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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| John Pak, 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: | 10/31/14 |
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Dreyfus State |
Municipal Bond Funds, |
Dreyfus Connecticut Fund |
SEMIANNUAL REPORT October 31, 2014
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
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Contents | |
THE FUND | |
2 | A Letter from the President |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
17 | Statement of Assets and Liabilities |
18 | Statement of Operations |
19 | Statement of Changes in Net Assets |
22 | 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 PRESIDENT
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, 2014, through October 31, 2014. 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.
Municipal bonds generally continued to gain ground over the past six months, reinforcing a rally that began earlier in 2014 when long-term interest rates moderated due to geopolitical and economic concerns. These developments drove prices of long-term municipal securities higher, and favorable supply-and-demand dynamics helped keep yields low when economic growth resumed in the second quarter of the year. Meanwhile, improving economic fundamentals have enabled many states and municipalities to shore up their fiscal conditions.
While we remain cautiously optimistic regarding the municipal bond market’s prospects, we believe that selectivity is likely to become more important to investment success. Long-term rates could rise if, as we anticipate, the economy continues to accelerate. On the other hand, intensifying geopolitical turmoil and other factors could dampen the potentially adverse effects of a stronger domestic economic recovery, and rising investor demand for tax-advantaged investments may continue to support municipal bond prices. As always, we encourage you to discuss our observations with your financial adviser to assess their potential impact on your investments.
Thank you for your continued confidence and support.
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J. Charles Cardona
President
The Dreyfus Corporation
November 17, 2014
2
DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2014, through October 31, 2014, as provided by Daniel Barton and Jeffrey Burger, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended October 31, 2014, Class A shares of Dreyfus Connecticut Fund, a series of Dreyfus State Municipal Bond Funds, produced a total return of 3.53%, Class C shares returned 3.05%, Class I shares returned 3.66%, Class Y shares returned 3.57%, and Class Z shares returned 3.64%.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 3.59% for the same period.2
Municipal bonds rallied over the reporting period when long-term interest rates moderated, supply-and-demand dynamics proved favorable, and credit conditions improved.The fund produced returns that were roughly in line with its benchmark, as a relatively long average duration and overweighted exposure to certain revenue bond sub-sectors were balanced by the general underperformance of Connecticut bonds compared to national averages.
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. The dollar-weighted average maturity of the fund’s portfolio normally exceeds 10 years, but the fund may invest without regard to maturity.
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.
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
Additionally, we trade among the market’s various sectors, such as the pre-refunded, general obligation and revenue sectors, based on their apparent relative values. The fund generally will invest simultaneously in several of these sectors.
Economic and Technical Forces Buoyed Municipal Bonds
Municipal bonds rallied in the months prior to the reporting period as long-term interest rates moderated and bond prices rebounded amid concerns that economic weakness in international markets might derail the U.S. economic recovery. Long-term rates declined further when harsh winter weather contributed to an economic contraction during the first quarter of 2014.
The economic recovery got back on track, with U.S. GDP rebounding at a robust 4.6% annualized rate during the second quarter of the year and 3.5% for the third quarter. While accelerating economic growth typically sends inflation and interest rates higher, favorable supply-and-demand dynamics kept long-term interest rates low. Less refinancing activity produced a reduced supply of newly issued tax-exempt securities, while demand intensified from investors seeking higher after-tax income. Consequently, municipal bonds produced highly competitive total returns, with longer term and lower rated securities faring particularly well.
Underlying credit conditions have improved for many issuers, but Connecticut has continued to face budget challenges due to unfunded pension liabilities and lagging participation in the national economic recovery.
Interest Rate Strategies Bolstered Relative Performance
The fund benefited during the reporting period from a modestly long average duration, which increased its exposure to the positive effects of falling interest rates and narrowing yield differences along the market’s maturity range. In addition, overweighted exposure to BBB-rated revenue-backed bonds aided results.The fund received especially strong contributions from relatively heavy positions in hospitals and industrial development bonds.
Detractors from performance included an overweight on tobacco bonds, which suffered from accelerating cigarette consumption decline rates. Furthermore, due to selling of Puerto Rico credits, the fund missed out on the Puerto Rico rally during the end of the performance period as bond prices bounced off of the lows triggered by the June 28th passage of the Public Corporations Debt Enforcement and Recovery Act.
4
Maintaining a Constructive Investment Posture
Although the U.S. economic recovery has gained momentum, global growth recently has disappointed, keeping interest rates at relatively low levels. However, anticipation of the end to the Federal Reserve Board’s quantitative easing program caused rates to back up over the last two weeks of October.
Municipal bond market fundamentals have remained strong in the recovering economy.Although the supply of newly issued municipal bonds began to increase late in the reporting period, we expect any additional issuance to be absorbed by robust investor demand. Therefore, we have maintained the fund’s focus on generating competitive levels of current income, including an emphasis on longer dated, BBB-rated revenue bonds. In light of relatively wide yield differences along the market’s maturity spectrum, we may intensify the fund’s focus on longer term securities as we adjust to changing economic and market conditions over the months ahead.
November 17, 2014
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.
The amount of public information available about municipal bonds is generally less than that for corporate equities or bonds. Special factors, such as legislative changes, and state and local economic and business developments, may adversely affect the yield and/or value of the fund’s investments in municipal bonds. Other factors include the general conditions of the municipal bond market, the size of the particular offering, the maturity of the obligation and the rating of the issue. Changes in economic, business, or political conditions relating to a particular municipal project, municipality, or state in which the fund invests may have an impact on the fund’s share price.
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, ClassY, 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 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, 2014 to October 31, 2014. 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, 2014
Class A | Class C | Class I | Class Y | Class Z | ||||||
Expenses paid per $1,000† | $ | 4.72 | $ | 8.60 | $ | 3.39 | $ | 3.44 | $ | 3.59 |
Ending value (after expenses) | $ | 1,035.30 | $ | 1,030.50 | $ | 1,036.60 | $ | 1,035.70 | $ | 1,036.40 |
COMPARING YOUR FUND’S EXPENSES
WITH THOSE OF OTHER FUNDS (Unaudited)
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment
assuming a hypothetical 5% annualized return for the six months ended October 31, 2014
Class A | Class C | Class I | Class Y | Class Z | ||||||
Expenses paid per $1,000† | $ | 4.69 | $ | 8.54 | $ | 3.36 | $ | 3.41 | $ | 3.57 |
Ending value (after expenses) | $ | 1,020.57 | $ | 1,016.74 | $ | 1,021.88 | $ | 1,021.83 | $ | 1,021.68 |
† Expenses are equal to the fund’s annualized expense ratio of .92% for Class A, 1.68% for Class C, .66% for |
Class I, .67% for ClassY 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, 2014 (Unaudited)
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments—98.6% | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut—93.7% | ||||
Connecticut, | ||||
GO | 5.00 | 4/15/24 | 2,500,000 | 2,824,375 |
Connecticut, | ||||
GO | 5.00 | 3/1/26 | 5,000,000 | 6,024,000 |
Connecticut, | ||||
GO | 5.00 | 11/1/27 | 5,000,000 | 5,845,350 |
Connecticut, | ||||
GO | 5.00 | 11/1/27 | 2,000,000 | 2,282,280 |
Connecticut, | ||||
GO | 5.00 | 11/1/28 | 3,000,000 | 3,419,940 |
Connecticut, | ||||
GO | 5.00 | 11/1/28 | 5,000,000 | 5,824,350 |
Connecticut, | ||||
GO | 5.00 | 11/1/31 | 5,000,000 | 5,768,650 |
Connecticut, | ||||
Special Tax Obligation | ||||
Revenue (Transportation | ||||
Infrastructure Purposes) | 5.00 | 12/1/21 | 5,000,000 | 6,052,650 |
Connecticut, | ||||
Special Tax Obligation | ||||
Revenue (Transportation | ||||
Infrastructure Purposes) | 5.00 | 11/1/22 | 5,000,000 | 5,894,050 |
Connecticut, | ||||
Special Tax Obligation | ||||
Revenue (Transportation | ||||
Infrastructure Purposes) | 5.00 | 10/1/24 | 2,730,000 | 3,322,328 |
Connecticut, | ||||
State Revolving Fund | ||||
General Revenue | 5.00 | 1/1/19 | 5,275,000 | 6,142,157 |
Connecticut, | ||||
State Revolving Fund | ||||
General Revenue | 5.00 | 1/1/23 | 1,250,000 | 1,495,750 |
Connecticut, | ||||
State Revolving Fund | ||||
General Revenue | 5.00 | 3/1/24 | 1,195,000 | 1,462,919 |
Connecticut, | ||||
State Revolving Fund | ||||
General Revenue | 5.00 | 7/1/24 | 2,145,000 | 2,585,862 |
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) (Prerefunded) | 5.25 | 12/1/15 | 1,765,000 | a | 1,878,648 |
Connecticut Development Authority, | |||||
PCR (The Connecticut Light and | |||||
Power Company Project) | 4.38 | 9/1/28 | 3,900,000 | 4,250,337 | |
Connecticut Development Authority, | |||||
Water Facilities Revenue | |||||
(Aquarion Water Company of | |||||
Connecticut Project) | 5.50 | 4/1/21 | 4,500,000 | 5,144,490 | |
Connecticut Development Authority, | |||||
Water Facilities Revenue | |||||
(Aquarion Water Company of | |||||
Connecticut Project) | |||||
(Insured; XLCA) | 5.10 | 9/1/37 | 6,550,000 | 6,801,127 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Ascension Health Senior | |||||
Credit Group) | 5.00 | 11/15/40 | 10,000,000 | 11,109,000 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Bridgeport Hospital Issue) | 5.00 | 7/1/25 | 3,625,000 | 4,234,326 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Fairfield University Issue) | 5.00 | 7/1/25 | 1,340,000 | 1,504,096 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Fairfield University Issue) | 5.00 | 7/1/27 | 1,420,000 | 1,583,130 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Fairfield University Issue) | 5.00 | 7/1/34 | 4,000,000 | 4,413,960 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Fairfield University Issue) | 5.00 | 7/1/35 | 2,000,000 | 2,163,040 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Fairfield University Issue) | 5.00 | 7/1/40 | 2,500,000 | 2,690,450 |
8
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut (continued) | ||||
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Greenwich Academy Issue) | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.25 | 3/1/32 | 10,880,000 | 14,195,462 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Hartford HealthCare Issue) | 5.00 | 7/1/27 | 3,265,000 | 3,812,279 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Hartford HealthCare Issue) | 5.00 | 7/1/32 | 1,000,000 | 1,091,560 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Hartford HealthCare Issue) | 5.00 | 7/1/41 | 2,000,000 | 2,157,180 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Loomis Chaffee School Issue) | ||||
(Insured; AMBAC) | 5.25 | 7/1/28 | 1,760,000 | 2,289,971 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Quinnipiac University Issue) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.00 | 7/1/19 | 1,000,000 | 1,106,970 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Quinnipiac University Issue) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 5.75 | 7/1/33 | 5,000,000 | 5,683,400 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Sacred Heart University Issue) | 5.38 | 7/1/31 | 1,000,000 | 1,100,590 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Salisbury School Issue) | ||||
(Insured; Assured Guaranty Corp.) | 5.00 | 7/1/33 | 5,000,000 | 5,524,900 |
Connecticut Health and Educational | ||||
Facilities Authority, Revenue | ||||
(Stamford Hospital Issue) | 5.00 | 7/1/30 | 6,750,000 | 7,331,107 |
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 | |||||
(The William W. Backus | |||||
Hospital Issue) (Insured; | |||||
Assured Guaranty Municipal | |||||
Corp.) (Prerefunded) | 5.25 | 7/1/18 | 2,000,000 | a | 2,322,900 |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(University of Hartford Issue) | |||||
(Insured; Radian) | 5.00 | 7/1/17 | 1,220,000 | 1,296,250 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(University of Hartford Issue) | |||||
(Insured; Radian) | 5.25 | 7/1/36 | 2,500,000 | 2,566,025 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Wesleyan University Issue) | 5.00 | 7/1/35 | 5,000,000 | 5,703,350 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Wesleyan University Issue) | 5.00 | 7/1/39 | 6,500,000 | 7,414,355 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Western Connecticut Health | |||||
Network Issue) | 5.38 | 7/1/41 | 1,000,000 | 1,106,190 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Yale New Haven Health Issue) | 5.00 | 7/1/27 | 3,960,000 | 4,684,007 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Yale University Issue) | 5.00 | 7/1/40 | 5,000,000 | 5,569,950 | |
Connecticut Health and Educational | |||||
Facilities Authority, Revenue | |||||
(Yale-New Haven Hospital | |||||
