|
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 811-5877
|
Dreyfus Strategic Municipal Bond Fund, Inc. (Exact name of Registrant as specified in charter) |
|
c/o The Dreyfus Corporation 200 Park Avenue New York, New York 10166 (Address of principal executive offices) (Zip code) |
|
Michael A. Rosenberg, Esq. 200 Park Avenue New York, New York 10166 (Name and address of agent for service) |
| Registrant's telephone number, including area code: | (212) 922-6000 | |
| Date of fiscal year end: | 11/30 | |
| Date of reporting period: | 5/31/09 | |
| FORM N-CSR |
Item 1. Reports to Stockholders.
| Contents | |
| THE FUND | |
| 2 | A Letter from the CEO |
| 3 | Discussion of Fund Performance |
| 6 | Statement of Investments |
| 21 | Statement of Assets and Liabilities |
| 22 | Statement of Operations |
| 23 | Statement of Changes in Net Assets |
| 24 | Financial Highlights |
| 26 | Notes to Financial Statements |
| FOR MORE INFORMATION | |
| Back Cover |
| Dreyfus Strategic Municipal Bond Fund, Inc. |
| The Fund |
| A LETTER FROM THE CEO Dear Shareholder: |
We present to you this semiannual report for Dreyfus Strategic Municipal Bond Fund, Inc., covering the six-month period from December 1, 2008, through May 31, 2009.
Like most other financial markets, the municipal bond market went on a wild ride during the reporting period, with higher-yielding securities plummeting over the first half of the reporting period and rebounding strongly in the second half. In supporting the recent rally, investors apparently shrugged off more bad economic news: the unemployment rate surged to a 25-year high, and a 6.3% annualized contraction over the fourth quarter of 2008 was followed by a 5.7% revised estimate of economic contraction during the first quarter of 2009.Yet, the market rebound proved to be robust, particularly among lower-rated securities that had been battered during the downturn. These enormous swings leave investors to wonder if the financial markets are forecasting sustainable economic improvement, or could this be a bear market rally where securities reach such depressed levels that even the slightest hint of good news lifts prices? We generally have remained cautious in the absence of real economic progress, but the market’s gyrations illustrate an important feature of many market rallies—when they snap back, the rebounds are often quick and sharp, potentially leaving investors on the sidelines.That’s why we encourage you to speak regularly with your financial consultant, who can discuss with you the potential benefits of adhering to a long-term investment strategy tailored to your current investment needs and future goals. For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund’s Portfolio Manager.
Thank you for your continued confidence and support.
| Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation June 15, 2009 |
2
DISCUSSION OF FUND PERFORMANCE
For the period of December 1, 2008, through May 31, 2009, as provided by James Welch, Senior Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended May 31, 2009, Dreyfus Strategic Municipal Bond Fund achieved a total return of 15.09% on a net-asset-value basis.1 Over the same period, the fund provided aggregate income dividends of $0.23 per share, which reflects an annualized distribution rate of 6.66%.2
In the wake of severe volatility due to a financial crisis and economic downturn, municipal bonds rebounded during the reporting period as investors returned to the market.The fund’s performance was driven primarily by its higher yielding holdings, which generally led the market’s advance.
The Fund’s Investment Approach
The fund seeks to maximize current income exempt from federal income tax to the extent believed by Dreyfus to be consistent with the preservation of capital. In pursuing this goal, the fund invests at least 80% of its assets in municipal bonds. Under normal market conditions, the weighted average maturity of the fund’s portfolio is expected to exceed 10 years. Municipal bonds are classified as general obligation bonds, revenue bonds and notes. Under normal market conditions, the fund invests at least 80% of its net assets in municipal bonds considered investment grade or the unrated equivalent as determined by Dreyfus.
The fund also has the ability to issue auction-rate preferred stock and invests the proceeds in a manner consistent with its investment objective. This has the effect of “leveraging” the portfolio, which can increase the fund’s performance potential as well as, depending on market conditions, enhance net asset value losses during times of higher market risk.
Over time, many of the fund’s older, higher yielding bonds have matured or were redeemed by their issuers.We have attempted to replace those
The Fund 3
| DISCUSSION OF FUND PERFORMANCE (continued) |
bonds with investments consistent with the fund’s investment policies. We have also sought to upgrade the fund with newly issued bonds that, in our opinion, have better structural or income characteristics than existing holdings.When such opportunities arise, we usually look to sell bonds that are close to their optimal redemption date or maturity. In addition, we conduct credit analysis of the fund’s holdings in an attempt to avoid potential defaults on interest and principal payments.
Municipal Bonds Recovered Previous Lost Ground
The reporting period began in the midst of a global financial crisis and a sharp economic downturn that produced severe dislocations in most financial markets, including municipal bonds.When the crisis intensified in the fall of 2008, investors fled longer-term assets in favor of traditional safe havens such as money market funds and U.S.Treasury securities.As a result, many municipal bonds appeared to lose value indiscriminately, regardless of their fundamental strengths and weaknesses.
Although market turmoil persisted over the opening months of 2009, investor sentiment began to improve later in the first quarter of the year as investors gained confidence that aggressive measures by the Federal Reserve Board (the “Fed”) and U.S. government would be effective in forestalling a collapse of the credit markets. The Fed had injected massive amounts of liquidity into the banking system and reduced short-term interest rates to unprecedented low levels of between 0% to 0.25%, while Congress enacted the $787 billion American Recovery and Reinvestment Act. Despite struggling housing markets and a climbing unemployment rate, investors began to look forward to better economic conditions.
As assets flowed into the municipal bond market, demand proved particularly robust for many of the lower-quality, higher yielding securities that had been severely punished during the downturn. However, investors appeared to focus more carefully on underlying fundamentals, favoring corporate-backed bonds whose issuers seemed to be weathering the recession relatively well. Meanwhile, the supply of newly issued municipal bonds fell as federal stimulus funds reduced states’ and municipalities’ need for financing.
4
Portfolio Positioning Bolstered Fund Results
In an effort to cushion losses and maintain interest income during the downturn, we have sought to achieve a balance between higher yielding, income-oriented bonds and higher-quality municipal bonds from state and local governments and authorities.The 2009 rally helped lift prices of bonds in both categories. Gains were especially robust among corporate-backed holdings from issuers in the airlines, waste management and utilities industries. Bonds backed by the states’ settlement of litigation with U.S. tobacco companies also rallied strongly.
Finally, the fund’s leveraging strategy benefited from historically low short-term interest rates.Although auction-rate securities have continued to face liquidity constraints, relatively wide differences between floating short-term rates and the fixed rates of longer term municipal bonds have benefited the fund’s performance.
Maintaining a Cautious Investment Posture
We have been encouraged by recent evidence of market stabilization and a return to fundamentals among investors. However, the U.S. economy has remained weak, and many states are struggling with budget pressures. Consequently, we currently intend to maintain a generally conservative investment posture. Over the longer term, however, we believe that the likelihood of rising tax rates and potential changes in credit-rating methodologies potentially could benefit municipal bonds.
