Dreyfus Massachusetts Tax Exempt Bond Fund
ANNUAL REPORT
May 31, 1999
<PAGE>
The views expressed herein are current to the date of this report. These views
and the composition of the fund's portfolio are subject to change at any time
based on market and other conditions.
* Not FDIC-Insured
* Not Bank-Guaranteed
* May Lose Value
Year 2000 Issues (Unaudited)
The fund could be adversely affected if the computer systems used by The Dreyfus
Corporation and the fund's other service providers do not properly process and
calculate date-related information from and after January 1, 2000. The Dreyfus
Corporation is working to avoid Year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by Year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.
<PAGE>
Contents
THE FUND
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2 Letter from the President
3 Discussion of Fund Performance
6 Fund Performance
7 Statement of Investments
11 Statement of Assets and Liabilities
12 Statement of Operations
13 Statement of Changes in Net Assets
14 Financial Highlights
15 Notes to Financial Statements
19 Report of Independent Auditors
20 Important Tax Information
FOR MORE INFORMATION
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Back Cover
<PAGE>
Dreyfus Massachusetts
Tax Exempt Bond Fund The Fund
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this annual report for Dreyfus Massachusetts Tax
Exempt Bond Fund, covering the 12-month period from June 1, 1998 through May 31,
1999. Inside, you'll find valuable information about how the fund was managed
during the reporting period, including a discussion with the fund's portfolio
manager, Joseph Darcy.
Lower short-term interest rates adopted by the Federal Reserve Board and other
central banks in the fall of 1998 appear to have helped many U.S. businesses
withstand the effects of economic weakness in Japan, Asia and Latin America. At
the same time, the U.S. economy has entered its eighth year of expansion in an
environment characterized by low inflation and high levels of consumer spending.
Tax-exempt fixed-income securities generally provided good results relative to
taxable U.S. Treasury securities over the past year. This was especially true
during much of the second half of the reporting period. While prices of U.S.
Treasury securities declined significantly over the first five months of 1999, a
lack of new issuance relative to robust investor demand supported most municipal
bond prices.
We appreciate your confidence over the past year, and we look forward to your
continued participation in Dreyfus Massachusetts Tax Exempt Bond Fund.
Sincerely,
/s/ Stephen E. Canter
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
June 14, 1999
2
<PAGE>
DISCUSSION OF FUND PERFORMANCE
Joseph Darcy, Portfolio Manager
How did Dreyfus Massachusetts Tax Exempt Bond Fund perform during the period?
The fund produced a 3.87% total return over the one-year period ended May 31,
1999,1 compared to a 3.35% total return for the average of the Lipper
Massachusetts Municipal Debt Funds category.2
We attribute the fund's performance to the effects of higher intermediate- and
long-term interest rates over the second half of the reporting period, which
caused a modest decline in the fund's share price. In addition, because of
changes in supply-and-demand influences during the last six months of 1999,
returns of the intermediate-term municipal bonds in which the fund primarily
invested during the period generally lagged those of long-term municipal bonds.
What is the fund's investment approach?
The fund's goal is to seek a high level of double tax-exempt income from a
diversified portfolio of municipal bonds from Massachusetts issuers. We also
seek to provide a competitive total return.
In pursuit of these objectives, we employ two primary strategies. First, we
attempt to add value by evaluating interest rate trends and supply-and-demand
factors. Based on that assessment, we select the individual tax-exempt bonds
that we believe are most likely to provide the highest returns with the least
risk. We look at such criteria as the bond's yield, price, age, the
creditworthiness of its issuer, and any provisions for early redemption.
Second, we actively manage the portfolio's average duration -- a measure of
sensitivity to changes in interest rates -- in anticipation of temporary
supply-and-demand changes. If we expect the supply of newly issued bonds to
increase temporarily, we may reduce the portfolio's average duration to make
cash available for the purchase of higher yielding securities. Conversely,
if we expect demand for municipal
The Fund 3
<PAGE>
DISCUSSION OF FUND PERFORMANCE (continued)
bonds to surge at a time when we anticipate little issuance, we may increase
the portfolio's average duration to maintain current yields for as long as
practical. At other times, we try to maintain a "neutral" average duration of
about seven years.