Issue) (Prerefunded) | 5.75 | 7/1/20 | 4,000,000 | a | 4,971,840 |
Connecticut Health and Educational | |||||
Facilities Authority, State | |||||
Supported Child Care Revenue | 5.00 | 7/1/25 | 1,490,000 | 1,715,437 |
10
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Connecticut (continued) | ||||
Connecticut Higher Education | ||||
Supplemental Loan Authority, | ||||
Senior Revenue (Connecticut | ||||
Family Education Loan Program) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 4.50 | 11/15/20 | 1,510,000 | 1,512,567 |
Connecticut Higher Education | ||||
Supplemental Loan Authority, | ||||
Senior Revenue (Connecticut | ||||
Family Education Loan Program) | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | 4.80 | 11/15/22 | 2,960,000 | 3,074,197 |
Connecticut Higher Education | ||||
Supplemental Loan Authority, | ||||
State Supported Revenue | ||||
(Connecticut Health and | ||||
Educational Facilities | ||||
Authority Loan Program) | 5.00 | 11/15/21 | 1,450,000 | 1,684,552 |
Connecticut Higher Education | ||||
Supplemental Loan Authority, | ||||
State Supported Revenue | ||||
(Connecticut Health and | ||||
Educational Facilities | ||||
Authority Loan Program) | 5.00 | 11/15/22 | 1,400,000 | 1,621,424 |
Connecticut Higher Education | ||||
Supplemental Loan Authority, | ||||
State Supported Revenue | ||||
(Connecticut Health and | ||||
Educational Facilities | ||||
Authority Loan Program) | 5.00 | 11/15/23 | 1,400,000 | 1,626,254 |
Connecticut Municipal | ||||
Electric Energy | ||||
Cooperative, Power | ||||
Supply System Revenue | 5.00 | 1/1/38 | 3,000,000 | 3,331,740 |
Connecticut Municipal Electric | ||||
Energy Cooperative, | ||||
Transmission Services Revenue | 5.00 | 1/1/22 | 1,505,000 | 1,810,033 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Connecticut (continued) | |||||
Connecticut Resources Recovery | |||||
Authority, RRR (American | |||||
Ref-Fuel Company of Southeastern | |||||
Connecticut Project) | 5.50 | 11/15/15 | 1,000,000 | 1,001,050 | |
Connecticut Resources Recovery | |||||
Authority, RRR (American | |||||
Ref-Fuel Company of Southeastern | |||||
Connecticut Project) | 5.50 | 11/15/15 | 3,250,000 | 3,253,412 | |
Connecticut Transmission Municipal | |||||
Electric Energy Cooperative, | |||||
Transmission System Revenue | 5.00 | 1/1/42 | 3,000,000 | 3,324,000 | |
Eastern Connecticut Resource | |||||
Recovery Authority, Solid | |||||
Waste Revenue (Wheelabrator | |||||
Lisbon Project) | 5.50 | 1/1/20 | 7,000,000 | 7,013,860 | |
Greater New Haven Water Pollution | |||||
Control Authority, Regional | |||||
Wastewater System Revenue | 5.00 | 8/15/26 | 700,000 | 835,604 | |
Greater New Haven Water Pollution | |||||
Control Authority, Regional | |||||
Wastewater System Revenue | 5.00 | 8/15/27 | 1,250,000 | 1,481,650 | |
Greater New Haven Water Pollution | |||||
Control Authority, Regional | |||||
Wastewater System Revenue | 5.00 | 8/15/29 | 1,500,000 | 1,763,220 | |
Greater New Haven Water Pollution | |||||
Control Authority, Regional | |||||
Wastewater System Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 11/15/37 | 1,800,000 | 2,002,968 | |
Greater New Haven Water Pollution | |||||
Control Authority, Regional | |||||
Wastewater System Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.00 | 8/15/35 | 25,000 | 25,944 | |
Greater New Haven Water Pollution | |||||
Control Authority, Regional | |||||
Wastewater System Revenue | |||||
(Insured; National Public Finance | |||||
Guarantee Corp.) (Prerefunded) | 5.00 | 11/15/15 | 5,000,000 | a | 5,250,300 |
12
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Connecticut (continued) | |||||
Greater New Haven Water Pollution | |||||
Control Authority, Regional | |||||
Wastewater System Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | |||||
(Prerefunded) | 5.00 | 11/15/15 | 1,975,000 | a | 2,073,869 |
Hartford, | |||||
GO | 5.00 | 4/1/24 | 1,000,000 | 1,186,800 | |
Hartford, | |||||
GO (Escrowed to Maturity) | 5.00 | 4/1/17 | 1,325,000 | 1,468,219 | |
Hartford, | |||||
GO (Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 4/1/32 | 595,000 | 660,843 | |
Hartford, | |||||
GO (Insured; Assured Guaranty | |||||
Municipal Corp.) (Prerefunded) | 5.00 | 4/1/22 | 255,000 | a | 312,115 |
Hartford County Metropolitan | |||||
District, Clean Water | |||||
Project Revenue | 5.00 | 4/1/31 | 3,510,000 | 4,030,182 | |
Hartford County Metropolitan | |||||
District, Clean Water Project | |||||
Revenue (Green Bonds) | 5.00 | 11/1/42 | 2,000,000 | 2,288,520 | |
Meriden, | |||||
GO (Insured; National Public | |||||
Finance Guarantee Corp.) | 5.00 | 8/1/16 | 2,090,000 | 2,257,158 | |
New Britain, | |||||
GO (Insured; Assured | |||||
Guaranty Corp.) | 5.00 | 4/1/24 | 4,500,000 | 5,553,405 | |
New Haven, | |||||
GO | 5.00 | 3/1/17 | 1,425,000 | 1,549,631 | |
New Haven, | |||||
GO (Insured; Assured | |||||
Guaranty Corp.) | 5.00 | 3/1/29 | 1,000,000 | 1,075,820 | |
Norwalk, | |||||
GO | 5.00 | 7/15/24 | 1,000,000 | 1,199,580 | |
South Central Connecticut | |||||
Regional Water Authority, | |||||
Water System Revenue | 5.00 | 8/1/27 | 3,000,000 | 3,535,920 |
The Fund 13
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Connecticut (continued) | |||||
South Central Connecticut | |||||
Regional Water Authority, | |||||
Water System Revenue | 5.00 | 8/1/31 | 3,940,000 | 4,468,315 | |
South Central Connecticut | |||||
Regional Water Authority, | |||||
Water System Revenue | 5.00 | 8/1/32 | 1,370,000 | 1,565,787 | |
South Central Connecticut | |||||
Regional Water Authority, | |||||
Water System Revenue | 5.00 | 8/1/33 | 1,500,000 | 1,708,785 | |
South Central Connecticut Regional | |||||
Water Authority, Water System | |||||
Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 5.25 | 8/1/24 | 2,000,000 | 2,508,640 | |
South Central Connecticut Regional | |||||
Water Authority, Water System | |||||
Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 5.25 | 8/1/31 | 2,000,000 | 2,219,580 | |
Stamford, | |||||
GO | 5.00 | 7/1/21 | 4,410,000 | 5,357,753 | |
University of Connecticut, | |||||
GO | 5.00 | 2/15/25 | 1,000,000 | 1,144,090 | |
University of Connecticut, | |||||
GO | 5.00 | 2/15/27 | 1,000,000 | 1,139,630 | |
University of Connecticut, | |||||
GO | 5.00 | 2/15/28 | 1,000,000 | 1,131,380 | |
University of Connecticut, | |||||
GO (Insured; Assured Guaranty | |||||
Municipal Corp.) (Prerefunded) | 5.00 | 2/15/15 | 1,225,000 | a | 1,242,260 |
University of Connecticut, | |||||
Special Obligation | |||||
Student Fee Revenue | 5.00 | 11/15/24 | 5,000,000 | 6,061,250 | |
U.S. Related—4.9% | |||||
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 5.50 | 5/15/39 | 3,000,000 | 2,849,820 | |
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 0.00 | 5/15/50 | 12,000,000 | b | 888,360 |
Guam, | |||||
LOR (Section 30) | 5.63 | 12/1/29 | 1,000,000 | 1,105,740 |
14
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
U.S. Related (continued) | |||||
Guam Economic Development | |||||
Authority, Tobacco Settlement | |||||
Asset-Backed Bonds (Escrowed | |||||
to Maturity) | 5.45 | 5/15/16 | 1,445,000 | 1,553,780 | |
Guam Waterworks Authority, | |||||
Water and Wastewater System | |||||
Revenue (Prerefunded) | 5.50 | 7/1/15 | 535,000 | a | 553,126 |
Virgin Islands Port Authority, | |||||
Marine Revenue | 5.00 | 9/1/44 | 2,000,000 | 2,184,140 | |
Virgin Islands Public Finance | |||||
Authority, Revenue (Virgin Islands | |||||
Matching Fund Loan Note) | 5.00 | 10/1/25 | 5,000,000 | 5,551,200 | |
Total Investments (cost $278,217,148) | 98.6 | % | 297,399,461 | ||
Cash and Receivables (Net) | 1.4 | % | 4,220,599 | ||
Net Assets | 100.0 | % | 301,620,060 |
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. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Education | 23.2 | City | 3.3 |
Health Care | 16.2 | Asset-Backed | 1.2 |
Utility-Water and Sewer | 13.5 | Transportation Services | 1.1 |
State/Territory | 10.6 | Housing | .8 |
Prerefunded | 7.2 | Resource Recovery | .3 |
Special Tax | 6.9 | Other | 4.6 |
Utility-Electric | 4.9 | ||
Industrial | 4.8 | 98.6 |
† | Based on net assets. |
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 Receipts |
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 | RIB | Residual Interest Bonds |
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 | SPEARS | Short Puttable Exempt |
Mortgage Agency | Adjustable Receipts | ||
SWDR | Solid Waste Disposal Revenue | TAN | Tax Anticipation Notes |
TAW | Tax Anticipation Warrants | TRAN | Tax and Revenue Anticipation Notes |
XLCA | XL Capital Assurance | ||
See notes to financial statements. |
16
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2014 (Unaudited)
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments | 278,217,148 | 297,399,461 | |
Cash | 2,794,728 | ||
Interest receivable | 4,133,280 | ||
Prepaid expenses | 29,011 | ||
304,356,480 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 211,054 | ||
Payable for investment securities purchased | 2,286,680 | ||
Payable for shares of Beneficial Interest redeemed | 187,269 | ||
Accrued expenses | 51,417 | ||
2,736,420 | |||
Net Assets ($) | 301,620,060 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 291,299,547 | ||
Accumulated undistributed investment income—net | 3,234 | ||
Accumulated net realized gain (loss) on investments | (8,865,034 | ) | |
Accumulated net unrealized appreciation | |||
(depreciation) on investments | 19,182,313 | ||
Net Assets ($) | 301,620,060 |
Net Asset Value Per Share | |||||
Class A | Class C | Class I | Class Y | Class Z | |
Net Assets ($) | 179,089,053 | 11,381,166 | 7,191,554 | 3,019,730 | 100,938,557 |
Shares Outstanding | 15,034,764 | 956,955 | 603,746 | 253,500 | 8,475,436 |
Net Asset Value | |||||
Per Share ($) | 11.91 | 11.89 | 11.91 | 11.91 | 11.91 |
See notes to financial statements. |
The Fund 17
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2014 (Unaudited)
Investment Income ($): | ||
Interest Income | 5,798,620 | |
Expenses: | ||
Management fee—Note 3(a) | 846,913 | |
Shareholder servicing costs—Note 3(c) | 324,963 | |
Distribution fees—Note 3(b) | 42,003 | |
Professional fees | 41,593 | |
Registration fees | 30,932 | |
Custodian fees—Note 3(c) | 12,925 | |
Prospectus and shareholders’ reports | 7,117 | |
Trustees’ fees and expenses—Note 3(d) | 6,639 | |
Loan commitment fees—Note 2 | 1,475 | |
Miscellaneous | 17,589 | |
Total Expenses | 1,332,149 | |
Less—reduction in fees due to earnings credits—Note 3(c) | (64 | ) |
Net Expenses | 1,332,085 | |
Investment Income—Net | 4,466,535 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | (1,007,752 | ) |
Net unrealized appreciation (depreciation) on investments | 7,165,926 | |
Net Realized and Unrealized Gain (Loss) on Investments | 6,158,174 | |
Net Increase in Net Assets Resulting from Operations | 10,624,709 | |
See notes to financial statements. |
18
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2014 | Year Ended | |||
(Unaudited) | April 30, 2014a | |||
Operations ($): | ||||
Investment income—net | 4,466,535 | 10,752,545 | ||
Net realized gain (loss) on investments | (1,007,752 | ) | (7,436,065 | ) |
Net unrealized appreciation | ||||
(depreciation) on investments | 7,165,926 | (15,677,500 | ) | |
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 10,624,709 | (12,361,020 | ) | |
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A | (2,641,862 | ) | (6,573,801 | ) |
Class C | (116,667 | ) | (297,369 | ) |
Class I | (112,917 | ) | (304,394 | ) |
Class Y | (29,512 | ) | (23 | ) |
Class Z | (1,562,343 | ) | (3,565,069 | ) |
Net realized gain on investments: | ||||
Class A | — | (50,303 | ) | |
Class C | — | (2,854 | ) | |
Class I | — | (2,057 | ) | |
Class Z | — | (25,651 | ) | |
Total Dividends | (4,463,301 | ) | (10,821,521 | ) |
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A | 1,746,622 | 5,324,116 | ||
Class C | 876,391 | 375,521 | ||
Class I | 2,285,098 | 3,914,881 | ||
Class Y | 3,158,622 | 1,000 | ||
Class Z | 1,418,801 | 2,417,423 |
The Fund 19
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||||
October 31, 2014 | Year Ended | |||
(Unaudited) | April 30, 2014a | |||
Beneficial Interest Transactions ($) (continued): | ||||
Dividends reinvested: | ||||
Class A | 2,075,259 | 5,161,909 | ||
Class C | 93,198 | 239,380 | ||
Class I | 70,152 | 156,025 | ||
Class Y | 7,008 | — | ||
Class Z | 1,220,904 | 2,819,578 | ||
Cost of shares redeemed: | ||||
Class A | (16,549,587 | ) | (47,553,467 | ) |
Class C | (732,052 | ) | (5,216,090 | ) |
Class I | (3,294,844 | ) | (7,324,431 | ) |
Class Y | (208,001 | ) | — | |
Class Z | (4,404,982 | ) | (14,274,615 | ) |
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | (12,237,411 | ) | (53,958,770 | ) |
Total Increase (Decrease) in Net Assets | (6,076,003 | ) | (77,141,311 | ) |
Net Assets ($): | ||||
Beginning of Period | 307,696,063 | 384,837,374 | ||
End of Period | 301,620,060 | 307,696,063 | ||
Undistributed investment income—net | 3,234 | — |
20
Six Months Ended | ||||
October 31, 2014 | Year Ended | |||
(Unaudited) | April 30, 2014a | |||
Capital Share Transactions: | ||||
Class Ab | ||||
Shares sold | 147,670 | 458,722 | ||
Shares issued for dividends reinvested | 175,517 | 448,131 | ||
Shares redeemed | (1,403,299 | ) | (4,132,210 | ) |
Net Increase (Decrease) in Shares Outstanding | (1,080,112 | ) | (3,225,357 | ) |
Class Cb | ||||
Shares sold | 74,442 | 32,337 | ||
Shares issued for dividends reinvested | 7,894 | 20,808 | ||
Shares redeemed | (62,270 | ) | (450,254 | ) |
Net Increase (Decrease) in Shares Outstanding | 20,066 | (397,109 | ) | |
Class Ic | ||||
Shares sold | 193,910 | 337,569 | ||
Shares issued for dividends reinvested | 5,930 | 13,519 | ||
Shares redeemed | (281,731 | ) | (641,315 | ) |
Net Increase (Decrease) in Shares Outstanding | (81,891 | ) | (290,227 | ) |
Class Yc | ||||
Shares sold | 270,384 | 89.69 | ||
Shares issued for dividends reinvested | 590 | — | ||
Shares redeemed | (17,564 | ) | — | |
Net Increase (Decrease) in Shares Outstanding | 253,410 | 89.69 | ||
Class Z | ||||
Shares sold | 120,096 | 210,048 | ||
Shares issued for dividends reinvested | 103,263 | 244,829 | ||
Shares redeemed | (371,920 | ) | (1,244,898 | ) |
Net Increase (Decrease) in Shares Outstanding | (148,561 | ) | (790,021 | ) |
a Effective September 3, 2013, the fund commenced offering ClassY shares. |
b During the period ended April 30, 2014, 16,378 Class C shares representing $201,623 were exchanged for |
16,365 Class A shares. |
c During the period ended October 31, 2014, 238,227 Class I shares representing $2,782,497 were exchanged for |
238,227 ClassY shares. |
See notes to financial statements.
