The Massachusetts
Health & Education
Tax-Exempt
Trust
[LOGO]
Semi-Annual
Shareholder Report
June 30, 1996
Trust Information
- -----------------------------------------------------------------
American Stock Exchange Symbol MHE
Wall Street Journal Abbreviation MaHlthEducTr
High Common Stock Price (1/25/96) $12.00
Low Common Stock Price (4/17/96) $10.875
- -----------------------------------------------------------------
Performance Results for the Year
Annual total return based on market price(1) 7.63%
Annual total return based on net asset value (NAV)(2) -2.06%
Net asset value as of 6/30/96 $12.59
Closing stock price as of 6/30/96 $11.625
Distribution rate based on the 6/30/96 dividend
rate of($0.059) as a percentage of the 6/30/96
closing stock price(3) 6.09%
Auction Preferred Share dividend rate of 6/30/96(4) 3.244%
<TABLE>
<CAPTION>
The following table indicates the equivalent taxable yield of an
investment based on the current distribution rate of 6.09% and the
Trust's closing stock price of $11.625. If the common shares were
purchased in the market at a price different than the listed closing
stock price, the equivalent taxable yield would differ.
- --------------------------------------------------------------------------------------------------
Taxable Income(5) Federal Massachusetts Combined Equivalent
Single Return Joint Return Tax Rate Tax Rate(6) Tax Rate Taxable Yield (7)(8)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$24,001-$58,150 $40,101-$96,900 28.00% 12.00% 36.64% 9.61%
$58,151-$121,300 $96,901-$147,700 31.00% 12.00% 39.28% 10.03%
$121,301-$263,750 $147,701-$263,750 36.00% 12.00% 43.68% 10.81%
Over $263,750 Over $263,750 39.60% 12.00% 46.85% 11.46%
- --------------------------------------------------------------------------------------------------
(1) Assumes an investment on 12/31/95, reinvestment of all distributions
for the period 12/31/95 through 6/30/96, and sale of all shares on
6/30/95 (reinvestment performance in accordance with the Trust's
dividend reinvestment plan).
(2) Assumes an investment on 12/31/95, reinvestment of all distributions
for the period 12/31/95 through 6/30/96, and sale of all shares on
6/30/96, all at net asset value.
(3) Distribution rate represents the monthly annualized distributions of
the Trust and not the net investment income of the Trust.
(4) See Note 2 to the Financial Statements for more information
concerning Auction Preferred Share dividend periods.
(5) The tax brackets shown are based on 1996 Federal income tax rates.
Actual tax brackets may be higher due to the phaseout of personal
exemptions and limitations on the deductibility of itemized
deductions over certain ranges of income. Your actual bracket will
vary depending on your income, exemptions and deductions. See your
tax adviser.
(6) Massachusetts tax rate applicable to taxable bond interest and
dividends.
(7) The equivalent yield is calculated assuming the combined effective
Federal and state tax bracket, which takes into consideration the
deductibility of state taxes paid but does not take into
consideration the phaseout of personal exemptions for Federal income
tax purposes.
(8) A portion of the Fund's income could be subject to federal
alternative minimum tax.
</TABLE>
President's Letter
Dear Shareholders:
Following an upbeat year in 1995, the bond market has encountered
difficulty in the first half of 1996, as the investment climate has
changed dramatically. With renewed strength in the economy, the market
has faced rising interest rates and continued speculation that the
Federal Reserve will choose to tighten credit in the current year.
The year started favorably, with the Fed following up its December 1995
easing with another such action in January, lowering the Federal Funds
Rate - the rate banks charge each other for overnight loans and a key
short-term interest rate barometer - to 5.25%. Those moves engendered
optimism among investors that rates might continue to
move lower.
That optimism was short-lived, however, as Fed Chairman Alan Greenspan
suggested in Congressional tesimony that, in light of current economic
growth, further rate declines might be an excessive stimulus for the
economy. Subsequent employment data showed that job creation was
exceeding market estimates. While single-month data have been known to
fluctuate widely, the trend for the spring months suggested that the
labor market was indeed tightening. While the Fed has refrained as yet
from hiking interest rates, market sentiment turned more defensive in
the first half.
Despite the market decline, there are several reasons we believe an
investment in municipal bonds continues to represent good value for tax-
conscious investors.
First, while turning in somewhat faster growth than expected, the
nation's economic growth remains modest. First quarter GDP grew at a
mere 2.2% - hardly a robust performance. Second, inflation - the main
nemesis of bond investors - has remained under control in 1996, as
increasing global competition continues to restrain prices for materials
and labor. Finally, many of the political issues that have shadowed the
municipal market in the past year, especially the possibility of a flat
tax, have largely receded from the political debate. There is little
chance that significant reform, in the form of a flat tax, consumption
tax or value-added tax, will be enacted in the foreseeable future.
More fundamentally, the political campaign has shifted the debate in
favor of fiscal restraints as the major parties compete to portray
themselves as fiscally responsible. In the long run, that should be a
positive development for the municipal market, as it makes less likely a
return to the spendthrift ways of the past.
Perhaps most important of all, the tax burden of our citizens is still
extraordinarily high. Municipal bonds remain the best way for most
individuals to relieve that burden and keep more of what they work so
hard to earn.We believe that, despite the occasional market flutter, a
steadfast, long-term outlook is the best way to reap the advantages of
tax-free investing.