What other factors influenced the fund's performance?
When the Asian currency and credit crisis spread to Russia and threatened Latin
America last summer and fall, investors flocked to U.S. Treasury securities. As
a result, yields on taxable U.S. Treasury bonds fell briefly in October to
levels that were roughly equivalent to yields on comparable tax-exempt bonds.
However, the Federal Reserve Board and other central banks moved quickly to
stimulate global economic growth. They did so last fall by reducing key
short-term interest rates. Because lower short-term interest rates were expected
to stimulate economic growth and potentially reignite inflationary pressures,
yields on longer-term bonds rose. However, the extent of that rise was much
greater for taxable U.S. Treasury securities than for municipal bonds.
In addition, because of strong economic conditions, Massachusetts and its
municipalities have had less need to borrow. As a result, 15% fewer tax-exempt
bonds were issued in Massachusetts over the 12-month reporting period than in
the prior 12-month period. Yet, demand from Massachusetts investors seeking
double tax-free investment income has remained high. This imbalance between
supply and demand helped municipal bond prices decline less than U.S. Treasury
bond prices.
What is the fund's current strategy?
We have continued to search for the most attractive values in Massachusetts'
municipal bond market. We have found such values, in our opinion, in very high
quality bonds. Because the differences in yields between the highest quality
bonds and lower quality bonds have been narrow by historical standards, we see
little reason to assume the added credit risk lower-rated bonds entail. In
addition, we have continued to monitor our existing holdings with an eye toward
identifying potential credit problems as early as possible.
4
<PAGE>
After maintaining the fund's average duration toward the short end of neutral in
a rising interest-rate environment -- a position designed to capture higher
yields as they became available -- we recently extended the fund's average
duration toward the long end of its range. In our view, this position should
help us lock in prevailing yields if the economy begins to slow and interest
rates begin to decline from current levels. We have also remained vigilant in
our efforts to identify tactical opportunities in anticipation of any
supply-and-demand imbalances.
June 14, 1999
1 Total return includes reinvestment of dividends and any capital gains paid.
Past performance is no guarantee of future results. Share price 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 shareholders. Capital
gains, if any, are fully taxable.
2 Source: Lipper Analytical Services, Inc.
The Fund 5
<PAGE>
FUND PERFORMANCE
$21,054
Lehman Brothers
Municipal Bond Index*
$19,580
Dreyfus Massachusetts
Tax Exempt Bond Fund
Comparison of change in value of $10,000 investment in the fund and the Lehman
Brothers Municipal Bond Index
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Average Annual Total Returns as of 5/31/99
1 Year 5 Years 10 Years
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Fund 3.87% 6.41% 6.95%
* Source: Lehman Brothers
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus Massachusetts Tax
Exempt Bond Fund on 5/31/89 to a $10,000 investment made in the Lehman Brothers
Municipal Bond Index on that date. All dividends and capital gain distributions
are reinvested.
The fund invests primarily in Massachusetts municipal securities and its
performance shown in the line graph takes into account fees and expenses. The
Lehman Brothers Municipal Bond Index is not limited to investments principally
in Massachusetts municipal obligations and does not take into account charges,
fees and other expenses. The Lehman Brothers Municipal Bond Index, unlike the
fund, is an unmanaged total return performance benchmark for the long-term,
investment-grade, geographically unrestricted tax exempt bond market,
calculated by using municipal bonds selected to be representative of the
municipal market overall. These factors can contribute to the Index potentially
outperforming or underperforming the fund. Further information relating to fund
performance, including expense reimbursements, if applicable, is contained in
the Financial Highlights section of the Prospectus and elsewhere in this
report.