The Fund 21
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2014 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.67 | 12.39 | 12.23 | 11.32 | 11.68 | 11.16 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .17 | .37 | .38 | .44 | .45 | .47 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .24 | (.72 | ) | .19 | .91 | (.36 | ) | .52 | ||||
Total from Investment Operations | .41 | (.35 | ) | .57 | 1.35 | .09 | .99 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.17 | ) | (.37 | ) | (.38 | ) | (.44 | ) | (.45 | ) | (.47 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.00 | )b | (.03 | ) | — | — | — | ||||
Total Distributions | (.17 | ) | (.37 | ) | (.41 | ) | (.44 | ) | (.45 | ) | (.47 | ) |
Net asset value, end of period | 11.91 | 11.67 | 12.39 | 12.23 | 11.32 | 11.68 | ||||||
Total Return (%)c | 3.53 | d | (2.72 | ) | 4.74 | 12.07 | .75 | 8.98 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .92 | e | .90 | .90 | .91 | .91 | .90 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .92 | e | .90 | .90 | .91 | .91 | .90 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 2.85 | e | 3.21 | 3.10 | 3.69 | 3.90 | 4.07 | |||||
Portfolio Turnover Rate | 5.98 | d | 9.50 | 19.13 | 13.77 | 17.05 | 11.42 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 179,089 | 188,117 | 239,626 | 227,398 | 215,132 | 246,190 |
a | Based on average shares outstanding. |
b | Amount represents less than $.01 per share. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
See notes to financial statements.
22
Six Months Ended | ||||||||||||
October 31, 2014 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.66 | 12.37 | 12.21 | 11.30 | 11.66 | 11.14 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .12 | .28 | .29 | .35 | .36 | .38 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .23 | (.71 | ) | .19 | .91 | (.36 | ) | .52 | ||||
Total from Investment Operations | .35 | (.43 | ) | .48 | 1.26 | — | .90 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.12 | ) | (.28 | ) | (.29 | ) | (.35 | ) | (.36 | ) | (.38 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.00 | )b | (.03 | ) | — | — | — | ||||
Total Distributions | (.12 | ) | (.28 | ) | (.32 | ) | (.35 | ) | (.36 | ) | (.38 | ) |
Net asset value, end of period | 11.89 | 11.66 | 12.37 | 12.21 | 11.30 | 11.66 | ||||||
Total Return (%)c | 3.05 | d | (3.39 | ) | 3.94 | 11.25 | (.01 | ) | 8.17 | |||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.68 | e | 1.67 | 1.66 | 1.67 | 1.67 | 1.66 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.68 | e | 1.67 | 1.66 | 1.67 | 1.66 | 1.66 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 2.09 | e | 2.43 | 2.34 | 2.94 | 3.14 | 3.30 | |||||
Portfolio Turnover Rate | 5.98 | d | 9.50 | 19.13 | 13.77 | 17.05 | 11.42 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 11,381 | 10,920 | 16,502 | 15,823 | 16,322 | 18,466 |
a | Based on average shares outstanding. |
b | Amount represents less than $.01 per share. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
See notes to financial statements.
The Fund 23
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||||||||
October 31, 2014 | Year Ended April 30, | |||||||||||
Class I Shares | (Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.67 | 12.39 | 12.22 | 11.31 | 11.68 | 11.16 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .18 | .40 | .41 | .46 | .48 | .44 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .24 | (.72 | ) | .21 | .92 | (.37 | ) | .58 | ||||
Total from Investment Operations | .42 | (.32 | ) | .62 | 1.38 | .11 | 1.02 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.18 | ) | (.40 | ) | (.42 | ) | (.47 | ) | (.48 | ) | (.50 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.00 | )b | (.03 | ) | — | — | — | ||||
Total Distributions | (.18 | ) | (.40 | ) | (.45 | ) | (.47 | ) | (.48 | ) | (.50 | ) |
Net asset value, end of period | 11.91 | 11.67 | 12.39 | 12.22 | 11.31 | 11.68 | ||||||
Total Return (%) | 3.66 | c | (2.48 | ) | 5.09 | 12.38 | .92 | 9.27 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .66 | d | .65 | .64 | .65 | .63 | .70 | |||||
Ratio of net expenses t | ||||||||||||
o average net assets | .66 | d | .65 | .63 | .65 | .63 | .65 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.11 | d | 3.45 | 3.34 | 3.90 | 4.16 | 4.30 | |||||
Portfolio Turnover Rate | 5.98 | c | 9.50 | 19.13 | 13.77 | 17.05 | 11.42 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 7,192 | 8,004 | 12,092 | 12,999 | 6,309 | 5,441 |
a | Based on average shares outstanding. |
b | Amount represents less than $.01 per share. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements.
24
Six Months Ended | ||||
October 31, 2014 | Year Ended | |||
Class Y Shares | (Unaudited) | April 30, 2014a | ||
Per Share Data ($): | ||||
Net asset value, beginning of period | 11.68 | 11.15 | ||
Investment Operations: | ||||
Investment income—netb | .20 | .26 | ||
Net realized and unrealized | ||||
gain (loss) on investments | .21 | .53 | ||
Total from Investment Operations | .41 | .79 | ||
Distributions: | ||||
Dividends from investment income—net | (.18 | ) | (.26 | ) |
Net asset value, end of period | 11.91 | 11.68 | ||
Total Return (%)c | 3.57 | 7.16 | ||
Ratios/Supplemental Data (%): | ||||
Ratio of total expenses to average net assetsd | .67 | .63 | ||
Ratio of net expenses to average net assetsd | .67 | .63 | ||
Ratio of net investment income | ||||
to average net assetsd | 3.09 | 3.45 | ||
Portfolio Turnover Rate | 5.98 | c | 9.50 | |
Net Assets, end of period ($ x 1,000) | 3,020 | 1 |
a | From September 3, 2013 (commencement of initial offering) to April 30, 2014. |
b | Based on average shares outstanding. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements.
The Fund 25
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||||||||
October 31, 2014 | Year Ended April 30, | |||||||||||
Class Z Shares | (Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.67 | 12.39 | 12.22 | 11.31 | 11.67 | 11.16 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .18 | .40 | .41 | .46 | .48 | .49 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .24 | (.72 | ) | .20 | .91 | (.37 | ) | .51 | ||||
Total from Investment Operations | .42 | (.32 | ) | .61 | 1.37 | .11 | 1.00 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.18 | ) | (.40 | ) | (.41 | ) | (.46 | ) | (.47 | ) | (.49 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.00 | )b | (.03 | ) | — | — | — | ||||
Total Distributions | (.18 | ) | (.40 | ) | (.44 | ) | (.46 | ) | (.47 | ) | (.49 | ) |
Net asset value, end of period | 11.91 | 11.67 | 12.39 | 12.22 | 11.31 | 11.67 | ||||||
Total Return (%) | 3.64 | c | (2.50 | ) | 5.04 | 12.31 | .97 | 9.11 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .70 | d | .69 | .69 | .71 | .70 | .70 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .70 | d | .69 | .69 | .71 | .70 | .70 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.06 | d | 3.43 | 3.32 | 3.89 | 4.11 | 4.27 | |||||
Portfolio Turnover Rate | 5.98 | c | 9.50 | 19.13 | 13.77 | 17.05 | 11.42 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 100,939 | 100,654 | 116,617 | 114,892 | 106,076 | 112,728 |
a | Based on average shares outstanding. |
b | Amount represents less than $.01 per share. |
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 currently offering three 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, ClassY and Class Z. Class A shares generally 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 and Class Y shares are sold at net asset value per share generally 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 (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
The Company enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value. This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
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 generally 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 within Level 2 or 3 of the fair value hierarchy depending on the relevant inputs used.
For restricted securities where observable inputs are limited, assumptions about market activity and risk are used and are generally categorized within Level 3 of the fair value hierarchy.
The following is a summary of the inputs used as of October 31, 2014 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† | — | 297,399,461 | — | 297,399,461 |
† See Statement of Investments for additional detailed categorizations. |
At October 31, 2014, 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
30
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, 2014, 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 ended October 31, 2014, the fund did not incur any interest or penalties.
The Fund 31
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Each tax year in the three-year period ended April 30, 2014 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 fund has an unused capital loss carryover of $7,887,190 available for federal income tax purposes to be applied against future net realized capital gains, if any, realized subsequent to April 30, 2014. The fund has $2,418,390 of post-enactment short-term capital losses and $5,468,800 of post-enactment long-term capital losses which can be carried forward for an unlimited period.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2014 was as follows: tax-exempt income $10,743,671 and ordinary income $77,850.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 $430 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. Prior to October 8, 2014, the unsecured credit facility with Citibank, N.A. was $265 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, 2014, the fund did not borrow under the Facilities.
32
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, 2014, the Distributor retained $1,995 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 its average daily net assets. During the period ended October 31, 2014, Class C shares were charged $42,003 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) with respect to these services.The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2014, Class A and Class C shares were charged $231,925 and $14,001, 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
The Fund 33
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
related to the maintenance of shareholder accounts. During the period ended October 31, 2014, Class Z shares were charged $21,355 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., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing transfer agency and cash management services for the fund. The majority of transfer agency fees are comprised of amounts paid on a per account basis, while cash management fees are related to fund subscriptions and redemptions. During the period ended October 31, 2014, the fund was charged $30,936 for transfer agency services and $1,351 for cash management services.These fees are included in Shareholder servicing costs in the Statement of Operations. Cash management fees were partially offset by earnings credits of $64.
The fund compensates The Bank of NewYork Mellon under a custody agreement for providing custodial services for the fund.These fees are determined based on net assets, geographic region and transaction activity. During the period ended October 31, 2014, the fund was charged $12,925 pursuant to the custody agreement.
The fund compensates The Bank of New York Mellon for performing certain cash management services related to fund subscriptions and redemptions, including shareholder redemption draft processing, under a cash management agreement. During the period ended October 31, 2014, the fund was charged $999 pursuant to the agreement, which is included in Shareholder servicing costs in the Statement of Operations.
34
During the period ended October 31, 2014, the fund was charged $3,576 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 $141,496, Distribution Plan fees $7,266, Shareholder Services Plan fees $40,594, custodian fees $9,373, Chief Compliance Officer fees $617 and transfer agency fees $11,708.
(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, 2014, amounted to $17,932,501 and $27,605,194, respectively.
At October 31, 2014, accumulated net unrealized appreciation on investments was $19,182,313, consisting of $19,859,374 gross unrealized appreciation and $677,061 gross unrealized depreciation.
At October 31, 2014, 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 22, 2014, 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 provided to them at the meeting and in previous presentations from Dreyfus representatives regarding the nature, extent, and quality of the services provided to funds in the Dreyfus fund complex. 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 May 31, 2014, 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 below the Performance Group and Performance Universe medians in all periods, noting the proximity to the medians of the fund’s performance in certain periods (there were only three other funds in the Performance Group). The Board also noted that the fund’s yield performance was at or above the Performance Group median for five of the ten one-year periods ended May 31st and at or above the Performance Universe median for eight of the ten one-year periods ended May 31st. Dreyfus also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s Lipper category average and noted that the fund’s calendar year total returns were above the Lipper category average for eight of the ten calendar years.
The Fund 37
INFORMATION ABOUT THE RENEWAL OF THE FUND’S
MANAGEMENT AGREEMENT (Unaudited) (continued)
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 expenses were above the Expense Group and Expense Universe medians (actual management fee was the highest in the Expense Group).
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 its affiliates and the resulting profitability percentage for managing the fund and the aggregate profitability percentage to Dreyfus and its affiliates for managing the funds in the Dreyfus fund complex, 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 also 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.
38
The Board considered on the advice of its counsel the profitability analysis (1) as part of its 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 the fund’s overall performance.
The Board concluded that the fee paid to Dreyfus was reasonable in light of the considerations described above.
The Fund 39
INFORMATION ABOUT THE RENEWAL OF THE FUND’S
MANAGEMENT AGREEMENT (Unaudited) (continued)
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, 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
For More Information
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Telephone Call your financial representative or 1-800-DREYFUS
Mail The Dreyfus Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Information regarding how the fund voted proxies relating to portfolio securities for the most recent 12-month period ended June 30 is available on the SEC’s website at http://www.sec.gov and without charge, upon request, by calling 1-800-DREYFUS.
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Dreyfus State |
Municipal Bond Funds, |
Dreyfus Massachusetts Fund |
SEMIANNUAL REPORT October 31, 2014
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Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.dreyfus.com and sign up for Dreyfus eCommunications. It’s simple and only takes a few minutes.
The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
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Contents | |
THE FUND | |
2 | A Letter from the President |
3 | Discussion of Fund Performance |
6 | UnderstandingYour Fund’s Expenses |
6 | ComparingYour Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
15 | Statement of Assets and Liabilities |
16 | Statement of Operations |
17 | Statement of Changes in Net Assets |
19 | Financial Highlights |
22 | Notes to Financial Statements |
31 | Information About the 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 PRESIDENT
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, 2014, through October 31, 2014. 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.
Municipal bonds generally continued to gain ground over the past six months, reinforcing a rally that began earlier in 2014 when long-term interest rates moderated due to geopolitical and economic concerns. These developments drove prices of long-term municipal securities higher, and favorable supply-and-demand dynamics helped keep yields low when economic growth resumed in the second quarter of the year. Meanwhile, improving economic fundamentals have enabled many states and municipalities to shore up their fiscal conditions.
While we remain cautiously optimistic regarding the municipal bond market’s prospects, we believe that selectivity is likely to become more important to investment success. Long-term rates could rise if, as we anticipate, the economy continues to accelerate. On the other hand, intensifying geopolitical turmoil and other factors could dampen the potentially adverse effects of a stronger domestic economic recovery, and rising investor demand for tax-advantaged investments may continue to support municipal bond prices. As always, we encourage you to discuss our observations with your financial adviser to assess their potential impact on your investments.
Thank you for your continued confidence and support.
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J. Charles Cardona
President
The Dreyfus Corporation
November 17, 2014
2
DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2014, through October 31, 2014, as provided by Thomas Casey and Daniel Rabasco, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended October 31, 2014, Class A shares of Dreyfus Massachusetts Fund, a series of Dreyfus State Municipal Bond Funds, produced a total return of 3.57%, Class C shares returned 3.17%, and Class Z shares returned 3.59%.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 3.59% for the same period.2
Municipal bonds rallied over the reporting period when long-term interest rates moderated, supply-and-demand dynamics proved favorable, and credit conditions improved.The fund’s returns were roughly in line with its benchmark, as the benefits of a relatively long average duration and overweighted exposure to certain revenue bonds of Connecticut were balanced by weakness among Puerto Rico bonds and higher quality securities.