Sincerely,
/S/Thomas J. Fetter
Thomas J. Fetter
President
Massachusetts Health & Education
Tax-Exempt Trust
July 17, 1996
Investment Adviser's Letter
Dear Shareholders:
While the bond market in general has not fared well in the first half of
the year, the municipal bond market managed to outperform the taxable
market. One reason for the muni market's outperformance was the fact
that tax-exempt bonds offered very good value relative to taxable bonds.
Supply and demand factors also favored the municipal market. A record
amount of bond calls - nearly $60 billion in June and July alone -
brought a torrent of cash back into the municipal market as investors
sought to redeploy those assets in tax-free bonds. That reinvestment
into the municipal market provided additional support for tax-exempt
bond prices.
The Massachusetts Economy...
The Massachusetts economy continues to do very well, boosted by the
strong growth in the financial services, technology, and bio-science
sectors. The Weld administration and the legislature have worked
together to ensure that Massachusetts provides an attractive climate for
new business and industry. As a result, the Commonwealth has enjoyed
excellent job growth in recent years. The Massachusetts June
unemployment rate remained well below the national rate, marking the
thirty-third such performance in the past 36 months. Job growth in the
Commonwealth has remained swift, with more than 43,000 net new jobs
created in the past year alone. On the strength of this rapid employment
growth, total tax revenues have increased more than 5% during that
period.
Some changes in the Portfolio's structure...
In an effort to add value to the Fund, management has made several
significant changes to the Fund's investment profile:
* Improved call protection: We have improved the call protection of the
Portfolio by eliminating bonds having unfavorable call characteristics.
This makes the Fund less vulnerable to untimely early bond redemptions
and affords the Fund additional upside potential in the event of a
market rally.
* Added diversification: We have reduced the number of insured issues in
the Portfolio in favor of selected lower-rated investment quality bonds
and non-rated bonds. The new mix of bonds should offer better value and
greater opportunity for capital appreciation.
* Increased yield: We have reduced the Portfolio's holdings in bonds
with relatively low yields in favor of higher-yielding issues. That has
significantly improved the "book yield" of the Portfolio and increased
the Fund's current income.
As a measure of the Fund's success to date, I'm happy to report that the
discount between the Fund's share price and its net asset value has
narrowed significantly, from 16% at year-end, when we assumed management
of the Fund, to 7% at June 30, 1996.
Sincerely,
/S/Robert B. MacIntosh
Robert B. MacIntosh
Portfolio Manager
July 17, 1996
<TABLE>
<CAPTION>
The Massachusetts Health & Education Tax-Exempt Trust
Portfolio of Investments
June 30, 1996
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Investments - 100%
- -------------------------------------------------------------------------------------------------------------------------
Ratings (6)
- -----------
Principal
Standard Amount
Moody's & Poor's (000 Omitted) Security Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C>
Education -- 21.4%
Aa AA- $2,000 Massachusetts Health & Education Facilities Authority (HEFA),
Smith College, 5.75%, 7/1/16 $1,969,640
Aaa AAA 1,000 Massachusetts HEFA, Massachusetts Institute of Technology, 5.00%, 7/1/23 876,760
Aa1 AA 850 Massachusetts HEFA, Williams College, 5.50%, 7/1/26 811,623
Baa1 BBB 2,110 Massachusetts Industrial Finance Agency (IFA),
Springfield College, 5.625%, 9/15/10 1,960,570
A A- 1,500 Massachusetts IFA, Clark University, 7.00%, 7/1/12 1,608,405
A1 A+ 1,000 Massachusetts IFA, Holy Cross College, 6.45%, 1/1/12 1,086,670
-----------
$8,313,668
-----------
General Obligations -- 9.0%
A1 A+ $175 Massachusetts Bay Transportation Authority, 5.75%, 3/1/18 $171,169
Aa AA- 1,000 Massachusetts Water Pollution Abatement Trust, 6.375%, 2/1/15 1,038,020
A1 A+ 2,000 University of Massachusetts Building Authority, 6.875%, 5/1/14 (2) 2,282,580
-----------
$3,491,769
-----------
Hospitals -- 19.8%
NR NR $2,390 Massachusetts HEFA, Atlanticare Medical Center, 8.00%, 12/1/13 (7) $2,158,126
Aa NR 1,500 Massachusetts HEFA, Daughters of Charity, 6.10%, 7/1/14 1,513,380
A A 1,150 Massachusetts HEFA, New England Deaconess Hospital, 6.875%, 4/1/22 1,190,595
NR A- 750 Massachusetts HEFA, Jordan Hospital, 6.875%, 10/1/22 772,448
Baa BBB 800 Massachusetts HEFA, Sisters of Providence Hospital, 6.625%, 11/15/22 779,983
