) |
Net Increase (Decrease) in Shares Outstanding | 3,246 | 48,139 | ||
Class Bb | ||||
Shares sold | — | 46 | ||
Shares issued for dividends reinvested | — | 269 | ||
Shares redeemed | — | (17,234 | ) | |
Net Increase (Decrease) in Shares Outstanding | — | (16,919 | ) | |
Class C | ||||
Shares sold | 12,355 | 44,609 | ||
Shares issued for dividends reinvested | 1,688 | 3,972 | ||
Shares redeemed | (9,477 | ) | (14,528 | ) |
Net Increase (Decrease) in Shares Outstanding | 4,566 | 34,053 | ||
Class Z | ||||
Shares sold | 255,461 | 473,828 | ||
Shares issued for dividends reinvested | 179,827 | 448,339 | ||
Shares redeemed | (468,982 | ) | (883,774 | ) |
Net Increase (Decrease) in Shares Outstanding | (33,694 | ) | 38,393 |
a | Effective as of the close of business on March 13, 2012, the fund no longer offers Class B shares. |
b | During the period ended April 30, 2012, 8,110 Class B shares representing $96,574 were automatically converted |
to 8,098 Class A shares. | |
See notes to financial statements. |
The Fund | 21 |
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2012 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.94 | 11.05 | 11.44 | 10.91 | 11.29 | 11.66 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .19 | .41 | .43 | .45 | .46 | .46 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .18 | .94 | (.33 | ) | .54 | (.36 | ) | (.36 | ) | |||
Total from Investment Operations | .37 | 1.35 | .10 | .99 | .10 | .10 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.19 | ) | (.41 | ) | (.43 | ) | (.45 | ) | (.46 | ) | (.46 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.05 | ) | (.06 | ) | (.01 | ) | (.02 | ) | (.01 | ) | |
Total Distributions | (.19 | ) | (.46 | ) | (.49 | ) | (.46 | ) | (.48 | ) | (.47 | ) |
Net asset value, end of period | 12.12 | 11.94 | 11.05 | 11.44 | 10.91 | 11.29 | ||||||
Total Return (%)b | 3.13 | c | 12.40 | .94 | 9.16 | 1.07 | .92 | |||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .94 | d | .95 | .94 | .94 | .94 | .93 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .94 | d | .95 | .94 | .94 | .94 | .92 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.16 | d | 3.56 | 3.84 | 4.00 | 4.25 | 4.01 | |||||
Portfolio Turnover Rate | 7.04 | c | 11.44 | 15.03 | 12.60 | 9.04 | 18.21 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 40,335 | 39,705 | 36,232 | 41,909 | 39,079 | 44,178 |
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
Six Months Ended | ||||||||||||
October 31, 2012 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.95 | 11.06 | 11.45 | 10.92 | 11.30 | 11.67 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .15 | .32 | .35 | .36 | .38 | .37 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .18 | .94 | (.33 | ) | .54 | (.36 | ) | (.36 | ) | |||
Total from Investment Operations | .33 | 1.26 | .02 | .90 | .02 | .01 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.15 | ) | (.32 | ) | (.35 | ) | (.36 | ) | (.38 | ) | (.37 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.05 | ) | (.06 | ) | (.01 | ) | (.02 | ) | (.01 | ) | |
Total Distributions | (.15 | ) | (.37 | ) | (.41 | ) | (.37 | ) | (.40 | ) | (.38 | ) |
Net asset value, end of period | 12.13 | 11.95 | 11.06 | 11.45 | 10.92 | 11.30 | ||||||
Total Return (%)b | 2.73 | c | 11.54 | .20 | 8.33 | .32 | .17 | |||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.71 | d | 1.71 | 1.68 | 1.70 | 1.69 | 1.68 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.71 | d | 1.71 | 1.68 | 1.70 | 1.69 | 1.67 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 2.39 | d | 2.79 | 3.09 | 3.21 | 3.51 | 3.26 | |||||
Portfolio Turnover Rate | 7.04 | c | 11.44 | 15.03 | 12.60 | 9.04 | 18.21 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 4,170 | 4,054 | 3,377 | 3,362 | 3,163 | 3,314 |
a | Based on average shares outstanding at each month end. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements. |
The Fund | 23 |
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||||||||
October 31, 2012 | Year Ended April 30, | |||||||||||
Class Z Shares | (Unaudited) | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.94 | 11.05 | 11.44 | 10.91 | 11.29 | 11.66 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .20 | .44 | .46 | .47 | .48 | .48 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .17 | .94 | (.33 | ) | .54 | (.36 | ) | (.36 | ) | |||
Total from Investment Operations | .37 | 1.38 | .13 | 1.01 | .12 | .12 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.20 | ) | (.44 | ) | (.46 | ) | (.47 | ) | (.48 | ) | (.48 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.05 | ) | (.06 | ) | (.01 | ) | (.02 | ) | (.01 | ) | |
Total Distributions | (.20 | ) | (.49 | ) | (.52 | ) | (.48 | ) | (.50 | ) | (.49 | ) |
Net asset value, end of period | 12.11 | 11.94 | 11.05 | 11.44 | 10.91 | 11.29 | ||||||
Total Return (%) | 3.15 | b | 12.64 | 1.16 | 9.39 | 1.28 | 1.14 | |||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .73 | c | .74 | .73 | .73 | .73 | .71 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .73 | c | .74 | .73 | .73 | .73 | .70 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.37 | c | 3.78 | 4.05 | 4.18 | 4.46 | 4.23 | |||||
Portfolio Turnover Rate | 7.04 | b | 11.44 | 15.03 | 12.60 | 9.04 | 18.21 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 168,314 | 166,251 | 153,513 | 167,326 | 160,394 | 177,652 |
a | Based on average shares outstanding at each month end. |
b | Not annualized. |
c | Annualized. |
See notes to financial statements. |
24
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 C and Class Z. Class A shares are subject to a sales charge imposed at the time of purchase. Class C shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class C shares redeemed within one year of purchase. Class Z shares are sold at net asset value per share generally only to shareholders of the fund who received Class Z shares in exchange for their shares of a Dreyfus managed fund as a result of the reorganization of such Dreyfus-managed fund, and who continue to maintain accounts with the fund at the time of purchase. Class Z shares generally are not available for new accounts. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The Fund | 25 |
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 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.
26
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 Company’s Board of Trustees (the “Board”). 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 the following: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. All of the preceding securities are categorized within Level 2 of the fair value hierarchy.
The Fund | 27 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The Service’s procedures are reviewed by Dreyfus under the general supervision of the Board.
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, 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. 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, 2012 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable | Unobservable | ||
Quoted Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in Securities: | ||||
Municipal Bonds | — | 210,663,189 | — | 210,663,189 |
At October 31, 2012, there were no transfers between Level 1 and Level 2 of the fair value hierarchy.
(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 amorti-
28
zation 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.
As of and during the period ended October 31, 2012, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
The Fund | 29 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Each of the tax years in the three-year period ended April 30, 2012 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, 2012 was as follows: tax-exempt income $7,535,214, ordinary income $28,143 and long-term capital gains $777,740. 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. Effective October 10, 2012, the $225 million unsecured credit facility with Citibank, N.A., was decreased to $210 million. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended on October 31, 2012, 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, 2012, the Distributor retained $420 from commissions earned on sales of the fund’s Class A shares.
30
(b) Under the Distribution Plan adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of .50% of the value of the average daily net assets of Class C shares. During the period ended October 31, 2012, Class C shares were charged $15,645, pursuant to the Distribution Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts.The Distributor may make payments to Service Agents (securities dealers, financial institutions or other industry professionals) in respect of these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2012, Class A and Class C shares were charged $50,650 and $5,215, 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, 2012, Class Z shares were charged $39,642 pursuant to the Shareholders Services Plan.
The fund has arrangements with the transfer agent and the custodian whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset transfer agency and
The Fund | 31 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
custody fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
The fund compensates Dreyfus Transfer, Inc. (“DTI”), a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing transfer agency services for the fund and, since May 29, 2012, cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2012, the fund was charged $27,147 for transfer agency services and $824 for cash management services. Cash management fees were partially offset by earnings credits of $97. These fees are included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended October 31, 2012, the fund was charged $11,829 pursuant to the custody agreement.
Prior to May 29, 2012, the fund compensated The Bank of NewYork Mellon under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. Subsequent to May 29, 2012,The Bank of NewYork Mellon has continued to provide shareholder redemption draft processing services. During the period ended October 31, 2012, the fund was charged $916 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 $28.
During the period ended October 31, 2012, the fund was charged $3,981 for services performed by the Chief Compliance Officer and his staff.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $99,305, Distribution Plan fees $2,655, Shareholder Services Plan fees $9,465, custodian fees $5,400, Chief Compliance Officer fees $2,654 and transfer agency per account fees $10,315.
32
(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, 2012, amounted to $14,626,296 and $16,769,295, respectively.
At October 31, 2012, accumulated net unrealized appreciation on investments was $16,452,319, consisting of $17,607,421 gross unrealized appreciation and $1,155,102 gross unrealized depreciation.
At October 31, 2012, 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 | 33 |
INFORMATION ABOUT THE RENEWAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the fund’s Board of Trustees held on July 24, 2012, 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 Dreyfus representatives. 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 considered information previously provided to them in presentations from Dreyfus representatives regarding the nature, extent, and quality of the services provided to funds in the Dreyfus fund complex, and Dreyfus representatives 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 (such as retail direct or intermediary, in which intermediaries typically are paid by the fund and/or Dreyfus) and Dreyfus’ corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each intermediary or distribution channel, as applicable to the fund.
The Board 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 also considered Dreyfus’ extensive administrative, accounting, and compliance infrastructures.
34
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio.The Board 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, 2012, 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 the date of its analysis. 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 discussed the results of the comparisons and noted that the fund’s total return performance was at or below the Performance Group median for various periods, ranking in the fourth quartile of the Performance Group for most of the periods, and was generally above the Performance Universe median for the various peri-ods.The Board also noted that the fund’s yield performance was at or below the Performance Group median for all of the ten one-year periods ended June 30th, and at or above the Performance Universe median for seven of the ten one-year periods ended June 30th. Dreyfus also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s Lipper category average, noting that the fund outperformed its Lipper category average in seven of the past ten calendar years. Dreyfus representatives discussed with the Board the reasons for
The Fund | 35 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
the relative underperformance 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 also received a presentation from the fund’s portfolio managers during which they discussed the fund’s investment strategy, including the emphasis on quality given the current market environment, and the factors that affected the fund’s performance.
The Board 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.The Board 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.
Dreyfus representatives reviewed with the Board 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(s) 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 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
36
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 should consider the profitability analysis (1) as part of the 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. Dreyfus representatives 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 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 | 37 |
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 fund management’s efforts to improve 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.
In evaluating the Agreement, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with Dreyfus and its affiliates, of the fund and the services provided to the fund by Dreyfus.The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreement, including information on the investment performance of the fund in comparison to similar mutual funds and benchmark performance indices; general
38
market outlook as applicable to the fund; and compliance reports. 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 and Dreyfus representatives. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on their consideration of the same or similar arrangements in prior years. The Board determined that renewal of the Agreement was in the best interests of the fund and its shareholders.
The Fund | 39 |
NOTES
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
16 | Statement of Assets and Liabilities |
17 | Statement of Operations |
18 | Statement of Changes in Net Assets |
20 | Financial Highlights |
22 | Notes to Financial Statements |
31 | 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
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, 2012, through October 31, 2012. 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.
The municipal bond market generally advanced during the reporting period in response to positive supply-and-demand dynamics, improving credit conditions, and investors’ changing expectations of global and domestic economic conditions.While monthly variations in economic data have been pronounced, the longer-term pace of U.S. economic growth has been relatively consistent at about half the average rate achieved in prior recoveries. However, a number of headwinds remain, including the potential effects of the European financial crisis and slower growing emerging markets on U.S. exports.
In light of current uncertainties surrounding fiscal policy and tax reforms, the U.S. economic recovery appears likely to persist at subpar levels over the first half of 2013. However, the nation’s easy monetary policy and a successful resolution of the fiscal debate may prompt corporate decision-makers to increase capital spending, which could have positive implications for the U.S. economy over the second half of the new year. As always, we encourage you to stay in touch with your financial advisor as new developments unfold.
Thank you for your continued confidence and support.
![](https://capedge.com/proxy/N-CSRS/0000806176-12-000042/smbmnncsrx4x1.jpg)
Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
November 15, 2012
2
DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2012, through October 31, 2012, as provided by David Belton and Jeffrey Burger, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended October 31, 2012, Class A shares of Dreyfus Minnesota Fund, a series of Dreyfus State Municipal Bond Funds, produced a total return of 1.75%, and Class C shares returned 1.30%.1 In comparison, the Barclays 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 3.34% for the same period.2
Falling long-term interest rates and favorable supply-and-demand dynamics continued to support municipal bond prices during the reporting period. The fund produced lower returns than its benchmark, as Minnesota bonds generally lagged national market averages. In addition, overweighted exposure to bonds issued on behalf of utilities and construction of single family homes undermined the fund’s relative performance.
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. For additional yield, the fund may invest up to 30% of its assets in municipal bonds rated below investment grade or the unrated equivalent as determined by Dreyfus. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
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
The Fund | 3 |
DISCUSSION OF FUND PERFORMANCE (continued)
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 their relative value.
Supply-and-Demand Dynamics Supported Municipal Bonds
The reporting period began in the wake of several months of U.S. economic recovery, in which investors responded positively to employment gains and increased manufacturing activity. However, the sustainability of the recovery was called into question in the spring, when the U.S. labor market’s rebound slowed as the public sector shed jobs and the private sector’s employment gains proved more anemic than expected.
Although these headwinds sparked a renewed flight to perceived safe havens, such as U.S. Treasury securities, municipal bonds generally remained strong across the credit-quality range throughout the reporting period, in part due to robust demand from investors seeking higher levels of after-tax income. Municipal bond prices also responded positively to falling long-term interest rates stemming from quantitative easing and other stimulative measures by the Federal Reserve Board. Meanwhile, new issuance volumes remained relatively low when political pressure led to less borrowing for capital projects and municipalities primarily issued new bonds to refinance older debt, resulting in a net decrease in the national supply of tax-exempt securities. From a credit quality perspective, Minnesota’s unemployment rate has remained lower than national averages, supporting tax revenues and the state’s fiscal condition.
In this environment, lower-rated and longer maturity municipal bonds led the market higher, while highly rated and shorter-term securities generally lagged market averages.
Minnesota Bonds Lagged National Market Averages
The fund’s relative performance was hampered by the underperformance of Minnesota municipal securities compared to national averages. Minnesota primarily issues high-grade securities, which lagged at a time when investors sought higher yields from lower rated securities. In addition, the fund was hurt by overweighted exposure to municipal bonds backed by utilities and construction projects for single family homes. Finally, one of the fund’s holdings was subject to a credit-rating downgrade during the reporting period.
4
The fund achieved better relative results through an emphasis on higher yielding, revenue-backed municipal bonds, with especially robust contributions from securities backed by revenues from hospitals, educational institutions, and the state’s settlement of litigation with U.S. tobacco companies. Moreover, the fund benefited from a relatively long average duration, which boosted its participation in market rallies when long-term interest rates declined.
Adjusting to Changing Market Conditions
We have been encouraged by recently improved data, but the U.S. economy remains vulnerable to uncertainty regarding future fiscal policies.We expect market volatility to increase at times amid potentially contentious negotiations to avert automatic federal tax hikes and spending cuts scheduled for early 2013. However, Minnesota fared better than most other states during the downturn, and we expect the state’s credit conditions to remain sound. Therefore, we have continued to favor income-oriented municipal bonds over their lower yielding counterparts, and we have maintained the fund’s average duration in a range we consider slightly longer than market averages. In addition, we have continued to monitor the market for more attractive relative values among Minnesota municipal bonds.