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. The dollar-weighted average maturity of the fund’s portfolio normally exceeds 10 years, but the fund may invest without regard to maturity.
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.
Economic and Technical Forces Buoyed Municipal Bonds
Municipal bonds rallied in the months prior to the reporting period as long-term interest rates moderated and bond prices rebounded amid concerns that economic weakness in international markets might derail the U.S. economic recovery. Long-term rates declined further when harsh winter weather contributed to an economic contraction during the first quarter of 2014.
The economic recovery got back on track as U.S. GDP rebounded at a robust 4.6% annualized rate during the second quarter of the year and an estimate 3.5% for the third quarter. While accelerating economic growth typically sends inflationary pressures of Pennsylvania and interest rates higher, favorable supply-and-demand dynamics kept long-term interest rates low. Less refinancing activity produced a reduced supply of newly issued tax-exempt securities, while demand intensified from investors seeking higher after-tax income. Consequently, municipal bonds produced highly competitive total returns, with longer term and lower rated securities faring particularly well.
The economic rebound resulted in better underlying credit conditions for Massachusetts. The state participated fully in the national economic recovery with support from the technology, financial, and health care industries.
Various Strategies Bolstered Relative Performance
During the reporting period the fund’s long average duration allowed it to benefit from the positive effects of falling interest rates and narrowing yield differences along the market’s maturity spectrum. In addition, overweighted exposure to certain revenue-backed bonds with BBB credit ratings aided results. The fund received especially strong contributions from bonds backed by revenues from airports, hospitals, and the state’s settlement of litigation with U.S. tobacco companies.
Detractors from performance included the fund’s positions in Puerto Rico municipal bonds, which suffered credit-quality issues related to the U.S. territory’s struggling economy and heavy debt and pension liabilities. In addition, the fund’s holdings of higher quality bonds, including those backed by education facilities and special tax districts, lagged market averages.
4
Maintaining a Constructive Investment Posture
Although the U.S. economic recovery has gained momentum, global growth recently has disappointed, keeping interest rates at relatively low levels. Based on the strength of U.S. economic growth, some market participants expect the Fed to begin hiking short-term interest rates sometime in 2015.
Municipal bond market fundamentals have remained strong in the recovering economy.Although the supply of newly issued municipal bonds began to increase late in the reporting period, we expect any additional issuance to be absorbed by robust investor demand. Therefore, we have maintained the fund’s focus on generating competitive levels of current income, including an emphasis on longer dated revenue bonds. In light of narrow yield differences along the credit-quality spectrum, the fund will focus on higher quality securities and will be prepared to capitalize on any future widening of credit spreads during the months ahead. Also, the fund will target investments in attractive areas of the yield curve and maintain a modestly long duration posture relative to the benchmark index.
November 17, 2014
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.
The amount of public information available about municipal bonds is generally less than that for corporate equities or bonds. Special factors, such as legislative changes, and state and local economic and business developments, may adversely affect the yield and/or value of the fund’s investments in municipal bonds. Other factors include the general conditions of the municipal bond market, the size of the particular offering, the maturity of the obligation, and the rating of the issue. Changes in economic, business, or political conditions relating to a particular municipal project, municipality, or state in which the fund invests may have an impact on the fund’s share price.
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 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 Massachusetts Fund from May 1, 2014 to October 31, 2014. 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, 2014
Class A | Class C | Class Z | ||||
Expenses paid per $1,000† | $ | 4.87 | $ | 8.76 | $ | 3.69 |
Ending value (after expenses) | $ | 1,035.70 | $ | 1,031.70 | $ | 1,035.90 |
COMPARING YOUR FUND’S EXPENSES
WITH THOSE OF OTHER FUNDS (Unaudited)
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment
assuming a hypothetical 5% annualized return for the six months ended October 31, 2014
Class A | Class C | Class Z | ||||
Expenses paid per $1,000† | $ | 4.84 | $ | 8.69 | $ | 3.67 |
Ending value (after expenses) | $ | 1,020.42 | $ | 1,016.59 | $ | 1,021.58 |
† Expenses are equal to the fund’s annualized expense ratio of .95% for Class A, 1.71% for Class C and .72% for |
Class Z, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half |
year period). |
6
STATEMENT OF INVESTMENTS
October 31, 2014 (Unaudited)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments—98.3% | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts—92.5% | |||||
Boston Housing Authority, | |||||
Capital Program Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 4/1/24 | 1,900,000 | 2,061,576 | |
Cambridge, | |||||
GO (Municipal Purpose Loan) | 5.00 | 2/15/21 | 1,765,000 | a | 2,141,351 |
Massachusetts, | |||||
Federal Highway Grant | |||||
Anticipation Notes | |||||
(Accelerated Bridge Program) | 5.00 | 6/15/23 | 1,325,000 | 1,608,934 | |
Massachusetts, | |||||
GO | 5.00 | 8/1/22 | 2,000,000 | 2,450,720 | |
Massachusetts, | |||||
GO | 5.25 | 8/1/22 | 2,650,000 | 3,294,798 | |
Massachusetts, | |||||
GO | 5.25 | 8/1/23 | 1,000,000 | 1,256,630 | |
Massachusetts, | |||||
GO | 0.71 | 11/1/25 | 5,000,000 | b | 4,944,250 |
Massachusetts, | |||||
GO (Consolidated Loan) | 5.50 | 8/1/20 | 1,000,000 | 1,226,860 | |
Massachusetts, | |||||
GO (Insured; AMBAC) | 5.50 | 8/1/30 | 1,750,000 | 2,299,745 | |
Massachusetts, | |||||
GO (Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.25 | 9/1/23 | 2,500,000 | 3,145,200 | |
Massachusetts, | |||||
Special Obligation Dedicated | |||||
Tax Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 5.50 | 1/1/23 | 3,000,000 | 3,637,530 | |
Massachusetts Bay Transportation | |||||
Authority, Assessment Revenue | 5.25 | 7/1/34 | 2,500,000 | 2,850,050 | |
Massachusetts Bay Transportation | |||||
Authority, GO (General | |||||
Transportation System) | 7.00 | 3/1/21 | 425,000 | 526,409 | |
Massachusetts Bay Transportation | |||||
Authority, GO (General | |||||
Transportation System) | |||||
(Escrowed to Maturity) | 7.00 | 3/1/21 | 355,000 | 384,401 | |
Massachusetts Bay Transportation | |||||
Authority, Senior Sales | |||||
Tax Revenue | 5.00 | 7/1/21 | 1,000,000 | 1,213,150 |
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, Senior Sales | |||||
Tax Revenue | 5.50 | 7/1/24 | 1,140,000 | 1,476,904 | |
Massachusetts Bay Transportation | |||||
Authority, Senior Sales Tax | |||||
Revenue (Insured; National | |||||
Public Finance Guarantee Corp.) | 5.50 | 7/1/27 | 3,000,000 | 3,916,680 | |
Massachusetts Clean Energy | |||||
Cooperative Corporation, | |||||
Massachusetts Clean Energy | |||||
Cooperative Revenue | 5.00 | 7/1/24 | 2,580,000 | 3,123,348 | |
Massachusetts College Building | |||||
Authority, Project Revenue | 5.00 | 5/1/27 | 2,000,000 | 2,383,480 | |
Massachusetts College Building | |||||
Authority, Project Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | |||||
(Escrowed to Maturity) | 0.00 | 5/1/26 | 5,385,000 | c | 4,105,470 |
Massachusetts College Building | |||||
Authority, Project Revenue | |||||
(Insured; XLCA) | 5.50 | 5/1/28 | 1,450,000 | a | 1,781,891 |
Massachusetts Department of | |||||
Transportation, Metropolitan | |||||
Highway System Senior Revenue | 5.00 | 1/1/27 | 4,000,000 | 4,423,480 | |
Massachusetts Development Finance | |||||
Agency, Higher Education | |||||
Revenue (Emerson College Issue) | 5.00 | 1/1/22 | 1,000,000 | a | 1,077,100 |
Massachusetts Development Finance | |||||
Agency, Revenue (Baystate | |||||
Medical Center Issue) | 5.00 | 7/1/34 | 1,475,000 | 1,656,351 | |
Massachusetts Development Finance | |||||
Agency, Revenue (Berklee | |||||
College of Music Issue) | 5.00 | 10/1/31 | 1,000,000 | a | 1,115,790 |
Massachusetts Development Finance | |||||
Agency, Revenue (Brandeis | |||||
University Issue) | 5.00 | 10/1/26 | 1,250,000 | a | 1,439,563 |
Massachusetts Development Finance | |||||
Agency, Revenue (Brandeis | |||||
University Issue) | 5.00 | 10/1/29 | 1,475,000 | a | 1,689,391 |
Massachusetts Development Finance | |||||
Agency, Revenue (Children’s | |||||
Hospital Issue) | 5.00 | 10/1/33 | 4,000,000 | 4,679,840 |
8
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts (continued) | |||||
Massachusetts Development Finance | |||||
Agency, Revenue (Milton | |||||
Academy Issue) | 5.00 | 9/1/30 | 2,000,000 | a | 2,307,880 |
Massachusetts Development Finance | |||||
Agency, Revenue (Noble and | |||||
Greenough School Issue) | 5.00 | 4/1/21 | 600,000 | a | 712,872 |
Massachusetts Development Finance | |||||
Agency, Revenue (North Hill | |||||
Communities Issue) | 6.50 | 11/15/43 | 2,000,000 | 2,117,540 | |
Massachusetts Development Finance | |||||
Agency, Revenue (Partners | |||||
HealthCare System Issue) | 5.00 | 7/1/39 | 2,000,000 | 2,277,820 | |
Massachusetts Development Finance | |||||
Agency, Revenue (Partners | |||||
HealthCare System Issue) | 5.38 | 7/1/41 | 4,000,000 | 4,492,600 | |
Massachusetts Development Finance | |||||
Agency, Revenue (Suffolk | |||||
University Issue) | 5.00 | 7/1/30 | 1,000,000 | a | 1,076,180 |
Massachusetts Development Finance | |||||
Agency, Revenue (Tufts Medical | |||||
Center Issue) | 5.50 | 1/1/22 | 1,500,000 | 1,723,275 | |
Massachusetts Development Finance | |||||
Agency, Revenue (UMass | |||||
Memorial Issue) | 5.50 | 7/1/31 | 500,000 | 541,655 | |
Massachusetts Development Finance | |||||
Agency, Revenue (Wheelock | |||||
College Issue) | 5.25 | 10/1/37 | 2,500,000 | a | 2,682,400 |
Massachusetts Development Finance | |||||
Agency, Revenue (Whitehead | |||||
Institute for Biomedical | |||||
Research Issue) | 5.00 | 6/1/23 | 1,350,000 | a | 1,587,276 |
Massachusetts Development Finance | |||||
Agency, SWDR (Dominion Energy | |||||
Brayton Point Issue) (Prerefunded) | 5.00 | 8/1/16 | 2,000,000 | d | 2,160,380 |
Massachusetts Educational | |||||
Financing Authority, Education | |||||
Loan Revenue (Issue E) | |||||
(Insured; AMBAC) | 4.70 | 1/1/27 | 4,315,000 | a | 4,433,576 |
Massachusetts Educational | |||||
Financing Authority, Education | |||||
Loan Revenue (Issue I) | 5.00 | 1/1/25 | 1,500,000 | a | 1,688,970 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts (continued) | |||||
Massachusetts Educational | |||||
Financing Authority, Education | |||||
Loan Revenue (Issue K) | 5.25 | 7/1/29 | 2,000,000 | a | 2,203,080 |
Massachusetts Health and | |||||
Educational Facilities Authority, | |||||
Revenue (Dana-Farber Cancer | |||||
Institute Issue) | 5.25 | 12/1/27 | 1,000,000 | 1,143,070 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Harvard University Issue) | 5.00 | 12/15/24 | 2,350,000 | a | 2,790,649 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Massachusetts Eye and | |||||
Ear Infirmary Issue) | 5.00 | 7/1/20 | 1,000,000 | 1,123,430 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Massachusetts Eye and | |||||
Ear Infirmary Issue) | 5.38 | 7/1/35 | 1,000,000 | 1,073,240 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Massachusetts Institute of | |||||
Technology Issue) | 5.25 | 7/1/33 | 4,000,000 | a | 5,420,520 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Partners | |||||
HealthCare System Issue) | 5.00 | 7/1/19 | 1,000,000 | 1,172,690 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Partners | |||||
HealthCare System Issue) | 5.25 | 7/1/29 | 1,000,000 | 1,149,640 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Partners | |||||
HealthCare System Issue) | 5.00 | 7/1/47 | 3,950,000 | 4,295,941 | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Suffolk | |||||
University Issue) | 6.00 | 7/1/24 | 1,000,000 | a | 1,181,170 |
10
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts (continued) | |||||
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Tufts University Issue) | 5.50 | 8/15/18 | 1,625,000 | a | 1,900,356 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Tufts University Issue) | 5.38 | 8/15/38 | 3,000,000 | a | 3,412,950 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(UMass Memorial Issue) | 5.25 | 7/1/25 | 1,895,000 | a | 1,927,082 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(UMass Memorial Issue) | 5.00 | 7/1/33 | 1,070,000 | a | 1,080,293 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Wheaton College Issue) | 5.00 | 1/1/30 | 2,405,000 | a | 2,646,222 |
Massachusetts Housing Finance | |||||
Agency, Housing Revenue | 5.00 | 12/1/28 | 2,000,000 | 2,015,560 | |
Massachusetts Housing Finance | |||||
Agency, Housing Revenue | 5.10 | 12/1/37 | 2,130,000 | 2,140,906 | |
Massachusetts Housing Finance | |||||
Agency, Housing Revenue | 5.20 | 12/1/37 | 1,905,000 | 1,945,024 | |
Massachusetts Housing Finance | |||||
Agency, SFHR | 4.75 | 12/1/30 | 950,000 | 956,052 | |
Massachusetts Port Authority, | |||||
Revenue | 5.00 | 7/1/25 | 1,500,000 | 1,769,295 | |
Massachusetts Port Authority, | |||||
Revenue | 5.00 | 7/1/25 | 2,500,000 | 3,055,350 | |
Massachusetts Port Authority, | |||||
Revenue | 5.00 | 7/1/27 | 5,475,000 | 6,403,505 | |
Massachusetts School Building | |||||