June 15, 2009
| 1 | Total return includes reinvestment of dividends and any capital gains paid, based upon net asset |
| value per share. Past performance is no guarantee of future results. Income may be subject to state | |
| and local taxes, and some income may be subject to the federal alternative minimum tax (AMT) | |
| for certain investors. Capital gains, if any, are fully taxable. Return figure provided reflects the | |
| absorption of certain expenses by The Dreyfus Corporation pursuant to an undertaking in effect | |
| through October 31, 2009. Had these expenses not been absorbed, the fund’s return would have | |
| been lower. | |
| 2 | Annualized distribution rate per share is based upon dividends per share paid from net investment |
| income during the period, annualized, divided by the market price per share at the end of the | |
| period, adjusted for any capital gain distributions. |
The Fund 5
| STATEMENT OF INVESTMENTS | ||||
| May 31, 2009 (Unaudited) | ||||
| Long-Term Municipal | Coupon | Maturity | Principal | |
| Investments—149.9% | Rate (%) | Date | Amount ($) | Value ($) |
| Alaska—4.4% | ||||
| Alaska Housing Finance | ||||
| Corporation, General Mortgage | ||||
| Revenue (Insured; National | ||||
| Public Finance Guarantee Corp.) | 6.05 | 6/1/39 | 11,915,000 | 11,921,196 |
| Alaska Housing Finance | ||||
| Corporation, Single-Family | ||||
| Residential Mortgage Revenue | ||||
| (Veterans Mortgage Program) | 6.25 | 6/1/35 | 3,975,000 | 4,017,771 |
| Arizona—2.6% | ||||
| Glendale Western Loop 101 Public | ||||
| Facilities Corporation, Third | ||||
| Lien Excise Tax Revenue | 7.00 | 7/1/33 | 6,010,000 | 6,420,964 |
| Pima County Industrial Development | ||||
| Authority, Education Revenue | ||||
| (American Charter Schools | ||||
| Foundation Project) | 5.50 | 7/1/26 | 4,000,000 | 3,078,360 |
| Arkansas—.6% | ||||
| Arkansas Development Finance | ||||
| Authority, SFMR (Mortgage | ||||
| Backed Securities Program) | ||||
| (Collateralized: FNMA and GNMA) | 6.25 | 1/1/32 | 2,120,000 | 2,144,677 |
| California—14.2% | ||||
| Beverly Hills Unified School | ||||
| District, GO | 0.00 | 8/1/30 | 8,000,000 a | 2,621,280 |
| California, | ||||
| GO (Various Purpose) | 5.75 | 4/1/31 | 7,800,000 | 7,934,160 |
| California, | ||||
| GO (Various Purpose) | 5.00 | 11/1/32 | 2,600,000 | 2,404,090 |
| California, | ||||
| GO (Various Purpose) | 6.50 | 4/1/33 | 5,000,000 | 5,450,950 |
| California Department of Veteran | ||||
| Affairs, Home Purchase Revenue | 5.20 | 12/1/28 | 2,950,000 | 2,950,413 |
| California Educational Facilities | ||||
| Authority, Revenue (University | ||||
| of Southern California) | 5.25 | 10/1/38 | 5,000,000 | 5,201,800 |
| California Enterprise Development | ||||
| Authority, Sewage | ||||
| Facilities Revenue | ||||
| (Anheuser-Busch Project) | 5.30 | 9/1/47 | 1,000,000 | 771,830 |
6
| Long-Term Municipal | Coupon | Maturity | Principal | ||
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
| California (continued) | |||||
| California Health Facilities | |||||
| Financing Authority, Revenue | |||||
| (Cedars-Sinai Medical Center) | |||||
| (Prerefunded) | 6.25 | 12/1/09 | 3,750,000 | b | 3,894,675 |
| California Housing Finance Agency, | |||||
| Home Mortgage Revenue | 5.05 | 8/1/27 | 2,500,000 | 2,098,875 | |
| California Pollution Control | |||||
| Financing Authority, SWDR | |||||
| (Waste Management, Inc. Project) | 5.13 | 11/1/23 | 1,500,000 | 1,369,695 | |
| California Statewide Communities | |||||
| Development Authority, | |||||
| Environmental Facilities Revenue | |||||
| (Microgy Holdings Project) | 9.00 | 12/1/38 | 2,000,000 | 1,577,860 | |
| Golden State Tobacco | |||||
| Securitization Corporation, | |||||
| Tobacco Settlement | |||||
| Asset-Backed Bonds | 5.00 | 6/1/33 | 2,535,000 | 1,776,249 | |
| Los Angeles Department of Water | |||||
| and Power, Power System Revenue | 5.00 | 7/1/34 | 2,885,000 | 2,868,527 | |
| Sacramento City Unified School | |||||
| District, GO (Insured; FSA) | 0.00 | 7/1/24 | 5,220,000 | a | 2,207,120 |
| San Diego Public Facilities | |||||
| Financing Authority, Senior | |||||
| Sewer Revenue | 5.25 | 5/15/34 | 2,500,000 | 2,513,425 | |
| Santa Margarita/Dana Point Authority, | |||||
| Revenue (Santa Margarita Water | |||||
| District Improvement Districts | |||||
| Numbers 2,3 and 4) | 5.13 | 8/1/38 | 5,000,000 | 4,958,500 | |
| Silicon Valley Tobacco | |||||
| Securitization Authority, | |||||
| Tobacco Settlement | |||||
| Asset-Backed Bonds (Santa | |||||
| Clara County Tobacco | |||||
| Securitization Corporation) | 0.00 | 6/1/36 | 15,290,000 | a | 1,187,421 |
| Colorado—3.6% | |||||
| Colorado Health Facilities | |||||
| Authority, Revenue (American | |||||
| Baptist Homes of the Midwest | |||||
| Obligated Group) | 5.90 | 8/1/37 | 2,500,000 | 1,784,975 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Long-Term Municipal | Coupon | Maturity | Principal | ||
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
| Colorado (continued) | |||||
| Colorado Health Facilities | |||||
| Authority, Revenue (American | |||||
| Housing Foundation I, Inc. | |||||
| Project) (Prerefunded) | 8.50 | 12/1/11 | 1,870,000 | b | 2,171,238 |
| Colorado Housing and Finance | |||||
| Authority, Single Family | |||||
| Program Senior and Subordinate | |||||
| Bonds (Collateralized; FHA) | 6.60 | 8/1/32 | 1,440,000 | 1,507,766 | |
| Northwest Parkway Public Highway | |||||
| Authority, Revenue (Prerefunded) | 7.13 | 6/15/11 | 7,000,000 | b | 7,466,060 |
| Connecticut—4.3% | |||||
| Connecticut Development Authority, | |||||
| PCR (Connecticut Light and | |||||
| Power Company Project) | 5.95 | 9/1/28 | 9,000,000 | 8,592,570 | |
| Connecticut Resources Recovery | |||||
| Authority, Special Obligation | |||||
| Revenue (American REF-FUEL | |||||
| Company of Southeastern | |||||
| Connecticut Project) | 6.45 | 11/15/22 | 4,985,000 | 4,627,476 | |
| Mohegan Tribe of Indians of | |||||
| Connecticut Gaming Authority, | |||||
| Priority Distribution Payment | |||||
| Public Improvement Revenue | 6.25 | 1/1/31 | 3,470,000 | c | 2,271,497 |
| District of Columbia—1.4% | |||||
| District of Columbia Tobacco | |||||
| Settlement Financing | |||||
| Corporation, Tobacco | |||||
| Settlement Asset-Backed Bonds | 0.00 | 6/15/46 104,040,000 | a | 2,840,292 | |
| Metropolitan Washington Airports | |||||
| Authority, Special Facility | |||||
| Revenue (Caterair | |||||
| International Corporation) | 10.13 | 9/1/11 | 2,400,000 | 2,339,712 | |
| Florida—6.2% | |||||
| Florida Housing Finance | |||||
| Corporation, Housing Revenue | |||||
| (Seminole Ridge Apartments) | |||||
| (Collateralized; GNMA) | 6.00 | 4/1/41 | 6,415,000 | 6,478,316 | |
| Highlands County Health Facilities | |||||