November 15, 2012
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 charge imposed on | |
redemptions in the case of Class C shares. Had these charges been reflected, returns would have been lower. Past | |
performance is no guarantee of future results. 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 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, 2012 to October 31, 2012. 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, 2012 | ||||
Class A | Class C | |||
Expenses paid per $1,000† | $ 4.63 | $ 8.52 | ||
Ending value (after expenses) | $ 1,017.50 | $ 1,013.00 |
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, 2012
Class A Class C
Expenses paid per $1,000† $ 4.63 $ 8.54 Ending value (after expenses) $1,020.62 $1,016.74
† Expenses are equal to the fund’s annualized expense ratio of .91% for Class A and 1.68% for Class C, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
October 31, 2012 (Unaudited) |
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments—96.7% | Rate (%) | Date | Amount ($) | Value ($) | |
Minnesota—93.5% | |||||
Andover Economic Development | |||||
Authority, Public Facility LR (City | |||||
of Andover Community Center) | 5.20 | 2/1/34 | 885,000 | 931,480 | |
Andover Economic Development | |||||
Authority, Public Facility LR (City | |||||
of Andover Community Center) | 5.20 | 2/1/34 | 615,000 | 647,300 | |
Blooming Prairie Independent | |||||
School District Number 756, | |||||
GO School Building Bonds | |||||
(Minnesota School District | |||||
Credit Enhancement Program) | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 4.75 | 1/1/27 | 1,400,000 | 1,571,934 | |
Coon Rapids, | |||||
Multifamily Rental Housing | |||||
Revenue (GNMA Collateralized | |||||
Mortgage Loan—Mississippi | |||||
View Apartments Project) | |||||
(Collateralized; FHA) | 4.95 | 10/20/41 | 2,700,000 | 2,710,692 | |
Dakota County Community | |||||
Development Agency, SFMR | |||||
(Mortgage-Backed Securities | |||||
Program) (Collateralized: | |||||
FHLMC, FNMA and GNMA) | 5.30 | 12/1/39 | 353,032 | 375,647 | |
Hennepin County, | |||||
GO | 4.00 | 12/1/17 | 1,140,000 | 1,324,019 | |
Hennepin County, | |||||
Second Lien Sales Tax Revenue | |||||
(Ballpark Project) | 5.00 | 12/15/29 | 1,500,000 | 1,727,415 | |
Hutchinson, | |||||
Public Utility Revenue | 5.00 | 12/1/22 | 200,000 | 246,382 | |
Lakeville Independent School | |||||
District Number 194, GO School | |||||
Building Bonds (Minnesota School | |||||
District Credit Enhancement | |||||
Program) (Insured; FGIC) | 5.50 | 2/1/24 | 5,700,000 | 5,767,146 | |
Mahtomedi Independent School | |||||
District Number 832, GO School | |||||
Building Bonds (Minnesota School | |||||
District Credit Enhancement | |||||
Program) (Insured; National Public | |||||
Finance Guarantee Corp.) | 0.00 | 2/1/17 | 1,275,000 | a | 1,216,669 |
The Fund | 7 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Minnesota (continued) | |||||
Metropolitan Council | |||||
(Minneapolis-Saint Paul | |||||
Metropolitan Area) GO | |||||
Wastewater Revenue | 5.00 | 9/1/22 | 2,500,000 | 3,236,775 | |
Metropolitan Council | |||||
(Minneapolis-Saint Paul | |||||
Metropolitan Area) GO | |||||
Wastewater Revenue | 5.00 | 9/1/23 | 2,000,000 | 2,565,640 | |
Metropolitan Council | |||||
(Minneapolis-Saint Paul | |||||
Metropolitan Area) GO | |||||
Wastewater Revenue | 5.00 | 9/1/25 | 2,000,000 | 2,534,160 | |
Minneapolis, | |||||
GO | 0.00 | 12/1/14 | 1,825,000 | a | 1,810,546 |
Minneapolis, | |||||
Health Care System Revenue | |||||
(Fairview Health Services) | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 6.50 | 11/15/38 | 3,000,000 | 3,710,040 | |
Minneapolis, | |||||
Tax Increment Revenue (Saint | |||||
Anthony Falls Project) | 5.75 | 2/1/27 | 1,000,000 | 1,006,120 | |
Minneapolis and Saint Paul Housing | |||||
and Redevelopment Authority, | |||||
Health Care Facilities Revenue | |||||
(Childrens’s Health Care) | 5.25 | 8/15/35 | 1,000,000 | 1,147,350 | |
Minneapolis and Saint Paul Housing | |||||
and Redevelopment Authority, | |||||
Health Care Facility Revenue | |||||
(HealthPartners Obligated | |||||
Group Project) | 6.00 | 12/1/18 | 1,000,000 | 1,054,050 | |
Minneapolis and Saint Paul Housing | |||||
and Redevelopment Authority, | |||||
Health Care Facility Revenue | |||||
(HealthPartners Obligated | |||||
Group Project) | 6.00 | 12/1/20 | 2,290,000 | 2,411,736 | |
Minneapolis and Saint Paul Housing | |||||
and Redevelopment Authority, | |||||
Health Care System Revenue | |||||
(Allina Health System) | 5.25 | 11/15/29 | 1,000,000 | 1,126,660 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Minnesota (continued) | ||||
Minneapolis and Saint Paul | ||||
Metropolitan Airports Commission, | ||||
Senior Airport Revenue | 5.00 | 1/1/22 | 2,000,000 | 2,268,740 |
Minneapolis-Saint Paul | ||||
Metropolitan Airports Commission, | ||||
Subordinate Airport Revenue | 5.00 | 1/1/26 | 1,000,000 | 1,180,730 |
Minnesota, | ||||
911 Revenue (Public Safety | ||||
Radio Communications | ||||
System Project) | 5.00 | 6/1/25 | 1,000,000 | 1,180,990 |
Minnesota, | ||||
GO (State Trunk | ||||
Highway Bonds) | 5.00 | 8/1/22 | 1,500,000 | 1,931,775 |
Minnesota, | ||||
GO (Various Purpose) | 5.00 | 8/1/22 | 2,500,000 | 3,219,625 |
Minnesota, | ||||
GO (Various Purpose) | 5.00 | 8/1/25 | 2,500,000 | 3,144,550 |
Minnesota Agricultural and | ||||
Economic Development Board, | ||||
Health Care System Revenue | ||||
(Fairview Health Care Systems) | 6.38 | 11/15/29 | 150,000 | 150,336 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(Carleton College) | 5.00 | 3/1/30 | 1,000,000 | 1,157,930 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(College of Saint Scholastica, Inc.) | 5.13 | 12/1/40 | 750,000 | 811,912 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(Gustavus Adolphus College) | 5.00 | 10/1/31 | 750,000 | 858,405 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(Macalester College) | 5.00 | 6/1/35 | 1,635,000 | 1,894,311 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(Saint Olaf College) | 5.00 | 10/1/21 | 1,000,000 | 1,188,610 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(University of Saint Thomas) | 5.00 | 4/1/29 | 1,000,000 | 1,089,690 |
The Fund | 9 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Minnesota (continued) | ||||
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(University of Saint Thomas) | 5.00 | 10/1/29 | 1,500,000 | 1,703,640 |
Minnesota Higher Education | ||||
Facilities Authority, Revenue | ||||
(University of Saint Thomas) | 5.00 | 10/1/39 | 1,700,000 | 1,905,836 |
Minnesota Housing Finance | ||||
Agency, Residential Housing | ||||
Finance Revenue | 4.65 | 7/1/22 | 2,090,000 | 2,192,870 |
Minnesota Housing Finance | ||||
Agency, Residential Housing | ||||
Finance Revenue | 5.10 | 7/1/38 | 1,790,000 | 1,860,956 |
Minnesota Municipal Power Agency, | ||||
Electric Revenue | 5.00 | 10/1/37 | 2,000,000 | 2,175,340 |
Minnesota Office of Higher | ||||
Education, Supplemental | ||||
Student Loan Program Revenue | 5.00 | 11/1/29 | 1,750,000 | 1,975,400 |
Northern Municipal Power Agency, | ||||
Electric System Revenue | 5.00 | 1/1/20 | 2,500,000 | 3,042,150 |
Northfield, | ||||
HR | 5.38 | 11/1/31 | 1,240,000 | 1,301,752 |
Olmsted County, | ||||
GO Crossover Bonds | 5.00 | 2/1/21 | 750,000 | 956,040 |
Ramsey, | ||||
LR (Pact Charter School Project) | 6.75 | 12/1/33 | 1,000,000 | 1,037,850 |
Rochester, | ||||
GO Waste Water Revenue | 5.00 | 2/1/22 | 1,500,000 | 1,914,330 |
Rochester, | ||||
GO Waste Water Revenue | 5.00 | 2/1/24 | 1,795,000 | 2,251,253 |
Rochester, | ||||
Health Care Facilities Revenue | ||||
(Mayo Clinic) | 4.50 | 11/15/21 | 1,000,000 | 1,214,810 |
Rochester, | ||||
Health Care Facilities Revenue | ||||
(Mayo Clinic) | 5.00 | 11/15/38 | 1,000,000 | 1,160,880 |
10
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Minnesota (continued) | |||||
Rosemount-Apple Valley-Eagan | |||||
Independent School District | |||||
Number 196, GO School Building | |||||
Bonds (Minnesota School | |||||
District Credit Enhancement | |||||
Program) (Insured; National | |||||
Public Finance Guarantee Corp.) | 0.00 | 4/1/14 | 2,960,000 | a | 2,944,549 |
Saint Cloud, | |||||
Health Care Revenue | |||||
(CentraCare Health System) | 5.13 | 5/1/30 | 1,000,000 | 1,115,100 | |
Saint Cloud, | |||||
Health Care Revenue | |||||
(CentraCare Health System | |||||
Project) (Insured; Assured | |||||
Guaranty Municipal Corp.) | 5.50 | 5/1/39 | 2,000,000 | 2,229,760 | |
Saint Louis Park, | |||||
Health Care Facilities Revenue | |||||
(Park Nicollet Health Services) | 5.75 | 7/1/30 | 1,000,000 | 1,135,870 | |
Saint Louis Park, | |||||
Health Care Facilities Revenue | |||||
(Park Nicollet Health Services) | 5.75 | 7/1/39 | 3,000,000 | 3,410,520 | |
Saint Paul Housing and | |||||
Redevelopment Authority, | |||||
Parking Revenue (Parking | |||||
Facilities Project) | 5.00 | 8/1/35 | 650,000 | 715,474 | |
Saint Paul Housing and | |||||
Redevelopment Authority, | |||||
Recreational Facility LR | |||||
(Jimmy Lee Recreational Center) | 5.00 | 12/1/32 | 750,000 | 811,935 | |
Saint Paul Port Authority, | |||||
Revenue (Amherst H. Wilder | |||||
Foundation Project) | 5.00 | 12/1/29 | 2,000,000 | 2,244,740 | |
Southern Minnesota Municipal Power | |||||
Agency, Power Supply System | |||||
Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 0.00 | 1/1/25 | 4,505,000 | a | 3,005,331 |
The Fund | 11 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Minnesota (continued) | |||||
Southern Minnesota Municipal Power | |||||
Agency, Power Supply System | |||||
Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 0.00 | 1/1/26 | 4,625,000 | a | 2,942,194 |
Tobacco Securitization Authority | |||||
of Minnesota, Tobacco | |||||
Settlement Revenue Bonds | 5.25 | 3/1/31 | 2,500,000 | 2,789,750 | |
Todd, Morrison, Cass and Wadena | |||||
Counties United Hospital District, | |||||
Health Care Facility Revenue | |||||
(Lakewood Health System) | 5.00 | 12/1/21 | 1,000,000 | 1,057,890 | |
University of Minnesota Regents, | |||||
GO | 5.00 | 12/1/24 | 1,000,000 | 1,246,060 | |
University of Minnesota Regents, | |||||
GO | 5.00 | 12/1/36 | 1,500,000 | 1,772,910 | |
Vadnais Heights Economic | |||||
Development Authority, | |||||
Recovery Zone Facility LR | |||||
(Community and Recreational | |||||
Sports Facilities Project) | 5.25 | 2/1/41 | 2,460,000 | 1,063,384 | |
Washington County Housing and | |||||
Redevelopment Authority, | |||||
Annual Appropriation Limited | |||||
Tax and Gross Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.50 | 2/1/32 | 610,000 | 611,263 | |
Western Minnesota Municipal Power | |||||
Agency, Power Supply Revenue | 5.00 | 1/1/30 | 1,000,000 | 1,208,700 | |
Willmar, | |||||
GO, HR (Rice Memorial | |||||
Hospital Project) | 5.00 | 2/1/24 | 1,000,000 | 1,211,170 |
12
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Minnesota (continued) | |||||
Winona, | |||||
Health Care Facilities Revenue | |||||
(Winona Health Obligated Group) | 5.15 | 7/1/31 | 1,500,000 | 1,594,020 | |
Winona, | |||||
Health Care Facilities Revenue | |||||
(Winona Health Obligated Group) | 5.00 | 7/1/34 | 500,000 | 528,220 | |
U.S. Related—3.2% | |||||
Puerto Rico Aqueduct and Sewer | |||||
Authority, Senior Lien Revenue | 5.13 | 7/1/37 | 500,000 | 499,965 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.50 | 7/1/38 | 2,000,000 | 2,058,100 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/42 | 1,250,000 | 1,384,450 | |
Total Investments (cost $110,285,526) | 96.7 | % | 119,473,827 | ||
Cash and Receivables (Net) | 3.3 | % | 4,022,982 | ||
Net Assets | 100.0 | % | 123,496,809 |
a | 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 | ACA | American Capital Access |
Governments | |||
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company |
AMBAC | American Municipal Bond | ARRN | Adjustable Rate |
Assurance Corporation | Receipt Notes | ||
BAN | Bond Anticipation Notes | BPA | Bond Purchase Agreement |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | DRIVERS | Derivative Inverse |
Tax-Exempt Receipts | |||
EDR | Economic Development | EIR | Environmental Improvement |
Revenue | Revenue | ||
FGIC | Financial Guaranty | FHA | Federal Housing |
Insurance Company | Administration | ||
FHLB | Federal Home | FHLMC | Federal Home Loan Mortgage |
Loan Bank | Corporation | ||
FNMA | Federal National | GAN | Grant Anticipation Notes |
Mortgage Association | |||
GIC | Guaranteed Investment | GNMA | Government National Mortgage |
Contract | Association | ||
GO | General Obligation | HR | Hospital Revenue |
IDB | Industrial Development Board | IDC | Industrial Development Corporation |
IDR | Industrial Development | LIFERS | Long Inverse Floating |
Revenue | Exempt Receipts | ||
LOC | Letter of Credit | LOR | Limited Obligation Revenue |
LR | Lease Revenue | MERLOTS | Municipal Exempt Receipt |
Liquidity Option Tender | |||
MFHR | Multi-Family Housing Revenue | MFMR | Multi-Family Mortgage Revenue |
PCR | Pollution Control Revenue | PILOT | Payment in Lieu of Taxes |
P-FLOATS | Puttable Floating Option | PUTTERS | Puttable Tax-Exempt Receipts |
Tax-Exempt Receipts | |||
RAC | Revenue Anticipation Certificates | RAN | Revenue Anticipation Notes |
RAW | Revenue Anticipation Warrants | ROCS | Reset Options Certificates |
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 |
SPEARS | Short Puttable Exempt | SWDR | Solid Waste Disposal Revenue |
Adjustable Receipts | |||
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 | 16.1 | ||
AA | Aa | AA | 43.3 | ||
A | A | A | 31.8 | ||
BBB | Baa | BBB | 6.2 | ||
CC | Ca | CC | .9 | ||
Not Ratedb | Not Ratedb | Not Ratedb | 1.7 | ||
100.0 |
† | Based on total investments. |
b | Securities which, while not rated by Fitch, Moody’s and Standard & Poor’s, have been determined by the Manager to |
be of comparable quality to those rated securities in which the fund may invest. | |
See notes to financial statements. |
The Fund | 15 |
STATEMENT OF ASSETS AND LIABILITIES |
October 31, 2012 (Unaudited) |
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments | 110,285,526 | 119,473,827 |
Cash | 3,913,911 | |
Interest receivable | 1,564,841 | |
Receivable for shares of Beneficial Interest subscribed | 40,350 | |
Prepaid expenses | 12,813 | |
125,005,742 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 98,666 | |
Payable for investment securities purchased | 1,173,220 | |
Payable for shares of Beneficial Interest redeemed | 183,699 | |
Accrued expenses | 53,348 | |
1,508,933 | ||
Net Assets ($) | 123,496,809 | |
Composition of Net Assets ($): | ||
Paid-in capital | 113,655,281 | |
Accumulated undistributed investment income—net | 19,326 | |
Accumulated net realized gain (loss) on investments | 633,901 | |
Accumulated net unrealized appreciation | ||
(depreciation) on investments | 9,188,301 | |
Net Assets ($) | 123,496,809 | |
Net Asset Value Per Share | ||
Class A | Class C | |
Net Assets ($) | 116,480,132 | 7,016,677 |
Shares Outstanding | 7,407,313 | 445,486 |
Net Asset Value Per Share ($) | 15.73 | 15.75 |
See notes to financial statements. |
16
STATEMENT OF OPERATIONS |
Six Months Ended October 31, 2012 (Unaudited) |
Investment Income ($): | ||
Interest Income | 2,657,988 | |
Expenses: | ||
Management fee—Note 3(a) | 343,169 | |
Shareholder servicing costs—Note 3(c) | 184,161 | |
Professional fees | 28,928 | |
Distribution fees—Note 3(b) | 28,444 | |
Registration fees | 11,234 | |
Prospectus and shareholders’ reports | 7,911 | |
Custodian fees—Note 3(c) | 7,195 | |
Trustees’ fees and expenses—Note 3(d) | 2,753 | |
Loan commitment fees—Note 2 | 613 | |
Miscellaneous | 14,547 | |
Total Expenses | 628,955 | |
Less—reduction in expenses due to undertaking—Note 3(a) | (31,190 | ) |
Less—reduction in fees due to earnings credits—Note 3(c) | (40 | ) |
Net Expenses | 597,725 | |
Investment Income—Net | 2,060,263 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | 1,103,433 | |
Net unrealized appreciation (depreciation) on investments | (1,095,057 | ) |
Net Realized and Unrealized Gain (Loss) on Investments | 8,376 | |
Net Increase in Net Assets Resulting from Operations | 2,068,639 | |
See notes to financial statements. |
The Fund | 17 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2012 | Year Ended | |||
