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The Massachusetts
Health & Education
Tax-Exempt
Trust
Annual
Shareholder Report
December 31, 1996
Trust Information
American Stock Exchange Symbol MHE
Wall Street Journal Abbrevation MaHlthEducTr
High Common Stock Price (12/6/96) 12.500
Low Common Stock Price (4/17/96) 10.875
Performance Results for the Year
Annual total return based on market price(1) 15.61%
Annual total return based on net asset value (NAV)(2) 4.23%
Net asset value as of 12/31/96 $ 13.01
Closing stock price as of 12/31/96 $12.125
Distribution rate based on the 12/31/96 dividend rate of
($0.060) as a percentage of the
12/31/96 closing stock price(3) 5.94%
Auction Preferred Share dividend rate of 12/31/96(4) 3.15%
The following table indicates the equivalent taxable yield of an
investment based on the current distribution rate of 5.94% and the
Trust's closing stock price of $12.125. 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.
<TABLE>
<CAPTION>
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>
$24,651-$59,750 $41,201-$99,600 28.00% 12.00% 36.64% 9.38%
$59,751-$124,650 $99,601-$151,750 31.00% 12.00% 39.28% 9.78%
$124,651-$271,050 $151,751-$271,050 36.00% 12.00% 43.68% 10.55%
Over $271,050 Over $271,050 39.60% 12.00% 46.85% 11.18%
(1) Assumes an investment on 12/31/95, reinvestment of all distributions for the year ended 12/31/96,
and sale of all shares on 12/31/96 (reinvestment in accordance with the Trust's dividend
reinvestment plan).
(2) Assumes an investment 12/31/95, reinvestment of all distributions for the year ended 12/31/96,
and sale of all shares on 12/31/96, 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 reset periods.
(5) The tax brackets shown are based on 1997 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
We are happy to report that The Massachusetts Health and Education Tax-
Exempt Trust had a total return of 15.6% during the year ended December
31, 1996. That return was the result of a rise in share price from
$11.125 on December 31, 1995 to $12.125 on December 31, 1996, and the
reinvestment of $0.706 per share in dividends.
A seesaw bond environment...
The Trust's excellent performance was especially noteworthy in light of
a difficult investment climate for bond investors. The municipal bond
market was characterized by heightened volatility as investors reacted
to a seesaw interest rate environment and a politically-charged debate
over the possibility of a flat tax.
At the outset of 1996, the economy seemed poised for a slowdown, and the
Federal Reserve appeared ready to revive growth through interest rate
reductions. In January, the Fed lowered the Federal Funds Rate - the
rate banks charge each other for overnight loans and a key short-term
interest rate barometer - to 5.25%. However, it soon became apparent
that the economy was stronger than anticipated and that inflation, while
still at a low level, would bear further watching. Long-term bond yields
climbed steadily higher, reaching their peak in mid-June.
Investors were heartened by economic reports in the second half that
showed a scenario of slow growth, low inflation, and nearly-full
employment. In addition, the budget deficit, which had ballooned in the
1980s and had been so long the bane of fixed-income investors, fell to
just 1.5% of gross domestic product. Against that favorable backdrop,
the bond market rallied to close the year at higher levels than at mid-
year.
Municipal supply will remain modest in 1997...
According to the Public Securities Association, state and local
governments sold roughly $183 billion in securities in 1996, and will
sell approximately the same volume in 1997. That is sharply lower than
the supply levels for 1995 and earlier. With greatly reduced supply and
increasing competition for bonds, municipal bonds should retain their
value among tax-conscious investors.
Municipal bonds still represent good value...
We believe an investment in municipal bonds continues to represent good
value for several reasons. First, the nation's economy should continue
to grow at a fairly modest pace in 1997, which is favorable for bonds in
general. Second, due to public demand, it is increasingly likely that
Congress and the Clinton Administration will make progress toward a
balanced budget. Third, with the equity markets having turned in two
consecutive years of performances well above historical averages,
investors may look for alternatives within the bond markets. Finally,
the tax bite remains large and, for most investors, municipal bonds are
the last remaining vehicle for tax relief. For these reasons, we believe
that the municipal market will continue to be a favored avenue for tax-
conscious investors. The Trust will continue to seek high, tax-free
current income for its shareholders.