NR BBB- 400 Massachusetts HEFA, North Adams Hospital, 6.625%, 7/1/18 (1) 388,960
A1 A 1,000 Massachusetts HEFA, Dana Farber Cancer Inst., 5.50%, 12/1/27 893,540
-----------
$7,697,032
-----------
Industrial Development Revenue -- 3.7%
Baa1 A- $1,500 Massachusetts IFA, General Motors, 5.55%, 4/1/09 $1,454,580
-----------
Insured Education -- 15.1%
Aaa AAA $1,420 Massachusetts HEFA, Boston College, (FGIC), 6.625%, 7/1/21 $1,491,554
Aaa AAA 1,765 Massachusetts HEFA, Northeastern University, (MBIA) 6.55%, 10/1/22 1,864,775
Baa AAA 1,000 Massachusetts HEFA, Suffolk University, (CLEE), 6.25%, 7/1/12 1,017,590
NR AAA 500 Massachusetts HEFA, Suffolk University (CLEE), 5.75%, 7/1/26 478,685
Aaa AAA 1,000 Massachusetts HEFA, Tufts University, (FGIC), 5.95%, 8/15/18 1,005,030
-----------
$5,857,634
-----------
Insured Hospitals -- 29.1%
Aaa AAA $1,000 Massachusetts HEFA, University Hospital, (MBIA), 7.25%, 7/1/19 $1,082,210
Aaa AAA 1,000 Massachusetts HEFA, North Shore Medical Center, (MBIA), 5.625%, 7/1/14 974,070
NR AAA 500 Massachusetts HEFA, Winchester Hospital, (CLEE), 5.80%, 7/1/09 500,370
Aaa AAA 1,000 Massachusetts HEFA, South Shore Hospital, (MBIA), 5.50%, 7/1/21 940,460
NR AAA 750 Massachusetts HEFA, Cape Cod Health System, (CLEE), 5.25%, 11/15/21 669,960
Aaa AAA 800 Massachusetts HEFA, Bay State Medical Center, (FSA), 6.00%, 7/1/26 (1) 793,392
Aaa AAA 1,500 Massachusetts HEFA, Bay State Medical Center, (FGIC), 5.00%, 7/1/20 1,308,795
Aaa AAA 1,250 Massachusetts HEFA, Dana Farber Cancer Inst., (FGIC), 6.00%, 12/1/10 1,290,725
NR AAA 595 Massachusetts HEFA, Valley Regional Health System, (CLEE), 5.75%, 7/1/18 571,349
Aaa AAA 500 Massachusetts HEFA, Mt. Auburn Hospital, (MBIA), 6.25%, 8/15/14 514,680
Aaa AAA 1,725 Massachusetts HEFA, Addison Gilbert Hospital, (MBIA) 5.75%, 7/1/23 1,656,569
Aaa AAA 1,000 Massachusetts HEFA, Berkshire Health System, (MBIA) 6.00%, 10/1/19 1,008,020
-----------
$11,310,600
-----------
Nursing Home -- 1.9%
NR NR $750 Massachusetts IFA, Age Institute of Massachusetts, 8.05%, 11/1/25 $743,190
-----------
Total Tax-Exempt Investments (identified cost $38,143,693) $38,868,473
===========
Notes to Portfolio:
(1) The above designated security was issued as a when-issued security
(2) The above designated securities have been segregated to cover when-issued securities
<CAPTION>
(3) Portfolio Overview:
<S> <C>
Number of Issues 35
Average Maturity (Years) 21.3
Effective Maturity (Years) 15.8
Average Call (Years) 8.2
Duration (Years) 8.9
Average Rating AA-
(4) Massachusetts HEFA Securities -- At June 30, 1996, the Trust held securities issued by the Massachusetts
Health and Education Facilities Authority (HEFA) with a value of $28,523,289, representing 73.4% of total
tax-exempt investments.
(5) Insured Investments -- The Trust invests primarily in debt securities issued by the Commonwealth of
Massachusetts and the Massachusetts Health and Education Facilities Authority. The ability of the issuers
of the debt securities to meet their obligations may be affected by economic developments in a specific
industry or municipality. In order to reduce the risk associated with such economic developments, at June
30, 1996, 44.2% of the securities in the portfolio of investments are backed by bond insurance of various
financial institutions and financial guaranty assurance agencies. The Trust's insured securities by financial
institution are as follows:
<CAPTION>
Percentage
of Total
Value Investments
------------ ------------
<S> <C> <C>
College Construction Loan Insurance
Corporation (CLEE) $ 3,237,954 8.3%
Financial Guaranty Insurance Company (FGIC) 5,096,104 13.1%
Financial Security Assurance Incorporated (FSA) 793,392 2.1%
Municipal Bond Insurance Association (MBIA) 8,040,784 20.7%
------------ ------
Total Insured Securities $17,168,234 44.2%
============ ======
<CAPTION>
(6) Summary of Ratings
Number Percentage of
Ratings of Issues Value Investments
- ------ ------------ ------------ ------------
<C> <C> <C> <C>
AAA/Aaa 18 $18,044,994 46.4%
AA/Aa 4 5,332,663 13.7%
A/A 8 9,459,987 24.3%
BBB/Baa 3 3,129,513 8.1%
NR 2 2,901,316 7.5%
-- ------------ --------
Total 35 $38,868,473 100.0%
== ============ ========
The ratings indicated are the most recent Moody's and Standard & Poor's ratings believed to be available at
June 30, 1996. NR indicates no rating is available for the security. Ratings are generally ascribed to
securities at time of issuance. While the rating agencies may from time to time revise such ratings, they
undertake no responsibility to do so, and the ratings indicated do not necessarily represent ratings the
agencies would ascribe to these securities at June 30, 1996.