(Unaudited) | April 30, 2012a | |||
Operations ($): | ||||
Investment income—net | 2,060,263 | 4,669,668 | ||
Net realized gain (loss) on investments | 1,103,433 | 814,789 | ||
Net unrealized appreciation | ||||
(depreciation) on investments | (1,095,057 | ) | 6,942,267 | |
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 2,068,639 | 12,426,724 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (1,943,936 | ) | (4,397,461 | ) |
Class B Shares | — | (4,516 | ) | |
Class C Shares | (97,001 | ) | (225,322 | ) |
Total Dividends | (2,040,937 | ) | (4,627,299 | ) |
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 3,935,614 | 5,883,696 | ||
Class C Shares | 343,782 | 834,916 | ||
Dividends reinvested: | ||||
Class A Shares | 1,646,503 | 3,629,567 | ||
Class B Shares | — | 4,195 | ||
Class C Shares | 70,056 | 164,592 | ||
Cost of shares redeemed: | ||||
Class A Shares | (4,461,920 | ) | (12,386,275 | ) |
Class B Shares | — | (369,019 | ) | |
Class C Shares | (911,353 | ) | (963,476 | ) |
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | 622,682 | (3,201,804 | ) | |
Total Increase (Decrease) in Net Assets | 650,384 | 4,597,621 | ||
Net Assets ($): | ||||
Beginning of Period | 122,846,425 | 118,248,804 | ||
End of Period | 123,496,809 | 122,846,425 | ||
Undistributed investment income—net | 19,326 | — |
18
Six Months Ended | ||||
October 31, 2012 | Year Ended | |||
(Unaudited) | April 30, 2012a | |||
Capital Share Transactions: | ||||
Class Ab | ||||
Shares sold | 249,905 | 382,647 | ||
Shares issued for dividends reinvested | 104,348 | 236,312 | ||
Shares redeemed | (283,151 | ) | (808,978 | ) |
Net Increase (Decrease) in Shares Outstanding | 71,102 | (190,019 | ) | |
Class Bb | ||||
Shares issued for dividends reinvested | — | 277 | ||
Shares redeemed | — | (24,182 | ) | |
Net Increase (Decrease) in Shares Outstanding | — | (23,905 | ) | |
Class C | ||||
Shares sold | 21,747 | 54,048 | ||
Shares issued for dividends reinvested | 4,432 | 10,695 | ||
Shares redeemed | (57,659 | ) | (62,910 | ) |
Net Increase (Decrease) in Shares Outstanding | (31,480 | ) | 1,833 |
a | Effective as of the close of business on March 13, 2012, the fund no longer offers Class B shares. |
b | During the period ended April 30, 2012, 18,461 Class B shares representing $280,881 were automatically |
converted to 18,491 Class A shares. | |
See notes to financial statements. |
The Fund | 19 |
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2012 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 15.72 | 14.73 | 15.17 | 14.67 | 14.96 | 15.32 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .27 | .60 | .61 | .60 | .63 | .64 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | — | .99 | (.45 | ) | .50 | (.24 | ) | (.36 | ) | |||
Total from Investment Operations | .27 | 1.59 | .16 | 1.10 | (.39 | ) | .28 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.26 | ) | (.60 | ) | (.60 | ) | (.60 | ) | (.62 | ) | (.64 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | — | — | — | (.06 | ) | — | |||||
Total Distributions | (.26 | ) | (.60 | ) | (.60 | ) | (.60 | ) | (.68 | ) | (.64 | ) |
Net asset value, end of period | 15.73 | 15.72 | 14.73 | 15.17 | 14.67 | 14.96 | ||||||
Total Return (%)b | 1.75 | c | 10.94 | 1.04 | 7.61 | 2.89 | 1.86 | |||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .96 | d | .97 | .96 | .94 | .98 | 1.11 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .91 | d | .91 | .96 | .94 | .98 | 1.10 | |||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | — | — | — | — | .02 | .15 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.35 | d | 3.92 | 4.01 | 4.02 | 4.35 | 4.21 | |||||
Portfolio Turnover Rate | 16.05 | c | 9.95 | 15.17 | 12.88 | 14.21 | 14.69 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 116,480 | 115,336 | 110,885 | 123,363 | 114,357 | 105,393 |
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, 2012 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 15.75 | 14.76 | 15.19 | 14.70 | 14.98 | 15.35 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .21 | .48 | .49 | .49 | .51 | .52 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | (.01 | ) | .99 | (.43 | ) | .48 | (.21 | ) | (.37 | ) | ||
Total from Investment Operations | .20 | 1.47 | .06 | .97 | .30 | .15 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.20 | ) | (.48 | ) | (.49 | ) | (.48 | ) | (.52 | ) | (.52 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | — | — | — | (.06 | ) | — | |||||
Total Distributions | (.20 | ) | (.48 | ) | (.49 | ) | (.48 | ) | (.58 | ) | (.52 | ) |
Net asset value, end of period | 15.75 | 15.75 | 14.76 | 15.19 | 14.70 | 14.98 | ||||||
Total Return (%)b | 1.30 | c | 10.08 | .35 | 6.72 | 2.18 | 1.03 | |||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.73 | d | 1.73 | 1.72 | 1.71 | 1.75 | 1.86 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.68 | d | 1.67 | 1.72 | 1.71 | 1.75 | 1.86 | |||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | — | — | — | — | .02 | .15 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 2.59 | d | 3.16 | 3.25 | 3.25 | 3.57 | 3.44 | |||||
Portfolio Turnover Rate | 16.05 | c | 9.95 | 15.17 | 12.88 | 14.21 | 14.69 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 7,017 | 7,511 | 7,012 | 7,039 | 6,057 | 4,867 |
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 |
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 and Class C. Class A shares are subject to a sales charge imposed at the time of purchase. Class C shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class C shares redeemed within one year of purchase. 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 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 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
22
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.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The Fund | 23 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
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 Company’s Board of Trustees (the “Board”). 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 the following: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. All of the preceding securities are categorized within Level 2 of the fair value hierarchy.
The Service’s procedures are reviewed by Dreyfus under the general supervision of the Board.
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, 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. 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
24
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, 2012 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 | — | 119,473,827 | — | 119,473,827 |
At October 31, 2012, there were no transfers between Level 1 and Level 2 of the fair value hierarchy.
(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.
The Fund | 25 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(c) Dividends to shareholders: It is the policy of the fund to declare dividends daily from investment income-net. Such dividends are paid monthly. Dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”).To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(d) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax-exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended October 31, 2012, 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.
Each of the tax years in the three-year period ended April 30, 2012 remains subject to examination by the Internal Revenue Service and state taxing authorities.
Under the Regulated Investment Company Modernization Act of 2010 (the “2010 Act”), the fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 (“post-enactment losses”) for an unlimited period. Furthermore, post-enactment capital loss carryovers retain their character as either short-term or long-term capital losses rather than short-term as they were under previous statute.The 2010 Act requires post-enactment losses to be utilized before the utilization of losses incurred in taxable years
26
prior to the effective date of the 2010 Act (“pre-enactment losses”).As a result of this ordering rule, pre-enactment losses may be more likely to expire unused.
The fund has an unused capital loss carryover of $599,658 available for federal income tax purposes to be applied against future net realized capital gains, if any, realized subsequent to April 30, 2012. If not applied, the carryover expires in fiscal 2018.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2012 was as follows: tax exempt income $4,618,884 and ordinary income $8,415.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. Effective October 10, 2012, the $225 million unsecured credit facility with Citibank, N.A., was decreased to $210 million. 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, 2012, 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 had
The Fund | 27 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
agreed, until 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 expenses, pursuant to the undertaking, amounted to $31,190 during the period ended October 31, 2012.
During the period ended October 31, 2012, the Distributor retained $2,863 from commissions earned on sales of the fund’s Class A shares.
(b) Under the Distribution Plan adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of .75% of the value of the average daily net assets. During the period ended October 31, 2012, Class C shares were charged $28,444, pursuant to the Distribution Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts.The Distributor may make payments to Service Agents (securities dealers, financial institutions or other industry professionals) in respect of these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2012, Class A and Class C shares were charged $146,505 and $9,481, respectively, pursuant to the Shareholder Services Plan.
The fund has arrangements with the transfer agent and the custodian whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset transfer agency and custody fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
The fund compensates Dreyfus Transfer, Inc. (“DTI”), a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing transfer agency services for the fund and, since May 29,
28
2012, cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2012, the fund was charged $8,269 for transfer agency services and $264 for cash management services. Cash management fees were partially offset by earnings credits of $31.These fees are included in Shareholder servicing costs in the Statement of Operations.
The fund compensatesThe Bank of NewYork Mellon under a custody agreement for providing custodial services for the fund. During the period ended October 31, 2012, the fund was charged $7,195 pursuant to the custody agreement.
Prior to May 29, 2012, the fund compensated The Bank of NewYork Mellon under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. Subsequent to May 29, 2012,The Bank of NewYork Mellon has continued to provide shareholder redemption draft processing services. During the period ended February 28, 2011, the fund was charged $295 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 $9.
During the period ended October 31, 2012, the fund was charged $3,981 for services performed by the Chief Compliance Officer and his staff.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $57,905, Distribution Plan fees $4,599, Shareholder Services Plan fees $26,323, custodian fees $3,732, Chief Compliance Officer fees $2,654 and transfer agency per account fees $3,453.
(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.
The Fund | 29 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended October 31, 2012, amounted to $19,312,523 and $19,745,803, respectively.
At October 31, 2012, accumulated net unrealized appreciation on investments was $9,188,301 consisting of $10,658,376 gross unrealized appreciation and $1,470,075 gross unrealized depreciation.
At October 31, 2012, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
NOTE 5—Subsequent Event:
On November 7, 2012, the Board on behalf of the fund and on November 6, 2012, the Board of Directors of Dreyfus AMT-Free Municipal Bond Fund (the “Acquiring Fund”), approved an Agreement and Plan of Reorganization. The merger is subject to the approval of the shareholders of the fund at a meeting to be held on or about February 28, 2013. If approved, the merger is anticipated to occur on or about April 19, 2013.The merger provides for the fund to transfer all of its assets, subject to its liabilities, to the Acquiring Fund, in exchange for a number of Class A and Class C shares of the Acquiring Fund’s equal value to the assets less liabilities of the fund.The Acquiring Fund’s Class A and Class C shares will then be distributed to the fund’s shareholders on a pro rata basis in liquidation of the fund.The fund will be closed to new investors on November 26, 2012.
30
INFORMATION ABOUT THE RENEWAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the fund’s Board of Trustees held on July 24, 2012, 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 Dreyfus representatives. 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 considered information previously provided to them in presentations from Dreyfus representatives regarding the nature, extent, and quality of the services provided to funds in the Dreyfus fund complex, and Dreyfus representatives 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 (such as retail direct or intermediary, in which intermediaries typically are paid by the fund and/or Dreyfus) and Dreyfus’ corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each intermediary or distribution channel, as applicable to the fund.
The Board 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 also considered Dreyfus’ extensive administrative, accounting, and compliance infrastructures.
The Fund | 31 |
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 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, 2012, 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 the date of its analysis. 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 performance. The Board discussed the results of the comparisons and noted that the fund’s total return performance was generally below the Performance Group and Performance Universe medians, ranking in the fourth quartile of the Performance Group in several periods. The Board also noted that the fund’s yield performance was at or above the Performance Group median for nine of the ten one-year periods ended June 30th, and above the Performance Universe median for all ten of the one-year periods ended June 30th, including several periods in the first quartile. Dreyfus also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s Lipper category average, noting that the fund outperformed its Lipper category average in eight of the ten calendar years. Dreyfus representatives discussed with the Board the reasons for the
32
relative underperformance 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 also received a presentation from the fund’s portfolio managers during which they discussed the fund’s investment strategy, including the emphasis on quality given the current market environment, and the factors that affected the fund’s performance. Dreyfus representatives noted that the current fee waiver and expense reimbursement arrangement undertaken by Dreyfus would expire as of July 31, 2012.
The Board 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.The Board 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.
Dreyfus representatives reviewed with the Board 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(s) 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 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 Fund | 33 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
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 should consider the profitability analysis (1) as part of the 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. Dreyfus representatives 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 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.
34
The Board generally was satisfied with fund management’s efforts to improve 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.