6
<PAGE>
STATEMENT OF INVESTMENTS
May 31, 1999
<TABLE>
<CAPTION>
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Principal
Long-Term Municipal Investments--98.6% Amount ($) Value ($)
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<S> <C> <C>
Massachusetts--95.3%
Amesbury:
5.25%, 3/15/2011 (Insured; FGIC) 1,120,000 1,161,518
5.25%, 3/15/2012 (Insured; FGIC) 1,010,000 1,040,573
5.25%, 3/15/2013 (Insured; FGIC) 1,110,000 1,138,916
5.25%, 3/15/2014 (Insured; FGIC) 1,085,000 1,108,696
Barnstable 4.75%, 3/15/2017 2,645,000 2,538,856
Boston - Mount Pleasant Housing Development Corporation,
MFHR 6.75%, 8/1/2023 (Insured; FHA) 1,620,000 1,718,026
Haverhill 5%, 6/15/2017 (Insured; FGIC) 1,500,000 1,474,590
Lynn 5%, 2/15/2017 (Insured; MBIA) 2,360,000 2,320,352
Mansfield, Municipal Purpose Loan 5.125%, 8/15/2017
(Insured; FGIC) 1,685,000 1,676,963
Mashpee, Municipal Purpose Loan 5.50%, 2/1/2017
(Insured; MBIA) 2,525,000 2,608,199
Massachusetts Bay Transportation Authority, General
Transportation System:
6.20%, 3/1/2016 4,225,000 4,782,489
4.50%, 3/1/2026 (Insured; MBIA) 2,500,000 2,200,950
Massachusetts Development Finance Agency, Revenue:
(Regis College) 5.25%, 10/1/2018 1,240,000 1,185,502
(Boston University) 5.45%, 5/15/2059 2,500,000 2,454,450
Massachusetts Education Loan Authority, Education
Loan Revenue
8%, 6/1/2002 (LOC; Rabobank Nederland) 447,000 457,460
Massachusetts Educational Financing Authority, Education
Loan Revenue
5.125%, 12/1/2014 (Insured; MBIA) 3,000,000 2,985,390
Massachusetts Federal Highway Grant 5.125%, 6/15/2015 2,500,000 2,503,975
Massachusetts Health and Educational Facilities Authority,
Revenue:
(Brandeis University) 4.75%, 10/1/2028 (Insured; MBIA) 2,500,000 2,287,625
(Massachusetts General Hospital):
6.25%, 7/1/2020 (Insured; AMBAC)
(Prerefunded; 7/1/2003)a 3,500,000 3,855,985
6%, 7/1/2015 (Insured; AMBAC)
(Prerefunded; 7/1/2003)a 2,000,000 2,184,720
(Massachusetts Institute of Technology) 5.20%, 1/1/2028 5,000,000 5,078,350
(Mclean Hospital) 6.50%, 7/1/2010 (Insured; FGIC)
(Prerefunded; 7/1/2002)a 1,000,000 1,093,820
</TABLE>
The Fund 7
<PAGE>
STATEMENT OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
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Principal
Long-Term Municipal Investments (continued) Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Massachusetts (continued)
Massachusetts Health and Educational Facilities Authority,
Revenue (continued):
(Medical Academic & Scientific) 6.625%, 1/1/2015 3,000,000 3,249,210
(Mount Auburn Hospital) 6.30%, 8/15/2024
(Insured; MBIA) 5,000,000 5,489,350
(New England Medical Center Hospitals) 6.50%, 7/1/2012
(Insured; FGIC) 2,000,000 2,162,600
(Newton - Wellesley Hospital) 5.875%, 7/1/2015
(Insured; MBIA) 2,000,000 2,125,440
(Baystate Medical Center) 6%, 7/1/2015 (Insured; FGIC) 1,140,000 1,204,410
(Daughters of Charity) 6.10%, 7/1/2014 1,100,000 1,174,701
(Milton Hospital) 7%, 7/1/2016 (Insured; MBIA) 1,000,000 1,053,080
(Sisters Providence Health System) 6.625%, 11/15/2022
(Prerefunded; 11/15/2004)a 3,510,000 3,893,257
Massachusetts Housing Finance Agency, Revenue:
Housing Projects:
6.30%, 10/1/2013 (Insured; AMBAC) 1,000,000 1,064,290
6.375%, 4/1/2021 4,300,000 4,573,566
Multi-Family Residential Housing 9.60%, 8/1/2022 1,725,000 1,738,265
Rental Housing:
6.65%, 7/1/2019 (Insured; AMBAC) 2,385,000 2,562,325
6.50%, 7/1/2025 (Insured; AMBAC) 1,500,000 1,609,515
6.45%, 1/1/2036 (Insured; AMBAC) 2,135,000 2,291,175
6%, 7/1/2037 (Insured; AMBAC) 2,650,000 2,770,973
Single-Family Housing 6.35%, 6/1/2017 2,700,000 2,875,797