| Authority, HR (Adventist | |||||
| Health System/Sunbelt | |||||
| Obligated Group) | 5.25 | 11/15/36 | 2,875,000 | 2,685,135 | |
8
| Long-Term Municipal | Coupon | Maturity | Principal | ||
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
| Florida (continued) | |||||
| Jacksonville Economic Development | |||||
| Commission, Health Care | |||||
| Facilities Revenue (Florida | |||||
| Proton Therapy Institute Project) | 6.25 | 9/1/27 | 2,095,000 | c | 1,705,414 |
| Orange County Health Facilities | |||||
| Authority, HR (Orlando | |||||
| Regional Healthcare System) | 6.00 | 10/1/26 | 3,675,000 | 3,655,081 | |
| Orange County Health Facilities | |||||
| Authority, HR (Orlando Regional | |||||
| Healthcare System) (Prerefunded) | 6.00 | 10/1/09 | 70,000 | b | 71,994 |
| Orange County Health Facilities | |||||
| Authority, Revenue (Adventist | |||||
| Health System) (Prerefunded) | 6.25 | 11/15/12 | 3,000,000 | b | 3,399,540 |
| Orange County School Board, | |||||
| COP (Master Lease Purchase | |||||
| Agreement) (Insured; | |||||
| Assured Guaranty) | 5.50 | 8/1/34 | 4,500,000 | 4,556,295 | |
| Georgia—1.6% | |||||
| Augusta, | |||||
| Airport Revenue | 5.45 | 1/1/31 | 2,500,000 | 1,657,950 | |
| Georgia Housing and Finance | |||||
| Authority, SFMR | 5.60 | 12/1/32 | 2,085,000 | 1,989,966 | |
| Savannah Economic Development | |||||
| Authority, EIR (International | |||||
| Paper Company Project) | 6.20 | 8/1/27 | 2,670,000 | 2,177,145 | |
| Idaho—.1% | |||||
| Idaho Housing and Finance | |||||
| Association, SFMR | |||||
| (Collateralized; FNMA) | 6.35 | 1/1/30 | 225,000 | 226,532 | |
| Illinois—5.2% | |||||
| Chicago, | |||||
| SFMR (Collateralized: FHLMC, | |||||
| FNMA and GNMA) | 6.25 | 10/1/32 | 1,340,000 | 1,378,619 | |
| Chicago O’Hare International | |||||
| Airport, Special Facility Revenue | |||||
| (American Airlines, Inc. Project) | 5.50 | 12/1/30 | 1,500,000 | 800,505 | |
| Illinois Health Facilities | |||||
| Authority, Revenue (Advocate | |||||
| Health Care Network) | |||||
| (Prerefunded) | 6.13 | 11/15/10 | 5,000,000 | b | 5,391,300 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Long-Term Municipal | Coupon | Maturity | Principal | ||
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
| Illinois (continued) | |||||
| Illinois Health Facilities | |||||
| Authority, Revenue (OSF | |||||
| Healthcare System) (Prerefunded) | 6.25 | 11/15/09 | 10,900,000 | b | 11,294,144 |
| Indiana—1.8% | |||||
| Franklin Township School Building | |||||
| Corporation, First Mortgage | |||||
| Bonds (Prerefunded) | 6.13 | 7/15/10 | 6,000,000 | b | 6,495,060 |
| Kentucky—.3% | |||||
| Louisville/Jefferson County | |||||
| Metro Government, Health | |||||
| Facilities Revenue (Jewish | |||||
| Hospital and Saint Mary’s | |||||
| HealthCare, Inc. Project) | 6.13 | 2/1/37 | 1,000,000 | 1,012,300 | |
| Louisiana—2.4% | |||||
| Lakeshore Villages Master | |||||
| Community Development District, | |||||
| Special Assessment Revenue | 5.25 | 7/1/17 | 1,987,000 | 1,551,112 | |
| Louisiana Local Government | |||||
| Environmental Facilities and | |||||
| Community Development | |||||
| Authority, Revenue (Westlake | |||||
| Chemical Corporation Projects) | 6.75 | 11/1/32 | 4,000,000 | 3,216,680 | |
| West Feliciana Parish, | |||||
| PCR (Entergy Gulf States Project) | 7.00 | 11/1/15 | 1,270,000 | 1,263,244 | |
| West Feliciana Parish, | |||||
| PCR (Entergy Gulf States Project) | 6.60 | 9/1/28 | 2,545,000 | 2,544,949 | |
| Maryland—1.3% | |||||
| Maryland Economic Development | |||||
| Corporation, Senior Student | |||||
| Housing Revenue (University of | |||||
| Maryland, Baltimore Project) | 5.75 | 10/1/33 | 2,550,000 | 1,600,890 | |
| Maryland Industrial Development | |||||
| Financing Authority, EDR | |||||
| (Medical Waste Associates | |||||
| Limited Partnership Facility) | 8.75 | 11/15/10 | 3,710,000 | 3,247,957 | |
| Massachusetts—6.0% | |||||
| Massachusetts Educational | |||||
| Financing Authority, Education | |||||
| Loan Revenue (Insured; | |||||
| Assured Guaranty) | 6.13 | 1/1/22 | 8,000,000 | 8,339,280 |
10
| Long-Term Municipal | Coupon | Maturity | Principal | ||
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
| Massachusetts (continued) | |||||
| Massachusetts Health and | |||||
| Educational Facilities Authority, | |||||
| Revenue (Civic Investments | |||||
| Issue) (Prerefunded) | 9.00 | 12/15/12 | 1,900,000 | b | 2,303,123 |
| Massachusetts Health and | |||||
| Educational Facilities | |||||
| Authority, Revenue (Partners | |||||
| HealthCare System Issue) | 5.75 | 7/1/32 | 115,000 | 116,876 | |
| Massachusetts Housing Finance | |||||
| Agency, Housing Revenue | 7.00 | 12/1/38 | 5,000,000 | 5,491,200 | |
| Massachusetts Housing Finance | |||||
| Agency, SFHR | 5.00 | 12/1/31 | 6,000,000 | 5,593,380 | |
| Michigan—4.1% | |||||
| Kent Hospital Finance Authority, | |||||
| Revenue (Metropolitan | |||||
| Hospital Project) | 6.00 | 7/1/35 | 4,000,000 | 3,025,720 | |
| Michigan Strategic Fund, | |||||
| SWDR (Genesee Power | |||||
| Station Project) | 7.50 | 1/1/21 | 7,720,000 | 6,373,323 | |
| Royal Oak Hospital Finance | |||||
| Authority, HR (William Beaumont | |||||
| Hospital Obligated Group) | 8.00 | 9/1/29 | 5,000,000 | 5,659,800 | |
| Minnesota—1.6% | |||||
| Saint Paul Housing and | |||||
| Redevelopment Authority, | |||||
| Hospital Facility Revenue | |||||
| (HealthEast Project) | 6.00 | 11/15/35 | 7,605,000 | 5,850,755 | |
| Mississippi—1.1% | |||||
| Mississippi Business Finance | |||||
| Corporation, PCR (System | |||||
| Energy Resources, Inc. Project) | 5.90 | 5/1/22 | 4,260,000 | 3,962,908 | |
| Missouri—1.5% | |||||
| Missouri Health and Educational | |||||
| Facilities Authority, | |||||
| Health Facilities Revenue | |||||
| (BJC Health System) | 5.25 | 5/15/32 | 5,525,000 | 5,459,529 | |
| Nebraska—.2% | |||||
| Nebraska Investment Finance | |||||
| Authority, SFMR | 8.56 | 3/1/26 | 600,000 | c,d | 605,556 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Long-Term Municipal | Coupon | Maturity | Principal | ||
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
| Nevada—3.0% | |||||
| Clark County, | |||||
| IDR (Nevada Power | |||||
| Company Project) | 5.60 | 10/1/30 | 3,000,000 | 2,490,300 | |
| Washoe County, | |||||
| GO Convention Center Revenue | |||||
| (Reno-Sparks Convention and | |||||
| Visitors Authority) (Insured; | |||||
| FSA) (Prerefunded) | 6.40 | 1/1/10 | 8,000,000 | b | 8,273,520 |
| New Hampshire—3.9% | |||||
| New Hampshire Business Finance | |||||
| Authority, PCR (Public Service | |||||
| Company of New Hampshire | |||||
| Project) (Insured; National | |||||
| Public Finance Guarantee Corp.) | 6.00 | 5/1/21 | 2,690,000 | 2,700,545 | |
| New Hampshire Business Finance | |||||