Sincerely,
/S/Thomas J. Fetter
Thomas J. Fetter
President
February 10, 1997
Investment Adviser's Letter
Dear Shareholders:
The bond market suffered a difficult year in 1996
as the economy turned in a slightly stronger-than-expected performance.
However, while returns were relatively modest, the municipal market
managed to outperform the taxable market. Discussion of a flat tax was
tabled, while the likelihood of a middle class tax cut appeared
increasingly problematic. Investors again began to recognize the
inherent value of municipal bonds relative to their taxable
counterparts.
The Massachusetts Economy...
The Massachusetts economy remained the pacesetter among the New England
states. Job creation has been swift, with continued strength in
financial services, biotechnology and selected areas of the technology
sector. In addition, the state has fared very well financially, having
recorded a surplus in 1996. As a result of that surplus, the state's
"Rainy Day" fund will generate rebates to taxpayers. Massachusetts
enjoys an investment grade credit rating of A1/A+, according to Moody's
and Standard & Poor's, two prominent rating agencies.
Continuing efforts to add value to the Portfolio...
In our first full year of managing the Portfolio, we have taken
advantage of several Eaton Vance strengths to improve performance and
add value for the future:
* Increasing upside potential: We increased the potential capital
appreciation of the Fund by improving the Portfolio's call protection
and by focusing on discount bonds while deemphasizing par bonds.
* Increased yield: We reduced the Portfolio's weightings in insured
bonds in favor of higher-yielding issues. In an increasingly generic
market climate, that significantly improved the Fund's current income.
* Finding value in non-rated bonds: Quality spreads - the yield
difference between bonds of varying quality - narrowed significantly in
1996. As a result, it is increasingly difficult to find a yield
advantage among investment grade issues. How-ever, select non-rated
bonds - a research specialty at Eaton Vance - offered the Fund
attractive yield opportunities, while permitting us to adhere to our
strict standards of creditworthiness.
As a measure of the Fund's success in 1996, I'm happy to report that the
discount between the Fund's share price and its net asset value narrowed
from 16.0% at December 31, 1995 to 6.8% at December 31, 1996.
Dana Farber: A model investment...
An example of the Portfolio's holdings during the year is an issue for
Dana Farber Cancer Institute. As a world-renowned center for cancer
treatment, Dana Farber is a magnet for research through its affiliation
with major Boston-area hospitals. The Dana Farber issue is an example of
the Portfolio's continuing attempts to focus on those well-regarded
medical institutions that enjoy excellent financial stability and will
likely remain among the elite institutions as the reshuffling continues
in the health care industry.
Sincerely,
/S/ Robert B. MacIntosh,
Robert B. MacIntosh,
Portfolio Manager
February 10, 1997
<TABLE>
<CAPTION>
The Massachusetts Health & Education Tax-Exempt Trust
Portfolio of Investments
December 31, 1996
- -------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Investments -- 100%
- -------------------------------------------------------------------------------------------------------------------------------
Ratings (Unaudited)
- ---------------------
Principal
Standard Amount
Moody's & Poor's (000 Omitted) Security Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education -- 19.6%
Aa AA- $1,600 Massachusetts Health & Education Facilities Authority (HEFA),
Smith College, 5.75%, 7/1/16 $ 1,596,256
Aaa AAA 1,000 Massachusetts HEFA, Massachusetts Institute
of Technology, 5.00%, 7/1/23 908,700