In evaluating the Agreement, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with Dreyfus and its affiliates, of the fund and the services provided to the fund by Dreyfus.The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreement, including information on the investment performance of the fund in comparison to similar mutual funds and benchmark performance indices; general market outlook as applicable to the fund; and compliance reports. 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 and Dreyfus representatives. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on their consideration of the same or similar arrangements in prior years. The Board determined that renewal of the Agreement was in the best interests of the fund and its shareholders.
The Fund | 35 |
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 |
22 | Notes to Financial Statements |
31 | 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
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, 2012, through October 31, 2012. 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.
The municipal bond market generally advanced during the reporting period in response to positive supply-and-demand dynamics, improving credit conditions, and investors’ changing expectations of global and domestic economic conditions.While monthly variations in economic data have been pronounced, the longer-term pace of U.S. economic growth has been relatively consistent at about half the average rate achieved in prior recoveries. However, a number of headwinds remain, including the potential effects of the European financial crisis and slower growing emerging markets on U.S. exports.
In light of current uncertainties surrounding fiscal policy and tax reforms, the U.S. economic recovery appears likely to persist at subpar levels over the first half of 2013. However, the nation’s easy monetary policy and a successful resolution of the fiscal debate may prompt corporate decision-makers to increase capital spending, which could have positive implications for the U.S. economy over the second half of the new year. As always, we encourage you to stay in touch with your financial advisor as new developments unfold.
Thank you for your continued confidence and support.
![](https://capedge.com/proxy/N-CSRS/0000806176-12-000042/smbohncsrx4x1.jpg)
Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
November 15, 2012
2
DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2012, through October 31, 2012, as provided by David Belton and Jeffrey Burger, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended October 31, 2012, Class A shares of Dreyfus Ohio Fund, a series of Dreyfus State Municipal Bond Funds, produced a total return of 3.37%, and Class C shares returned 2.98%.1 In comparison, the Barclays 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 3.34% for the same period.2
Falling long-term interest rates and favorable supply-and-demand dynamics continued to support municipal bond prices during the reporting period.The fund’s Class A shares produced a return that was roughly in line with its benchmark, as the benefits of overweighted exposure to revenue-backed bonds was balanced by weaker results from Puerto Rico securities and high-grade municipal bonds backed by special taxes. However, the fund’s Class C shares produced a return that was lower than its benchmark.
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. For additional yield, the fund may invest up to 30% of its assets in municipal bonds rated below investment grade or the unrated equivalent as determined by Dreyfus. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
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
The Fund | 3 |
DISCUSSION OF FUND PERFORMANCE (continued)
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 their relative value.
Supply-and-Demand Dynamics Supported Municipal Bonds
The reporting period began in the wake of several months of U.S. economic recovery, in which investors responded positively to employment gains and increased manufacturing activity. However, the recovery’s sustainability was called into question in the spring, when the U.S. labor market’s rebound slowed as the public sector shed jobs and the private sector’s employment gains proved more anemic than expected.
Although these headwinds sparked a renewed flight to perceived safe havens, such as U.S. Treasury securities, municipal bonds generally remained strong across the credit-quality range throughout the reporting period, in part due to robust demand from investors seeking higher levels of after-tax income. Municipal bond prices also responded positively to falling long-term interest rates stemming from quantitative easing and other stimulative measures by the Federal Reserve Board. Meanwhile, new issuance volumes remained relatively low when political pressure led to less borrowing for capital projects and municipalities primarily issued new bonds to refinance older debt, resulting in a net decrease in the national supply of tax-exempt securities. From a credit quality perspective, Ohio’s fiscal condition has improved as the U.S. automotive sector rebounded and the state took the difficult steps required to balance its budget.
In this environment, lower-rated and longer maturity municipal bonds led the market higher, while highly rated and shorter-term securities generally lagged market averages.
Income-Oriented Securities Buoyed Relative Performance
Although Ohio municipal bonds generally lagged national market averages over the reporting period, the fund largely made up the difference through a focus on higher yielding, revenue-backed bonds. The fund achieved especially robust results from municipal bonds backed by revenues from hospitals, educational institutions, essential municipal services, and the state’s settlement of litigation with U.S. tobacco companies.The fund also received strong contributions to relative performance from underweighted exposure to lower yielding general obligation bonds and securities
4
issued on behalf of the public power authority. Moreover, a relatively long average duration boosted the fund’s participation in market rallies when long-term interest rates declined.
Disappointments during the reporting period were relatively limited, concentrated mainly among higher quality, lower yielding special tax bonds. In addition, the fund’s holdings of Puerto Rico bonds, which are tax-exempt for Ohio residents, weighed on relative performance.
Adjusting to Changing Market Conditions
We have been encouraged by recently improved data, but the U.S. economy remains vulnerable to uncertainty regarding future fiscal policies.We expect market volatility to increase at times amid potentially contentious negotiations to avert automatic federal tax hikes and spending cuts scheduled for early 2013. However, Ohio has made strong economic progress, and we expect the state’s credit condition to remain sound. Therefore, we have continued to favor income-oriented municipal bonds, and we have maintained the fund’s average duration in a range we consider slightly longer than market averages. In addition, we have continued to monitor the market for more attractive relative values among Ohio municipal bonds.
November 15, 2012
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 charge imposed |
on redemptions in the case of Class C shares. Had these charges been reflected, returns would have been lower. Past |
performance is no guarantee of future results. 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 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, 2012 to October 31, 2012. 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, 2012 | ||||
Class A | Class C | |||
Expenses paid per $1,000† | $ 4.87 | $ 8.80 | ||
Ending value (after expenses) | $ 1,033.70 | $ 1,029.80 |
COMPARING YOUR FUND’S EXPENSES |
WITH THOSE OF OTHER FUNDS (Unaudited) |
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment | ||||
assuming a hypothetical 5% annualized return for the six months ended October 31, 2012 | ||||
Class A | Class C | |||
Expenses paid per $1,000† | $ 4.84 | $ 8.74 | ||
Ending value (after expenses) | $ 1,020.42 | $ 1,016.53 |
† Expenses are equal to the fund’s annualized expense ratio of .95% for Class A and 1.72% for Class C, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
October 31, 2012 (Unaudited) |
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments—98.5% | Rate (%) | Date | Amount ($) | Value ($) |
Ohio—83.4% | ||||
Akron, | ||||
GO | 6.00 | 12/1/12 | 345,000 | 346,670 |
Allen County, | ||||
Hospital Facilities Revenue | ||||
(Catholic Healthcare Partners) | 5.25 | 9/1/27 | 2,500,000 | 2,890,925 |
American Municipal Power, Inc., | ||||
Revenue (American Municipal | ||||
Power Fremont Energy | ||||
Center Project) | 5.00 | 2/15/21 | 375,000 | 456,562 |
Blue Ash, | ||||
Tax Increment Financing | ||||
Revenue (Duke Realty | ||||
Ohio Project) | 5.00 | 12/1/16 | 700,000 | 718,039 |
Blue Ash, | ||||
Tax Increment Financing | ||||
Revenue (Duke Realty | ||||
Ohio Project) | 5.00 | 12/1/21 | 730,000 | 783,224 |
Blue Ash, | ||||
Tax Increment Financing | ||||
Revenue (Duke Realty | ||||
Ohio Project) | 5.00 | 12/1/25 | 500,000 | 520,305 |
Blue Ash, | ||||
Tax Increment Financing | ||||
Revenue (Duke Realty | ||||
Ohio Project) | 5.00 | 12/1/30 | 400,000 | 409,136 |
Blue Ash, | ||||
Tax Increment Financing | ||||
Revenue (Duke Realty | ||||
Ohio Project) | 5.00 | 12/1/35 | 1,000,000 | 1,014,350 |
Buckeye Tobacco Settlement | ||||
Financing Authority, Tobacco | ||||
Settlement Asset-Backed Bonds | 5.13 | 6/1/24 | 2,475,000 | 2,162,407 |
Butler County, | ||||
Hospital Facilities Revenue | ||||
(Kettering Health Network | ||||
Obligated Group Project) | 6.38 | 4/1/36 | 2,000,000 | 2,433,080 |
Butler County, | ||||
Hospital Facilities Revenue | ||||
(UC Health) | 5.50 | 11/1/40 | 2,000,000 | 2,234,860 |
The Fund | 7 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Ohio (continued) | |||||
Cincinnati, | |||||
EDR (Baldwin 300 Project) | 5.00 | 11/1/28 | 2,565,000 | 2,858,923 | |
Cincinnati, | |||||
Water System Revenue | 5.00 | 12/1/23 | 2,275,000 | 2,811,809 | |
Cincinnati State Technical and | |||||
Community College, General | |||||
Receipts Bonds (Insured; | |||||
AMBAC) (Prerefunded) | 5.25 | 10/1/13 | 2,375,000 | a | 2,481,305 |
Cleveland, | |||||
Airport System Revenue | 5.00 | 1/1/20 | 1,500,000 | 1,736,610 | |
Cleveland, | |||||
Airport System Revenue | 5.00 | 1/1/31 | 1,000,000 | 1,116,300 | |
Cleveland, | |||||
Waterworks Revenue (Insured; | |||||
National Public Finance | |||||
Guarantee Corp.) | 5.50 | 1/1/21 | 8,000,000 | 10,130,800 | |
Cleveland State University, | |||||
General Receipts Bonds | 5.00 | 6/1/18 | 1,170,000 | 1,398,571 | |
Cleveland-Cuyahoga County Port | |||||
Authority, Cultural Facility | |||||
Revenue (The Cleveland Museum | |||||
of Art Project) | 5.00 | 10/1/22 | 2,500,000 | 3,026,200 | |
Cleveland-Cuyahoga County Port | |||||
Authority, Senior Special | |||||
Assessment/Tax Increment | |||||
Revenue (University Heights— | |||||
Public Parking Garage Project) | 7.00 | 12/1/18 | 1,245,000 | 1,272,328 | |
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 | 3,711,835 | |
Columbus, | |||||
Limited Tax GO | 5.00 | 7/15/14 | 1,270,000 | 1,371,536 | |
Columbus, | |||||
Limited Tax GO (Various Purpose) | 5.00 | 2/15/20 | 2,000,000 | 2,512,500 | |
Cuyahoga Community | |||||
College District, General | |||||
Receipts Bonds | 5.00 | 8/1/25 | 2,500,000 | 2,902,650 |
8
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Ohio (continued) | |||||
Franklin County, | |||||
Hospital Facilities Revenue | |||||
(OhioHealth Corporation) | 5.00 | 11/15/20 | 700,000 | 846,496 | |
Franklin County, | |||||
Hospital Improvement Revenue | |||||
(Nationwide Children’s | |||||
Hospital Project) | 5.00 | 11/1/34 | 3,850,000 | 4,242,199 | |
Hamilton County, | |||||
Sales Tax Revenue | |||||
(Insured; AMBAC) | 0.00 | 12/1/27 | 10,000,000 | b | 5,338,300 |
Hancock County, | |||||
Hospital Facilities Revenue | |||||
(Blanchard Valley Regional | |||||
Health Center) | 5.00 | 12/1/21 | 1,500,000 | 1,715,610 | |
Hilliard City School District, | |||||
GO School Improvement Bonds | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 0.00 | 12/1/13 | 1,655,000 | b | 1,645,997 |
Hilliard City School District, | |||||
GO School Improvement Bonds | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 0.00 | 12/1/14 | 1,655,000 | b | 1,631,698 |
Kent State University, | |||||
General Receipts Bonds | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 5/1/25 | 2,000,000 | 2,406,160 | |
Lucas County, | |||||
HR (ProMedica Healthcare | |||||
Obligated Group) | 5.75 | 11/15/31 | 1,200,000 | 1,447,416 | |
Miami University, | |||||
General Receipts Revenue Bonds | 5.00 | 9/1/22 | 2,140,000 | 2,639,476 | |
Montgomery County, | |||||
Revenue (Miami Valley Hospital) | 6.25 | 11/15/33 | 2,500,000 | 2,716,350 | |
Ohio, | |||||
Common Schools GO Bonds | 5.00 | 9/15/18 | 1,500,000 | 1,842,300 | |
Ohio, | |||||
Common Schools GO Bonds | 5.00 | 9/15/18 | 3,500,000 | 4,298,700 | |
Ohio, | |||||
Common Schools GO Bonds | 5.00 | 9/15/21 | 1,000,000 | 1,267,580 |
The Fund | 9 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Ohio (continued) | |||||
Ohio, | |||||
Highway Capital Improvement GO | |||||
(Full Faith and Credit/Highway | |||||
User Receipts) | 5.00 | 5/1/23 | 2,000,000 | 2,509,300 | |
Ohio, | |||||
HR (Cleveland Clinic Health | |||||
System Obligated Group) | 5.00 | 1/1/25 | 1,210,000 | 1,403,564 | |
Ohio Higher Educational Facility | |||||
Commission, Higher Educational | |||||
Facility Revenue (Xavier | |||||
University Project) (Insured; | |||||
FGIC) (Prerefunded) | 5.00 | 5/1/13 | 2,000,000 | a | 2,048,140 |
Ohio Higher Educational Facility | |||||
Commission, HR (Cleveland | |||||
Clinic Health System | |||||
Obligated Group) | 5.50 | 1/1/43 | 3,000,000 | 3,311,760 | |
Ohio Higher Educational Facility | |||||
Commission, Revenue (Case | |||||
Western Reserve University | |||||
Project) (Insured; National | |||||
Public Finance Guarantee Corp.) | 5.25 | 12/1/25 | 2,985,000 | 3,867,844 | |
Ohio State University, | |||||
General Receipts Bonds | 5.00 | 12/1/23 | 40,000 | 52,256 | |
Ohio State University, | |||||
General Receipts Bonds | 5.00 | 12/1/23 | 960,000 | 1,217,789 | |
Ohio State University, | |||||
General Receipts Bonds | |||||
(Prerefunded) | 5.25 | 6/1/13 | 2,100,000 | a | 2,161,950 |
Ohio State University, | |||||
General Receipts Bonds | |||||
(Prerefunded) | 5.25 | 6/1/13 | 525,000 | a | 540,430 |
Ohio University, | |||||
General Receipts Bonds | 5.00 | 12/1/19�� | 2,560,000 | 3,151,437 | |
Ohio Water Development Authority, | |||||
Water Pollution Control Loan | |||||
Fund Revenue (Water Quality Series) | 5.00 | 12/1/15 | 1,450,000 | 1,652,652 | |
Ohio Water Development Authority, | |||||
Water Pollution Control Loan | |||||
Fund Revenue (Water Quality Series) | 5.00 | 12/1/18 | 3,710,000 | 4,604,741 |
10
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Ohio (continued) | |||||
Ohio Water Development | |||||
Authority, Water Pollution | |||||
Control Loan Fund Revenue | |||||
(Water Quality Series) | 5.00 | 12/1/23 | 2,000,000 | 2,481,620 | |
Port of Greater Cincinnati | |||||
Development Authority, Tax | |||||
Increment Development Revenue | |||||
(Fairfax Village Red Bank | |||||
Infrastructure Project) | 5.50 | 2/1/25 | 2,020,000 | c | 1,868,641 |
Richland County, | |||||
GO Correctional Facilities | |||||
Bonds (Insured; Assured | |||||
Guaranty Municipal Corp.) | 6.00 | 12/1/28 | 400,000 | 469,540 | |
Summit County Port Authority, | |||||
Development Revenue | |||||
(Bond Fund Program-Twinsburg | |||||
Township Project) | 5.13 | 5/15/25 | 385,000 | 389,793 | |
Toledo-Lucas County Port | |||||
Authority, Development Revenue | |||||
(Northwest Ohio Bond Fund— | |||||
Midwest Terminals Project) | 6.00 | 11/15/27 | 1,595,000 | 1,644,764 | |
University of Akron, | |||||
General Receipts Bonds | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 1/1/28 | 1,500,000 | 1,713,405 | |