Massachusetts Industrial Finance Agency, Revenue:
(Babson College):
5.375%, 10/1/2017 2,125,000 2,167,075
5.25%, 10/1/2027 3,200,000 3,160,256
Electrical Utility (Nantucket Electric Co.) 8.50%, 3/1/2016 2,820,000 2,989,623
(Holy Cross College):
6%, 11/1/2002 400,000 427,136
6.375%, 11/1/2015 (Prerefunded; 11/1/2002)a 2,000,000 2,194,620
(Merrimack College) 5%, 7/1/2017 (Insured; MBIA) 1,000,000 983,010
(Ogden Haverhill Project) 5.60%, 12/1/2019 1,000,000 987,400
Parking Facility (Avon Associates LLC) 5.375%, 4/1/2020
(Insured; MBIA) 2,000,000 2,015,780
(Phillips Academy) 5.375%, 9/1/2023 4,330,000 4,402,831
(Worcester Polytechnic Institute) 5.125%, 9/1/2017
(Insured; MBIA) 1,000,000 995,230
Massachusetts Municipal Wholesale Electric Company,
Power Supply System Revenue:
6.40%, 7/1/2002 400,000 424,760
6.125%, 7/1/2019 (Insured; MBIA) 1,000,000 1,075,080
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
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Principal
Long-Term Municipal Investments (continued) Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Massachusetts (continued)
Massachusetts Port Authority, Revenue:
Special Facilities (US Air Project) 5.75%, 9/1/2016
(Insured; MBIA) 5,000,000 5,241,550
Special Project (Harborside Hyatt) 10%, 3/1/2026 8,000,000 8,707,200
Massachusetts Turnpike Authority, Metropolitan Highway
System Revenue:
5.25%, 1/1/2017 (Insured; MBIA) 6,215,000 6,258,940
Zero Coupon, 1/1/2028 (Insured; MBIA) 24,000,000 5,311,680
Massachusetts Water Pollution Abatement Trust:
(Pool Loan Program) 5.625%, 2/1/2017 5,000,000 5,219,600
Water Pollution Abatement Revenue 4.75%, 2/1/2021
(Insured; FGIC) 1,945,000 1,806,788
Massachusetts Water Resources Authority 4.50%, 8/1/2022
(Insured; FSA) 2,500,000 2,224,050
Methuen 5.125%, 5/15/2015 (Insured; FGIC) 1,665,000 1,672,359
North Attleborough 5.25%, 3/1/2017 (Insured; AMBAC) 1,680,000 1,692,919
Northampton (School Project Loan Act of 1948)
5.75%, 5/15/2016 (Insured; MBIA) 1,520,000 1,611,094
South Essex Sewerage District
5.25%, 6/15/2018 (Insured; MBIA) 2,720,000 2,732,566
Southbridge 6.375%, 1/1/2012 (Insured; AMBAC) 1,000,000 1,072,070
U.S. Related-3.3%
Guam Airport Authority, Revenue 6.70%, 10/1/2023 3,000,000 3,277,620
Virgin Islands Water and Power Authority, Electric
System Revenue
7.40%, 7/1/2011 (Prerefunded 7/1/2001)a 1,815,000 1,967,804
- -----------------------------------------------------------------------------------------------
Total Investments--(cost $150,829,763) 98.6% 158,314,400
Cash and Receivables (Net) 1.4% 2,267,634
Net Assets 100.0% 160,582,034
</TABLE>
The Fund 9
<PAGE>
STATEMENT OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
Summary of Abbreviations
<TABLE>
<S> <C> <C> <C>
AMBAC American Municipal Bond Assurance LOC Letter of Credit
Corporation MBIA Municipal Bond Investors
FGIC Financial Guaranty Insurance Company Assurance Insurance
FHA Federal Housing Administration Corporation
FSA Financial Security Assurance MFHR Multi-Family Housing Revenue
</TABLE>
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Summary of Combined Ratings (Unaudited)
Fitch or Moody's or Standard & Poor's Value (%)
- --------------------------------------------------------------------------------
AAA Aaa AAA 63.5
AA Aa AA 13.2
A A A 8.9
BBB Baa BBB 7.0
Not Ratedb Not Ratedb Not Ratedb 7.4
100.0
a Bonds which are prerefunded are collateralized by U.S. Government Securities
which are held in escrow and are used to pay principal and interest on the
municipal issue and to retire the bonds in full at the earliest refunding
date.