| Authority, PCR (Public Service | |||||
| Company of New Hampshire | |||||
| Project) (Insured; National | |||||
| Public Finance Guarantee Corp.) | 6.00 | 5/1/21 | 6,000,000 | 6,023,520 | |
| New Hampshire Industrial | |||||
| Development Authority, PCR | |||||
| (Connecticut Light and Power | |||||
| Company Project) | 5.90 | 11/1/16 | 5,400,000 | 5,403,888 | |
| New Jersey—5.9% | |||||
| New Jersey Economic Development | |||||
| Authority, School Facilities | |||||
| Construction Revenue | 5.50 | 12/15/29 | 5,000,000 | e | 5,187,400 |
| New Jersey Economic Development | |||||
| Authority, Special Facility | |||||
| Revenue (Continental | |||||
| Airlines, Inc. Project) | 6.25 | 9/15/19 | 4,620,000 | 3,936,610 | |
| Tobacco Settlement Financing | |||||
| Corporation of New Jersey, | |||||
| Tobacco Settlement | |||||
| Asset-Backed Bonds | 5.00 | 6/1/29 | 250,000 | 183,500 | |
| Tobacco Settlement Financing | |||||
| Corporation of New Jersey, | |||||
| Tobacco Settlement Asset-Backed | |||||
| Bonds (Prerefunded) | 7.00 | 6/1/13 | 10,095,000 | b | 12,135,704 |
12
| Long-Term Municipal | Coupon | Maturity | Principal | |
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
| New York—9.0% | ||||
| Austin Trust | ||||
| (Port Authority of New York | ||||
| and New Jersey, Consolidated | ||||
| Bonds, 151st Series) | 6.00 | 9/15/28 | 10,000,000 c,f | 10,457,500 |
| Long Island Power Authority, | ||||
| Electric System | ||||
| General Revenue | 6.25 | 4/1/33 | 3,000,000 | 3,348,450 |
| Metropolitan Transportation | ||||
| Authority, Transportation Revenue | 6.25 | 11/15/23 | 8,425,000 | 9,445,773 |
| New York City Industrial | ||||
| Development Agency, Special | ||||
| Facility Revenue (American | ||||
| Airlines, Inc. John F. Kennedy | ||||
| International Airport Project) | 7.75 | 8/1/31 | 5,000,000 | 4,662,800 |
| New York State Dormitory | ||||
| Authority, Revenue | ||||
| (Marymount Manhattan | ||||
| College) (Insured; Radian) | 6.25 | 7/1/29 | 4,000,000 | 3,986,120 |
| New York State Dormitory | ||||
| Authority, Revenue (Suffolk | ||||
| County Judicial Facility) | 9.50 | 4/15/14 | 605,000 | 795,732 |
| North Carolina—1.4% | ||||
| North Carolina Eastern Municipal | ||||
| Power Agency, Power | ||||
| System Revenue | 6.70 | 1/1/19 | 2,500,000 | 2,556,725 |
| North Carolina Housing | ||||
| Finance Agency, Home | ||||
| Ownership Revenue | 5.88 | 7/1/31 | 2,575,000 | 2,580,382 |
| Ohio—1.4% | ||||
| Cuyahoga County, | ||||
| Hospital Facilities Revenue | ||||
| (UHHS/CSAHS-Cuyahoga, Inc. and | ||||
| CSAHS/UHHS-Canton, Inc. Project) | 7.50 | 1/1/30 | 3,500,000 | 3,538,850 |
| Port of Greater Cincinnati | ||||
| Development Authority, Tax | ||||
| Increment Development Revenue | ||||
| (Fairfax Village Red Bank | ||||
| Infrastructure Project) | 5.63 | 2/1/36 | 2,530,000 | 1,700,185 |
The Fund 13
STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Long-Term Municipal | Coupon | Maturity | Principal | ||
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
| Oklahoma—.8% | |||||
| Oklahoma Industries Authority, | |||||
| Health System Revenue | |||||
| (Obligated Group) (Insured; | |||||
| National Public Finance | |||||
| Guarantee Corp.) (Prerefunded) | 5.75 | 8/15/09 | 2,895,000 | b | 2,956,519 |
| Pennsylvania—.4% | |||||
| Pennsylvania Economic Development | |||||
| Financing Authority, SWDR (USG | |||||
| Corporation Project) | 6.00 | 6/1/31 | 2,000,000 | 1,339,520 | |
| Pennsylvania Housing Finance | |||||
| Agency, Multi-Family | |||||
| Development Revenue | 8.25 | 12/15/19 | 214,000 | 214,509 | |
| Rhode Island—1.5% | |||||
| Rhode Island Health and | |||||
| Educational Building | |||||
| Corporation, Hospital | |||||
| Financing Revenue (Lifespan | |||||
| Obligated Group Issue) | |||||
| (Insured; Assured Guaranty) | 7.00 | 5/15/39 | 5,000,000 | 5,426,950 | |
| South Carolina—3.9% | |||||
| Greenville Hospital System, | |||||
| Hospital Facilities Revenue | |||||
| (Insured; AMBAC) | 5.50 | 5/1/26 | 7,000,000 | 7,088,060 | |
| Richland County, | |||||
| EIR (International Paper | |||||
| Company Project) | 6.10 | 4/1/23 | 8,500,000 | 7,196,525 | |
| Tennessee—5.0% | |||||
| Johnson City Health and | |||||
| Educational Facilities Board, | |||||
| Hospital First Mortgage | |||||
| Revenue (Mountain States | |||||
| Health Alliance) (Prerefunded) | 7.50 | 7/1/12 | 2,000,000 | b | 2,272,700 |
| Johnson City Health and | |||||
| Educational Facilities Board, | |||||
| Hospital First Mortgage | |||||
| Revenue (Mountain States | |||||
| Health Alliance) (Prerefunded) | 7.50 | 7/1/12 | 4,875,000 | b | 5,539,706 |
| Memphis Center City Revenue | |||||
| Finance Corporation, Sports Facility | |||||
| Revenue (Memphis Redbirds | |||||
| Baseball Foundation Project) | 6.50 | 9/1/28 | 6,000,000 | g | 3,065,820 |
14
| Long-Term Municipal | Coupon | Maturity | Principal | |
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
| Tennessee (continued) | ||||
| Metropolitan Government of | ||||
| Nashville and Davidson County | ||||
| Health and Educational | ||||
| Facilities Board, Revenue (The | ||||
| Vanderbilt University) | 5.50 | 10/1/29 | 2,500,000 | 2,719,800 |
| Metropolitan Government of | ||||
| Nashville and Davidson County | ||||
| Health and Educational | ||||
| Facilities Board, Revenue (The | ||||
| Vanderbilt University) | 5.50 | 10/1/34 | 3,000,000 | 3,192,030 |
| Tennessee Housing Development | ||||
| Agency, Homeownership | ||||
| Program Revenue | 6.00 | 1/1/28 | 1,320,000 | 1,342,176 |
| Texas—29.2% | ||||
| Brazos River Authority, | ||||
| PCR (TXU Electric | ||||
| Company Project) | 8.25 | 5/1/33 | 3,000,000 | 1,612,950 |
| Brazos River Harbor Navigation | ||||
| District, Revenue (The Dow | ||||
| Chemical Company Project) | 5.13 | 5/15/33 | 5,000,000 | 3,733,500 |
| Dallas/Fort Worth International | ||||
| Airport Facility Improvement | ||||
| Corporation, Revenue | ||||
| (Learjet Inc. Project) | 6.15 | 1/1/16 | 3,000,000 | 2,598,660 |
| Gregg County Health Facilities | ||||
| Development Corporation, HR | ||||
| (Good Shepherd Medical Center | ||||
| Project) (Insured; Radian) | ||||
| (Prerefunded) | 6.38 | 10/1/10 | 2,500,000 b | 2,674,800 |
| Gulf Coast Industrial Development | ||||
| Authority, Environmental | ||||
| Facilities Revenue (Microgy | ||||
| Holdings Project) | 7.00 | 12/1/36 | 5,000,000 | 2,221,850 |
| Harris County Health Facilities | ||||
| Development Corporation, HR | ||||
| (Memorial Hermann | ||||
| Healthcare System) | 7.25 | 12/1/35 | 9,290,000 | 10,052,059 |
| Harris County Health Facilities | ||||
| Development Corporation, HR | ||||
| (Memorial Hermann Healthcare | ||||
| System) (Prerefunded) | 6.38 | 6/1/11 | 7,000,000 b | 7,789,250 |
The Fund 15
STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Long-Term Municipal | Coupon | Maturity | Principal | ||
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
| Texas (continued) | |||||
| Harris County Hospital District, | |||||
| Senior Lien Revenue (Insured; | |||||
| National Public Finance | |||||
| Guarantee Corp.) | 5.25 | 2/15/42 | 5,000,000 | 4,656,450 | |
| Harris County-Houston Sports | |||||
| Authority, Third Lien Revenue | |||||
| (Insured; National Public | |||||
| Finance Guarantee Corp.) | 0.00 | 11/15/31 | 9,685,000 | a | 1,770,709 |
| Houston, | |||||
| Combined Utility System First | |||||
| Lien Revenue (Insured; | |||||
| Assured Guaranty) | 6.00 | 11/15/36 | 5,000,000 | 5,518,050 | |
| Lubbock Housing Financing | |||||
| Corporation, SFMR | |||||
| (Collateralized: FNMA and GNMA) | 6.70 | 10/1/30 | 845,000 | 887,901 | |
| Matagorda County Navigation | |||||
| District Number One, Revenue | |||||
| (Houston Lighting and | |||||
| Power Company Project) | |||||
| (Insured; AMBAC) | 5.13 | 11/1/28 | 4,295,000 | 3,503,560 | |
| North Texas Tollway Authority, | |||||
| First Tier System Revenue | |||||
| (Insured; Assured Guaranty) | 5.75 | 1/1/40 | 14,705,000 | 15,331,139 | |
| North Texas Tollway Authority, | |||||
| Second Tier System Revenue | 5.75 | 1/1/38 | 6,650,000 | 6,557,764 | |
| Sabine River Authority, | |||||
| PCR (TXU Electric | |||||
| Company Project) | 6.45 | 6/1/21 | 4,900,000 | 2,363,074 | |
| Texas | |||||
| (Veterans’ Land) | 6.00 | 12/1/30 | 3,935,000 | 3,947,395 | |
| Texas, | |||||
| GO (Veterans Housing | |||||
| Assistance Program) | |||||
| (Collateralized; FHA) | 6.10 | 6/1/31 | 8,510,000 | 8,524,212 | |
| Texas Department of Housing and | |||||
| Community Affairs, Home | |||||
| Mortgage Revenue (Collateralized: | |||||
| FHLMC, FNMA and GNMA) | 12.31 | 7/2/24 | 900,000 | d | 1,009,332 |
| Texas Department of Housing and | |||||
| Community Affairs, Residential | |||||
| Mortgage Revenue (Collateralized: | |||||
| FHLMC, FNMA and GNMA) | 5.35 | 7/1/33 | 5,070,000 | 4,968,853 |
16
| Long-Term Municipal | Coupon | Maturity | Principal | ||
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
| Texas (continued) | |||||
| Texas Turnpike Authority, | |||||
| Central Texas Turnpike System | |||||
| Revenue (Insured; AMBAC) | 5.25 | 8/15/42 | 5,375,000 | 4,748,060 | |
| Tomball Hospital Authority, | |||||
| Revenue (Tomball | |||||
| Regional Hospital) | 6.00 | 7/1/25 | 4,650,000 | 3,686,659 | |
| Tyler Health Facilities | |||||
| Development Corporation, HR, | |||||
| Refunding and Improvement | |||||
| Bonds (East Texas Medical | |||||
| Center Regional Healthcare | |||||
| System Project) | 5.25 | 11/1/32 | 6,915,000 | 5,354,008 | |
| Willacy County Local Government | |||||
| Corporation, Project Revenue | 6.88 | 9/1/28 | 4,000,000 | 3,041,360 | |
| Virginia—7.1% | |||||
| Henrico County Industrial | |||||
| Development Authority, Revenue | |||||
| (Bon Secours Health System) | |||||
| (Insured; FSA) | 10.86 | 8/23/27 | 7,450,000 | d | 8,372,012 |
| Virginia Housing Development | |||||
| Authority, Commonwealth | |||||
| Mortgage Revenue | 6.25 | 7/1/31 | 5,250,000 | 5,664,697 | |
| Virginia Housing Development | |||||
| Authority, Rental | |||||
| Housing Revenue | 6.20 | 8/1/24 | 8,520,000 | 8,630,419 | |
| Washington County Industrial | |||||
| Development Authority, HR | |||||
| (Mountain States Health Alliance) | 7.75 | 7/1/38 | 3,000,000 | 3,219,960 | |
| Washington—4.5% | |||||
| Washington Health Care Facilities | |||||
| Authority, Mortgage Revenue | |||||
| (Highline Medical Center) | |||||
| (Collateralized; FHA) | 6.25 | 8/1/36 | 6,000,000 | 6,369,000 | |
| Washington Higher Educational | |||||
| Facilities Authority, Revenue | |||||
| (Whitman College) (Prerefunded) | 5.88 | 10/1/09 | 10,000,000 | b | 10,185,700 |
| Wisconsin—8.0% | |||||
| Badger Tobacco Asset | |||||
| Securitization Corporation, | |||||
| Tobacco Settlement | |||||
| Asset-Backed Bonds | 6.13 | 6/1/27 | 8,280,000 | 8,853,224 |
The Fund 17
STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Long-Term Municipal | Coupon | Maturity | Principal | ||
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
| Wisconsin (continued) | |||||
| Badger Tobacco Asset | |||||
| Securitization Corporation, | |||||
| Tobacco Settlement Asset-Backed | |||||
| Bonds (Prerefunded) | 7.00 | 6/1/12 | 14,570,000 | b | 16,490,909 |
| Wisconsin Health and Educational | |||||
| Facilities Authority, Revenue | |||||
| (Aurora Health Care, Inc.) | 6.40 | 4/15/33 | 4,000,000 | 3,830,160 | |
| U.S. Related—.4% | |||||
| Puerto Rico Commonwealth, | |||||
| Public Improvement GO | 5.50 | 7/1/32 | 1,500,000 | 1,362,525 | |
| Total Long-Term Municipal Investments | |||||
| (cost $575,208,079) | 545,445,022 | ||||
| Short-Term Municipal | |||||
| Investment—.2% | |||||
| Idaho; | |||||
| Idaho Health Facilities Authority, | |||||
| Revenue (Saint Luke’s Regional | |||||
| Medical Center Project) | |||||
| (Insured; FSA and Liquidity | |||||
| Facility; Bank of Montreal) | |||||
| (cost $700,000) | 0.50 | 6/1/09 | 700,000 | h | 700,000 |
| Total Investments (cost $575,908,079) | 150.1% | 546,145,022 | |||
| Cash and Receivables (Net) | 1.0% | 3,716,332 | |||
| Preferred Stock, at redemption value | (51.1%) | (186,000,000) | |||
| Net Assets Applicable to Common Shareholders | 100.0% | 363,861,354 | |||
| a Security issued with a zero coupon. Income is recognized through the accretion of discount. |
| b These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are |
| collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on |
| the municipal issue and to retire the bonds in full at the earliest refunding date. |
| c Securities exempt from registration under Rule 144A of the Securities Act of 1933.These securities may be resold in |
| transactions exempt from registration, normally to qualified institutional buyers.At May 31, 2009, these securities |
| amounted to $15,039,967 or 4.1% of net assets applicable to Common Shareholders. |
| d Inverse floater security—the interest rate is subject to change periodically. |
| e Purchased on a delayed delivery basis. |
| f Collateral for floating rate borrowings. |
| g Non-income producing—security in default. |
| h Variable rate demand note—rate shown is the interest rate in effect at May 31, 2009. Maturity date represents the |
| next demand date, or the ultimate maturity date if earlier. |
| i At May 31, 2009, the fund had $93,249,752 or 25.6% of net assets applicable to Common Shareholders invested |
| in securities whose payment of principal and interest is dependent upon revenues generated from health care projects. |
18
| Summary of Abbreviations | |||
| ABAG | Association of Bay Area Governments | ACA | American Capital Access |
| AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company |
| AMBAC | American Municipal Bond | ||
| Assurance Corporation | ARRN | Adjustable Rate Receipt Notes | |
| BAN | Bond Anticipation Notes | BIGI | Bond Investors Guaranty Insurance |
| BPA | Bond Purchase Agreement | CGIC | Capital Guaranty Insurance Company |
| CIC | Continental Insurance Company | CIFG | CDC Ixis Financial Guaranty |
| CMAC | Capital Markets Assurance Corporation | COP | Certificate of Participation |
| CP | Commercial Paper | EDR | Economic Development Revenue |
| EIR | Environmental Improvement Revenue | FGIC | Financial Guaranty Insurance |
| Company | |||
| FHA | Federal Housing Administration | FHLB | Federal Home Loan Bank |
| FHLMC | Federal Home Loan Mortgage | FNMA | Federal National |
| Corporation | Mortgage Association | ||
| FSA | Financial Security Assurance | GAN | Grant Anticipation Notes |
| GIC | Guaranteed Investment Contract | GNMA | Government National |
| Mortgage Association | |||
| GO | General Obligation | HR | Hospital Revenue |
| IDB | Industrial Development Board | IDC | Industrial Development Corporation |
| IDR | Industrial Development Revenue | LOC | Letter of Credit |
| LOR | Limited Obligation Revenue | LR | Lease Revenue |
| MFHR | Multi-Family Housing Revenue | MFMR | Multi-Family Mortgage Revenue |
| PCR | Pollution Control Revenue | PILOT | Payment in Lieu of Taxes |
| RAC | Revenue Anticipation Certificates | RAN | Revenue Anticipation Notes |
| RAW | Revenue Anticipation Warrants | RRR | Resources Recovery Revenue |
| SAAN | State Aid Anticipation Notes | SBPA | Standby Bond Purchase Agreement |
| SFHR | Single Family Housing Revenue | SFMR | Single Family Mortgage Revenue |
| SONYMA | State of New York Mortgage Agency | SWDR | Solid Waste Disposal Revenue |
| TAN | Tax Anticipation Notes | TAW | Tax Anticipation Warrants |
| TRAN | Tax and Revenue Anticipation Notes | XLCA | XL Capital Assurance |
The Fund 19
STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Summary of Combined Ratings (Unaudited) | |||||
| Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† |
| AAA | Aaa | AAA | 30.0 | ||
| AA | Aa | AA | 19.7 | ||
| A | A | A | 18.8 | ||
| BBB | Baa | BBB | 15.5 | ||
| BB | Ba | BB | 4.1 | ||
| B | B | B | 4.7 | ||
| CCC | Caa | CCC | .2 | ||
| F1 | MIG1/P1 | SP1/A1 | .1 | ||
| Not Ratedj | Not Ratedj | Not Ratedj | 6.9 | ||
| 100.0 | |||||
| † | Based on total investments. |
| j | Securities which, while not rated by Fitch, Moody’s and Standard & Poor’s, have been determined by the Manager to |
| be of comparable quality to those rated securities in which the fund may invest. | |
| See notes to financial statements. | |
20
| STATEMENT OF ASSETS AND LIABILITIES |
| May 31, 2009 (Unaudited) |
| Cost | Value | |
| Assets ($): | ||
| Investments in securities—See Statement of Investments | 575,908,079 | 546,145,022 |
| Cash | 8,845,448 | |
| Interest receivable | 10,318,254 | |
| Prepaid expenses | 33,358 | |
| 565,342,082 | ||
| Liabilities ($): | ||
| Due to The Dreyfus Corporation and affiliates—Note 2(a) | 303,141 | |
| Payable for investment securities purchased | 9,981,714 | |
| Payable for floating rate notes issued—Note 3 | 5,000,000 | |
| Commissions payable | 17,897 | |
| Dividends payable to Preferred Shareholders | 15,326 | |
| Interest and expense payable related to | ||
| floating rate notes issued—Note 3 | 9,691 | |
| Accrued expenses | 152,959 | |
| 15,480,728 | ||
| Auction Preferred Stock, Series A, B and C, par value | ||
| $.001 per share (7,440 shares issued and outstanding | ||
| at $25,000 per share liquidation value)—Note 1 | 186,000,000 | |
| Net Assets applicable to Common Shareholders ($) | 363,861,354 | |
| Composition of Net Assets ($): | ||
| Common Stock, par value, $.001 per share | ||
| (48,495,729 shares issued and outstanding) | 48,496 | |
| Paid-in capital | 436,239,202 | |
| Accumulated undistributed investment income—net | 4,334,958 | |
| Accumulated net realized gain (loss) on investments | (46,998,245) | |
| Accumulated net unrealized appreciation | ||
| (depreciation) on investments | (29,763,057) | |
| Net Assets applicable to Common Shareholders ($) | 363,861,354 | |
| Common Shares Outstanding | ||
| (110 million shares of $.001 par value Common Stock authorized) | 48,495,729 | |
| Net Asset Value, per share of Common Stock ($) | 7.50 | |
| See notes to financial statements. | ||
The Fund 21
| STATEMENT OF OPERATIONS |
| Six Months Ended May 31, 2009 (Unaudited) |
| Investment Income ($): | |
| Interest Income | 17,605,965 |
| Expenses: | |
| Investment advisory fee—Note 2(a) | 1,304,359 |
| Administration fee—Note 2(a) | 652,180 |
| Commission fees—Note 1 | 211,524 |
| Professional fees | 49,346 |
| Registration fees | 35,353 |
| Shareholders’ reports | 34,836 |
| Directors’ fees and expenses—Note 2(b) | 32,772 |
| Interest and expense related to floating rate notes issued—Note 3 | 24,955 |
| Shareholder servicing costs | 17,640 |
| Custodian fees—Note 2(a) | 1,877 |
| Miscellaneous | 28,529 |
| Total Expenses | 2,393,371 |
| Less—reduction in investment advisory fee | |
| due to undertaking—Note 2(a) | (260,872) |
| Net Expenses | 2,132,499 |
| Investment Income—Net | 15,473,466 |
| Realized and Unrealized Gain (Loss) on Investments—Note 3 ($): | |
| Net realized gain (loss) on investments | (11,892,825) |
| Net unrealized appreciation (depreciation) on investments | 44,407,994 |
| Net Realized and Unrealized Gain (Loss) on Investments | 32,515,169 |
| Dividends to Preferred Shareholders | (803,622) |
| Net Increase in Net Assets Resulting from Operations | 47,185,013 |
| See notes to financial statements. | |
22
STATEMENT OF CHANGES IN NET ASSETS
| Six Months Ended | ||
| May 31, 2009 | Year Ended | |
| (Unaudited) | November 30, 2008 | |
| Operations ($): | ||
| Investment income—net | 15,473,466 | 30,793,126 |
| Net realized gain (loss) on investments | (11,892,825) | (7,617,070) |
| Net unrealized appreciation | ||
| (depreciation) on investments | 44,407,994 | (83,043,081) |
| Dividends to Preferred Shareholders | (803,622) | (6,735,329) |
| Net Increase (Decrease) in Net Assets | ||
| Resulting from Operations | 47,185,013 | (66,602,354) |
| Dividends to Common Shareholders from ($): | ||
| Investment income—net | (11,202,514) | (22,696,002) |
| Total Increase (Decrease) in Net Assets | 35,982,499 | (89,298,356) |
| Net Assets ($): | ||
| Beginning of Period | 327,878,855 | 417,177,211 |
| End of Period | 363,861,354 | 327,878,855 |
| Undistributed investment income—net | 4,334,958 | 867,628 |
| See notes to financial statements. | ||
The Fund 23
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements, with respect to common stock and market price data for the fund’s common shares.