University of Akron, | |||||
General Receipts Bonds | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 1/1/29 | 1,000,000 | 1,137,400 | |
University of Cincinnati, | |||||
General Receipts Bonds | 5.00 | 6/1/22 | 1,535,000 | 1,918,658 | |
University of Toledo, | |||||
General Receipts Bonds | 5.00 | 6/1/24 | 1,665,000 | 1,919,112 | |
Warren, | |||||
Waterworks Revenue (Insured; | |||||
National Public Finance | |||||
Guarantee Corp.) | 5.50 | 11/1/15 | 1,190,000 | 1,245,573 | |
Wright State University, | |||||
General Receipts Bonds | 5.00 | 5/1/22 | 1,000,000 | 1,179,390 |
The Fund | 11 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
U.S. Related—15.1% | |||||
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 0.00 | 5/15/50 | 12,500,000 | b | 960,375 |
Guam Power Authority, | |||||
Revenue | 5.50 | 10/1/30 | 1,000,000 | 1,108,050 | |
Guam Waterworks Authority, | |||||
Water and Wastewater | |||||
System Revenue | 5.88 | 7/1/35 | 900,000 | 930,024 | |
Puerto Rico Aqueduct and Sewer | |||||
Authority, Senior Lien Revenue | 5.13 | 7/1/37 | 500,000 | 499,965 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | 5.25 | 7/1/17 | 1,000,000 | 1,070,210 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | 5.50 | 7/1/39 | 1,500,000 | 1,551,600 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | 5.50 | 7/1/38 | 1,000,000 | 1,029,050 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.50 | 7/1/15 | 1,000,000 | 1,094,650 | |
Puerto Rico Electric Power | |||||
Authority, Power Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.00 | 7/1/23 | 1,000,000 | 1,047,310 | |
Puerto Rico Highways and | |||||
Transportation Authority, | |||||
Highway Revenue (Insured; | |||||
Assured Guaranty Municipal Corp.) | 5.50 | 7/1/31 | 3,370,000 | 4,007,975 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 5.38 | 8/1/39 | 1,000,000 | 1,064,680 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/39 | 2,000,000 | 2,242,220 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/42 | 1,750,000 | 1,938,230 |
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 Gross Receipts Taxes | |||||
Loan Note) | 6.38 | 10/1/19 | 2,545,000 | 2,554,162 | |
Virgin Islands Public Finance | |||||
Authority, Revenue (Virgin | |||||
Islands Matching Fund Loan Note) | 5.00 | 10/1/25 | 1,500,000 | 1,676,685 | |
Total Investments (cost $137,383,819) | 98.5 | % | 148,604,152 | ||
Cash and Receivables (Net) | 1.5 | % | 2,271,824 | ||
Net Assets | 100.0 | % | 150,875,976 |
a These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are |
collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on |
the municipal issue and to retire the bonds in full at the earliest refunding date. |
b Security issued with a zero coupon. Income is recognized through the accretion of discount. |
c Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933.This security may be |
resold in transactions exempt from registration, normally to qualified institutional buyers.At October 31, 2012, this |
security was valued at $1,868,641 or 1.2% of net assets. |
The Fund | 13 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Summary of Abbreviations | |||
ABAG | Association of Bay Area | ACA | American Capital Access |
Governments | |||
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company |
AMBAC | American Municipal Bond | ARRN | Adjustable Rate |
Assurance Corporation | Receipt Notes | ||
BAN | Bond Anticipation Notes | BPA | Bond Purchase Agreement |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | DRIVERS | Derivative Inverse |
Tax-Exempt Receipts | |||
EDR | Economic Development | EIR | Environmental Improvement |
Revenue | Revenue | ||
FGIC | Financial Guaranty | FHA | Federal Housing |
Insurance Company | Administration | ||
FHLB | Federal Home | FHLMC | Federal Home Loan Mortgage |
Loan Bank | Corporation | ||
FNMA | Federal National | GAN | Grant Anticipation Notes |
Mortgage Association | |||
GIC | Guaranteed Investment | GNMA | Government National Mortgage |
Contract | Association | ||
GO | General Obligation | HR | Hospital Revenue |
IDB | Industrial Development Board | IDC | Industrial Development Corporation |
IDR | Industrial Development | LIFERS | Long Inverse Floating |
Revenue | Exempt Receipts | ||
LOC | Letter of Credit | LOR | Limited Obligation Revenue |
LR | Lease Revenue | MERLOTS | Municipal Exempt Receipt |
Liquidity Option Tender | |||
MFHR | Multi-Family Housing Revenue | MFMR | Multi-Family Mortgage Revenue |
PCR | Pollution Control Revenue | PILOT | Payment in Lieu of Taxes |
P-FLOATS | Puttable Floating Option | PUTTERS | Puttable Tax-Exempt Receipts |
Tax-Exempt Receipts | |||
RAC | Revenue Anticipation Certificates | RAN | Revenue Anticipation Notes |
RAW | Revenue Anticipation Warrants | ROCS | Reset Options Certificates |
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 |
SPEARS | Short Puttable Exempt | SWDR | Solid Waste Disposal Revenue |
Adjustable Receipts | |||
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 | 12.1 | ||
AA | Aa | AA | 48.5 | ||
A | A | A | 15.2 | ||
BBB | Baa | BBB | 11.5 | ||
BB | Ba | BB | 1.3 | ||
B | B | B | 1.4 | ||
Not Ratedd | Not Ratedd | Not Ratedd | 10.0 | ||
100.0 |
† | Based on total investments. |
d | Securities which, while not rated by Fitch, Moody’s and Standard & Poor’s, have been determined by the Manager to |
be of comparable quality to those rated securities in which the fund may invest. | |
See notes to financial statements. |
The Fund | 15 |
STATEMENT OF ASSETS AND LIABILITIES |
October 31, 2012 (Unaudited) |
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments | 137,383,819 | 148,604,152 | |
Cash | 474,357 | ||
Interest receivable | 2,173,354 | ||
Receivable for shares of Beneficial Interest subscribed | 36,000 | ||
Prepaid expenses | 11,168 | ||
151,299,031 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 119,494 | ||
Payable for shares of Beneficial Interest redeemed | 251,433 | ||
Accrued expenses | 52,128 | ||
423,055 | |||
Net Assets ($) | 150,875,976 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 143,162,483 | ||
Accumulated undistributed investment income—net | 14,238 | ||
Accumulated net realized gain (loss) on investments | (3,521,078 | ) | |
Accumulated net unrealized appreciation | |||
(depreciation) on investments | 11,220,333 | ||
Net Assets ($) | 150,875,976 | ||
Net Asset Value Per Share | |||
Class A | Class C | ||
Net Assets ($) | 144,192,637 | 6,683,339 | |
Shares Outstanding | 11,284,778 | 522,142 | |
Net Asset Value Per Share ($) | 12.78 | 12.80 | |
See notes to financial statements. |
16
STATEMENT OF OPERATIONS |
Six Months Ended October 31, 2012 (Unaudited) |
Investment Income ($): | ||
Interest Income | 3,111,247 | |
Expenses: | ||
Management fee—Note 3(a) | 416,136 | |
Shareholder servicing costs—Note 3(c) | 226,544 | |
Professional fees | 30,483 | |
Distribution fees—Note 3(b) | 25,070 | |
Registration fees | 9,250 | |
Prospectus and shareholders’ reports | 8,144 | |
Custodian fees—Note 3(c) | 7,046 | |
Trustees’ fees and expenses—Note 3(d) | 4,560 | |
Loan commitment fees—Note 2 | 746 | |
Miscellaneous | 15,426 | |
Total Expenses | 743,405 | |
Less—reduction in fees due to earnings credits—Note 3(c) | (65 | ) |
Net Expenses | 743,340 | |
Investment Income—Net | 2,367,907 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | 108,438 | |
Net unrealized appreciation (depreciation) on investments | 2,442,970 | |
Net Realized and Unrealized Gain (Loss) on Investments | 2,551,408 | |
Net Increase in Net Assets Resulting from Operations | 4,919,315 | |
See notes to financial statements. |
The Fund | 17 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2012 | Year Ended | |||
(Unaudited) | April 30, 2012a | |||
Operations ($): | ||||
Investment income—net | 2,367,907 | 5,037,644 | ||
Net realized gain (loss) on investments | 108,438 | 260,574 | ||
Net unrealized appreciation | ||||
(depreciation) on investments | 2,442,970 | 11,732,706 | ||
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 4,919,315 | 17,030,924 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (2,273,916 | ) | (4,824,654 | ) |
Class B Shares | — | (5,924 | ) | |
Class C Shares | (79,753 | ) | (180,018 | ) |
Total Dividends | (2,353,669 | ) | (5,010,596 | ) |
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 6,257,757 | 8,638,593 | ||
Class B Shares | — | 407 | ||
Class C Shares | 276,025 | 512,782 | ||
Dividends reinvested: | ||||
Class A Shares | 1,867,620 | 3,860,086 | ||
Class B Shares | — | 4,942 | ||
Class C Shares | 67,529 | 154,460 | ||
Cost of shares redeemed: | ||||
Class A Shares | (7,784,354 | ) | (14,452,209 | ) |
Class B Shares | — | (337,071 | ) | |
Class C Shares | (528,862 | ) | (472,221 | ) |
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | 155,715 | (2,090,231 | ) | |
Total Increase (Decrease) in Net Assets | 2,721,361 | 9,930,097 | ||
Net Assets ($): | ||||
Beginning of Period | 148,154,615 | 138,224,518 | ||
End of Period | 150,875,976 | 148,154,615 | ||
Undistributed investment income—net | 14,238 | — |
18
Six Months Ended | ||||
October 31, 2012 | Year Ended | |||
(Unaudited) | April 30, 2012a | |||
Capital Share Transactions: | ||||
Class Ab | ||||
Shares sold | 493,150 | 701,424 | ||
Shares issued for dividends reinvested | 146,997 | 318,312 | ||
Shares redeemed | (612,482 | ) | (1,195,366 | ) |
Net Increase (Decrease) in Shares Outstanding | 27,665 | (175,630 | ) | |
Class Bb | ||||
Shares sold | — | 34 | ||
Shares issued for dividends reinvested | — | 413 | ||
Shares redeemed | — | (27,667 | ) | |
Net Increase (Decrease) in Shares Outstanding | — | (27,220 | ) | |
Class C | ||||
Shares sold | 21,715 | 42,538 | ||
Shares issued for dividends reinvested | 5,307 | 12,726 | ||
Shares redeemed | (41,715 | ) | (38,787 | ) |
Net Increase (Decrease) in Shares Outstanding | (14,693 | ) | 16,477 |
a | Effective as of the close of business on March 13, 2012, the fund no longer offers Class B shares. |
b | During the period ended April 30, 2012, 18,578 Class B shares representing $227,464 were automatically |
converted to 18,573 Class A shares. | |
See notes to financial statements. |
The Fund | 19 |
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2012 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 12.56 | 11.54 | 11.99 | 11.53 | 12.20 | 12.63 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .20 | .43 | .50 | .53 | .54 | .52 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .22 | 1.02 | (.45 | ) | .46 | (.67 | ) | (.43 | ) | |||
Total from Investment Operations | .42 | 1.45 | .05 | .99 | (.13 | ) | .09 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.20 | ) | (.43 | ) | (.50 | ) | (.53 | ) | (.54 | ) | (.52 | ) |
Net asset value, end of period | 12.78 | 12.56 | 11.54 | 11.99 | 11.53 | 12.20 | ||||||
Total Return (%)b | 3.37 | c | 12.78 | .38 | 8.71 | (1.00 | ) | .74 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .95 | d | .95 | .96 | .97 | 1.06 | 1.07 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .95 | d | .95 | .96 | .97 | 1.06 | 1.06 | |||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | — | — | .02 | .04 | .11 | .14 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.17 | d | 3.58 | 4.24 | 4.47 | 4.64 | 4.19 | |||||
Portfolio Turnover Rate | 4.11 | c | 27.12 | 15.63 | 15.70 | 7.73 | 12.00 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 144,193 | 141,400 | 131,897 | 150,006 | 150,007 | 167,683 |
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, 2012 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 12.58 | 11.56 | 12.02 | 11.55 | 12.23 | 12.65 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .15 | .34 | .41 | .44 | .45 | .43 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .22 | 1.02 | (.46 | ) | .47 | (.68 | ) | (.42 | ) | |||
Total from Investment Operations | .37 | 1.36 | (.05 | ) | .91 | (.23 | ) | .01 | ||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.15 | ) | (.34 | ) | (.41 | ) | (.44 | ) | (.45 | ) | (.43 | ) |
Net asset value, end of period | 12.80 | 12.58 | 11.56 | 12.02 | 11.55 | 12.23 | ||||||
Total Return (%)b | 2.98 | c | 11.91 | (.44 | ) | 7.97 | (1.82 | ) | .07 | |||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.72 | d | 1.72 | 1.72 | 1.73 | 1.82 | 1.83 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.72 | d | 1.72 | 1.72 | 1.73 | 1.81 | 1.83 | |||||
Ratio of interest and expense | ||||||||||||
related to floating rate notes | ||||||||||||
issued to average net assets | — | — | .02 | .04 | .11 | .14 | ||||||
Ratio of net investment income | ||||||||||||
to average net assets | 2.41 | d | 2.81 | 3.48 | 3.71 | 3.88 | 3.43 | |||||
Portfolio Turnover Rate | 4.11 | c | 27.12 | 15.63 | 15.70 | 7.73 | 12.00 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 6,683 | 6,755 | 6,014 | 7,545 | 7,044 | 7,805 |
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 |
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 and Class C. Class A shares are subject to a sales charge imposed at the time of purchase. Class C shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class C shares redeemed within one year of purchase. 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 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 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
22
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.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The Fund | 23 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
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 Company’s Board of Trustees (the “Board”). 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 the following: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions.All of the preceding securities are categorized within Level 2 of the fair value hierarchy.
The Service’s procedures are reviewed by Dreyfus under the general supervision of the Board.
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, 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. 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.
24
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, 2012 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 | — | 148,604,152 | — | 148,604,152 |
At October 31, 2012, there were no transfers between Level 1 and Level 2 of the fair value hierarchy.
(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 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 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 | 25 |
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, 2012, 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, 2012 remains subject to examination by the Internal Revenue Service and state taxing authorities.
Under the Regulated Investment Company Modernization Act of 2010 (the “2010 Act”), the fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 (“post-enactment losses”) for an unlimited period. Furthermore, post-enactment capital loss carryovers retain their character as either short-term or long-term capital losses rather than short-term as they were under previous statute.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 (“pre-enactment losses”).As a result of this ordering rule, pre-enactment losses may be more likely to expire unused.
The fund has an unused capital loss carryover of 3,710,417 available for federal income tax purposes to be applied against future net realized capital gains, if any, realized subsequent to April 30, 2012. If not applied, $45,597 of the carryover expires in fiscal year 2013, $91,735 expires in fiscal year 2016, $197,779 expires in fiscal year 2017 and $3,375,306 expires in fiscal year 2018.
26
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2012 was as follows: tax-exempt income $5,010,596. 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. Effective October 10, 2012, the $225 million unsecured credit facility with Citibank, N.A., was decreased to $210 million. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended on October 31, 2012, 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, 2012, the Distributor retained $3,297 from commissions earned on sales of the fund’s Class A shares.