b Securities which, while not rated by Fitch, Moody's and Standard & Poor's have
been determined by the Manager to be of comparable quality to those rated
securities in which the Fund may invest.
c At May 31, 1999, 29.50% of the fund's net assets are insured by MBIA.
See notes to financial statements.
10
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1999
- --------------------------------------------------------------------------------
Cost Value
- ------------------------------------------------------------------------------
Assets ($):
Investments in securities--See Statement of
Investments 150,829,763 158,314,400
Interest receivable 2,706,910
Prepaid expenses 17,832
161,039,142
Liabilities ($):
Due to The Dreyfus Corporation and affiliates 86,581
Cash overdraft due to Custodian 348,517
Accrued expenses 22,010
457,108
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Net Assets ($) 160,582,034
- ------------------------------------------------------------------------------
Composition of Net Assets ($):
Paid-in capital 152,701,440
Accumulated undistributed investment income--net 65,036
Accumulated net realized gain (loss) on investments 330,921
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4 7,484,637
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Net Assets ($) 160,582,034
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Shares Outstanding
(unlimited number of of $.01 par value shares of
Beneficial Interest authorized) 9,599,226
Net Asset Value, offering and redemption price
per share--Note 3(d) ($) 16.73
See notes to financial statements.
The Fund 11
<PAGE>
STATEMENT OF OPERATIONS
Year Ended May 31, 1999
- --------------------------------------------------------------------------
Investment Income ($)
- --------------------------------------------------------------------------
Interest Income 9,170,824
Expenses:
Management fee--Note 3(a) 976,018
Shareholder servicing costs--Note 3(b) 234,313
Professional fees 43,003
Trustees' fees and expenses--Note 3(c) 21,276
Custodian fees 16,928
Registration fees 12,027
Prospectus and shareholders' reports 11,557
Loan commitment fees--Note 2 565
Miscellaneous 13,405
Total Expenses 1,329,092
Investment Income--Net 7,841,732
- --------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments--Note 4 ($):
Net realized gain (loss) on investments 886,268
Net unrealized appreciation (depreciation) on investments (2,603,874)
Net Realized and Unrealized Gain (Loss) on Investments (1,717,606)
Net Increase in Net Assets Resulting from Operations 6,124,126
See notes to financial statements.
12
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended May 31,
--------------------------------
1999 1998
- --------------------------------------------------------------------------------
Operations ($):
Investment income--net 7,841,732 7,696,276
Net realized gain (loss) on investments 886,268 1,613,125
Net unrealized appreciation (depreciation)
on investments (2,603,874) 4,856,951
Net Increase (Decrease) in Net Assets
Resulting from Operations 6,124,126 14,166,352
- --------------------------------------------------------------------------------
Dividends to Shareholders from ($):
Investment income--net (7,819,249) (7,675,059)
Net realized gain on investments (1,105,107) (15,621)
Total Dividends (8,924,356) (7,690,680)
- --------------------------------------------------------------------------------
Beneficial Interest Transactions ($):
Net proceeds from shares sold 32,759,644 29,221,354
Dividends reinvested 6,642,484 5,583,861
Cost of shares redeemed (36,238,109) (32,442,095)
Increase (Decrease) in Net Assets from
Beneficial Interest Transactions 3,164,019 2,363,120
Total Increase (Decrease) in Net Assets 363,789 8,838,792
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Net Assets ($):
Beginning of Period 160,218,245 151,379,453
End of Period 160,582,034 160,218,245
Undistributed investment income--net 65,036 42,553
- --------------------------------------------------------------------------------
Capital Share Transactions (Shares):
Shares sold 1,917,574 1,734,657
Shares issued for dividends reinvested 389,221 332,552
Shares redeemed (2,127,071) (1,930,393)
Net Increase (Decrease) in Shares Outstanding 179,724 136,816
See notes to financial statements.