A3 NR 500 Massachusetts Industrial Finance Agency (IFA),
The Park School, 5.90%, 9/1/26 503,305
Baa1 BBB 2,110 Massachusetts IFA, Springfield College, 5.625%, 9/15/10 2,025,199
A3 A- 1,500 Massachusetts IFA, Clark University, 7.00%, 7/1/12 1,614,975
A1 A+ 1,000 Massachusetts IFA, Holy Cross College, 6.45%, 1/1/12 1,095,180
-----------
$ 7,743,615
-----------
General Obligations -- 8.5%
Aa AA- 1,000 Massachusetts Water Pollution Abatement Trust, 6.375%, 2/1/15 $ 1,058,850
A1 A+ 2,000 University of Massachusetts Building Authority, 6.875%, 5/1/14 2,285,000
-----------
$ 3,343,850
-----------
Hospitals -- 20.0%
NR NR 2,330 Massachusetts HEFA, Atlanticare Medical Center, 8.00%, 12/1/13 (5) $ 2,240,272
Aa NR 1,500 Massachusetts HEFA, Daughters of Charity, 6.10%, 7/1/14 1,547,910
A2 A 1,150 Massachusetts HEFA, New England Deaconess Hospital, 6.875%, 4/1/22 1,216,505
NR A- 750 Massachusetts HEFA, Jordan Hospital, 6.875%, 10/1/22 786,263
Baa2 BBB 800 Massachusetts HEFA, Sisters of Providence, 6.625%, 11/15/22 805,496
NR BBB- 400 Massachusetts HEFA, North Adams Hospital, 6.625% 7/1/18 408,868
A1 A 750 Massachusetts HEFA, Dana Farber Cancer Institute, 5.50%, 12/1/27 711,608
-----------
$ 7,716,922
-----------
Industrial Development Revenue -- 3.8%
A3 A- 1,500 Massachusetts IFA, General Motors, 5.55%, 4/1/09 $ 1,507,275
-----------
Insured Education -- 15.1%
Aaa AAA 1,420 Massachusetts HEFA, Boston College, (FGIC), 6.625%, 7/1/21 $ 1,527,906
Aaa AAA 1,765 Massachusetts HEFA, Northeastern University, (MBIA), 6.55%, 10/1/22 1,887,085
Baa2 AAA 1,000 Massachusetts HEFA, Suffolk University, (CLEE), 6.25%, 7/1/12 1,028,830
NR AAA 515 Massachusetts IFA, Assumption College,(CLEE), 6.00%, 7/1/26 521,386
Aaa AAA 1,000 Massachusetts HEFA, Tufts University, (FGIC), 5.95%, 8/15/18 1,020,130
-----------
$ 5,985,337
-----------
Insured Hospitals -- 30.0%
Aaa AAA 1,000 Massachusetts HEFA, University Hospital, (MBIA), 7.25%, 7/1/19 $ 1,095,740
Aaa AAA 1,000 Massachusetts HEFA, North Shore Medical Center, (MBIA), 5.625%, 7/1/14 1,001,080
NR AAA 500 Massachusetts HEFA, Winchester Hospital, (CLEE), 5.80%, 7/1/09 509,485
Aaa AAA 1,000 Massachusetts HEFA, South Shore Hospital, (MBIA), 5.50%, 7/1/20 971,750
NR AAA 750 Massachusetts HEFA, Cape Cod Health System, (CLEE), 5.25%, 11/15/21 702,540
Aaa AAA 250 Massachusetts HEFA, Massachusetts General Hospital,(AMBAC),
5.25%, 7/1/23 236,015
Aaa AAA 800 Massachusetts HEFA, Baystate Medical Center, (FSA), 6.00%, 7/1/26 812,600
Aaa AAA 1,500 Massachusetts HEFA, Baystate Medical Center, (FGIC), 5.00%, 7/1/20 1,372,215
Aaa AAA 1,250 Massachusetts HEFA, Dana Farber Cancer Institute, (FGIC), 6.00%, 12/1/10 1,315,913
NR AAA 595 Massachusetts HEFA, Valley Regional Health System, (CLEE), 5.75%, 7/1/18 589,199
Aaa AAA 500 Massachusetts HEFA, Mt Auburn Hospital, (MBIA), 6.25%, 8/15/14 529,190
Aaa AAA 1,725 Massachusetts HEFA, Addison Gilbert Hospital, (MBIA), 5.75%, 7/1/23 1,722,637
Aaa AAA 1,000 Massachusetts HEFA, Berkshire Health System, (MBIA), 6.00%, 10/1/19 1,027,780
-----------
$11,886,144
-----------
Nursing Homes -- 1.9%
NR NR 750 Massachusetts IFA, Age Institute of Massachusetts, 8.05%, 11/1/25 $ 762,165
-----------
Transportation -- 1.1%
A1 A+ 485 Massachusetts Turnpike Authority, 5.00%, 1/1/20 $ 442,373
-----------
Total Tax-Exempt Investments (identified cost, $37,717,327) $39,387,681
===========
Notes to Portfolio:
(1) Portfolio Overview:
Number of Issues 36
Average Maturity (Years) 20.7
Effective Maturity (Years) 12.9
Average Call (Years) 7.6
Duration (Years) 8.1
Average Rating AA-
Average Coupon 6.25%
(2) Massachusetts HEFA Securities -- At December 31, 1996, the Trust held securities issued by the Massachusetts Health &
Education Facilities Authority (HEFA) with a value of $27,571,973 (representing 70.0% of total investments).