Authority, Senior Dedicated | |||||
Sales Tax Revenue | 5.00 | 8/15/21 | 6,610,000 | 8,022,160 | |
Massachusetts School Building | |||||
Authority, Senior Dedicated | |||||
Sales Tax Revenue | 5.00 | 8/15/22 | 2,000,000 | 2,451,640 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts (continued) | |||||
Massachusetts School Building | |||||
Authority, Senior Dedicated | |||||
Sales Tax Revenue | 5.00 | 10/15/35 | 4,000,000 | 4,616,800 | |
Massachusetts Water Pollution | |||||
Abatement Trust, State | |||||
Revolving Fund Bonds | |||||
(Prerefunded) | 5.00 | 8/1/19 | 1,535,000 | d | 1,810,364 |
Massachusetts Water Resources | |||||
Authority, General Revenue | 5.00 | 8/1/25 | 2,000,000 | 2,369,300 | |
Massachusetts Water Resources | |||||
Authority, General Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 8/1/21 | 1,405,000 | 1,579,136 | |
Massachusetts Water Resources | |||||
Authority, General Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 5.25 | 8/1/26 | 1,875,000 | 2,086,894 | |
Massachusetts Water Resources | |||||
Authority, General Revenue | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | |||||
(Prerefunded) | 5.25 | 8/1/17 | 95,000 | d | 107,135 |
Metropolitan Boston Transit | |||||
Parking Corporation, Systemwide | |||||
Senior Lien Parking Revenue | 5.00 | 7/1/24 | 1,320,000 | 1,539,529 | |
Sandwich, | |||||
GO (Insured; National Public | |||||
Finance Guarantee Corp.) | |||||
(Prerefunded) | 5.00 | 7/15/15 | 1,000,000 | d | 1,044,340 |
U.S. Related—5.8% | |||||
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 5.38 | 5/15/33 | 1,475,000 | 1,480,310 | |
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 5.50 | 5/15/39 | 1,245,000 | 1,182,675 | |
Children’s Trust Fund of Puerto | |||||
Rico, Tobacco Settlement | |||||
Asset-Backed Bonds | 0.00 | 5/15/50 | 5,000,000 | c | 370,150 |
Guam, | |||||
Business Privilege Tax Revenue | 5.13 | 1/1/42 | 1,000,000 | 1,080,440 |
12
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
U.S. Related (continued) | |||||
Guam, | |||||
Hotel Occupancy Tax Revenue | 5.00 | 11/1/17 | 1,000,000 | 1,103,260 | |
Puerto Rico Commonwealth, | |||||
Public Improvement GO | |||||
(Insured; National Public | |||||
Finance Guarantee Corp.) | 6.00 | 7/1/27 | 1,000,000 | 1,016,410 | |
Virgin Islands Port Authority, | |||||
Marine Revenue | 5.00 | 9/1/44 | 1,500,000 | 1,638,105 | |
Virgin Islands Public Finance | |||||
Authority, Revenue (Virgin | |||||
Islands Matching Fund Loan Note) | 5.00 | 10/1/25 | 2,500,000 | 2,775,600 | |
Total Investments (cost $167,467,881) | 98.3 | % | 180,793,589 | ||
Cash and Receivables (Net) | 1.7 | % | 3,219,749 | ||
Net Assets | 100.0 | % | 184,013,338 |
a At October 31, 2014, the fund had $46,296,562 or 25.2% of net assets invested in securities whose payment of |
principal and interest is dependent upon revenues generated from education. |
b Variable rate security—interest rate subject to periodic change. |
c Security issued with a zero coupon. Income is recognized through the accretion of discount. |
d 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. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Education | 25.2 | Utility-Water and Sewer | 2.1 |
Health Care | 14.9 | Utility-Electric | 1.7 |
Transportation Services | 14.8 | Asset-Backed | 1.6 |
Special Tax | 14.0 | Industrial | .9 |
State/Territory | 8.1 | Other | 2.3 |
Prerefunded | 7.7 | ||
Housing | 5.0 | 98.3 |
† | Based on 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 Receipts |
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 | RIB | Residual Interest Bonds |
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 | SPEARS | Short Puttable Exempt |
Mortgage Agency | Adjustable Receipts | ||
SWDR | Solid Waste Disposal Revenue | TAN | Tax Anticipation Notes |
TAW | Tax Anticipation Warrants | TRAN | Tax and Revenue Anticipation Notes |
XLCA | XL Capital Assurance | ||
See notes to financial statements. |
14
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2014 (Unaudited)
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments: | 167,467,881 | 180,793,589 | |
Cash | 523,336 | ||
Receivable for investment securities sold | 2,506,300 | ||
Interest receivable | 2,182,472 | ||
Prepaid expenses | 20,191 | ||
186,025,888 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 112,064 | ||
Payable for investment securities purchased | 1,652,266 | ||
Payable for shares of Beneficial Interest redeemed | 201,537 | ||
Accrued expenses | 46,683 | ||
2,012,550 | |||
Net Assets ($) | 184,013,338 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 175,177,638 | ||
Accumulated undistributed investment income—net | 7,296 | ||
Accumulated net realized gain (loss) on investments | (4,497,304 | ) | |
Accumulated net unrealized appreciation | |||
(depreciation) on investments | 13,325,708 | ||
Net Assets ($) | 184,013,338 |
Net Asset Value Per Share | |||
Class A | Class C | Class Z | |
Net Assets ($) | 34,271,595 | 3,100,318 | 146,641,425 |
Shares Outstanding | 2,920,425 | 263,964 | 12,497,035 |
Net Asset Value Per Share ($) | 11.74 | 11.75 | 11.73 |
See notes to financial statements. |
The Fund 15
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2014 (Unaudited)
Investment Income ($): | ||
Interest Income | 3,394,375 | |
Expenses: | ||
Management fee—Note 3(a) | 511,734 | |
Shareholder servicing costs—Note 3(c) | 116,836 | |
Professional fees | 33,181 | |
Registration fees | 19,051 | |
Distribution fees—Note 3(b) | 11,715 | |
Custodian fees—Note 3(c) | 9,616 | |
Prospectus and shareholders’ reports | 5,404 | |
Trustees’ fees and expenses—Note 3(d) | 5,293 | |
Loan commitment fees—Note 2 | 701 | |
Miscellaneous | 14,089 | |
Total Expenses | 727,620 | |
Less—reduction in fees due to earnings credits—Note 3(c) | (48 | ) |
Net Expenses | 727,572 | |
Investment Income—Net | 2,666,803 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | (48,060 | ) |
Net unrealized appreciation (depreciation) on investments | 3,907,901 | |
Net Realized and Unrealized Gain (Loss) on Investments | 3,859,841 | |
Net Increase in Net Assets Resulting from Operations | 6,526,644 | |
See notes to financial statements. |
16
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2014 | Year Ended | |||
(Unaudited) | April 30, 2014 | |||
Operations ($): | ||||
Investment income—net | 2,666,803 | 6,187,960 | ||
Net realized gain (loss) on investments | (48,060 | ) | (4,533,005 | ) |
Net unrealized appreciation | ||||
(depreciation) on investments | 3,907,901 | (6,673,162 | ) | |
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 6,526,644 | (5,018,207 | ) | |
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A | (467,153 | ) | (1,104,168 | ) |
Class C | (30,264 | ) | (82,511 | ) |
Class Z | (2,162,090 | ) | (4,986,152 | ) |
Net realized gain on investments: | ||||
Class A | — | (70,499 | ) | |
Class C | — | (7,437 | ) | |
Class Z | — | (303,076 | ) | |
Total Dividends | (2,659,507 | ) | (6,553,843 | ) |
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A | 796,176 | 2,659,515 | ||
Class C | 37,727 | 107,573 | ||
Class Z | 1,910,464 | 2,962,502 | ||
Dividends reinvested: | ||||
Class A | 386,750 | 963,509 | ||
Class C | 9,893 | 33,663 | ||
Class Z | 1,745,735 | 4,290,516 | ||
Cost of shares redeemed: | ||||
Class A | (1,715,425 | ) | (8,959,668 | ) |
Class C | (145,563 | ) | (1,160,029 | ) |
Class Z | (7,930,269 | ) | (21,485,839 | ) |
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | (4,904,512 | ) | (20,588,258 | ) |
Total Increase (Decrease) in Net Assets | (1,037,375 | ) | (32,160,308 | ) |
Net Assets ($): | ||||
Beginning of Period | 185,050,713 | 217,211,021 | ||
End of Period | 184,013,338 | 185,050,713 | ||
Undistributed investment income—net | 7,296 | — |
The Fund 17
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||||
October 31, 2014 | Year Ended | |||
(Unaudited) | April 30, 2014 | |||
Capital Share Transactions: | ||||
Class Aa | ||||
Shares sold | 68,873 | 231,390 | ||
Shares issued for dividends reinvested | 33,196 | 85,175 | ||
Shares redeemed | (147,491 | ) | (791,421 | ) |
Net Increase (Decrease) in Shares Outstanding | (45,422 | ) | (474,856 | ) |
Class Ca | ||||
Shares sold | 3,247 | 9,505 | ||
Shares issued for dividends reinvested | 849 | 2,977 | ||
Shares redeemed | (12,585 | ) | (102,146 | ) |
Net Increase (Decrease) in Shares Outstanding | (8,489 | ) | (89,664 | ) |
Class Z | ||||
Shares sold | 164,247 | 259,223 | ||
Shares issued for dividends reinvested | 149,868 | 379,387 | ||
Shares redeemed | (683,193 | ) | (1,904,101 | ) |
Net Increase (Decrease) in Shares Outstanding | (369,078 | ) | (1,265,491 | ) |
a During the period ended April 30, 2014, 19,810 Class C shares representing $238,914 were exchanged for |
19,843 Class A shares. |
See notes to financial statements.
18
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2014 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.49 | 12.11 | 11.94 | 11.05 | 11.44 | 10.91 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .16 | .35 | .36 | .41 | .43 | .45 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .25 | (.60 | ) | .17 | .94 | (.33 | ) | .54 | ||||
Total from Investment Operations | .41 | (.25 | ) | .53 | 1.35 | .10 | .99 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.16 | ) | (.35 | ) | (.36 | ) | (.41 | ) | (.43 | ) | (.45 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.02 | ) | (.00 | )b | (.05 | ) | (.06 | ) | (.01 | ) | |
Total Distributions | (.16 | ) | (.37 | ) | (.36 | ) | (.46 | ) | (.49 | ) | (.46 | ) |
Net asset value, end of period | 11.74 | 11.49 | 12.11 | 11.94 | 11.05 | 11.44 | ||||||
Total Return (%)c | 3.57 | d | (1.96 | ) | 4.51 | 12.40 | .94 | 9.16 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .95 | e | .93 | .93 | .95 | .94 | .94 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .95 | e | .93 | .93 | .95 | .94 | .94 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 2.70 | e | 3.07 | 2.97 | 3.56 | 3.84 | 4.00 | |||||
Portfolio Turnover Rate | 7.58 | d | 9.72 | 14.28 | 11.44 | 15.03 | 12.60 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 34,272 | 34,082 | 41,675 | 39,705 | 36,232 | 41,909 |
a | Based on average shares outstanding. |
b | Amount represents less than $.01 per share. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
See notes to financial statements.
The Fund 19
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||||||||
October 31, 2014 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.50 | 12.12 | 11.95 | 11.06 | 11.45 | 10.92 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .11 | .26 | .27 | .32 | .35 | .36 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .25 | (.60 | ) | .17 | .94 | (.33 | ) | .54 | ||||
Total from Investment Operations | .36 | (.34 | ) | .44 | 1.26 | .02 | .90 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.11 | ) | (.26 | ) | (.27 | ) | (.32 | ) | (.35 | ) | (.36 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.02 | ) | (.00 | )b | (.05 | ) | (.06 | ) | (.01 | ) | |
Total Distributions | (.11 | ) | (.28 | ) | (.27 | ) | (.37 | ) | (.41 | ) | (.37 | ) |
Net asset value, end of period | 11.75 | 11.50 | 12.12 | 11.95 | 11.06 | 11.45 | ||||||
Total Return (%)c | 3.17 | d | (2.71 | ) | 3.72 | 11.54 | .20 | 8.33 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.71 | e | 1.70 | 1.69 | 1.71 | 1.68 | 1.70 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.71 | e | 1.70 | 1.69 | 1.71 | 1.68 | 1.70 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 1.95 | e | 2.31 | 2.21 | 2.79 | 3.09 | 3.21 | |||||
Portfolio Turnover Rate | 7.58 | d | 9.72 | 14.28 | 11.44 | 15.03 | 12.60 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 3,100 | 3,134 | 4,390 | 4,054 | 3,377 | 3,362 |
a | Based on average shares outstanding. |
b | Amount represents less than $.01 per share. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
See notes to financial statements.
20
Six Months Ended | ||||||||||||
October 31, 2014 | Year Ended April 30, | |||||||||||
Class Z Shares | (Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 11.49 | 12.11 | 11.94 | 11.05 | 11.44 | 10.91 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .17 | .37 | .38 | .44 | .46 | .47 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .24 | (.60 | ) | .17 | .94 | (.33 | ) | .54 | ||||
Total from Investment Operations | .41 | (.23 | ) | .55 | 1.38 | .13 | 1.01 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.17 | ) | (.37 | ) | (.38 | ) | (.44 | ) | (.46 | ) | (.47 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.02 | ) | (.00 | )b | (.05 | ) | (.06 | ) | (.01 | ) | |
Total Distributions | (.17 | ) | (.39 | ) | (.38 | ) | (.49 | ) | (.52 | ) | (.48 | ) |
Net asset value, end of period | 11.73 | 11.49 | 12.11 | 11.94 | 11.05 | 11.44 | ||||||
Total Return (%) | 3.59 | c | (1.76 | ) | 4.73 | 12.64 | 1.16 | 9.39 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .72 | d | .73 | .72 | .74 | .73 | .73 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .72 | d | .73 | .72 | .74 | .73 | .73 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 2.92 | d | 3.28 | 3.18 | 3.78 | 4.05 | 4.18 | |||||
Portfolio Turnover Rate | 7.58 | c | 9.72 | 14.28 | 11.44 | 15.03 | 12.60 | |||||
Net Assets, end of period ( | ||||||||||||
$ x 1,000) | 146,641 | 147,836 | 171,146 | 166,251 | 153,513 | 167,326 |
a | Based on average shares outstanding. |
b | Amount represents less than $.01 per share. |
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 three 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 generally 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 Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are
22
charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
The Company enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value. This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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 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.