(7) Private Placement Security --Information relating to the initial acquisition and market valuation of
the private placement security is presented below:
<CAPTION>
Acquisition Percentage
Cost Value of Net Assets
------------ ------------ ------------
<S> <C> <C> <C>
Massachusetts HEFA, Atlanticare Medical Center "AMC" $2,450,000 $2,158,126 5.52%
(acquired 12/15/93)
AMC has no outstanding publically offered securities of the same class as the private placement security
held by the Trust. The Trust will bear the costs, if any, relating to the disposition of the private
placement security, including costs associated with registering the securities under the Securities Act
of 1933, if necessary.
</TABLE>
<TABLE>
<CAPTION>
The Massachusetts Health & Education Tax-Exempt Trust Financial Statements
Statement of Assets and Liabilities
- -----------------------------------------------------------------------------------------------------------------
June 30, 1996 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Total tax-exempt investments, at value (identified cost, $38,143,693) (Note 1) $38,868,473
Cash 596,004
Interest receivable 791,339
Prepaid expenses 6,454
Deferred organization expenses 7,513
-----------
Total assets $40,269,783
-----------
Liabilities:
Payable for when-issued securities $1,169,727
Accrued Trustees fees 5,625
Accrued expenses and other liabilities 32,863
-----------
Total liabilities 1,208,215
-----------
Net Assets $39,061,568
===========
Net assets were comprised of:
Auction Preferred Shares, $0.01 par value; 400 shares authorized, 200 shares issued
and outstanding at $50,000 per share liquidation preference (Note 2) $10,000,000
Common Shares, $0.01 par value; unlimited number of shares authorized, 2,307,763
shares issued and outstanding 23,078
Additional paid-in capital 31,948,258
Accumulated net realized loss from investment transactions (3,644,972)
Undistributed net investment income 10,424
Unrealized appreciation of investments 724,780
-----------
Net Assets $39,061,568
===========
Net assets applicable to preferred shareholders:
Auction Preferred Shares, at liquidation value $10,000,000
Cumulative undeclared dividends 3,555
-----------
$10,003,555
Net assets applicable to common shareholders 29,058,013
-----------
Total $39,061,568
===========
Net asset value per common share ($29,058,013 divided by 2,307,763
common shares issued and outstanding) $12.59
======
The accompanying notes are an integral part of the financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
- -----------------------------------------------------------------------------------------------------------------
For the Six Month Period Ended June 30, 1996 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Interest income $1,202,035
-----------
Expenses:
Investment advisory fee (Note 4) $67,648
Administration fee (Note 4) 26,767
Trustees fees (Note 4) 11,250
Custodian and transfer agent fees 25,884
Accounting services 15,000
Preferred share remarketing agent fee 12,465
Legal services 6,206
Printing and postage 5,934
AMEX Membership fees 3,750
Preferred shares auction agent fees 2,675
Amortization of organization expenses 1,795
Miscellaneous 9,463
-----------
Total operating expenses $188,837
Deduct -- reduction of custodian fee 2,357
-----------
Net operating expenses 186,480
-----------
Net Investment Income $1,015,555
-----------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss from investment transactions $(3,629)
Net change in unrealized appreciation of investments (1,538,700)
-----------
Net Loss on Investments $(1,542,329)
-----------
Net Decrease in Net Assets Resulting from Operations $(526,774)
===========
The accompanying notes are an integral part of the financial statements
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
June 30, 1996 December 31,
(unaudited) 1995
----------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From operations:
Net investment income $1,015,555 $1,932,581
Net realized loss from investment transactions (3,629) (711,583)
Net change in unrealized appreciation of investments (1,538,700) 5,184,179
----------- -----------
Net increase (decrease) in net assets from operations $(526,774) 6,405,177
----------- -----------
Dividends and Distributions:
Preferred Shareholders
From net investment income $(158,870) (340,334)
Distributions in excess of net investment income -- (7,916)
Common Shareholders
From net investment income (805,380) (1,592,247)
Distributions in excess of net investment income -- (37,034)
----------- -----------
Total dividends and distributions to shareholders ($964,250) (1,977,531)
----------- -----------
Net Increase (Decrease) in Net Assets (1,491,024) 4,427,646
Net Assets:
At beginning of period 40,552,592 36,124,946
----------- -----------
At end of period, including undistributed (distributions in excess of)
net investment income of $10,424 and ($40,881), respectively $39,061,568 $40,552,592
=========== ===========
The accompanying notes are an integral part of the financial statements
</TABLE>
<TABLE>
<CAPTION
Financial Highlights
- --------------------------------------------------------------------------------------------------------
Selected data for a common share outstanding during the period
- --------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, 1996 ----------------------------
(Unaudited) 1995 1994 1993(a)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period (Common Shares) $13.24 $11.32 $14.24 $ 13.98(a)
-------- -------- -------- --------
Investment Operations:
Net investment income 0.44 0.84 0.88 0.26
Net realized and unrealized gain(loss) on investments (0.67) 1.94 (2.87) 0.39