(3) Insured Investments -- The Trust invests primarily in debt securities issued by the Commonwealth of Massachusetts and its
municipalities. 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 December 31, 1996, 45.4% 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 investment in insured securities by financial
institution are as follows:
<CAPTION>
Percentage
of Total
Value Investments
----------- -----------
<S> <C> <C>
Municipal Bond Insurance Association (MBIA) $8,235,262 20.9%
Financial Guaranty Insurance Company (FGIC) 5,236,164 13.3%
College Construction Loan Insurance Corporation (CLEE) 3,351,440 8.5%
Financial Security Assurance Incorporated (FSA) 812,600 2.1%
American Municipal Bond Assurance Corporation, Inc. (AMBAC) 236,015 0.6%
----------- -----------
Total Insured Securities $17,871,481 45.4%
=========== ===========
(4) Summary of Ratings:
Percentage
Number of Total
Ratings of Issues Value Investments
- -------- --------- ----------- -----------
AAA/Aaa 19 $18,780,181 47.7%
AA/Aa 3 4,203,016 10.7%
A/A 9 10,162,484 25.8%
BBB/Baa 3 3,239,563 8.2%
NR 2 3,002,437 7.6%
-- ----------- -----
Total 36 $39,387,681 100.0%
== =========== =====
The ratings indicated are the most recent Moody's and Standard & Poors ratings believed to be available at December 31,
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 December 31, 1996.
(5) Private Placement Security -- Information relating to the initial acquisition and market valuation of the private
placement security is presented below:
<CAPTION>
Acquisition Current Percentage
Cost Cost Value of Net Assets
----------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Massachusetts HEFA,
Atlanticare Medical Center "AMC" $2,450,000 $2,330,000 $2,240,272 5.60%
(acquired 12/15/93) ========== ========== ========== ====
AMC has no outstanding publicly 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.
The accompanying notes are an integral part of the financial statements
</TABLE>
<TABLE>
<CAPTION>
The Massachusetts Health & Education Tax-Exempt Trust
Financial Statements
Statements of Assets and Liabilities
December 31, 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Total Investments, at value (identified cost, $37,717,327) $39,387,681
Interest receivable 842,270
Deferred organization expenses 5,699
-----------
Total assets $40,235,650
-----------
Liabilities:
Due to Bank $ 147,403
Accrued Trustees' fees 5,625
Accrued expenses and other liabilities 43,867
-----------
Total liabilities $ 196,895
-----------
Net Assets $40,038,755
===========
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; unlimted 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 (3,648,789)
Undistributed net investment income 45,854
Unrealized appreciation of investments 1,670,354
-----------
Net Assets $40,038,755
===========
Net assets applicable to preferred shareholders:
Auction preferred shares at liquidation value $10,000,000
Cumulative undeclared dividends 5,179
-----------
$10,005,179
Net assets applicable to common shareholders 30,033,576
-----------
Total $40,038,755
===========
Net asset value per common share ($30,033,576 divided by 2,307,763
common shares issued and outstanding) $13.01
======
The accompanying notes are an integral part of the financial statements
</TABLE>
<TABLE>
<CAPTION>
Statements of Operations
For the Year Ended December 31, 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Interest income $2,407,638
----------
Expenses:
Investment advisory fee (Note 4) $ 137,273
Administration fee (Note 4) 57,016
Trustees fees (Note 4) 22,500
Custodian and tranfer agent fees 56,136
Legal and auditing services 44,424
Preferred share remarketing agent fee 25,067
Rating agency fees 13,000
Printing and postage 11,588
Exchange membership fees 7,500
Preferred shares auction agent fees 5,188
Amortization of organization expenses 3,609
Miscellaneous 9,744
----------
Total operating expenses 393,045
Deduct -- Reduction of custodian fees 4,844
----------
Net operating expenses 388,201
----------
Net Investment Income $2,019,437
----------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss from investment transactions $ (3,793)
Net change in unrealized appreciation of investments (593,126)
----------
Net Loss on Investments $ (596,919)
----------
Net Increase in Net Assets Resulting from Operations $1,422,518
==========
The accompanying notes are an integral part of the financial statements
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------------
Year Ended
December 31,
--------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 2,019,437 $ 1,932,581
Net realized loss from investment transactions (3,793) (711,583)
Net change in unrealized appreciation of investments (593,126) 5,184,179
----------- -----------
Net increase in net assets from operations 1,422,518 6,405,177
----------- -----------
Dividends and Distributions:
Preferred Shareholders
From net investment income (307,103) (340,334)
Distributions in excess of net investment income -- (7,916)
Common Shareholders
From net investment income (1,629,252) (1,592,247)
Distributions in excess of net investment income -- (37,034)
----------- -----------
Total dividends and distributions to shareholders (1,936,355) (1,977,531)
----------- -----------
Net Increase (Decrease) in Net Assets (513,837) 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 $45,854 and ($40,881), respectively $40,038,755 $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 each period
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
1996 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(b)
------- ------- ------- -------
Investment Operations:
Net investment income 0.88(i) 0.84 0.88 0.26
Net realized and unrealized gain(loss) on investments (0.27) 1.94 (2.87) 0.39
------- ------- ------- -------
Total from investment operations 0.61 2.78 (1.99) 0.65
------- ------- ------- -------
Less Distributions:
Preferred Shareholders:
From net investment income (0.13) (0.15)(g) (0.12) --
Common Shareholders:
From net investment income (0.71) (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 (0.84) (0.86) (0.93) (0.26)
------- ------- ------- -------
Preferred share offering costs -- -- -- (0.13)(c)
------- ------- ------- -------
Net asset value, end of period (Common shares) $ 13.01 $ 13.24 $ 11.32 $ 14.24
======= ======= ======= =======
Per share market value, end of period (Common shares) $12.125 $11.125 $10.375 $15.500
======= ======= ======= =======
Total investment return at market value 15.61% 14.12% (28.66%) 5.04%
======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000 omitted) $40,039 $40,553 $36,125 $42,850
Ratios: (as a percentage of average total net assets)
Expenses (h) 1.00% 1.17%(f) 1.02%(f) 1.16%(e)(f)
Expenses, after expense reductions (h) 0.98% -- -- --
Net investment income 5.12% 5.01%(f) 5.25%(f) 4.19%(e)(f)
Ratios: (as a percentage of average common net assets)
Expenses (d)(h) 1.34% 1.58%(f) 1.37%(f) 1.21%(e)(f)
Expenses, after expense reductions (d)(h) 1.32% -- -- --
Net investment income (d) 6.86% 6.75%(f) 7.08%(f) 4.36%(e)(f)
Portfolio turnover rate 44% 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 costs 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 reflects the Trust's leveraged capital structure.
(e) Annualized.
(f) Reflects expense waivers by the Advisor, Administrator, and Shareholder Servicing Agent during the periods. 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 expense ratios for the year ended December 31, 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.
(i) Computed using average shares outstanding throughout the period.
The accompanying notes are an integral part of the financial statements
</TABLE>
Notes to Financial Statements
December 31, 1996
(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. Futures and options on futures contracts
traded on an exchange will be valued at last settlement price. 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 using 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 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, 1996, the Trust for federal income tax purposes had a
capital loss carryover of $3,531,544, which will reduce taxable income
arising from future net realized gain 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 ($2,365,891), and December 31, 2003 ($1,165,653).
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 IBT's fee are reported as a
reduction of expenses on 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.
(2) Auction Preferred Shares
The Trust currently has 200 Auction Preferred Shares outstanding. 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). On September 3, 1996, Standard & Poor's became the
Rating Agent for the Trust's Auction Preferred Shares, issuing an
initial rating of AAA.
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 Standard & Poor's. 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 December 31, 1996, there were no such
restrictions on the Trust.
(3) Distributions to Shareholders
Distributions to common shareholders are recorded on the ex-dividend
date and are paid on the last business day of each month. On December
10, 1996, the Trustees declared a monthly income dividend to the Trust's
common shareholders of $0.061 per share. The dividend is payable on
January 31, 1997 to shareholders of record on January 15, 1997, 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. The
applicable dividend rate for the Auction Preferred Shares on December
31, 1996 was 3.15%. For the year ended December 31, 1996, the Trust paid
dividends to Auction Preferred shareholders amounting to $307,103,
representing an average Auction Preferred Share dividend rate for such
period of 3.07%.