(b) Under the Distribution Plan adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of .75% of the value of the average daily net assets of Class C shares. During the period ended October 31, 2012, Class C shares were charged $25,070 pursuant to the Distribution Plan.
The Fund | 27 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (securities dealers, financial institutions or other industry professionals) in respect of these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2012, Class A and Class C shares were charged $180,796 and $8,357, respectively, pursuant to the Shareholder Services Plan.
The fund has arrangements with the transfer agent and the custodian whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset transfer agency and custody fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
The fund compensates Dreyfus Transfer, Inc. (“DTI”), a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing transfer agency services for the fund and, since May 29, 2012, cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2012, the fund was charged $15,537 for transfer agency services and $429 for cash management services. Cash management fees were partially offset by earnings credits of $50. These fees are included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended October 31, 2012, the fund was charged $7,046 pursuant to the custody agreement.
Prior to May 29, 2012, the fund compensated The Bank of NewYork Mellon under a cash management agreement for performing cash
28
management services related to fund subscriptions and redemptions. Subsequent to May 29, 2012,The Bank of NewYork Mellon has continued to provide shareholder redemption draft processing services. During the period ended October 31, 2012, the fund was charged $477 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 $15.
During the period ended October 31, 2012, the fund was charged $3,981 for services performed by the Chief Compliance Officer and his staff.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $71,088, Distribution Plan fees $4,249, Shareholder Services Plan fees $32,316, custodian fees $3,596, Chief Compliance Officer fees $2,654 and transfer agency fees $5,591.
(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, 2012, amounted to $6,820,597 and $6,023,668, respectively.
At October 31, 2012, accumulated net unrealized appreciation on investments was $11,220,333, consisting of $11,622,435 gross unrealized appreciation and $402,102 gross unrealized depreciation.
At October 31, 2012, 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 | 29 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 5—Subsequent Event:
On November 7, 2012, the Board of Trustees, on behalf of the fund and on November 6, 2012, the Board of Directors of Dreyfus AMT-Free Municipal Bond Fund (the “Acquiring Fund”), approved an Agreement and Plan of Reorganization.The merger is subject to the approval of the shareholders of the fund at a meeting to be held on or about February 28, 2013. If approved, the merger is anticipated to occur on or about April 26, 2013.The merger provides for the fund to transfer all of its assets, subject to its liabilities, to the Acquiring Fund, in exchange for a number of Class A and Class C shares of the Acquiring Fund’s equal value to the assets less liabilities of the fund. The Acquiring Fund’s Class A and Class C shares will then be distributed to the fund’s shareholders on a pro rata basis in liquidation of the fund.The fund will be closed to new investors on November 26, 2012.
30
INFORMATION ABOUT THE RENEWAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the fund’s Board of Trustees held on July 24, 2012, 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 Dreyfus representatives. 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 considered information previously provided to them in presentations from Dreyfus representatives regarding the nature, extent, and quality of the services provided to funds in the Dreyfus fund complex, and Dreyfus representatives 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 (such as retail direct or intermediary, in which intermediaries typically are paid by the fund and/or Dreyfus) and Dreyfus’ corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each intermediary or distribution channel, as applicable to the fund.
The Board 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 also considered Dreyfus’ extensive administrative, accounting, and compliance infrastructures.
The Fund | 31 |
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 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, 2012, 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 the date of its analysis. 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 discussed the results of the comparisons and noted that the fund’s total return performance was generally above the Performance Group and Performance Universe medians, ranking in the first quartile of the Performance Group and Performance Universe for several periods.The Board also noted that the fund’s yield performance was above the Performance Group and Performance Universe medians for nine of the ten one-year periods ended June 30th. 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 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.The Board 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.
32
Dreyfus representatives reviewed with the Board 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(s) 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 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 should consider the profitability analysis (1) as part of the 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
The Fund | 33 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
benefit of fund shareholders. Dreyfus representatives 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 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 overall 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.
34
In evaluating the Agreement, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with Dreyfus and its affiliates, of the fund and the services provided to the fund by Dreyfus.The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreement, including information on the investment performance of the fund in comparison to similar mutual funds and benchmark performance indices; general market outlook as applicable to the fund; and compliance reports. 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 and Dreyfus representatives. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on their consideration of the same or similar arrangements in prior years. The Board determined that renewal of the Agreement was in the best interests of the fund and its shareholders.
The Fund | 35 |
NOTES
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value
Contents | |
THE FUND | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
19 | Statement of Assets and Liabilities |
20 | Statement of Operations |
21 | Statement of Changes in Net Assets |
23 | Financial Highlights |
26 | Notes to Financial Statements |
35 | 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
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, 2012, through October 31, 2012. 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.
The municipal bond market generally advanced during the reporting period in response to positive supply-and-demand dynamics, improving credit conditions, and investors’ changing expectations of global and domestic economic conditions.While monthly variations in economic data have been pronounced, the longer-term pace of U.S. economic growth has been relatively consistent at about half the average rate achieved in prior recoveries. However, a number of headwinds remain, including the potential effects of the European financial crisis and slower growing emerging markets on U.S. exports.
In light of current uncertainties surrounding fiscal policy and tax reforms, the U.S. economic recovery appears likely to persist at subpar levels over the first half of 2013. However, the nation’s easy monetary policy and a successful resolution of the fiscal debate may prompt corporate decision-makers to increase capital spending, which could have positive implications for the U.S. economy over the second half of the new year. As always, we encourage you to stay in touch with your financial advisor as new developments unfold.
Thank you for your continued confidence and support.
![](https://capedge.com/proxy/N-CSRS/0000806176-12-000042/smbpancsrx4x1.jpg)
Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
November 15, 2012
2
DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2012, through October 31, 2012, as provided by Steven Harvey and Daniel Rabasco, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended October 31, 2012, Class A shares of Dreyfus Pennsylvania Fund, a series of Dreyfus State Municipal Bond Funds, produced a total return of 3.55%, Class C shares returned 3.15% and Class Z shares returned 3.65%.1 In comparison, the Barclays 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 3.34% for the same period.2
Falling long-term interest rates and favorable supply-and-demand dynamics continued to support municipal bond prices during the reporting period.The fund’s Class A and Class Z shares produced higher returns than its benchmark, mainly due to an emphasis on longer-maturity and income-oriented securities.
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. For additional yield, the fund may invest up to 30% of its assets in municipal bonds rated below investment grade or the unrated equivalent as determined by Dreyfus. Under normal market conditions, the dollar-weighted average maturity of the fund’s portfolio is expected to exceed 10 years.
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
The Fund | 3 |
DISCUSSION OF FUND PERFORMANCE (continued)
trade among various sectors, such as pre-refunded, general obligation and revenue sectors, based on their apparent relative values.The fund generally will invest simultaneously in several of these sectors.
Supply-and-Demand Dynamics Buoyed Municipal Bonds
The reporting period began in the immediate wake of several months of U.S. economic recovery, in which investors responded positively to employment gains and increased manufacturing activity. However, new macroeconomic developments in the spring called the sustainability of the recovery into question. Most notably, the U.S. labor market’s rebound slowed when the public sector shed jobs and the private sector’s employment gains proved more anemic than expected.
These headwinds sparked a renewed flight to perceived safe havens, such as U.S.Treasury securities. However, municipal bonds generally remained strong across the credit-quality range throughout the reporting period, in part due to robust demand as investors sought competitive levels of after-tax income in a low interest-rate environment. Municipal bond prices also responded positively to falling long-term interest rates stemming from quantitative easing and other stimulative measures by the Federal Reserve Board. Meanwhile, new issuance volumes remained relatively low when political pressure led to less borrowing for capital projects and municipalities primarily issued new bonds to refinance older debt, resulting in a net decrease in the national supply of tax-exempt securities. Finally, Pennsylvania has taken the difficult steps necessary to balance its budget, and despite the isolated default of a local bond issue not held by the fund, credit conditions in the state generally have remained sound.
In this constructive environment, lower-rated and longer maturity municipal bonds led the market higher, on average, while highly rated and shorter-term securities generally lagged market averages.
Income-Oriented Securities Boosted Relative Performance
The fund benefited during the reporting period from its focus on higher yielding municipal bonds, including those backed by revenues from public projects such as airports and hospitals. Results were especially favorable among Pennsylvania municipal bonds with credit ratings in the “A” category.
4
The fund also received strong contributions to relative performance from longer dated municipal securities, which gained a degree of value as long-term interest rates fell. Underweighted exposure to low yielding escrowed bonds also helped the fund achieve higher returns than its benchmark.
Disappointments during the reporting period were relatively limited, concentrated mainly among higher quality, lower yielding market segments, such as higher-rated securities backed by revenues from essential municipal services.
Adjusting to Changing Market Conditions
We have been encouraged by recently improved data, but the U.S. economy remains vulnerable to uncertainty regarding future fiscal policies from the federal government. We expect market volatility to increase at times amid potentially contentious negotiations to avert automatic federal tax hikes and spending cuts scheduled for early 2013.Therefore, while we have continued to favor income-oriented municipal bonds over their lower yielding counterparts, we have set the fund’s average duration in a range we consider to be roughly in line with market averages. In addition, we have maintained a larger-than-usual cash position to take advantage of more attractive relative values as they become available.
November 15, 2012
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 charge imposed |
on redemptions in the case of 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 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, 2012 to October 31, 2012. 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, 2012 | ||||||
Class A | Class C | Class Z | ||||
Expenses paid per $1,000† | $ 4.87 | $ 8.76 | $ 3.85 | |||
Ending value (after expenses) | $ 1,035.50 | $ 1,031.50 | $ 1,036.50 |
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, 2012 | ||||||
Class A | Class C | Class Z | ||||
Expenses paid per $1,000† | $ 4.84 | $ 8.69 | $ 3.82 | |||
Ending value (after expenses) | $ 1,020.42 | $ 1,016.59 | $ 1,021.42 |
† Expenses are equal to the fund’s annualized expense ratio of .95% for Class A, 1.71% for Class C and .75% for Class Z, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
October 31, 2012 (Unaudited) |
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments—98.1% | Rate (%) | Date | Amount ($) | Value ($) |
Pennsylvania—85.5% | ||||
Adams County Industrial | ||||
Development Authority, Revenue | ||||
(Gettysburg College) | 5.00 | 8/15/25 | 1,000,000 | 1,151,150 |
Adams County Industrial | ||||
Development Authority, Revenue | ||||
(Gettysburg College) | 5.00 | 8/15/26 | 1,000,000 | 1,144,150 |
Allegheny County Airport | ||||
Authority, Airport Revenue | ||||
(Pittsburgh International | ||||
Airport) (Insured; Assured | ||||
Guaranty Municipal Corp.) | 5.00 | 1/1/17 | 1,000,000 | 1,138,450 |
Allegheny County Higher Education | ||||
Building Authority, Revenue | ||||
(Carnegie Mellon University) | 5.00 | 3/1/24 | 3,150,000 | 3,880,863 |
Allegheny County Hospital | ||||
Development Authority, HR | ||||
(South Hills Health System) | 5.13 | 5/1/29 | 1,100,000 | 1,100,275 |
Allegheny County Port Authority, | ||||
Special Transportation Revenue | 5.25 | 3/1/22 | 1,305,000 | 1,579,859 |
Allegheny County Sanitary | ||||
Authority, Sewer Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 12/1/19 | 1,500,000 | 1,804,800 |
Beaver County Hospital Authority, | ||||
Revenue (Heritage Valley | ||||
Health System, Inc.) | 5.00 | 5/15/28 | 1,575,000 | 1,782,191 |
Bucks County Water and Sewer | ||||
Authority, Water System | ||||
Revenue (Insured; Assured | ||||
Guaranty Municipal Corp.) | 5.00 | 12/1/29 | 1,250,000 | 1,469,725 |
Butler County Industrial | ||||
Development Authority, Health | ||||
Care Facilities Revenue (Saint | ||||
John Lutheran Care Center | ||||
Project) (Collateralized; GNMA) | 5.80 | 4/20/29 | 5,135,000 | 5,197,133 |
Butler County Industrial | ||||
Development Authority, MFHR | ||||
(Greenview Gardens Apartments) | 6.00 | 7/1/23 | 475,000 | 487,041 |
Butler County Industrial | ||||
Development Authority, MFHR | ||||
(Greenview Gardens Apartments) | 6.25 | 7/1/33 | 880,000 | 898,700 |
The Fund | 7 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Pennsylvania (continued) | |||||
Centre County Hospital Authority, | |||||
HR (Mount Nittany Medical | |||||
Center Project) (Insured; | |||||
Assured Guaranty Municipal | |||||
Corp.) (Prerefunded) | 6.13 | 11/15/14 | 2,000,000 | a | 2,232,060 |
Charleroi Area School Authority, | |||||
School Revenue (Insured; | |||||
National Public Finance | |||||
Guarantee Corp.) | 0.00 | 10/1/20 | 2,000,000 | b | 1,598,200 |
Chester County Industrial | |||||
Development Authority, | |||||
Revenue (Avon Grove | |||||
Charter School Project) | 6.38 | 12/15/37 | 1,600,000 | 1,680,912 | |
Chester County School Authority, | |||||
School LR (Chester County | |||||
Intermediate Unit Project) | |||||
(Insured; AMBAC) | 5.00 | 4/1/25 | 2,195,000 | 2,334,865 | |
Clairton Municipal Authority, | |||||
Sewer Revenue | 5.00 | 12/1/37 | 2,000,000 | 2,063,080 | |
Cumberland County Municipal | |||||
Authority, Revenue (Presbyterian | |||||
Homes Obligated Group Project) | 5.35 | 1/1/20 | 515,000 | 516,782 | |
Cumberland County Municipal | |||||
Authority, Revenue (Presbyterian | |||||
Homes Obligated Group Project) | 5.45 | 1/1/21 | 885,000 | 887,770 | |
Dauphin County General Authority, | |||||