-------- -------- -------- --------
Total from investment operations (0.23) 2.78 (1.99) 0.65
-------- -------- -------- --------
Preferred Shareholders:
From net investment income (0.07) (0.15)(g) (0.12) --
Common Shareholders:
From net investment income (0.35) (0.69) (0.81) (0.21)
Distributions in excess of net investment income -- (0.02) -- --
From net realized gains on investments -- -- -- (0.02)
Distributions required for excise tax purposes in excess of
net realized gains -- -- -- (0.03)
-------- -------- -------- --------
Total distributions (0.42) (0.86) (0.93) (0.26)
-------- -------- -------- --------
-- -- -- (0.13)(c)
-------- -------- -------- --------
Preferred Share Offering Costs $12.59 $13.24 $11.32 $14.24
======== ======== ======== ========
Net Asset Value, end of period (Common Shares)
$11.625 $11.125 $10.375 $15.500
======== ======== ======== ========
Per Share Market Value, end of period (Common Shares)
7.63% 14.12% (28.66%) 5.04%
======== ======== ======== ========
Total Investment Return at Market Value
Net assets, end of period (000 omitted) $39,062 $40,553 $36,125 $42,850
Ratios/Supplemental Data:
Expenses (h) 0.96%(e) 1.17%(f) 1.02%(f) 1.16%(e)(f)
Ratios: (as a percentage of average total net assets)
Net expenses, after fee reductions (h) 0.95%(e) -- -- --
Net investment income 5.19%(e) 5.01%(f) 5.25%(f) 4.19%(e)(f)
Ratios: (as a percentage of average common net assets)
Expenses (d)(h) 1.29%(e) 1.58%(f) 1.37%(f) 1.21%(e)(f)
Net expenses, after fee reductions (d)(h) 1.28%(e) -- -- --
Net investment income (d) 6.96%(e) 6.75%(f) 7.08%(f) 4.36%(e)(f)
Portfolio Turnover Rate 39% 28% 123% 63%
- --------------------------------------------------------------------------------------------------------
The Financial Highlights summarize the impact of net investment income, gains (losses) and distributions on the
Trust's net asset value per common share since the commencement of operations. Additionally, important
relationships between certain financial statement items are expressed in ratio form.
(a) The Trust commenced operations on July 30, 1993.
(b) Net of common share offering cost of $0.07.
(c) Auction Preferred Shares were issued on December 13, 1993.
(d) Ratios do not reflect the effect of dividend payments to preferred shareholders. Ratios to average
common net assets reflect the Trust's leveraged capital structure.
(e) Annualized.
(f) Reflects expense waivers by the Advisor, Administrator, and Shareholder Servicing Agent during the
period. If the Trust had borne all expenses, net investment income per common share for the year ended
December 31, 1995, the year ended December 31, 1994 and the period ended December 31, 1993 would have
decreased by $0.05, $0.04 and $0.01, respectively.
(g) Includes distributions in excess of net investment income of $0.003 per common share.
(h) The annualized expense ratios for the six month period ended June 30, 1996 have been adjusted
to reflect a change in reporting requirements. The new reporting guidelines require the Trust to increase
its expense ratio by the effect of any expense offset arrangements with its service providers. The expense
ratios for each of the three years in the period ended December 31, 1995 have not been adjusted to
reflect this change.
</TABLE>
Notes to Financial Statements
June 30, 1996
(Unaudited)
(1) General Information and Significant
Accounting Policies
The Massachusetts Health & Education Tax-Exempt Trust (the "Trust") is
an entity commonly known as a Massachusetts business trust and is
registered under the Investment Company Act of 1940 as a non-
diversified, closed-end management investment company. The Trust's
investment objective is to earn a high level of current income exempt
from regular Federal income taxes and Massachusetts personal income
taxes consistent with preservation of capital. The Trust seeks to
achieve its objective by investing primarily in "investment grade" tax-
exempt obligations issued by the Massachusetts Health and Education
Facilities Authority on behalf of participating not-for-profit
institutions.
The following is a summary of significant accounting policies followed
by the Trust in the preparation of its financial statements, in
accordance with generally accepted accounting principles.
Securities Valuation. Municipal securities are normally valued at the
mean between the quoted bid and asked prices obtained from a pricing
service. Municipal securities which are not valued by a pricing service
will be valued on the basis of three dealer quotes or, if such quotes
are unavailable, such other available market information. Short-term
obligations, maturing in sixty days or less, are valued at amortized
cost, which approximates value. In the event of unusual market
disruptions affecting valuation, the Pricing Committee of the Trustees
will be consulted.
Securities Transactions. Securities transactions are recorded on a trade
date basis. Realized gains and losses from such transactions are
determined on the specific identification method. Securities purchased
or sold on a when-issued or delayed delivery basis may be settled a
month or more after the transaction date. The securities so purchased
are subject to market fluctuations during this period. To the extent
that when-issued or delayed delivery purchases are outstanding, the
Trust instructs the custodian to segregate assets in a separate account,
with a current value at least equal to the amount of its purchase
commitments.
Interest Income. Interest income is determined on the basis of interest
accrued and discount earned, adjusted for amortization of premium or
discounts on long-term debt securities when required for federal income
tax purposes.