The Fund 13
<PAGE>
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.
- --------------------------------------------------------------------------------
Year Ended May 31,
-------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Per Share Data ($):
Net asset value, beginning
of period 17.01 16.31 15.86 16.25 16.03
Investment Operations:
Investment income--net .82 .83 .85 .88 .91
Net realized and unrealized
gain (loss) on investments (.17) .70 .45 (.39) .22
Total from Investment
Operations .65 1.53 1.30 .49 1.13
Distributions:
Dividends from investment
income--net (.82) (.83) (.85) (.88) (.91)
Dividends from net realized
gain on investments (.11) -- -- -- --
Total Distributions (.93) (.83) (.85) (.88) (.91)
Net asset value, end of
period 16.73 17.01 16.31 15.86 16.25
- --------------------------------------------------------------------------------
Total Return (%) 3.87 9.52 8.37 3.06 7.39
- --------------------------------------------------------------------------------
Ratios/Supplemental Data (%):
Ratio of expenses to
average net assets .82 .81 .79 .79 .80
Ratio of net investment income
to average net assets 4.82 4.97 5.27 5.43 5.77
Portfolio Turnover Rate 19.47 28.53 38.29 60.67 38.34
- --------------------------------------------------------------------------------
Net Assets, end of period
($ x 1,000) 160,582 160,218 151,379 151,722 160,750
See notes to financial statements.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus Massachusetts Tax Exempt Bond Fund ("the fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a non-diversified
open-end management investment company. The fund's investment objective is to
provide investors with as high a level of current income exempt from Federal and
Massachusetts income taxes as is consistent with the preservation of capital.
The Dreyfus Corporation (the "Manager") serves as the fund's investment adviser.
The Manager is a direct subsidiary of Mellon Bank, N.A. Premier Mutual Fund
Services, Inc. is the distributor of the fund's shares, which are sold to the
public without a sales charge.
The fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities are valued each business day
by an independent pricing service ("Service") approved by the Board of Trustees.
Investments for which quoted bid prices are readily available and are
representative of the bid side of the market in the judgment of the Service are
valued at the mean between the quoted bid prices (as obtained by the Service
from dealers in such securities) and asked prices (as calculated by the Service
based upon its evaluation of the market for such securities). Other investments
(which constitute a majority of the portfolio securities) are carried at fair
value as determined by the 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.
(b) Securities transactions and investment income: Securities transactions are
recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the identified cost basis. Interest income,
adjusted for amortization of premiums and original issue discounts on
investments, is earned from settlement date and rec-
The Fund 15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
ognized 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.
Under the terms of the custody agreement, the fund received net earnings of
$11,457 during the period ended May 31, 1999 based on available cash balances
left on deposit. Income earned under this arrangement is included in interest
income.
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 gain 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 gain can be offset by capital
loss carryovers, if any, it is the policy of the fund not to distribute such
gain.
(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.
NOTE 2--Bank Line of Credit:
The fund participates with other Dreyfus-managed funds in a $600 million
redemption credit facility (the "Facility") to be utilized for temporary or
emergency purposes, including the financing of redemptions. In connection
therewith, the fund has agreed to pay commitment fees on its pro rata portion
of the Facility. Interest is charged to the fund at rates based on prevailing
market rates in effect
16
<PAGE>
at the time of borrowings. During the period ended May 31, 1999, the fund did
not borrow under the Facility.