The Trust distinguishes between distributions on a tax basis and a
financial reporting basis. Generally accepted accounting principles
require that only distributions in excess of tax basis earnings and
profits be reported in the financial statements as a return of capital.
Differences in the recognition of or classification of income between
the financial statements and tax earnings and profits which result in
temporary over distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains. Permanent differences between book and
tax accounting relating to distributions are reclassified to paid in
capital. During the year ended December 31, 1996, $3,653 was
reclassified from accumulated net realized loss on investment
transactions to undistributed net investment income due to permanent
differences between book and tax accounting for market discount. Net
investment income, net realized gains and net assets were not affected
by these reclassifications.
(4) Investment Advisory Fees and Transactions with Affiliates
The Trust has entered into an Advisory Agreement with Eaton Vance
Management ("Eaton Vance"), under which Eaton Vance will furnish the
Trust with investment research and advisory services. For the year ended
December 31, 1996, the fee paid for such services amounted to $137,273
and was equivalent to 0.35% 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 year ended December 31, 1996, the fee paid for such services
amounted to $57,016 and was equivalent to 0.15% of the average daily net
assets of the Trust, including net assets attributable to any Auction
Preferred Shares outstanding. During the year ended December 31, 1996,
Eaton Vance was obligated to waive all or a portion of its
Administration fee so that the normal annual operating expenses of the
Trust would not exceed 1.00% of average daily net assets for the year.
During the year ended December 31, 1996, the normal annual operating
expenses of the Trust amounted to 0.98% of average daily net assets,
therefore no fee waiver was necessary. For the year ending December 31,
1997, a fee waiver will be implemented if the Trust's normal annual
operating expenses exceed 0.95% of the Trust's average daily net assets.
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. One Trustee elected to waive his fee
for the year ended December 31, 1996.
(5) Securities Transactions
Purchases and sales (including maturities) of portfolio securities during
the year ended December 31, 1996, aggregated $17,297,369 and $17,245,334,
respectively. There were no purchases and sales of short-term municipal
securities during the year ended December 31, 1996.
The identified cost and unrealized appreciation (depreciation) in value
of the investments owned by the Trust at December 31, 1996, as computed
for federal income tax purposes, were as follows:
Identified cost $37,865,737
===========
Gross unrealized appreciation $ 1,686,617
Gross unrealized depreciation 164,673
-----------
Net unrealized appreciation $ 1,521,944
===========
(6) Capital Transactions
The Declaration of Trust allows the Trustees to issue an unlimited
number of $0.01 par value shares of common stock. At December 31, 1996,
the Trust had 2,307,763 common shares issued and outstanding. There were
no capital transactions during the two years ended December 31, 1996 and
1995.
<TABLE>
<CAPTION>
(7) Quarterly Results from 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
September 30, 1996 604 0.26 514 0.22 449 0.20 963 0.42 11.875 11.375
December 31, 1996 602 0.26 490 0.22 496 0.20 986 0.42 12.500 11.875
--------------------------------------------------------------------------
$2,408 $1.04 $2,019 $0.88 ($597) ($0.27) $1,422 $0.61
--------------------------------------------------------------------------
</TABLE>
The Massachusetts Health & Education Tax-Exempt Trust
Report of Independent Accountants
To the Trustees and Shareholders of
The Massachusetts Health & Education Tax-Exempt Trust
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments (except for bond ratings), and
the related statements of operations and of changes in net assets and
the financial highlights present fairly, in all material respects, the
financial position of The Massachusetts Health & Education Tax-Exempt
Trust (the "Trust") at December 31, 1996, the results of its operations
for the year then ended, the changes in its net assets and financial
highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31,
1996 by correspondence with the custodian, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
February 7, 1997
The Massachusetts Health & Education Tax-Exempt Trust
Other Information
From time to time in the future, the Trust may effect redemptions and/or
repurchases of its Auction Preferred Shares as provided in the
applicable constituent instruments or as agreed upon by the Trust and
holders of Auction Preferred Shares. The Trust would effect such
redemptions and/or repurchases to the extent necessary to maintain
applicable asset coverage requirements.
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 at the above address. 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
Investment Management
EV Massachusetts
Health & Education
Tax-Exempt Trust
24 Federal Street
Boston, MA 02110
Officers
Thomas J. Fetter, CFA
President
Robert B. MacIntosh, CFA
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 and Chairman
& CEO of 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., and 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
1-800-553-1916
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