Federal Income Taxes. The Trust has complied and intends to comply with
the requirements of the Internal Revenue Code (the "Code") applicable to
regulated investment companies by distributing substantially all of its
income, including any net realized gains from investments, to
shareholders. Therefore, no federal income tax provision is required. In
addition, the Trust intends to satisfy conditions which will enable it
to designate distributions from the interest income generated by its
investments in municipal securities, which are exempt from regular
federal and Massachusetts income taxes when received by the Trust, as
exempt interest dividends.
At December 31, 1995, the Trust for federal income tax purposes had a
capital loss carryover of $3,644,996, which will reduce taxable income
arising from future net realized gains on investments, if any, to the
extent permitted by the Internal Revenue Code, and thus will reduce the
amount of distributions to shareholders which would otherwise be
necessary to relieve the Trust of any liability for federal income or
excise tax. Such capital loss carryovers will expire on December 31,
2002 ($2,479,343) and December 31, 2003 ($1,165,653).
(1) General Information and Significant
Accounting Policies (continued)
Distributions to Shareholders. Distributions to common shareholders are
recorded on the ex-dividend date. Distributions to preferred
shareholders are recorded daily and are payable at the end of each
dividend period. Each dividend payment period for the Auction Preferred
Shares is generally seven days.
Organization and Offering Costs. Costs incurred by the Trust in
connection with its organization have been capitalized and are being
charged to operations ratably over a period of 60 months. Costs incurred
by the Trust in connection with the offerings of the common shares and
Auction Preferred Shares were recorded as a reduction of capital paid in
excess of par applicable to common shares.
Expense reductions. Investors Bank & Trust Company (IBT), serves the
Trust as its Custodian and Transfer Agent. Pursuant to its service
agreements, IBT receives a fee reduced by credits which are determined
based on the average daily cash balance the Trust maintains with IBT.
All significant credits used to reduce the Trust's custodian fee are
reported as a reduction of expenses in the statement of operations.
Use of Estimates. The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the
reporting period. Actual results could differ from
those estimates.
Interim Financial Information. The interim financial statements relating
to June 30, 1996 and for the six month period then ended have not been
audited by independent certified public accountants, but in the opinion
of the Trust's management, reflect all adjustments consisting only of
normal recurring adjustments necessary for the fair presentation of the
financial statements.
(2) Auction Preferred Shares
The Auction Preferred Shares are redeemable at the option of the Trust
on any dividend payment date at the redemption price of $50,000 per
share, plus an amount equal to any dividends accumulated on a daily
basis unpaid through the redemption date (whether or not such dividends
have been declared).
Under the Investment Company Act of 1940, the Trust is required to
maintain asset coverage of at least 200% with respect to the Auction
Preferred Shares as of the last business day of each month in which any
Auction Preferred Shares are outstanding. Additionally, the Trust is
required to meet more stringent asset coverage requirements under the
terms of the Auction Preferred Shares and in accordance with the
guidelines prescribed by the rating agency. Should these requirements
not be met, or should dividends accrued on the Auction Preferred Shares
not be paid, the Trust may be restricted in its ability to declare
dividends to common shareholders or may be required to redeem certain of
the Auction Preferred Shares. At June 30, 1996, there were no such
restrictions on the Trust.
The dividend rate for the Auction Preferred Shares on June 30, 1996 was
3.244%. For the six month period ended June 30, 1996, the Trust paid
$158,870 in dividends to Auction Preferred Shareholders, representing an
average dividend rate of 3.195% for such period.
(3) Securities Transactions
Purchases and sales (including maturities) of portfolio securities
during the six months ended June 30, 1996, aggregated $15,615,754 and
$15,137,593, respectively. There were no purchases and sales of
investments in short-term municipal securities during the six months
ended June 30, 1996.
The identified cost and unrealized appreciation (depreciation) in value
of the investments owned by the Trust at June 30, 1996, as computed for
federal income tax purposes, were as follows:
Identified cost $38,174,858
============
Gross unrealized appreciation $ 1,140,780
Gross unrealized depreciation 447,165
------------
Net unrealized appreciation$ 693,615
============
(4) Investment Advisory Fees and Transactions with Affiliates
The Trust has entered into an Investment Advisory Agreement with Eaton
Vance Management ("Eaton Vance"), under which Eaton Vance will furnish
the Trust with investment research and advisory services. For the period
ended June 30, 1996, the fee paid for such services was equivalent to
0.35% (annualized) of the average daily net assets of the Trust,
including net assets attributable to any Auction Preferred Shares
outstanding.
In addition, the Trust also entered into an Administration Agreement
with Eaton Vance, under which Eaton Vance will manage and administer the
Trust's business affairs and, in connection therewith, furnish for use
of the Trust, office space and all necessary office facilities,
equipment, and personnel for administering the affairs of the Trust. For
the period ended June 30, 1996, the fee paid for such services was
equivalent to 0.15% (annualized) of the average daily net assets of the
Trust, including net assets attributable to any Auction Preferred Shares
outstanding. Eaton Vance will, from time to time, waive all or a portion
of its Administration fee so that the normal annual operating expenses
of the Trust will not exceed 1.00% of average total daily net assets for
the year ending December 31, 1996. As of June 30, 1996, Eaton Vance has
not made such a waiver.