24
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 within Level 2 or 3 of the fair value hierarchy depending on the relevant inputs used.
For restricted securities where observable inputs are limited, assumptions about market activity and risk are used and are generally categorized within Level 3 of the fair value hierarchy.
The following is a summary of the inputs used as of October 31, 2014 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† | — | 180,793,589 | — | 180,793,589 |
† See Statement of Investments for additional detailed categorizations. |
At October 31, 2014, 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
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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, 2014, 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 ended October 31, 2014, the fund did not incur any interest or penalties.
Each tax year in the three-year period ended April 30, 2014 remains subject to examination by the Internal Revenue Service and state taxing authorities.
26
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 fund has an unused capital loss carryover of $4,533,005 available for federal income tax purposes to be applied against future net realized capital gains, if any, realized subsequent to April 30, 2014. The fund has $958,728 of post-enactment short-term capital losses and $3,574,277 of post-enactment long-term capital losses which can be carried forward for an unlimited period.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2014 was as follows: tax-exempt income $6,173,182 and long-term capital gains $380,661.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 $430 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. Prior to October 8, 2014, the unsecured credit facility with Citibank, N.A. was $265 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, 2014, the fund did not borrow under the Facilities.
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 3—Management Fee and Other Transactions with Affiliates:
(a) Pursuant to a management agreement with the Manager, the management fee is computed at the annual rate of .55% of the value of the fund’s average daily net assets and is payable monthly.
During the period ended October 31, 2014, the Distributor retained $676 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 its average daily net assets. During the period ended October 31, 2014, Class C shares were charged $11,715 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) with respect to these services.The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2014, Class A and Class C shares were charged $43,385 and $3,905, respectively, pursuant to the Shareholder Services Plan.
Under the Shareholder Services Plan, Class Z shares reimburse the Distributor an amount not to exceed an annual rate of .25% of the value of Class Z shares’ average daily net assets for certain allocated expenses for providing personal services and/or maintaining shareholder accounts. The services provided may include personal services relating to shareholder accounts, such as answering shareholder
28
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, 2014, Class Z shares were charged $31,707 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., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing transfer agency and cash management services for the fund. The majority of transfer agency fees are comprised of amounts paid on a per account basis, while cash management fees are related to fund subscriptions and redemptions. During the period ended October 31, 2014, the fund was charged $22,713 for transfer agency services and $1,015 for cash management services.These fees are included in Shareholder servicing costs in the Statement of Operations. Cash management fees were partially offset by earnings credits of $48.
The fund compensates The Bank of NewYork Mellon under a custody agreement for providing custodial services for the fund.These fees are determined based on net assets, geographic region and transaction activity. During the period ended October 31, 2014, the fund was charged $9,616 pursuant to the custody agreement.
The fund compensates The Bank of New York Mellon for performing certain cash management services related to fund subscriptions and redemptions, including shareholder redemption draft processing, under a cash management agreement. During the period ended October 31, 2014, the fund was charged $766 pursuant to the agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The Fund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
During the period ended October 31, 2014, the fund was charged $3,576 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 $86,105, Distribution Plan fees $1,978, Shareholder Services Plan fees $7,958, custodian fees $6,308, Chief Compliance Officer fees $617 and transfer agency fees $9,098.
(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, 2014, amounted to $13,686,681 and $17,146,518, respectively.
At October 31, 2014, accumulated net unrealized appreciation on investments was $13,325,708 consisting of $13,668,538 gross unrealized appreciation and $342,830 gross unrealized depreciation.
At October 31, 2014, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
30
INFORMATION ABOUT THE RENEWAL OF THE
FUND’S MANAGEMENT AGREEMENT (Unaudited)
At a meeting of the fund’s Board of Trustees held on July 22, 2014, 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 provided to them at the meeting and in previous presentations from Dreyfus representatives regarding the nature, extent, and quality of the services provided to funds in the Dreyfus fund complex. 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
I N FO R M AT I O N A B O U T T H E R E N E WA L O F T H E F U N D ’S
M A N A G E M E N T AG R E E M E N T ( U n a u d i te d ) (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 May 31, 2014, 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 below the Performance Group and Performance Universe medians for the various periods (noting the proximity to the medians of the fund’s performance in certain periods), except for the ten-year period when the fund’s performance was at the Performance Universe median.The Board also noted that the fund’s yield performance was below the Performance Group median for all of the one-year periods ended May 31st and above the Performance Universe median for five of the ten one-year periods ended May 31st. Dreyfus also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s Lipper category average and noted that the fund’s calendar year total returns were above the Lipper category average for six of the ten calendar years. Dreyfus representatives noted that the fund’s investment in municipal bonds issued in Puerto Rico affected the fund’s relative performance.
32
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 expenses 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 its affiliates and the resulting profitability percentage for managing the fund and the aggregate profitability percentage to Dreyfus and its affiliates for managing the funds in the Dreyfus fund complex, 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 also 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 Fund 33
I N FO R M AT I O N A B O U T T H E R E N E WA L O F T H E F U N D ’S
M A N A G E M E N T AG R E E M E N T ( U n a u d i te d ) (continued)
The Board considered on the advice of its counsel the profitability analysis (1) as part of its 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 the fund’s overall perfor- mance, 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.
34
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, 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
For More Information
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Telephone Call your financial representative or 1-800-DREYFUS
Mail The Dreyfus Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Information regarding how the fund voted proxies relating to portfolio securities for the most recent 12-month period ended June 30 is available on the SEC’s website at http://www.sec.gov and without charge, upon request, by calling 1-800-DREYFUS.
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Dreyfus State |
Municipal Bond Funds, |
Dreyfus Pennsylvania Fund |
SEMIANNUAL REPORT October 31, 2014
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Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.dreyfus.com and sign up for Dreyfus eCommunications. It’s simple and only takes a few minutes.
The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
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Contents | |
THE FUND | |
2 | A Letter from the President |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
15 | Statement of Assets and Liabilities |
16 | Statement of Operations |
17 | Statement of Changes in Net Assets |
19 | Financial Highlights |
22 | Notes to Financial Statements |
31 | Information About the 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 PRESIDENT
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, 2014, through October 31, 2014. 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.
Municipal bonds generally continued to gain ground over the past six months, reinforcing a rally that began earlier in 2014 when long-term interest rates moderated due to geopolitical and economic concerns. These developments drove prices of long-term municipal securities higher, and favorable supply-and-demand dynamics helped keep yields low when economic growth resumed in the second quarter of the year. Meanwhile, improving economic fundamentals have enabled many states and municipalities to shore up their fiscal conditions.
While we remain cautiously optimistic regarding the municipal bond market’s prospects, we believe that selectivity is likely to become more important to investment success. Long-term rates could rise if, as we anticipate, the economy continues to accelerate. On the other hand, intensifying geopolitical turmoil and other factors could dampen the potentially adverse effects of a stronger domestic economic recovery, and rising investor demand for tax-advantaged investments may continue to support municipal bond prices. As always, we encourage you to discuss our observations with your financial adviser to assess their potential impact on your investments.
Thank you for your continued confidence and support.
![](https://capedge.com/proxy/N-CSRS/0000806176-14-000031/smbpancsrx4x1.jpg)
J. Charles Cardona
President
The Dreyfus Corporation
November 17, 2014
2
DISCUSSION OF FUND PERFORMANCE
For the period of May 1, 2014 through October 31, 2014, as provided by Daniel Rabasco and Thomas Casey, Portfolio Managers
Fund and Market Performance Overview
For the six-month period ended October 31, 2014, Class A shares of Dreyfus Pennsylvania Fund, a series of Dreyfus State Municipal Bond Funds, produced a total return of 3.79%, Class C shares returned 3.34%, and Class Z shares returned 3.84%.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 3.59% for the same period.2
Municipal bonds rallied over the reporting period when long-term interest rates moderated, supply-and-demand dynamics proved favorable, and credit conditions improved. The fund’s Class A and Class Z shares produced higher returns than the benchmark, mainly due to a modestly long average duration and overweighted exposure to certain revenue bonds.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax and Pennsylvania state income tax, without undue risk.To pursue its goal, the fund normally invests substantially all of its assets in municipal bonds that provide income exempt from federal income tax and Pennsylvania state 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.The dollar-weighted average maturity of the fund’s portfolio normally exceeds 10 years, but the fund may invest without regard to maturity.
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
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
and revenue sectors, based on their apparent relative values. The fund generally will invest simultaneously in several of these sectors.
Economic and Technical Forces Buoyed Municipal Bonds
Municipal bonds rallied in the months prior to the reporting period as long-term interest rates moderated and bond prices rebounded amid concerns that economic weakness in international markets might derail the U.S. economic recovery. Long-term rates declined further when harsh winter weather contributed to an economic contraction during the first quarter of 2014.
The economic recovery got back on track as U.S. GDP rebounded at a robust 4.6% annualized rate during the second quarter of the year and an estimated 3.5% rate for the third quarter. While accelerating economic growth typically sends inflation of Massachusetts and interest rates higher, favorable supply-and-demand dynamics kept long-term interest rates low. Less refinancing activity produced a reduced supply of newly issued tax-exempt securities, while demand intensified from investors seeking higher after-tax income. Consequently, municipal bonds produced highly competitive total returns, with longer term and lower rated securities faring particularly well.
The economic rebound resulted in better underlying credit conditions for many issuers, including Pennsylvania, but the state has continued to face budget challenges due to unfunded pension liabilities and revenue shortfalls. Consequently, one major rating agency reduced its credit rating for Pennsylvania state debt.
Interest Rate Strategies Bolstered Relative Performance
During the reporting period the fund attempted to maintain a modestly long average duration so as to benefit from the impact of falling interest rates and narrowing yield differences along the market’s maturity spectrum. In addition, overweighted exposure to BBB-rated revenue-backed bonds aided results.The fund received especially strong contributions from bonds backed by hospitals and underweighted exposure to bonds issued on behalf of special tax districts.
Detractors from performance included Puerto Rico municipal bonds, which suffered credit-quality issues related to the U.S. territory’s struggling economy and heavy debt and pension liabilities. Relatively heavy holdings of housing bonds and underweighted exposure to securities backed by airport and education facilities also dampened relative performance.
4
Maintaining a Constructive Investment Posture
Although the U.S. economic recovery has gained momentum, global growth recently has disappointed, keeping interest rates at relatively low levels. Based on the strength of U.S. economic growth, some market participants expect the Fed to begin hiking short-term interest rates sometime in 2015.
Municipal bond market fundamentals have remained strong in the recovering economy. Although the supply of newly issued municipal bonds began to increase late in the reporting period, we expect any additional issuance to be absorbed by robust investor demand.Therefore, we have maintained the fund’s focus on generating competitive levels of current income, including an emphasis on longer dated revenue bonds. In light of narrow yield differences along the credit-quality spectrum, the fund will focus on higher quality securities and will be prepared to capitalize on any future widening of credit spreads during the months ahead.Also, the fund will target investments in attractive areas of the yield curve and maintain a modestly long duration posture relative to the benchmark index.
November 17, 2014
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.
The amount of public information available about municipal bonds is generally less than that for corporate equities or bonds. Special factors, such as legislative changes, and state and local economic and business developments, may adversely affect the yield and/or value of the fund’s investments in municipal bonds. Other factors include the general conditions of the municipal bond market, the size of the particular offering, the maturity of the obligation, and the rating of the issue. Changes in economic, business, or political conditions relating to a particular municipal project, municipality, or state in which the fund invests may have an impact on the fund’s share price.