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 .60 of 1% of the value of the fund's average
daily net assets and is payable monthly.
(b) Under the Shareholder Services Plan, the fund reimburses Dreyfus Service
Corporation, a wholly-owned subsidiary of the Manager, an amount not to exceed
an annual rate of .25 of 1% of the value of the fund's 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 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. During the period ended May
31, 1999, the fund was charged $139,461 pursuant to the Shareholder Services
Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the
Manager, under a transfer agency agreement for providing personnel and
facilities to perform transfer agency services for the fund. During the period
ended May 31, 1999, the fund was charged $64,644 pursuant to the transfer agency
agreement.
(c) Each trustee who is not an "affiliated person" as defined in the Act
receives from the fund an annual fee of $1,500 and an attendance fee of $250 per
meeting. The Chairman of the Board receives an additional 25% of such
compensation.
(d) A 1% redemption fee is charged and retained by the fund on shares redeemed
within fifteen days following the date of issuance, including redemptions made
through the use of the fund's Exchange privilege. During the period ended May
31, 1999, redemption fees retained by the fund amounted to $4,981.
The Fund 17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 4--Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding
short-term securities, during the period ended May 31, 1999, amounted to
$35,680,588 and $30,804,400, respectively.
At May 31, 1999, accumulated net unrealized appreciation on investments was
$7,484,637, consisting of $8,247,638 gross unrealized appreciation and $763,001
gross unrealized depreciation.
At May 31, 1999, 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).
18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Trustees
Dreyfus Massachusetts Tax Exempt Bond Fund
We have audited the accompanying statement of assets and liabilities of Dreyfus
Massachusetts Tax Exempt Bond Fund, including the statement of investments, as
of May 31, 1999, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and financial highlights for each of the years indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of May 31, 1999 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Dreyfus Massachusetts Tax Exempt Bond Fund at May 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the indicated years, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
July 8, 1999
The Fund 19
<PAGE>
IMPORTANT TAX INFORMATION (Unaudited)
In accordance with Federal tax law, the fund hereby makes the following
designations regarding its fiscal year ended May 31, 1999:
--all the dividends paid from investment income-net are "exempt-interest
dividends" (not subject to regular Federal and, for individuals who are
Massachusetts residents, Massachusetts personal income taxes).
--the fund hereby designates $.1034 per share as a long-term capital gain
distribution of the $.1146 per share paid on December 9, 1998. In addition,
22.88% of the long-term capital gain distribution is not subject to
Massachusetts personal income taxes.
As required by Federal tax law rules, shareholders will receive notification of
their portion of the fund's taxable ordinary dividends (if any) and capital gain
distributions (if any) paid for the 1999 calendar year on Form 1099-DIV which
will be mailed by January 31, 2000.
20
<PAGE>
For More Information
Dreyfus
Massachusetts Tax Exempt
Bond Fund
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agent &
Dividend Disbursing Agent
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Distributor
Premier Mutual Fund Services, Inc.
60 State Street
Boston, MA 02109
To obtain information:
By telephone
Call 1-800-645-6561
By mail Write to:
The Dreyfus Family of Funds
144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144
By E-mail Send your request
to [email protected]
On the Internet Information
can be viewed online or
downloaded from:
http://www.dreyfus.com
(c) 1999, Dreyfus Service Corporation 267AR995
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN DREYFUS MASSACHUSETTS TAX EXEMPT BOND FUND AND
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
EXHIBIT A:
DREYFUS
LEHMAN BROTHERS MASSACHUSETTS
PERIOD MUNICIPAL TAX EXEMPT
BOND INDEX * BOND FUND
5/31/89 10,000 10,000
5/31/90 10,732 10,558
5/31/91 11,813 11,424
5/31/92 12,974 12,638
5/31/93 14,526 14,062
5/31/94 14,884 14,352
5/31/95 16,240 15,412
5/31/96 16,982 15,883
5/31/97 18,389 17,211
5/31/98 20,114 18,851
5/31/99 21,054 19,580
*Source: Lehman Brothers