Trustees who are not affiliates of Eaton Vance, the Commonwealth of
Massachusetts Attorney General's office or Massachusetts Health and
Educational Facilities Authority (the "Authority") are eligible to
receive an annual fee of $7,500.
(5) Capital Transactions
The Declaration of Trust allows the Trustees to issue an unlimited
number of $0.01 par value shares of common stock. At June 30, 1996, the
Trust had 2,307,763 common shares issued and outstanding. There were no
capital transactions during the six months ended June 30, 1996 or the
year ended December 31, 1995.
<TABLE>
<CAPTION>
(6) Quarterly Results form Operations (Unaudited)
- --------------------------------------------------------------------------------------------------------------
Net Realized Net Increase
Gross Net and Unrealized (Decrease) in
Investment Investment Gain (Loss) on Net Assets from Market Price
Income Income Investments Operations on AMEX
- --------------------------------------------------------------------------------------------------------------
Total Per Total Per Total Per Total Per
Quarter Ended (000's) Share (000's) Share (000's) Share (000's) Share High Low
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, 1994 $610 $0.26 $510 $0.22 ($4,118) ($1.79) ($3,608) ($1.57) $15.625 $13.625
June 30, 1994 615 0.27 524 0.23 (48) (0.02) 476 0.21 13.875 12.875
September 30, 1994 605 0.26 488 0.21 (1,231) (0.53) (743) (0.32) 13.250 11.625
December 31, 1994 603 0.26 516 0.22 (1,237) (0.53) (721) (0.31) 11.500 9.625
-------------------------------------------------------------------------
$2,433 $1.05 $2,038 $0.88 ($6,634) ($2.87) ($4,596) ($1.99)
-------------------------------------------------------------------------
March 31, 1995 $605 $0.26 $511 $0.22 $1,939 $0.84 $2,450 $1.06 $11.875 $10.500
June 30, 1995 593 0.26 493 0.21 265 0.12 758 0.33 11.750 10.375
September 30, 1995 595 0.26 495 0.21 650 0.28 1,145 0.49 11.750 10.875
December 31, 1995 592 0.25 434 0.20 1,618 0.70 2,052 0.90 11.500 10.875
-------------------------------------------------------------------------
$2,385 $1.03 $1,933 $0.84 $4,472 $1.94 $6,405 $2.78
-------------------------------------------------------------------------
March 31, 1996 $600 $0.26 $507 $0.22 ($1,533) ($0.66) ($1,026) ($0.44) $12.000 $11.125
June 30, 1996 602 0.26 508 0.22 (9) (0.01) 499 0.21 11.750 10.875
-------------------------------------------------------------------------
$1,202 $0.52 $1,015 $0.44 ($1,542) ($0.67) ($527) ($0.23)
-------------------------------------------------------------------------
</TABLE>
(7) Annual Meeting of Shareholders
The Trust held its annual meeting of Shareholders on April 22, 1996.
2,307,763 common shares and 200 Auction Preferred Shares (APS) were
outstanding on February 28, 1996, the record date for shares eligible to
vote at the meeting. 2,101,415 (91.06% of the record date common shares)
and 186 APS shares (93.00% of the record date APS shares) were
represented at the meeting. The following actions were taken by
shareholders:
Item 1: The election of James F. Carlin, Thomas H. Green, III, Walter B.
Prince, Edward M. Murphy and James M. Storey as Trustees of the Trust.
Messrs. Carlin and Green were designated the Nominees that will
represent the APS shareholders:
Nominees for Trustee Number of Shares
Representing APS Shareholders Affirmative Withheld
- ------------------------------------------------------------------------
James F. Carlin 186 --
Thomas H. Green, III 186 --
Nominees for Trustee Number of Shares
Representing All Shareholders Affirmative Withheld
- ------------------------------------------------------------------------
Walter B. Prince 2,079,416 22,185
Edward M. Murphy 2,079,416 22,185
James M. Storey 2,079,416 22,185
Item 2: The ratification of the selection of Price Waterhouse LLP as
independent certified public accountants to the Trust for the fiscal
year ending December 31, 1996.
Number of Shares
- ------------------------------------------------------------------------
Affirmative 2,087,742
Against 4,170
Abstain 9,689
The Massachusetts Health & Education Tax-Exempt Trust
Dividend Reinvestment Plan
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to
which common shareholders may elect to have dividends and capital gains
distributions reinvested in common shares of the Trust. The Trust
declares dividends out of net investment income, and will distribute
annually net realized capital gains, if any. Common shareholders may
join or withdraw from the Plan at any time.
If you decide to participate in the Plan, Investors Bank & Trust
Company, as your Plan Agent, will automatically invest your dividends
and capital gains distributions in common shares of the Trust in your
account.
How the Plan Works
Under the Plan, participants in the Plan will have their dividends
reinvested in common shares of the Trust on valuation date. If the
market price per common share on valuation date equals or exceeds net
asset value per common share on that date, the Trust will issue new
common shares to participants at the higher of net asset value or 95% of
the market price. If net asset value per common share on valuation date
exceeds the market price per common share on that date, or if the Board
of Trustees should declare a dividend or capital gains distribution
payable to the common shareholders only in cash, the agent will buy
common shares in the open market on the American Stock Exchange, or
elsewhere. If, before the Plan Agent has completed its purchases, the
market price exceeds the net asset value per common share, the average
per share purchase price paid by the Plan Agent may exceed the net asset
value of the Trust's common shares, resulting in the acquisition of
fewer common shares than if the dividend or distribution had been paid
in common shares issued by the Trust.