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, 2014 to October 31, 2014. 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, 2014
Class A | Class C | Class Z | ||||
Expenses paid per $1,000† | $ | 4.93 | $ | 8.76 | $ | 3.75 |
Ending value (after expenses) | $ | 1,037.90 | $ | 1,033.40 | $ | 1,038.40 |
COMPARING YOUR FUND’S EXPENSES
WITH THOSE OF OTHER FUNDS (Unaudited)
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment
assuming a hypothetical 5% annualized return for the six months ended October 31, 2014
Class A | Class C | Class Z | ||||
Expenses paid per $1,000† | $ | 4.89 | $ | 8.69 | $ | 3.72 |
Ending value (after expenses) | $ | 1,020.37 | $ | 1,016.59 | $ | 1,021.53 |
† Expenses are equal to the fund’s annualized expense ratio of .96% 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, 2014 (Unaudited)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments—98.7% | Rate (%) | Date | Amount ($) | Value ($) | |
Pennsylvania—95.4% | |||||
Adams County Industrial | |||||
Development Authority, Revenue | |||||
(Gettysburg College) | 5.00 | 8/15/25 | 1,000,000 | 1,113,470 | |
Adams County Industrial | |||||
Development Authority, Revenue | |||||
(Gettysburg College) | 5.00 | 8/15/26 | 1,000,000 | 1,107,280 | |
Allegheny County, | |||||
GO | 5.00 | 12/1/31 | 1,040,000 | 1,205,568 | |
Allegheny County, | |||||
GO | 5.00 | 12/1/34 | 1,000,000 | 1,147,090 | |
Allegheny County, | |||||
GO | 5.00 | 12/1/34 | 3,000,000 | 3,364,830 | |
Allegheny County Higher Education | |||||
Building Authority, Revenue | |||||
(Carnegie Mellon University) | 5.00 | 3/1/24 | 3,150,000 | 3,721,252 | |
Allegheny County Port Authority, | |||||
Special Transportation Revenue | 5.25 | 3/1/22 | 1,305,000 | 1,540,683 | |
Allegheny County Sanitary | |||||
Authority, Sewer Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 12/1/19 | 1,500,000 | 1,761,075 | |
Beaver County Hospital Authority, | |||||
Revenue (Heritage Valley | |||||
Health System, Inc.) | 5.00 | 5/15/28 | 1,575,000 | 1,736,658 | |
Bethlehem Authority, | |||||
Guaranteed Water Revenue | |||||
(Insured; Build America Mutual | |||||
Assurance Company) | 5.00 | 11/15/31 | 2,000,000 | 2,236,080 | |
Charleroi Area School Authority, | |||||
School Revenue (Insured; | |||||
National Public Finance | |||||
Guarantee Corp.) | 0.00 | 10/1/20 | 2,000,000 | a | 1,738,740 |
Chester County Industrial | |||||
Development Authority, Revenue | |||||
(Avon Grove Charter | |||||
School Project) | 6.38 | 12/15/37 | 1,600,000 | 1,679,008 | |
Clairton Municipal Authority, | |||||
Sewer Revenue | 5.00 | 12/1/37 | 2,000,000 | 2,157,680 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Pennsylvania (continued) | |||||
Dauphin County General Authority, | |||||
Health System Revenue | |||||
(Pinnacle Health | |||||
System Project) | 5.00 | 6/1/42 | 3,030,000 | 3,265,461 | |
Delaware County Regional Water | |||||
Quality Control Authority, | |||||
Sewer Revenue | 5.00 | 5/1/26 | 2,165,000 | 2,567,170 | |
Delaware River Port Authority, | |||||
Revenue | 5.00 | 1/1/30 | 1,500,000 | 1,691,280 | |
Delaware River Port Authority, | |||||
Revenue | 5.00 | 1/1/37 | 4,500,000 | 5,129,325 | |
Donegal School District, | |||||
GO (Limited Tax Obligations) | 5.00 | 6/1/23 | 2,080,000 | 2,333,219 | |
Erie Higher Education Building | |||||
Authority, College Revenue | |||||
(Mercyhurst College Project) | 5.35 | 3/15/28 | 1,000,000 | 1,089,820 | |
Geisinger Authority, | |||||
Health System Revenue | |||||
(Geisinger Health System) | 5.00 | 6/1/41 | 2,500,000 | 2,821,475 | |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 11/1/16 | 1,000,000 | a | 907,720 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 5/1/18 | 2,750,000 | a | 2,302,052 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 11/1/18 | 2,750,000 | a | 2,244,330 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 11/1/19 | 2,750,000 | a�� | 2,123,302 |
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 5/1/20 | 2,750,000 | a | 2,063,573 |
8
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Pennsylvania (continued) | |||||
Harrisburg Redevelopment | |||||
Authority, Guaranteed Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 0.00 | 11/1/20 | 2,500,000 | a | 1,827,625 |
McKeesport Area School District, | |||||
GO (Insured; AMBAC) (Escrowed | |||||
to Maturity) | 0.00 | 10/1/21 | 2,915,000 | a | 2,589,803 |
McKeesport Municipal Authority, | |||||
Sewer Revenue (Insured; | |||||
Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 12/15/20 | 1,230,000 | 1,438,805 | |
Montgomery County Higher Education | |||||
and Health Authority, HR | |||||
(Abington Memorial Hospital | |||||
Obligated Group) | 5.00 | 6/1/31 | 1,000,000 | 1,106,140 | |
Montgomery County Industrial | |||||
Development Authority, Health | |||||
System Revenue (Jefferson | |||||
Health System) | 5.00 | 10/1/41 | 4,000,000 | 4,371,080 | |
Pennsylvania, | |||||
GO | 5.00 | 10/15/26 | 5,000,000 | 5,973,250 | |
Pennsylvania, | |||||
GO | 5.00 | 10/15/29 | 4,000,000 | 4,715,280 | |
Pennsylvania Economic | |||||
Development Financing | |||||
Authority, Sewage Sludge | |||||
Disposal Revenue | |||||
(Philadelphia Biosolids | |||||
Facility Project) | 6.25 | 1/1/32 | 1,000,000 | 1,105,990 | |
Pennsylvania Economic | |||||
Development Financing | |||||
Authority, Unemployment | |||||
Compensation Revenue | 5.00 | 7/1/21 | 2,000,000 | 2,251,740 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(Carnegie Mellon University) | 5.00 | 8/1/21 | 3,000,000 | 3,429,390 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(Temple University) | 5.00 | 4/1/24 | 1,100,000 | 1,293,028 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Pennsylvania (continued) | |||||
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(The Trustees of the | |||||
University of Pennsylvania) | 5.00 | 9/1/31 | 1,300,000 | 1,483,027 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(Thomas Jefferson University) | 5.00 | 3/1/40 | 1,000,000 | 1,075,630 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(University of Pennsylvania | |||||
Health System) | 5.25 | 8/15/25 | 1,000,000 | 1,188,470 | |
Pennsylvania Higher Educational | |||||
Facilities Authority, Revenue | |||||
(University of Pennsylvania | |||||
Health System) | 6.00 | 8/15/26 | 2,500,000 | 2,888,825 | |
Pennsylvania Housing Finance | |||||
Agency, Capital Fund | |||||
Securitization Revenue | |||||
(Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 12/1/25 | 2,285,000 | 2,396,988 | |
Pennsylvania Housing Finance | |||||
Agency, SFMR | 4.70 | 10/1/25 | 730,000 | 730,767 | |
Pennsylvania Housing Finance | |||||
Agency, SFMR | 4.60 | 10/1/27 | 5,000,000 | 5,094,450 | |
Pennsylvania Housing Finance | |||||
Agency, SFMR | 4.70 | 10/1/37 | 1,415,000 | 1,430,707 | |
Pennsylvania Industrial | |||||
Development Authority, EDR | 5.50 | 7/1/23 | 900,000 | 1,004,895 | |
Pennsylvania Industrial | |||||
Development Authority, EDR | |||||
(Prerefunded) | 5.50 | 7/1/18 | 100,000 | b | 116,968 |
Pennsylvania State University, | |||||
Revenue | 5.00 | 3/1/35 | 2,000,000 | 2,272,980 | |
Pennsylvania Turnpike Commission, | |||||
Motor License Fund-Enhanced | |||||
Turnpike Subordinate | |||||
Special Revenue | 5.00 | 12/1/37 | 5,325,000 | 5,858,938 | |
Pennsylvania Turnpike Commission, | |||||
Turnpike Revenue | 5.00 | 12/1/43 | 2,500,000 | 2,772,125 | |
Pennsylvania Turnpike Commission, | |||||
Turnpike Subordinate Revenue | 5.25 | 6/1/39 | 1,030,000 | 1,138,799 |
10
Long-Term Municipal | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Pennsylvania (continued) | ||||
Pennsylvania Turnpike Commission, | ||||
Turnpike Subordinate Revenue | ||||
(Insured; Assured Guaranty Corp.) | 6.00 | 6/1/28 | 3,000,000 | 3,442,920 |
Philadelphia, | ||||
Airport Revenue | 5.25 | 6/15/25 | 2,500,000 | 2,820,475 |
Philadelphia, | ||||
Gas Works Revenue (Insured; | ||||
Assured Guaranty Municipal Corp.) | 5.25 | 8/1/22 | 2,000,000 | 2,007,660 |
Philadelphia, | ||||
Water and Wastewater Revenue | 5.00 | 1/1/23 | 2,180,000 | 2,618,594 |
Philadelphia, | ||||
Water and Wastewater Revenue | ||||
(Insured; National Public | ||||
Finance Guarantee Corp.) | ||||
(Escrowed to Maturity) | 5.60 | 8/1/18 | 800,000 | 920,296 |
Philadelphia Authority for | ||||
Industrial Development, HR | ||||
(The Children’s Hospital of | ||||
Philadelphia Project) | 5.00 | 7/1/42 | 3,000,000 | 3,415,050 |
Philadelphia Authority for | ||||
Industrial Development, | ||||
Revenue (Independence Charter | ||||
School Project) | 5.50 | 9/15/37 | 1,700,000 | 1,732,385 |
Philadelphia Authority for | ||||
Industrial Development, | ||||
Revenue (Russell Byers Charter | ||||
School Project) | 5.15 | 5/1/27 | 1,230,000 | 1,240,492 |
Philadelphia Authority for | ||||
Industrial Development, | ||||
Revenue (Russell Byers Charter | ||||
School Project) | 5.25 | 5/1/37 | 1,715,000 | 1,721,363 |
Philadelphia Hospitals and Higher | ||||
Education Facilities | ||||
Authority, HR (The Children’s | ||||
Hospital of Philadelphia Project) | 5.00 | 7/1/25 | 1,800,000 | 2,072,304 |
Philadelphia Housing Authority, | ||||
Capital Fund Program Revenue | ||||
(Insured; Assured Guaranty | ||||
Municipal Corp.) | 5.00 | 12/1/21 | 1,685,000 | 1,707,309 |
Philadelphia School District, | ||||
GO | 5.25 | 9/1/23 | 1,000,000 | 1,131,450 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Long-Term Municipal | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Pennsylvania (continued) | |||||
Philadelphia School District, | |||||
GO | 6.00 | 9/1/38 | 975,000 | 1,105,767 | |
Philadelphia School District, | |||||
GO (Prerefunded) | 6.00 | 9/1/18 | 25,000 | b | 29,812 |
Pittsburgh, | |||||
GO (Insured; Build America | |||||
Mutual Assurance Company) | 5.00 | 9/1/30 | 1,585,000 | 1,865,719 | |
Pittsburgh Urban Redevelopment | |||||
Authority, MFHR (West Park | |||||
Court Project) | |||||
(Collateralized; GNMA) | 4.90 | 11/20/47 | 1,230,000 | 1,271,820 | |
Reading Area Water Authority, | |||||
Water Revenue | 5.00 | 12/1/31 | 2,000,000 | 2,200,540 | |
State Public School Building | |||||
Authority, College Revenue | |||||
(Montgomery County | |||||
Community College) | 5.00 | 5/1/38 | 1,115,000 | 1,240,081 | |
State Public School Building | |||||
Authority, Community College | |||||
Revenue (Community College of | |||||
Philadelphia Project) | 6.00 | 6/15/28 | 3,000,000 | 3,483,960 | |
University Area Joint Authority, | |||||
Sewer Revenue (Insured; | |||||
Assured Guaranty Municipal Corp.) | 5.00 | 11/1/19 | 1,000,000 | 1,164,900 | |
West Mifflin Area School District, | |||||
GO (Insured; Assured Guaranty | |||||
Municipal Corp.) | 5.00 | 10/1/22 | 710,000 | 740,608 | |
West Shore Area Authority, | |||||
HR (Holy Spirit Hospital of | |||||
the Sisters of Christian | |||||
Charity Project) | 6.00 | 1/1/26 | 2,000,000 | 2,320,760 | |
West View Borough Municipal | |||||
Authority, Water Revenue | 5.00 | 11/15/39 | 2,000,000 | 2,274,760 | |
Westmoreland County Industrial | |||||
Development Authority, Health | |||||
System Revenue (Excela | |||||
Health Project) | 5.00 | 7/1/25 | 2,390,000 | 2,581,033 | |
U.S. Related—3.3% | |||||
Guam, | |||||
Business Privilege Tax Revenue | 5.00 | 1/1/42 | 1,000,000 | 1,072,350 |
12
Long-Term Municipal | Coupon | Maturity | Principal | |||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | ||
U.S. Related (continued) | ||||||
Guam, | ||||||
Business Privilege Tax Revenue | 5.13 | 1/1/42 | 1,000,000 | 1,080,440 | ||
Guam Waterworks Authority, | ||||||
Water and Wastewater System | ||||||
Revenue (Prerefunded) | 5.50 | 7/1/15 | 190,000 | b | 196,437 | |
Guam Waterworks Authority, | ||||||
Water and Wastewater System | ||||||
Revenue (Prerefunded) | 6.00 | 7/1/15 | 1,000,000 | b | 1,037,210 | |
Puerto Rico Commonwealth, | ||||||
Public Improvement GO | ||||||
(Insured; National Public | ||||||
Finance Guarantee Corp.) | 6.00 | 7/1/27 | 1,000,000 | 1,016,410 | ||
Virgin Islands Public Finance | ||||||
Authority, Revenue (Virgin | ||||||
Islands Matching Fund Loan Note) | 5.00 | 10/1/25 | 1,000,000 | 1,110,240 | ||
Total Investments (cost $153,318,684) | 98.7 | % | 163,226,986 | |||
Cash and Receivables (Net) | 1.3 | % | 2,219,073 | |||
Net Assets | 100.0 | % | 165,446,059 |
a Security issued with a zero coupon. Income is recognized through the accretion of discount. |
b These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are |
collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on |
the municipal issue and to retire the bonds in full at the earliest refunding date. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Education | 18.8 | County | 3.5 |
Health Care | 16.8 | City | 3.3 |
Transportation Services | 14.7 | Prerefunded | 3.0 |
Utility-Water and Sewer | 11.8 | Utility-Electric | 1.2 |
Special Tax | 8.3 | Industrial | .6 |
Housing | 7.6 | Other | 2.0 |
State/Territory | 7.1 | 98.7 |
† | Based on 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 Receipts |
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 | RIB | Residual Interest Bonds |
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 | SPEARS | Short Puttable Exempt |
Mortgage Agency | Adjustable Receipts | ||
SWDR | Solid Waste Disposal Revenue | TAN | Tax Anticipation Notes |
TAW | Tax Anticipation Warrants | TRAN | Tax and Revenue Anticipation Notes |
XLCA | XL Capital Assurance | ||
See notes to financial statements. |
14
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2014 (Unaudited)
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments | 153,318,684 | 163,226,986 | |
Cash | 2,928,819 | ||
Interest receivable | 1,886,473 | ||
Prepaid expenses | 15,534 | ||
168,057,812 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 119,574 | ||
Payable for investment securities purchased | 2,276,740 | ||
Payable for shares of Beneficial Interest redeemed | 178,878 | ||
Accrued expenses | 36,561 | ||
2,611,753 | |||
Net Assets ($) | 165,446,059 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 158,411,081 | ||
Accumulated undistributed investment income—net | 15,935 | ||
Accumulated net realized gain (loss) on investments | (2,889,259 | ) | |
Accumulated net unrealized appreciation | |||
(depreciation) on investments | 9,908,302 | ||
Net Assets ($) | 165,446,059 |
Net Asset Value Per Share | |||
Class A | Class C | Class Z | |
Net Assets ($) | 109,525,765 | 4,549,219 | 51,371,075 |
Shares Outstanding | 6,695,787 | 277,987 | 3,141,039 |
Net Asset Value Per Share ($) | 16.36 | 16.36 | 16.35 |
See notes to financial statements. |
The Fund 15
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2014 (Unaudited)
Investment Income ($): | ||
Interest Income | 3,423,526 | |
Expenses: | ||
Management fee—Note 3(a) | 461,927 | |
Shareholder servicing costs—Note 3(c) | 204,539 | |
Professional fees | 32,347 | |
Distribution fees—Note 3(b) | 16,941 | |
Registration fees | 14,207 | |
Custodian fees—Note 3(c) | 8,717 | |
Prospectus and shareholders’ reports | 7,187 | |
Trustees’ fees and expenses—Note 3(d) | 3,567 | |
Loan commitment fees—Note 2 | 806 | |
Miscellaneous | 14,230 | |
Total Expenses | 764,468 | |
Less—reduction in fees due to earnings credits—Note 3(c) | (42 | ) |
Net Expenses | 764,426 | |
Investment Income—Net | 2,659,100 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | 106,904 | |
Net unrealized appreciation (depreciation) on investments | 3,452,321 | |
Net Realized and Unrealized Gain (Loss) on Investments | 3,559,225 | |
Net Increase in Net Assets Resulting from Operations | 6,218,325 | |
See notes to financial statements. |
16
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
October 31, 2014 | Year Ended | |||
(Unaudited) | April 30, 2014 | |||
Operations ($): | ||||
Investment income—net | 2,659,100 | 6,206,195 | ||
Net realized gain (loss) on investments | 106,904 | (3,151,362 | ) | |
Net unrealized appreciation | ||||
(depreciation) on investments | 3,452,321 | (7,027,061 | ) | |
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 6,218,325 | (3,972,228 | ) | |
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Class A | (1,717,044 | ) | (4,059,451 | ) |
Class C | (53,136 | ) | (123,972 | ) |
Class Z | (872,985 | ) | (1,991,876 | ) |
Net realized gain on investments: | ||||
Class A | — | (162,565 | ) | |
Class C | — | (6,211 | ) | |
Class Z | — | (77,128 | ) | |
Total Dividends | (2,643,165 | ) | (6,421,203 | ) |
Beneficial Interest Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Class A | 1,036,482 | 3,369,039 | ||
Class C | 176,542 | 733,013 | ||
Class Z | 692,286 | 3,558,619 | ||
Dividends reinvested: | ||||
Class A | 1,431,194 | 3,535,186 | ||
Class C | 44,294 | 109,710 | ||
Class Z | 735,353 | 1,760,236 | ||
Cost of shares redeemed: | ||||
Class A | (5,180,421 | ) | (23,747,822 | ) |
Class C | (181,609 | ) | (1,540,768 | ) |
Class Z | (4,313,402 | ) | (8,051,935 | ) |
Increase (Decrease) in Net Assets from | ||||
Beneficial Interest Transactions | (5,559,281 | ) | (20,274,722 | ) |
Total Increase (Decrease) in Net Assets | (1,984,121 | ) | (30,668,153 | ) |
Net Assets ($): | ||||
Beginning of Period | 167,430,180 | 198,098,333 | ||
End of Period | 165,446,059 | 167,430,180 | ||
Undistributed investment income—net | 15,935 | — |
The Fund 17
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||||
October 31, 2014 | Year Ended | |||
(Unaudited) | April 30, 2014 | |||
Capital Share Transactions: | ||||
Class Aa | ||||
Shares sold | 63,999 | 210,344 | ||
Shares issued for dividends reinvested | 88,206 | 222,511 | ||
Shares redeemed | (319,290 | ) | (1,491,637 | ) |
Net Increase (Decrease) in Shares Outstanding | (167,085 | ) | (1,058,782 | ) |
Class Ca | ||||
Shares sold | 10,898 | 45,228 | ||
Shares issued for dividends reinvested | 2,728 | 6,902 | ||
Shares redeemed | (11,219 | ) | (95,846 | ) |
Net Increase (Decrease) in Shares Outstanding | 2,407 | (43,716 | ) | |
Class Z | ||||
Shares sold | 42,798 | 224,668 | ||
Shares issued for dividends reinvested | 45,326 | 110,846 | ||
Shares redeemed | (266,101 | ) | (510,796 | ) |
Net Increase (Decrease) in Shares Outstanding | (177,977 | ) | (175,282 | ) |
a During the period ended April 30, 2014, 9,447 Class C shares representing $159,153 were exchanged for 9,457 |
Class A shares. |
See notes to financial statements.
