DISCUSSION OF FUND PERFORMANCE (Unaudited) (continued)

Yields climbed especially sharply among short-term securities, causing yield differences to narrow along the market’s maturity spectrum. Lower-rated municipal bonds typically outperformed their higher-quality counterparts over the reporting period.

Credit conditions have remained sound in the strong economy, but several states are facing pressure from underfunded pension systems.

Higher-Yielding Bonds Supported Fund Results

The fund’s performance was supported during the reporting period by ample exposure to higher-yielding revenue-backed bonds. Results were particularly favorable from high yield municipal bonds backed by industrial development projects, continuing care retirement communities (CCRCs), and the states’ settlement of litigation with U.S. tobacco companies. The fund further benefited from its yield curve positioning, particularly an emphasis on securities with intermediate-term maturities.

Disappointments during the reporting period included a relatively long average duration, which made the fund more sensitive to the adverse impact of rising interest rates. The fund’s holdings of higher-quality bonds, such as those backed by essential municipal services, underperformed their lower-rated counterparts. A lack of exposure to distressed Puerto Rico bonds, which rallied from previous weakness, also weighed on the fund’s results. The fund’s leveraging strategy proved less effective than previously as higher short-term interest rates increased borrowing costs.

A Constructive Investment Posture

While sharply lower corporate tax rates could continue to weigh on demand for municipal bonds from institutional investors, modestly lower personal tax rates seem unlikely to dampen demand from individual investors seeking tax-exempt current income, and we expect favorable supply-and-demand dynamics to support municipal bond prices over the foreseeable future. In addition, municipal bonds historically have been less sensitive than U.S. Treasury securities to rising interest rates. Therefore, we have maintained a constructive investment posture, including an emphasis on current income through holdings of higher-yielding revenue bonds with longer maturities and lower credit ratings.

April 16, 2018

¹ Total return includes reinvestment of dividends and any capital gains paid, based upon net asset value per share or market price per share, as applicable. Past performance is no guarantee of future results. Market price per share, net asset value per share, and investment return fluctuate. 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 fund expenses by The Dreyfus Corporation pursuant to an agreement in effect until November 30, 2018, at which time it may be extended, modified, or terminated. Had these expenses not been absorbed, the fund’s return would have been lower.

² Distribution rate per share is based upon dividends per share paid from net investment income during the period, divided by the market price per share at the end of the period, adjusted for any capital gain distributions.

Bonds are subject generally to interest-rate, credit, liquidity, and market risks, to varying degrees. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes, and rate increases can cause price declines. High yield bonds are subject to increased credit risk and are considered speculative in terms of the issuer’s perceived ability to continue making interest payments on a timely basis and to repay principal upon maturity. The use of leverage may magnify the fund’s gains or losses. For derivatives with a leveraging component, adverse changes in the value or level of the underlying asset can result in a loss that is much greater than the original investment in the derivative.

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