Health System Revenue | |||||
(Pinnacle Health System Project) | 5.00 | 6/1/42 | 1,500,000 | 1,621,485 | |
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 | 3,299,544 | |
Delaware River Port Authority, | |||||
Revenue | 5.00 | 1/1/30 | 1,500,000 | 1,720,755 | |
Delaware River Port Authority, | |||||
Revenue | 5.00 | 1/1/35 | 1,500,000 | 1,695,720 | |
Donegal School District, | |||||
GO (Limited Tax Obligations) | 5.00 | 6/1/23 | 2,080,000 | 2,422,056 |
8
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Pennsylvania (continued) | |||||
Erie Higher Education Building | |||||
Authority, College Revenue | |||||
(Mercyhurst College Project) | 5.35 | 3/15/28 | 1,000,000 | 1,090,130 | |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 11/1/16 | 1,000,000 | b | 829,770 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 5/1/18 | 2,750,000 | b | 2,038,300 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 11/1/18 | 2,750,000 | b | 1,977,773 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 11/1/19 | 2,750,000 | b | 1,872,035 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 5/1/20 | 2,750,000 | b | 1,814,698 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 11/1/20 | 2,500,000 | b | 1,604,625 |
McKeesport Area School District, | |||||
GO (Insured; AMBAC) | 0.00 | 10/1/21 | 2,915,000 | b | 2,439,301 |
McKeesport Municipal Authority, | |||||
Sewer Revenue (Insured; | |||||
Assured Guaranty Municipal Corp.) | 5.00 | 12/15/20 | 1,230,000 | 1,489,026 | |
Monroeville Municipal Authority, | |||||
Sanitary Sewer Revenue (Insured; | |||||
National Public Finance Guarantee | |||||
Corp.) (Prerefunded) | 5.25 | 12/1/12 | 50,000 | a | 50,210 |
Montgomery County Higher Education | |||||
and Health Authority, HR | |||||
(Abington Memorial Hospital | |||||
Obligated Group) | 5.00 | 6/1/31 | 1,000,000 | 1,134,710 |
The Fund | 9 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Pennsylvania (continued) | |||||
Montgomery County Industrial | |||||
Development Authority, Health | |||||
System Revenue (Jefferson | |||||
Health System) | 5.00 | 10/1/41 | 2,000,000 | 2,216,000 | |
Neshaminy School District, | |||||
GO (Insured; National Public | |||||
Finance Guarantee Corp.) | 5.00 | 4/15/16 | 1,250,000 | 1,328,363 | |
Norristown, | |||||
GO (Insured; Radian) | 0.00 | 12/15/13 | 735,000 | b | 721,608 |
Northampton County Industrial | |||||
Development Authority, | |||||
Mortgage Revenue (Moravian | |||||
Hall Square Project) | |||||
(Insured; Radian) | 5.00 | 7/1/17 | 1,890,000 | 1,893,364 | |
Pennsylvania, | |||||
GO (Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.38 | 7/1/18 | 1,525,000 | 1,900,699 | |
Pennsylvania Economic Development | |||||
Financing Authority, Sewage | |||||
Sludge Disposal Revenue | |||||
(Philadelphia Biosolids | |||||
Facility Project) | 6.25 | 1/1/32 | 1,000,000 | 1,145,970 | |
Pennsylvania Economic Development | |||||
Financing Authority, Unemployment | |||||
Compensation Revenue | 5.00 | 7/1/21 | 5,000,000 | 5,964,250 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(Carnegie Mellon University) | 5.00 | 8/1/21 | 3,000,000 | 3,597,390 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(Edinboro University Foundation | |||||
Student Housing Project at | |||||
Edinboro University | |||||
of Pennsylvania) | 5.88 | 7/1/38 | 2,000,000 | 2,196,840 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(Temple University) | 5.00 | 4/1/24 | 1,100,000 | 1,314,665 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(The Trustees of the | |||||
University of Pennsylvania) | 5.00 | 9/1/31 | 1,300,000 | 1,536,457 |
10
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Pennsylvania (continued) | |||||
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(Thomas Jefferson University) | 5.00 | 3/1/40 | 1,000,000 | 1,112,980 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(University of Pennsylvania | |||||
Health System) | 5.25 | 8/15/25 | 1,000,000 | 1,182,400 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(University of Pennsylvania | |||||
Health System) | 6.00 | 8/15/26 | 2,500,000 | 2,945,000 | |
Pennsylvania Housing Finance | |||||
Agency, Capital Fund | |||||
Securitization Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 12/1/25 | 2,285,000 | 2,428,064 | |
Pennsylvania Housing Finance | |||||
Agency, SFMR | 5.10 | 10/1/20 | 1,380,000 | 1,382,125 | |
Pennsylvania Housing Finance | |||||
Agency, SFMR | 4.70 | 10/1/25 | 760,000 | 777,214 | |
Pennsylvania Housing Finance | |||||
Agency, SFMR | 4.60 | 10/1/27 | 5,000,000 | 5,187,500 | |
Pennsylvania Housing Finance | |||||
Agency, SFMR | 4.88 | 10/1/31 | 3,000,000 | 3,086,070 | |
Pennsylvania Housing Finance | |||||
Agency, SFMR | 4.70 | 10/1/37 | 1,750,000 | 1,791,528 | |
Pennsylvania Industrial | |||||
Development Authority, EDR | 5.50 | 7/1/23 | 900,000 | 1,049,301 | |
Pennsylvania Industrial | |||||
Development Authority, EDR | |||||
(Prerefunded) | 5.50 | 7/1/18 | 100,000 | a | 125,293 |
Pennsylvania State University, | |||||
Revenue | 5.00 | 3/1/35 | 2,000,000 | 2,283,380 | |
Pennsylvania Turnpike Commission, | |||||
Motor License Fund-Enhanced | |||||
Turnpike Subordinate | |||||
Special Revenue | 5.00 | 12/1/37 | 5,325,000 | 6,010,274 | |
Pennsylvania Turnpike Commission, | |||||
Turnpike Revenue | |||||
(Insured; AMBAC) | 5.00 | 12/1/22 | 1,815,000 | 2,061,168 |
The Fund | 11 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Pennsylvania (continued) | ||||
Pennsylvania Turnpike Commission, | ||||
Turnpike Subordinate Revenue | 5.25 | 6/1/39 | 1,030,000 | 1,136,729 |
Pennsylvania Turnpike Commission, | ||||
Turnpike Subordinate Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 6.00 | 6/1/28 | 3,000,000 | 3,670,860 |
Philadelphia, | ||||
Airport Revenue | 5.25 | 6/15/25 | 2,500,000 | 2,835,275 |
Philadelphia, | ||||
Airport Revenue (Insured; | ||||
National Public Finance | ||||
Guarantee Corp.) | 5.00 | 6/15/25 | 510,000 | 532,256 |
Philadelphia, | ||||
Gas Works Revenue (Insured; | ||||
Assured Guaranty Municipal Corp.) | 5.25 | 8/1/22 | 2,000,000 | 2,058,220 |
Philadelphia, | ||||
GO (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.25 | 12/15/23 | 1,500,000 | 1,710,735 |
Philadelphia, | ||||
GO (Insured; XLCA) | 5.25 | 2/15/14 | 2,000,000 | 2,025,340 |
Philadelphia, | ||||
Water and Wastewater Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.60 | 8/1/18 | 800,000 | 979,192 |
Philadelphia Authority for | ||||
Industrial Development, | ||||
Revenue (Independence Charter | ||||
School Project) | 5.50 | 9/15/37 | 1,700,000 | 1,707,072 |
Philadelphia Authority for | ||||
Industrial Development, | ||||
Revenue (Russell Byers Charter | ||||
School Project) | 5.15 | 5/1/27 | 1,230,000 | 1,231,267 |
Philadelphia Authority for | ||||
Industrial Development, | ||||
Revenue (Russell Byers Charter | ||||
School Project) | 5.25 | 5/1/37 | 1,715,000 | 1,668,918 |
Philadelphia Hospitals and Higher | ||||
Education Facilities | ||||
Authority, HR (The Children’s | ||||
Hospital of Philadelphia Project) | 5.00 | 7/1/25 | 1,800,000 | 2,109,600 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Pennsylvania (continued) | ||||
Philadelphia Housing Authority, | ||||
Capital Fund Program Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 12/1/21 | 1,685,000 | 1,706,079 |
Philadelphia Municipal Authority, | ||||
LR (Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.25 | 11/15/15 | 2,115,000 | 2,218,297 |
Philadelphia School District, | ||||
GO | 5.25 | 9/1/23 | 1,000,000 | 1,166,240 |
Philadelphia School District, | ||||
GO | 6.00 | 9/1/38 | 1,000,000 | 1,139,590 |
Pittsburgh Urban Redevelopment | ||||
Authority, MFHR (West | ||||
Park Court Project) | ||||
(Collateralized; GNMA) | 4.90 | 11/20/47 | 1,260,000 | 1,317,784 |
Reading Area Water Authority, | ||||
Water Revenue | 5.00 | 12/1/31 | 2,000,000 | 2,249,040 |
Schuylkill County Industrial | ||||
Development Authority, Revenue | ||||
(Charity Obligation Group) | 5.00 | 11/1/14 | 1,140,000 | 1,143,922 |
State Public School Building | ||||
Authority, Community College | ||||
Revenue (Community College of | ||||
Philadelphia Project) | 6.00 | 6/15/28 | 3,000,000 | 3,450,060 |
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 | 1,119,766 |
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 | 1,176,744 |
State Public School Building | ||||
Authority, School Revenue | ||||
(School District of Haverford | ||||
Township Project) (Insured; XLCA) | 5.25 | 3/15/25 | 3,360,000 | 3,652,286 |
The Fund | 13 |
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Pennsylvania (continued) | |||||
State Public School Building | |||||
Authority, School Revenue | |||||
(York School District Project) | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 5/1/18 | 270,000 | 275,098 | |
State Public School Building | |||||
Authority, School Revenue | |||||
(York School District Project) | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) (Prerefunded) | 5.00 | 5/1/13 | 275,000 | a | 281,559 |
University Area Joint Authority, | |||||
Sewer Revenue (Insured; | |||||
Assured Guaranty Municipal Corp.) | 5.00 | 11/1/19 | 1,500,000 | 1,811,745 | |
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 | 2,172,939 | |
West Mifflin Area School District, | |||||
GO (Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 10/1/22 | 710,000 | 795,534 | |
West Shore Area Authority, | |||||
HR (Holy Spirit Hospital of | |||||
the Sisters of Christian | |||||
Charity Project) | 6.00 | 1/1/26 | 2,000,000 | 2,359,400 | |
Westmoreland County Industrial | |||||
Development Authority, Health | |||||
System Revenue (Excela | |||||
Health Project) | 5.00 | 7/1/25 | 2,390,000 | 2,599,794 | |
Wilson Area School District, | |||||
GO (Insured; National Public | |||||
Finance Guarantee Corp.) | 5.13 | 3/15/16 | 1,300,000 | 1,301,248 |
14
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
U.S. Related—12.6% | ||||
Guam, | ||||
Business Privilege Tax Revenue | 5.00 | 1/1/42 | 1,000,000 | 1,104,740 |
Guam, | ||||
Business Privilege Tax Revenue | 5.13 | 1/1/42 | 1,000,000 | 1,114,400 |
Guam Power Authority, | ||||
Revenue | 5.50 | 10/1/30 | 1,000,000 | 1,108,050 |
Guam Waterworks Authority, | ||||
Water and Wastewater | ||||
System Revenue | 5.50 | 7/1/16 | 320,000 | 330,371 |
Guam Waterworks Authority, | ||||
Water and Wastewater | ||||
System Revenue | 6.00 | 7/1/25 | 1,000,000 | 1,044,130 |
Puerto Rico Aqueduct and Sewer | ||||
Authority, Senior Lien Revenue | 6.00 | 7/1/44 | 2,500,000 | 2,616,200 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | 5.25 | 7/1/23 | 1,000,000 | 1,039,590 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | 6.00 | 7/1/28 | 1,500,000 | 1,646,910 |
Puerto Rico Commonwealth, | ||||
Public Improvement GO | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 6.00 | 7/1/27 | 1,000,000 | 1,094,350 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | 5.25 | 7/1/27 | 2,000,000 | 2,099,540 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | 5.50 | 7/1/38 | 1,185,000 | 1,219,424 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | 5.25 | 7/1/40 | 1,500,000 | 1,526,880 |
Puerto Rico Electric Power | ||||
Authority, Power Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.25 | 7/1/30 | 1,170,000 | 1,248,764 |
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 | 8/1/39 | 1,690,000 | 1,894,676 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.00 | 8/1/42 | 1,500,000 | 1,661,340 | |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(First Subordinate Series) | 6.50 | 8/1/44 | 2,500,000 | 2,936,575 | |
Virgin Islands Public Finance | |||||
Authority, Revenue (Virgin | |||||
Islands Matching Fund Loan Note) | 5.00 | 10/1/25 | 1,000,000 | 1,117,790 | |
Total Investments (cost $180,441,145) | 98.1 | % | 193,692,366 | ||
Cash and Receivables (Net) | 1.9 | % | 3,662,648 | ||
Net Assets | 100.0 | % | 197,355,014 |
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. |
16
Summary of Abbreviations | |||
ABAG | Association of Bay Area | ACA | American Capital Access |
Governments | |||
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company |
AMBAC | American Municipal Bond | ARRN | Adjustable Rate |
Assurance Corporation | Receipt Notes | ||
BAN | Bond Anticipation Notes | BPA | Bond Purchase Agreement |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | DRIVERS | Derivative Inverse |
Tax-Exempt Receipts | |||
EDR | Economic Development | EIR | Environmental Improvement |
Revenue | Revenue | ||
FGIC | Financial Guaranty | FHA | Federal Housing |
Insurance Company | Administration | ||
FHLB | Federal Home | FHLMC | Federal Home Loan Mortgage |
Loan Bank | Corporation | ||
FNMA | Federal National | GAN | Grant Anticipation Notes |
Mortgage Association | |||
GIC | Guaranteed Investment | GNMA | Government National Mortgage |
Contract | Association | ||
GO | General Obligation | HR | Hospital Revenue |
IDB | Industrial Development Board | IDC | Industrial Development Corporation |
IDR | Industrial Development | LIFERS | Long Inverse Floating |
Revenue | Exempt Receipts | ||
LOC | Letter of Credit | LOR | Limited Obligation Revenue |
LR | Lease Revenue | MERLOTS | Municipal Exempt Receipt |
Liquidity Option Tender | |||
MFHR | Multi-Family Housing Revenue | MFMR | Multi-Family Mortgage Revenue |
PCR | Pollution Control Revenue | PILOT | Payment in Lieu of Taxes |
P-FLOATS | Puttable Floating Option | PUTTERS | Puttable Tax-Exempt Receipts |
Tax-Exempt Receipts | |||
RAC | Revenue Anticipation Certificates | RAN | Revenue Anticipation Notes |
RAW | Revenue Anticipation Warrants | ROCS | Reset Options Certificates |
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 |
SPEARS | Short Puttable Exempt | SWDR | Solid Waste Disposal Revenue |
Adjustable Receipts | |||
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 | 3.8 | ||
AA | Aa | AA | 51.0 | ||
A | A | A | 25.2 | ||
BBB | Baa | BBB | 18.0 | ||
BB | Ba | BB | .7 | ||
Not Ratedc | Not Ratedc | Not Ratedc | 1.3 | ||
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, 2012 (Unaudited) |
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments | 180,441,145 | 193,692,366 | |
Cash | 1,586,448 | ||
Interest receivable | 2,424,398 | ||
Receivable for shares of Beneficial Interest subscribed | 72,857 | ||
Prepaid expenses | 12,444 | ||
197,788,513 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 145,203 | ||
Payable for shares of Beneficial Interest redeemed | 224,720 | ||
Accrued expenses | 63,576 | ||
433,499 | |||
Net Assets ($) | 197,355,014 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 183,324,161 | ||
Accumulated undistributed investment income—net | 14,589 | ||
Accumulated net realized gain (loss) on investments | 765,043 | ||
Accumulated net unrealized appreciation | |||
(depreciation) on investments | 13,251,221 | ||
Net Assets ($) | 197,355,014 | ||
Net Asset Value Per Share | |||
Class A | Class C | Class Z | |
Net Assets ($) | 132,750,140 | 5,720,363 | 58,884,511 |
Shares Outstanding | 7,858,081 | 338,459 | 3,486,204 |
Net Asset Value Per Share ($) | 16.89 | 16.90 | 16.89 |
See notes to financial statements. |
The Fund | 19 |
STATEMENT OF OPERATIONS |
Six Months Ended October 31, 2012 (Unaudited) |
Investment Income ($): | ||
Interest Income | 4,394,192 | |
Expenses: | ||
Management fee—Note 3(a) | 541,544 | |
Shareholder servicing costs—Note 3(c) | 244,827 | |
Professional fees | 35,102 | |
Distribution fees—Note 3(b) | 21,072 | |
Registration fees | 12,381 | |
Custodian fees—Note 3(c) | 11,160 | |
Prospectus and shareholders’ reports | 8,906 | |
Trustees’ fees and expenses—Note 3(d) | 4,427 | |
Loan commitment fees—Note 2 | 1,441 | |
Miscellaneous | 18,845 | |
Total Expenses | 899,705 | |
Less—reduction in fees due to earnings credits—Note 3(c) | (121 | ) |
Net Expenses | 899,584 | |
Investment Income—Net | 3,494,608 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | 1,686,108 | |
Net unrealized appreciation (depreciation) on investments | 1,734,990 | |
Net Realized and Unrealized Gain (Loss) on Investments | 3,421,098 | |
Net Increase in Net Assets Resulting from Operations | 6,915,706 | |
See notes to financial statements. |
20
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2012 | Year Ended | |||
(Unaudited) | April 30, 2012a | |||
Operations ($): | ||||
Investment income—net | 3,494,608 | 7,467,761 | ||
Net realized gain (loss) on investments | 1,686,108 | 729,628 | ||
Net unrealized appreciation | ||||
(depreciation) on investments | 1,734,990 | 12,204,429 | ||
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 6,915,706 | 20,401,818 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A Shares | (2,317,089 | ) | (4,984,261 | ) |
Class B Shares | — | (5,584 | ) | |
Class C Shares | (76,920 | ) | (160,859 | ) |
Class Z Shares | (1,086,010 | ) | (2,284,061 | ) |
Net realized gain on investments: | ||||
Class A Shares | — | (159,116 | ) | |
Class B Shares | — | (204 | ) | |
Class C Shares | — | (6,089 | ) | |
Class Z Shares | — | (68,483 | ) | |
Total Dividends | (3,480,019 | ) | (7,668,657 | ) |
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A Shares | 4,259,283 | 7,494,115 | ||
Class B Shares | — | 94 | ||
Class C Shares | 400,363 | 837,923 | ||
Class Z Shares | 1,801,923 | 3,604,872 | ||
Dividends reinvested: | ||||
Class A Shares | 1,799,756 | 3,989,197 | ||
Class B Shares | — | 5,106 | ||
Class C Shares | 64,967 | 133,896 | ||
Class Z Shares | 849,729 | 1,829,790 | ||
Cost of shares redeemed: | ||||
Class A Shares | (5,317,154 | ) | (14,715,487 | ) |