The Plan Agent maintains all shareholder accounts in the Plan and
furnishes written confirmation of all transactions in the accounts,
including information needed by shareholders for tax records. Common
shares in the account of each Plan participant will be held by the Plan
Agent in noncertificated form in the name of the participant, and each
shareholder's proxy will include those shares received pursuant to the
Plan. Holders of common shares who do not elect to participate in the
Plan will receive all such amounts in cash paid by check mailed directly
to the record shareholder by Investors Bank & Trust Company, as dividend
paying agent.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the
Plan.
Costs of the Plan
The Plan Agent's fees for the handling of the reinvestment of dividends
and distributions will be paid by the Trust. Each participant will pay a
pro rata share of brokerage commissions incurred with respect to the
Plan Agent's open market purchases in connection with the reinvestment
of dividends or capital gains distributions.
Tax Implications
Plan participants will receive tax information annually for personal
records and to help prepare federal income tax returns. The automatic
reinvestment of dividends and
capital gains distributions does not relieve plan participants of any
income tax which may be payable on dividends
or distributions.
Right to Withdraw
Plan participants may withdraw from the Plan at any time by writing to
the Plan Agent, Investors Bank & Trust Company, P.O. Box 1537, MFD23,
Boston MA 02205-1537. If you withdraw, you will receive a share
certificate in your name for all full common shares credited to your
account under the Plan and a cash payment for any fraction of a share
credited to your account. If you desire, the Plan Agent will sell your
shares in the Plan and send you the proceeds of the sale, less brokerage
commissions and a $2.50 service fee.
How to Participate
If you wish to participate in the Plan and your shares are held in your
own name, you may complete the form on the following page and deliver it
to the Plan Agent.
If your shares are held in the name of a brokerage firm, bank, or other
nominee, you should contact your nominee to see if it will participate
in the Plan on your behalf. If you wish to participate in the Plan, but
your brokerage firm, bank or nominee is unable to participate on your
behalf, you should request that your shares be re-registered in your own
name which will enable your participation in the Plan.
Any inquiries regarding the Plan can be directed to Investors Bank &
Trust Company at 1-800-553-1916.
- ------------------------------------------------------------------------
The Massachusetts Health & Education Tax-Exempt Trust
Application for Participation in Dividend Reinvestment Plan
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
This form is for shareholders who hold their common shares in their own
names. If your common shares are held in the name of a brokerage firm,
bank, or other nominee, you should contact your nominee to see if it
will participate in the Plan on your behalf. If you wish to participate
in the Plan, but your brokerage firm, bank or nominee is unable to
participate on your behalf, you should request that your common shares
be re-registered in your own name which will enable your participation
in the Plan.
- ------------------------------------------------------------------------
The following authorization and appointment is given with the
understanding that I may terminate it at any time by terminating my
participation in the Plan as provided in the terms and conditions of the
Plan provided above.
-------------------------------------
Please print exact name on account:
-------------------------------------
Shareholder signature Date
-------------------------------------
Shareholder signature Date
Please sign exactly as your common
shares are registered. All persons
whose names appear on the share
certificate must sign.
YOU SHOULD NOT RETURN THIS FORM IF YOU WISH TO RECEIVE YOUR DIVIDENDS
AND DISTRIBUTIONS IN CASH. THIS IS NOT A PROXY.
The authorization form, when signed, should be mailed to the following
address:
Investors Bank & Trust Company
P.O. Box 1537, MFD23
Boston, MA 02205-1537
EV Massachussetts
Health & Education
Tax-Exempt Trust
24 Federal Street
Boston, MA 02110
Investment Management
Officers
Thomas J. Fetter
President
Robert B. MacIntosh
Vice President and Portfolio Manager
James L. O'Connor
Treasurer
Eric G. Woodbury, Esq.
Secretary
Douglas C. Miller
Assistant Treasurer and Assistant Secretary
Board of Trustees
Walter B. Prince, Esq., Chairman
Partner, Peckham, Lobel, Casey,
Prince & Tye
James F. Carlin
Chairman of the Massachusetts
Board of Higher Education; Chairman and CEO Carlin Consolidated, Inc.
Thomas H. Green III, Esq.
First Assistant Attorney General for the Commonwealth of Massachusetts
Edward M. Murphy
Senior Vice President, Tucker Anthony, Inc., Former Executive Director
of the Massachusetts Health and Education Facilities Authority
James M. Storey, Esq.
Trustee, various investment companies
[THIS PAGE INTENTIONALLY LEFT BLANK]
Address
The Massachusetts Health & Education
Tax-Exempt Trust
24 Federal Street
Boston, Massachusetts 02110
1-800-225-6265
Investment Adviser and Administrator
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Custodian, Transfer Agent,
Dividend Disbursing Agent and Registrar
Investors Bank & Trust Company
P.O. Box 1537, MFD23
Boston, Massachusetts 02205-1537