| Six Months Ended | ||||||
| May 31, 2009 | Year Ended November 30, | |||||
| (Unaudited) | 2008 | 2007 | 2006 | 2005 | 2004 | |
| Per Share Data ($): | ||||||
| Net asset value, | ||||||
| beginning of period | 6.76 | 8.60 | 9.21 | 8.88 | 8.79 | 8.90 |
| Investment Operations: | ||||||
| Investment income—neta | .32 | .63 | .62 | .64 | .63 | .61 |
| Net realized and unrealized | ||||||
| gain (loss) on investments | .67 | (1.86) | (.59) | .34 | .13 | (.06) |
| Dividends to Preferred | ||||||
| Shareholders from | ||||||
| investment income—net | (.02) | (.14) | (.14) | (.13) | (.08) | (.05) |
| Total from | ||||||
| Investment Operations | .97 | (1.37) | (.11) | .85 | .68 | .50 |
| Distributions to | ||||||
| Common Shareholders: | ||||||
| Dividends from | ||||||
| investment income—net | (.23) | (.47) | (.50) | (.52) | (.59) | (.61) |
| Net asset value, end of period | 7.50 | 6.76 | 8.60 | 9.21 | 8.88 | 8.79 |
| Market value, end of period | 6.96 | 5.53 | 7.77 | 9.29 | 8.16 | 8.41 |
| Total Return (%)b | 30.55c | (24.12) | (1.17) | 9.94 | 3.78 | 2.48 |
24
| Six Months Ended | |||||||
| May 31, 2009 | Year Ended November 30, | ||||||
| (Unaudited) | 2008 | 2007 | 2006 | 2005 | 2004 | ||
| Ratios/Supplemental Data (%): | |||||||
| Ratio of total expenses | |||||||
| to average net assets | |||||||
| applicable to Common Stockd | 1.42e | 1.44 | 1.43 | 1.38 | 1.26 | 1.26 | |
| Ratio of net expenses | |||||||
| to average net assets | |||||||
| applicable to Common Stockd | 1.27e | 1.30 | 1.28 | 1.24 | 1.12 | 1.25 | |
| Ratio of interest and expense | |||||||
| related to floating rate notes | |||||||
| issued to average net assets | |||||||
| applicable to Common Stockd | .01e | .12 | .17 | .12 | .05 | .01 | |
| Ratio of net investment income | |||||||
| to average net assets | |||||||
| applicable to Common Stockd | 9.20e | 7.89 | 7.01 | 7.16 | 6.98 | 6.96 | |
| Ratio of total expenses to | |||||||
| total average net assets | .92e | .98 | 1.00 | .97 | .88 | .88 | |
| Ratio of net expenses to | |||||||
| total average net assets | .82e | .88 | .90 | .87 | .78 | .86 | |
| Ratio of interest and expense | |||||||
| related to floating rate notes | |||||||
| issued to total average net assets | .01e | .08 | .12 | .09 | .04 | .00f | |
| Ratio of net investment income | |||||||
| to total average net assets | 5.93e | 5.34 | 4.90 | 5.01 | 4.88 | 4.84 | |
| Portfolio Turnover Rate | 18.50c | 53.01 | 55.89 | 57.12 | 44.20 | 39.94 | |
| Asset coverage of Preferred Stock, | |||||||
| end of period | 296 | 276 | 324 | 339 | 330 | 328 | |
| Net Assets, net of Preferred Stock, | |||||||
| end of period ($ x 1,000) | 363,861 | 327,879 | 417,177 | 444,599 | 428,466 | 423,556 | |
| Preferred Stock outstanding, | |||||||
| end of period ($ x 1,000) | 186,000 | 186,000 | 186,000 | 186,000 | 186,000 | 186,000 | |
| a | Based on average common shares outstanding at each month end. |
| b | Calculated based on market value. |
| c | Not annualized. |
| d | Does not reflect the effect of dividends to Preferred Stock shareholders. |
| e | Annualized. |
| f | Amount represents less than .01%. |
| See notes to financial statements. | |
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus Strategic Municipal Bond Fund, Inc. (the “fund”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a diversified closed-end management investment company. The fund’s investment objective is to maximize current income exempt from federal income tax to the extent believed by the fund’s investment adviser to be consistent with the preservation of capital. 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. PFPC Global Fund Services (“PFPC”), a subsidiary of PNC Bank (“PNC”), serves as the fund’s transfer agent, dividend-paying agent, registrar and plan agent. The fund’s Common Stock trades on the New York Stock Exchange under the ticker symbol DSM.
The fund has 2,480 outstanding shares of Series A, Series B and Series C, for a total of 7,440 shares of Auction Preferred Stock (“APS”), with a liquidation preference of $25,000 per share (plus an amount equal to accumulated but unpaid dividends upon liquidation).APS dividend rates are determined pursuant to periodic auctions. Deutsche Bank Trust Company Americas, as Auction Agent, receives a fee from the fund for its services in connection with such auctions.The fund also compensates broker-dealers generally at an annual rate of .15%-.25%, as applicable, of the purchase price of the shares of APS placed by the broker-dealer in an auction.
The fund is subject to certain restrictions relating to the APS. Failure to comply with these restrictions could preclude the fund from declaring any distributions to common shareholders or repurchasing common shares and/or could trigger the mandatory redemption of APS at liquidation value.
The holders of the APS, voting as a separate class, have the right to elect at least two directors.The holders of the APS will vote as a separate class on certain other matters, as required by law. The fund has designated Robin A. Melvin and John E. Zuccotti as directors to be elected by the holders of APS.
26
The fund’s financial statements are prepared in accordance with U.S. generally accepted accounting principles, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
The fund enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in municipal debt securities are valued on the last business day of each week and month by an independent pricing service (the “Service”) approved by the Board of Directors. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. Options and financial futures on municipal securities and U.S.Treasury securities are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market on the last business day of each week and month.
The fund adopted Statement of Financial Accounting Standards No. 157 “FairValue Measurements” (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements.