Class B Shares | — | (347,555 | ) | |
Class C Shares | (423,458 | ) | (860,472 | ) |
Class Z Shares | (2,610,545 | ) | (5,357,270 | ) |
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | 824,864 | (3,385,791 | ) | |
Total Increase (Decrease) in Net Assets | 4,260,551 | 9,347,370 | ||
Net Assets ($): | ||||
Beginning of Period | 193,094,463 | 183,747,093 | ||
End of Period | 197,355,014 | 193,094,463 | ||
Undistributed investment income—net | 14,589 | — |
The Fund | 21 |
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||||
October 31, 2012 | Year Ended | |||
(Unaudited) | April 30, 2012a | |||
Capital Share Transactions: | ||||
Class Ab | ||||
Shares sold | 254,062 | 461,144 | ||
Shares issued for dividends reinvested | 107,103 | 246,671 | ||
Shares redeemed | (316,724 | ) | (907,084 | ) |
Net Increase (Decrease) in Shares Outstanding | 44,441 | (199,269 | ) | |
Class Bb | ||||
Shares sold | — | 6 | ||
Shares issued for dividends reinvested | — | 319 | ||
Shares redeemed | — | (21,476 | ) | |
Net Increase (Decrease) in Shares Outstanding | — | (21,151 | ) | |
Class C | ||||
Shares sold | 23,887 | 51,159 | ||
Shares issued for dividends reinvested | 3,864 | 8,276 | ||
Shares redeemed | (25,318 | ) | (53,812 | ) |
Net Increase (Decrease) in Shares Outstanding | 2,433 | 5,623 | ||
Class Z | ||||
Shares sold | 107,707 | 221,045 | ||
Shares issued for dividends reinvested | 50,575 | 113,152 | ||
Shares redeemed | (155,875 | ) | (332,809 | ) |
Net Increase (Decrease) in Shares Outstanding | 2,407 | 1,388 |
a | Effective as of the close of business on March 13, 2012, the fund no longer offers Class B shares. |
b | During the period ended April 30, 2012, 11,168 Class B shares representing $178,651 were automatically |
converted to 11,154 Class A shares. | |
See notes to financial statements. |
22
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2012 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 16.60 | 15.51 | 15.96 | 15.28 | 15.67 | 16.19 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .30 | .63 | .65 | .66 | .65 | .64 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .29 | 1.11 | (.46 | ) | .67 | (.40 | ) | (.53 | ) | |||
Total from Investment Operations | .59 | 1.74 | .19 | 1.33 | .25 | .11 | ||||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.30 | ) | (.63 | ) | (.64 | ) | (.65 | ) | (.64 | ) | (.63 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.02 | ) | — | — | — | — | |||||
Total Distributions | (.30 | ) | (.65 | ) | (.64 | ) | (.65 | ) | (.64 | ) | (.63 | ) |
Net asset value, end of period | 16.89 | 16.60 | 15.51 | 15.96 | 15.28 | 15.67 | ||||||
Total Return (%)b | 3.55 | c | 11.40 | 1.21 | 8.85 | 1.75 | .71 | |||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .95 | d | .95 | .96 | .94 | .96 | .99 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .95 | d | .95 | .96 | .94 | .96 | .98 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.51 | d | 3.91 | 4.09 | 4.17 | 4.27 | 4.02 | |||||
Portfolio Turnover Rate | 10.97 | c | 10.69 | 18.40 | 10.93 | 16.60 | 15.47 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 132,750 | 129,697 | 124,286 | 137,969 | 130,611 | 138,054 |
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, 2012 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 16.61 | 15.52 | 15.97 | 15.29 | 15.68 | 16.20 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .23 | .51 | .53 | .54 | .53 | .52 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .29 | 1.11 | (.45 | ) | .67 | (.39 | ) | (.53 | ) | |||
Total from Investment Operations | .52 | 1.62 | .08 | 1.21 | .14 | (.01 | ) | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.23 | ) | (.51 | ) | (.53 | ) | (.53 | ) | (.53 | ) | (.51 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.02 | ) | — | — | — | — | |||||
Total Distributions | (.23 | ) | (.53 | ) | (.53 | ) | (.53 | ) | (.53 | ) | (.51 | ) |
Net asset value, end of period | 16.90 | 16.61 | 15.52 | 15.97 | 15.29 | 15.68 | ||||||
Total Return (%)b | 3.15 | c | 10.56 | .46 | 8.03 | 1.00 | (.04 | ) | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.71 | d | 1.71 | 1.70 | 1.69 | 1.70 | 1.73 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.71 | d | 1.71 | 1.70 | 1.69 | 1.69 | 1.72 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 2.75 | d | 3.16 | 3.34 | 3.41 | 3.54 | 3.27 | |||||
Portfolio Turnover Rate | 10.97 | c | 10.69 | 18.40 | 10.93 | 16.60 | 15.47 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 5,720 | 5,580 | 5,127 | 6,087 | 4,983 | 3,875 |
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, 2012 | Year Ended April 30, | |||||||||||
Class Z Shares | (Unaudited) | 2012 | 2011 | 2010 | 2009 | 2008 | a | |||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 16.60 | 15.51 | 15.96 | 15.28 | 15.67 | 15.98 | ||||||
Investment Operations: | ||||||||||||
Investment income—netb | .31 | .67 | .68 | .69 | .68 | .29 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .29 | 1.10 | (.45 | ) | .68 | (.40 | ) | (.32 | ) | |||
Total from Investment Operations | .60 | 1.77 | .23 | 1.37 | .28 | (.03 | ) | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.31 | ) | (.66 | ) | (.68 | ) | (.69 | ) | (.67 | ) | (.28 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.02 | ) | — | — | — | — | |||||
Total Distributions | (.31 | ) | (.68 | ) | (.68 | ) | (.69 | ) | (.67 | ) | (.28 | ) |
Net asset value, end of period | 16.89 | 16.60 | 15.51 | 15.96 | 15.28 | 15.67 | ||||||
Total Return (%) | 3.65 | c | 11.64 | 1.41 | 9.10 | 1.96 | (.18 | )c | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .75 | d | .74 | .75 | .72 | .78 | .78 | d | ||||
Ratio of net expenses | ||||||||||||
to average net assets | .75 | d | .74 | .75 | .72 | .77 | .77 | d | ||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.72 | d | 4.13 | 4.29 | 4.40 | 4.48 | 4.37 | d | ||||
Portfolio Turnover Rate | 10.97 | c | 10.69 | 18.40 | 10.93 | 16.60 | 15.47 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 58,885 | 57,818 | 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. |
The Fund | 25 |
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 C and Class Z. Class A shares are subject to a sales charge imposed at the time of purchase. Class C shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class C shares redeemed within one year of purchase. Class Z shares are sold at net asset value per share generally only to shareholders of the fund who received Class Z shares in exchange for their shares of a Dreyfus-managed fund as a result of the reorganization of such Dreyfus-managed fund, and who continue to maintain accounts with the fund at the time of purchase. Class Z shares generally are not available for new accounts. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
26
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 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
The Fund | 27 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
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 Company’s Board of Trustees (the “Board”). 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 the following: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. All of the preceding securities are categorized within Level 2 of the fair value hierarchy.
28
The Service’s procedures are reviewed by Dreyfus under the general supervision of the Board.
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, 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. 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, 2012 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 | — | 193,692,366 | — | 193,692,366 |
At October 31, 2012, there were no transfers between Level 1 and Level 2 of the fair value hierarchy.
(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.
The Fund | 29 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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.
As of and during the period ended October 31, 2012, 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.
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Each of the tax years in the three-year period ended April 30, 2012 remains subject to examination by the Internal Revenue Service and state taxing authorities.
Under the Regulated Investment Company Modernization Act of 2010 (the “2010 Act”), the fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 (“post-enactment losses”) for an unlimited period. Furthermore, post-enactment capital loss carryovers retain their character as either short-term or long-term capital losses rather than short-term as they were under previous statute.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 (“pre-enactment losses”).As a result of this ordering rule, pre-enactment losses may be more likely to expire unused.
The fund has an unused capital loss carryover of $1,018,895 available for federal income tax purposes to be applied against future net realized capital gains, if any, realized subsequent to April 30, 2012. If not applied, $872,907 of the carryover expires in fiscal year 2013, $38,932 expires in fiscal year 2015 and $107,056 expires in fiscal year 2017.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2012 was as follows: tax-exempt income $7,412,713 and ordinary income $255,944. 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. Effective October 10,
The Fund | 31 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
2012, the $225 million unsecured credit facility with Citibank, N.A., was decreased to $210 million. 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, 2012, 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, 2012, the Distributor retained $5,994 from commissions earned on sales of the fund’s Class A shares.
(b) Under the Distribution Plan adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of .75% of the value of the average daily net assets of Class C shares. During the period ended October 31, 2012, Class C shares were charged $21,072 pursuant to the Distribution Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts.The Distributor may make payments to Service Agents (securities dealers, financial institutions or other industry professionals) in respect of these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2012, Class A and Class C shares were charged $165,787 and $7,024, respectively, pursuant to the Shareholder Services Plan.
32
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, 2012, Class Z shares were charged $13,062 pursuant to the Shareholder Services Plan.
The fund has arrangements with the transfer agent and the custodian whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset transfer agency and custody fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
The fund compensates Dreyfus Transfer, Inc. (“DTI”), a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing transfer agency services for the fund and, since May 29, 2012, cash management services related to fund subscriptions and redemptions. During the period ended October 31, 2012, the fund was charged $28,148 for transfer agency services and $801 for cash management services. Cash management fees were partially offset by earnings credits of $94. These fees are included in Shareholder servicing costs in the Statement of Operations.
The fund compensatesThe Bank of NewYork Mellon under a custody agreement for providing custodial services for the fund. During the period ended October 31, 2012, the fund was charged $11,160 pursuant to the custody agreement.
Prior to May 29, 2012, the fund compensated The Bank of NewYork Mellon under a cash management agreement for performing cash management services related to fund subscriptions and redemptions.
The Fund | 33 |
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Subsequent to May 29, 2012, the Bank of NewYork Mellon has continued to provide shareholder redemption draft processing services. During the period ended October 31, 2012, the fund was charged $895 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.
During the period ended October 31, 2012, the fund was charged $3,981 for services performed by the Chief Compliance Officer and his staff.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $91,825, Distribution Plan fees $3,611, Shareholder Services Plan fees $29,282, custodian fees $5,314, Chief Compliance Officer fees $2,654 and transfer agent per account fees $12,517.
(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, 2012, amounted to $22,061,911 and $21,000,866, respectively.
At October 31, 2012, accumulated net unrealized appreciation on investments was $13,251,221, consisting of $13,629,459 gross unrealized appreciation and $378,238 gross unrealized depreciation.
At October 31, 2012, 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).
34
INFORMATION ABOUT THE RENEWAL OF THE |
FUND’S MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the fund’s Board of Trustees held on July 24, 2012, 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 Dreyfus representatives. 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 considered information previously provided to them in presentations from Dreyfus representatives regarding the nature, extent, and quality of the services provided to funds in the Dreyfus fund complex, and Dreyfus representatives 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 (such as retail direct or intermediary, in which intermediaries typically are paid by the fund and/or Dreyfus) and Dreyfus’ corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each intermediary or distribution channel, as applicable to the fund.
The Board 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 also considered Dreyfus’ extensive administrative, accounting, and compliance infrastructures.
The Fund | 35 |
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 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, 2012, 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 the date of its analysis. 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 performance. The Board discussed the results of the comparisons and noted that the fund’s total return performance was at or below the Performance Group median and variously above and below the Performance Universe median for the various periods.The Board also noted that the fund’s yield performance was below the Performance Group median for all ten one-year periods ended June 30th, and above or at the Performance Universe median for six of the ten one-year periods ended June 30th. Dreyfus also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s Lipper category average, noting that the fund outperformed its Lipper category average in seven of the ten calendar years. Dreyfus representatives discussed with the Board the reasons for the relative
36
underperformance 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 also received a presentation from the fund’s portfolio managers during which they discussed the fund’s investment strategy, including the emphasis on quality given the current market environment, and the factors that affected the fund’s performance.
The Board 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.The Board 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.
Dreyfus representatives reviewed with the Board 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(s) 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 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
The Fund | 37 |
INFORMATION ABOUT THE RENEWAL OF THE FUND’S |
MANAGEMENT AGREEMENT (Unaudited) (continued) |
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 should consider the profitability analysis (1) as part of the 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. Dreyfus representatives 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 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 generally was satisfied with fund management’s efforts to improve performance, in light of the considerations described above.
38
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.
In evaluating the Agreement, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with Dreyfus and its affiliates, of the fund and the services provided to the fund by Dreyfus.The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreement, including information on the investment performance of the fund in comparison to similar mutual funds and benchmark performance indices; general market outlook as applicable to the fund; and compliance reports. 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 and Dreyfus representatives. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on their consideration of the same or similar arrangements in prior years. The Board determined that renewal of the Agreement was in the best interests of the fund and its shareholders.
The Fund | 39 |
NOTES
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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.
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Item 12. Exhibits.
(a)(1) Code of ethics referred to in Item 2.
(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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dreyfus State Municipal Bond Funds
By: /s/ Bradley J. Skapyak | |
Bradley J. Skapyak, President
| |
Date: | December 19, 2012 |
| |
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, 2012 |
| |
By: /s/ James Windels | |
James Windels, Treasurer
| |
Date: | December 19, 2012 |
|
EXHIBIT INDEX
(a)(1) Code of ethics referred to in Item 2.
(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)
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