18
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||||||||||
October 31, 2014 | Year Ended April 30, | |||||||||||
Class A Shares | (Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 16.01 | 16.88 | 16.60 | 15.51 | 15.96 | 15.28 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .25 | .56 | .57 | .63 | .65 | .66 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .35 | (.85 | ) | .34 | 1.11 | (.46 | ) | .67 | ||||
Total from Investment Operations | .60 | (.29 | ) | .91 | 1.74 | .19 | 1.33 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.25 | ) | (.56 | ) | (.57 | ) | (.63 | ) | (.64 | ) | (.65 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.02 | ) | (.06 | ) | (.02 | ) | — | — | |||
Total Distributions | (.25 | ) | (.58 | ) | (.63 | ) | (.65 | ) | (.64 | ) | (.65 | ) |
Net asset value, end of period | 16.36 | 16.01 | 16.88 | 16.60 | 15.51 | 15.96 | ||||||
Total Return (%)b | 3.79 | c | (1.64 | ) | 5.53 | 11.40 | 1.21 | 8.85 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .96 | d | .93 | .94 | .95 | .96 | .94 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .96 | d | .93 | .94 | .95 | .96 | .94 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.12 | d | 3.51 | 3.40 | 3.91 | 4.09 | 4.17 | |||||
Portfolio Turnover Rate | 18.90 | c | 9.57 | 15.27 | 10.69 | 18.40 | 10.93 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 109,526 | 109,883 | 133,727 | 129,697 | 124,286 | 137,969 |
a | Based on average shares outstanding. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements.
The Fund 19
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||||||||||
October 31, 2014 | Year Ended April 30, | |||||||||||
Class C Shares | (Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 16.02 | 16.89 | 16.61 | 15.52 | 15.97 | 15.29 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .19 | .43 | .44 | .51 | .53 | .54 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .34 | (.85 | ) | .34 | 1.11 | (.45 | ) | .67 | ||||
Total from Investment Operations | .53 | (.42 | ) | .78 | 1.62 | .08 | 1.21 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.19 | ) | (.43 | ) | (.44 | ) | (.51 | ) | (.53 | ) | (.53 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.02 | ) | (.06 | ) | (.02 | ) | — | — | |||
Total Distributions | (.19 | ) | (.45 | ) | (.50 | ) | (.53 | ) | (.53 | ) | (.53 | ) |
Net asset value, end of period | 16.36 | 16.02 | 16.89 | 16.61 | 15.52 | 15.97 | ||||||
Total Return (%)b | 3.34 | c | (2.40 | ) | 4.73 | 10.56 | .46 | 8.03 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | 1.71 | d | 1.71 | 1.70 | 1.71 | 1.70 | 1.69 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | 1.71 | d | 1.71 | 1.70 | 1.71 | 1.70 | 1.69 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 2.37 | d | 2.73 | 2.64 | 3.16 | 3.34 | 3.41 | |||||
Portfolio Turnover Rate | 18.90 | c | 9.57 | 15.27 | 10.69 | 18.40 | 10.93 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 4,549 | 4,414 | 5,393 | 5,580 | 5,127 | 6,087 |
a | Based on average shares outstanding. |
b | Exclusive of sales charge. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements.
20
Six Months Ended | ||||||||||||
October 31, 2014 | Year Ended April 30, | |||||||||||
Class Z Shares | (Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||
Per Share Data ($): | ||||||||||||
Net asset value, | ||||||||||||
beginning of period | 16.01 | 16.88 | 16.60 | 15.51 | 15.96 | 15.28 | ||||||
Investment Operations: | ||||||||||||
Investment income—neta | .27 | .59 | .61 | .67 | .68 | .69 | ||||||
Net realized and unrealized | ||||||||||||
gain (loss) on investments | .34 | (.85 | ) | .34 | 1.10 | (.45 | ) | .68 | ||||
Total from Investment Operations | .61 | (.26 | ) | .95 | 1.77 | .23 | 1.37 | |||||
Distributions: | ||||||||||||
Dividends from | ||||||||||||
investment income—net | (.27 | ) | (.59 | ) | (.61 | ) | (.66 | ) | (.68 | ) | (.69 | ) |
Dividends from net realized | ||||||||||||
gain on investments | — | (.02 | ) | (.06 | ) | (.02 | ) | — | — | |||
Total Distributions | (.27 | ) | (.61 | ) | (.67 | ) | (.68 | ) | (.68 | ) | (.69 | ) |
Net asset value, end of period | 16.35 | 16.01 | 16.88 | 16.60 | 15.51 | 15.96 | ||||||
Total Return (%) | 3.84 | b | (1.43 | ) | 5.75 | 11.64 | 1.41 | 9.10 | ||||
Ratios/Supplemental Data (%): | ||||||||||||
Ratio of total expenses | ||||||||||||
to average net assets | .73 | c | .72 | .73 | .74 | .75 | .72 | |||||
Ratio of net expenses | ||||||||||||
to average net assets | .73 | c | .72 | .73 | .74 | .75 | .72 | |||||
Ratio of net investment income | ||||||||||||
to average net assets | 3.34 | c | 3.71 | 3.61 | 4.13 | 4.29 | 4.40 | |||||
Portfolio Turnover Rate | 18.90 | b | 9.57 | 15.27 | 10.69 | 18.40 | 10.93 | |||||
Net Assets, end of period | ||||||||||||
($ x 1,000) | 51,371 | 53,133 | 58,978 | 57,818 | 54,006 | 57,175 |
a | Based on average shares outstanding. |
b | Not annualized. |
c | 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 three 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 generally 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 Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are
22
charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants.The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
The Company enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value. This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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 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.
24
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 within Level 2 or 3 of the fair value hierarchy depending on the relevant inputs used.
For restricted securities where observable inputs are limited, assumptions about market activity and risk are used and are generally categorized within Level 3 of the fair value hierarchy.
The following is a summary of the inputs used as of October 31, 2014 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† | — | 163,226,986 | — | 163,226,986 |
† See Statement of Investments for additional detailed categorizations. |
At October 31, 2014, 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 25
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, 2014, 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 ended October 31, 2014, the fund did not incur any interest or penalties.
26
Each tax year in the three-year period ended April 30, 2014 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 fund has an unused capital loss carryover of $3,148,407 available for federal income tax purposes to be applied against future net realized capital gains, if any, realized subsequent to April 30, 2014. The fund has $422,520 of post-enactment short-term capital losses and $2,725,887 of post-enactment long-term capital losses which can be carried forward for an unlimited period.
The tax character of distributions paid to shareholders during the fiscal year ended April 30, 2014 was as follows: tax-exempt income $6,176,737, ordinary income $2,311, and long-term capital gains $242,155.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 $430 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. Prior to October 8, 2014, the unsecured credit facility with Citibank, N.A. was $265 mil-
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
lion. 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, 2014, 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, 2014, the Distributor retained $625 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 its average daily net assets. During the period ended October 31, 2014, Class C shares were charged $16,941 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) with respect to these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended October 31, 2014, Class A and Class C shares were charged $138,573 and $5,647, 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
28
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, 2014, Class Z shares were charged $12,248 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., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing transfer agency and cash management services for the fund. The majority of transfer agency fees are comprised of amounts paid on a per account basis, while cash management fees are related to fund subscriptions and redemptions. During the period ended October 31, 2014, the fund was charged $20,533 for transfer agency services and $867 for cash management services.These fees are included in Shareholder servicing costs in the Statement of Operations. Cash management fees were partially offset by earnings credits of $42.
The fund compensates The Bank of NewYork Mellon under a custody agreement for providing custodial services for the fund.These fees are determined based on net assets, geographic region and transaction activity. During the period ended October 31, 2014, the fund was charged $8,717 pursuant to the custody agreement.
The fund compensates The Bank of New York Mellon for performing certain cash management services related to fund subscriptions and redemptions, including shareholder redemption draft processing, under a cash management agreement. During the period ended October 31,
The Fund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
2014, the fund was charged $648 pursuant to the agreement, which is included in Shareholder servicing costs in the Statement of Operations.
During the period ended October 31, 2014, the fund was charged $3,576 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 $77,849, Distribution Plan fees $2,892, Shareholder Services Plan fees $24,375, custodian fees $5,382, Chief Compliance Officer fees $617 and transfer agent fees $8,459.
(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, 2014, amounted to $30,946,722 and $35,165,308, respectively.
At October 31, 2014, accumulated net unrealized appreciation on investments was $9,908,302, consisting of $9,926,297 gross unrealized appreciation and $17,995 gross unrealized depreciation.
At October 31, 2014, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
30
INFORMATION ABOUT THE RENEWAL OF THE
FUND’S MANAGEMENT AGREEMENT (Unaudited)
At a meeting of the fund’s Board of Trustees held on July 22, 2014, 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 provided to them at the meeting and in previous presentations from Dreyfus representatives regarding the nature, extent, and quality of the services provided to funds in the Dreyfus fund complex. 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 May 31, 2014, 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 below the Performance Group and Performance Universe medians for all periods, except for the ten-year period when the fund’s performance was above the Performance Universe median. The Board also noted that the fund’s yield performance was below the Performance Group median for all of the ten one-year periods ended May 31st and below the Performance Universe median for seven of the ten one-year periods ended May 31st. The Board noted the proximity of the fund’s total return performance or yield to the Performance Group and/or Performance Universe median in certain periods when the fund’s total return performance or yield was below median. Dreyfus also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s Lipper category average and noted that the fund’s calendar year total returns were above the Lipper category average for six of the ten calendar years. Dreyfus representatives noted that the fund’s investment in municipal bonds issued in Puerto Rico affected the fund’s relative performance.
32
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 expenses 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 its affiliates and the resulting profitability percentage for managing the fund and the aggregate profitability percentage to Dreyfus and its affiliates for managing the funds in the Dreyfus fund complex, 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 also 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 Fund 33
INFORMATION ABOUT THE RENEWAL OF THE FUND’S
MANAGEMENT AGREEMENT (Unaudited) (continued)
The Board considered on the advice of its counsel the profitability analysis (1) as part of its 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 was concerned with the fund’s performance and agreed to closely monitor performance.
The Board concluded that the fee paid to Dreyfus was reasonable in light of the considerations described above.
34
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, 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
For More Information
![](https://capedge.com/proxy/N-CSRS/0000806176-14-000031/smbpancsrx40x1.jpg)
Telephone Call your financial representative or 1-800-DREYFUS
Mail The Dreyfus Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Information regarding how the fund voted proxies relating to portfolio securities for the most recent 12-month period ended June 30 is available on the SEC’s website at http://www.sec.gov and without charge, upon request, by calling 1-800-DREYFUS.
![](https://capedge.com/proxy/N-CSRS/0000806176-14-000031/smbpancsrx40x2.jpg)
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.
Not applicable. [CLOSED END FUNDS ONLY]
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures applicable to Item 10.
Item 11. Controls and Procedures.
(a) The Registrant's principal executive and principal financial officers have concluded, based on their evaluation of the Registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the Registrant's disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes to the Registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable.
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(a)(3) Not applicable.
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dreyfus State Municipal Bond Funds
By: /s/ Bradley J. Skapyak
Bradley J. Skapyak,
President
Date: December 18, 2014
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 18, 2014
By: /s/ James Windels
James Windels,
Treasurer
Date: December 18, 2014
EXHIBIT INDEX
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940. (EX-99.CERT)
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940. (EX-99.906CERT)