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Various inputs are used in determining the value of the fund’s investments relating to FAS 157.These inputs are summarized in the three broad levels listed below.
| Level 1—quoted prices in active markets for identical investments. |
| Level 2—other significant observable inputs (including quoted |
| prices for similar securities, interest rates, prepayment speeds, |
| credit risk, etc.). |
| Level 3—significant unobservable inputs (including the fund’s own |
| assumptions in determining the fair value of investments). |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of May 31, 2009 in valuing the fund’s investments:
| Level 2—Other | Level 3— | |||
| Level 1— | Significant | Significant | ||
| Quoted | Observable | Unobservable | ||
| Prices | Inputs | Inputs | Total | |
| Assets ($) | ||||
| Investments in | ||||
| Securities | — | 546,145,022 | — | 546,145,022 |
| Other Financial | ||||
| Instruments† | — | — | — | — |
| Liabilities ($) | ||||
| Other Financial | ||||
| Instruments† | — | — | — | — |
† Other financial instruments include derivative instruments, such as futures, forward currency exchange contracts, swap contracts and options contracts.Amounts shown represent unrealized appreciation (depreciation), or in the case of options, market value at period end.
In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. 157-4,“Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP 157-4”). FSP 157-4 provides additional guidance for estimating fair value in accordance with FAS 157, when the volume
28
and level of activity for the asset or liability have significantly decreased as well as guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 is effective for fiscal years and interim periods ending after June 15, 2009. Management is currently evaluating the impact the adoption of FSP 157-4 will have on the fund’s financial statement disclosures.
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Interest income, adjusted for accretion of discount and amortization of premium on investments, is earned from settlement date and recognized on the accrual basis. Securities purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date.
The fund has an arrangement with the custodian bank whereby the fund receives earnings credits from the custodian when positive cash balances are maintained, which are used to offset custody fees. For financial reporting purposes, the fund includes net earnings credits, as an expense offset in the Statement of Operations.
(c) Dividends to shareholders of Common Stock (“Common Shareholder(s)”): Dividends are recorded on the ex-dividend date. Dividends from investment income-net are declared and 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 U.S. generally accepted accounting principles.
The Fund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
For Common Shareholders who elect to receive their distributions in additional shares of the fund, in lieu of cash, such distributions will be reinvested at the lower of the market price or net asset value per share (but not less than 95% of the market price) based on the record date’s respective prices. If the net asset value per share on the record date is lower than the market price per share, shares will be issued by the fund at the record date’s net asset value on the payable date of the distribution. If net asset value per share is less than 95% of the market value, shares will be issued by the fund at 95% of the market value. If the market price is lower than the net asset value per share on the record date, PFPC will purchase fund shares in the open market commencing on the payable date and reinvest those shares accordingly.As a result of purchasing fund shares in the open market, fund shares outstanding will not be affected by this form of reinvestment.
On May 28, 2009, the Board of Directors declared a cash dividend of $.0385 per share from investment income-net, payable on June 30, 2009 to Common Shareholders of record as of the close of business on June 11, 2009.
(d) Dividends to Shareholders of APS: Dividends, which are cumulative, are generally reset every 7 days for each Series of APS pursuant to a process specified in related fund charter documents. Dividend rates as of May 31, 2009, for each Series of APS were as follows: Series A–.579%, Series B–.518% and Series C–.579%.These rates reflect the “maximum rates” under the governing instruments as a result of “failed auctions” in which sufficient clearing bids are not received.The average dividend rates for the period ended May 31, 2009 for each Series of APS were as follows: Series A–.859%, Series B–.870% and Series C–.872%.
(e) 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.
30
As of and during the period ended May 31, 2009, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the three-year period ended November 30, 2008 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $33,078,109 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to November 30, 2008. If not applied, $442,201 of the carryover expires in fiscal 2009, $9,253,314 expires in fiscal 2010, $5,474,907 expires in fiscal 2011, $10,957,023 expires in fiscal 2012, $1,427,978 expires in fiscal 2015 and $5,522,686 expires in fiscal 2016.
The tax character of distributions paid to shareholders during the fiscal year ended November 30, 2008 was as follows: tax exempt income $29,424,853 and ordinary income $6,478.The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Investment Advisory Fee, Administration Fee and Other Transactions With Affiliates:
(a) The fee payable by the fund, pursuant to the provisions of an Investment Advisory Agreement with Dreyfus, is payable monthly based on an annual rate of .50% of the value of the fund’s average weekly net assets (including net assets representing auction preferred stock outstanding). The fund also has an Administration Agreement with Dreyfus, a Custody Agreement with the Custodian and a Transfer Agency and Registrar Agreement with PFPC.The fund pays in the aggregate for administration, custody and transfer agency services a monthly fee based on an annual rate of .25% of the value of the fund’s average weekly net assets (including net assets representing
The Fund 31
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
auction preferred stock outstanding). Out-of pocket transfer agency and custody expenses, including custody transaction expenses, are paid separately by the fund.
Dreyfus has agreed through October 31, 2009, to waive receipt of a portion of the fund’s investment advisory fee, in the amount of .10% of the value of the fund’s average weekly net assets (including net assets representing auction preferred stock outstanding). The reduction in investment advisory fee, pursuant to the undertaking, amounted to $260,872 during the period ended May 31, 2009.
The fund compensates The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, under a custody agreement for providing custodial services for the fund. During the period ended May 31, 2009, the fund was charged $1,877 for out-of-pocket and custody transaction expenses, pursuant to the custody agreement.
During the period ended May 31, 2009, the fund was charged $3,291 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: investment advisory fees $347,500, custodian fees $824 and chief compliance officer fees $1,150, which are offset against an expense reimbursement currently in effect in the amount of $46,333.
(b) 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 3—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended May 31, 2009, amounted to $111,917,916 and $94,324,844, respectively.
The fund adopted FASB Statement of Financial Accounting Standards No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires qualitative disclo-
32
sures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. Since the fund held no derivatives during the period ended May 31, 2009, FAS 161 disclosures did not impact the notes to the financial statements.
Inverse Floater Securities: The fund may participate in secondary inverse floater structures in which fixed-rate, tax-exempt municipal bonds purchased by the fund are transferred to a trust.The trust subsequently issues two or more variable rate securities that are collateralized by the cash flows of the fixed-rate, tax-exempt municipal bonds. One or more of these variable rate securities pays interest based on a short-term floating rate set by a remarketing agent at predetermined intervals. A residual interest tax-exempt security is also created by the trust, which is transferred to the fund, and is paid interest based on the remaining cash flow of the trust, after payment of interest on the other securities and various expenses of the trust.
The fund accounts for the transfer of bonds to the trusts as secured borrowings, with the securities transferred remaining in the fund’s investments, and the related floating rate certificate securities reflected as fund liabilities under the caption, “Payable for floating rate notes issued” in the Statement of Assets and Liabilities.
The average amount of borrowings outstanding under the inverse floater structure during the period ended May 31, 2009, was approximately $5,000,000, with a related weighted average annualized interest rate of 1.00%.
At May 31, 2009, accumulated net unrealized depreciation on investments was $29,763,057, consisting of $22,833,436 gross unrealized appreciation and $52,596,493 gross unrealized depreciation.
At May 31, 2009, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
The Fund 33
NOTES
34
The Fund 35
NOTES
36
| 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. | Schedule of 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. | |
| None. | |
| 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 Strategic Municipal Bond Fund, Inc.
| By: | /s/ J. David Officer |
| J. David Officer | |
| President | |
| Date: | July 23, 2009 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| By: | /s/ J. David Officer |
| J. David Officer | |
| President | |
| Date: | July 23, 2009 |
| By: | /s/ James Windels |
| James Windels | |
| Treasurer | |
| Date: | July 23, 2009 |
EXHIBIT INDEX
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940. (EX-99.CERT)
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940. (EX-99.906CERT)