<PAGE>
[LOGO]
Investing
for the [Graphic Omitted]
21st
EATON VANCE
============== Century
Mutual Funds
Annual Report December 31, 1997
[Graphic Omitted] MASSACHUSETTS HEALTH &
EDUCATION TAX-EXEMPT TRUST
Eaton Vance
Global Management-Global Distribution
[Graphic Omitted]
<PAGE>
Massachusetts Health & Education Tax-Exempt Trust as of December 31,1997
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LETTER TO SHAREHOLDERS
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[Photo of Thomas J. Fetter]
Thomas J. Fetter,
President
I am happy to report that Massachusetts Health & Education Tax-Exempt Trust had
a total return of 21.6% for the year ended December 31, 1997. That return was
the result of a rise in share price from $12.125 on December 31, 1996 to
$13.9375 on December 31, 1997, and the reinvestment of $0.741 in dividends.
While municipals lagged the Treasury market somewhat due to supply pressures,
the tax-exempt sector nonetheless turned in a strong showing. As a measure of
overall municipal bond market performance, the Lehman Brothers Municipal Bond
Index - a widely recognized, unmanaged index of municipal bonds - had a return
of 9.2% for the year.1
AMID VOLATILE GLOBAL MARKETS, MORE INVESTORS WERE DRAWN TO MUNICIPAL BONDS...
1997 was a very good year for municipal bonds. Against a backdrop of moderate
economic growth and low inflation, investors focused once again on the unique
advantages of municipals, which remain among the best tax-advantaged vehicles.
In addition, the municipal market attracted an increasing number of crossover
investors from other markets. Many investors bought municipals in a flight to
quality as the domestic equity market reached overvalued levels and emerging
markets were caught up in the turmoil of the Asian currency crisis.
A SOUND ECONOMY HAS RESULTED IN IMPROVING MUNICIPAL CREDITS...
The upbeat economic climate of recent years has provided strong support for the
municipal market. Steady job growth has generated increased tax revenues for
states and local issuers. As a result, many areas that were hard-hit in the
recessions of the 1970s and 1980s have since made a significant economic
comeback, a fact reflected in the value of their bonds. We expect to see many
more such stories emerge in the coming year.
1998 SHOULD BRING MORE OPPORTUNITIES FOR MUNICIPAL INVESTORS...
The improvement in the federal budget deficit and continued low inflation has
cheered bond investors, and the bond outlook remains favorable. We will,
however, continue to closely monitor the economy for signs of a pick-up in
inflation or an unexpected worsening of the budget situation, either of which
could prove a setback for the market. As for the tax-exempt market, municipal
bonds currently represent unusual value relative to their taxable counterparts.
At Eaton Vance, we believe that municipals will continue to serve their
traditional function of financing vital public works, while offering good
opportunities for tax-conscious investors.
Sincerely,
/s/ Thomas J. Fetter
Thomas J. Fetter
President
February 9, 1998
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Fund Information
as of December 31, 1997
Performance(2)
- --------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
One Year 13.1%
Life of Fund (7/30/93) 5.8
Average Annual Total Returns (by market value, ASE)
- --------------------------------------------------------------------------------
One Year 21.6%
Life of Fund (7/30/93) 4.2
Five Largest Sector Weightings(3)
- --------------------------------------------------------------------------------
By total net assets
Insured Hospital* 24.1%
Hospital 21.5%
Insured Education* 16.8%
Education 15.2%
General Obligations 8.4%
(1) It is not possible to invest directly in an Average or Index.
(2) Returns are calculated by determining the percentage change in net asset
value or share price with all distributions reinvested.
(3) Five largest sector weightings account for 85.9% of the Portfolio's
investments, determined by dividing the total market value of the holdings
by the total net assets of the Portfolio. Holdings are subject to change.
* Private insurance does not remove the risk of loss of principal associated
with this investment due to changes in market conditions.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
<PAGE>
Massachusetts Health & Education Tax-Exempt Trust as of December 31,1997
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INVESTMENT UPDATE
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[Photo of Robert B. MacIntosh]
Robert B. MacIntosh,
Portfolio Manager
INVESTMENT ENVIRONMENT
- --------------------------------------------------------------------------------
The Economy
o The Massachusetts economy advanced strongly in 1997. Unemployment measured
just 3.8% in December, well below the 4.7% national rate. Financial services
and technology were again the main engines driving the state's economic
growth.
o The nation's inflation rate continued to fall in 1997. The Consumer Price
Index - a widely recognized barometer of inflation at the consumer level -
registered an increase of just 1.7% for the year. Following a modest rate hike
in March, the Federal Reserve maintained a stable interest rate policy through
the remainder of the year.
o According to the Federal Reserve Bank of Boston, the Massachusetts Consumer
Confidence Index reached 126.0 in November 1997. That is the measure's highest
rating since its introduction in 1991.
THE FUND
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MANAGEMENT DISCUSSION
o In a stable interest rate environment, we pursued a constructive strategy. We
reduced our exposure to insured bonds, which are less market sensitive. We
also continued to emphasize call protection to improve the Fund's upside
potential.
o Due to relatively lean issuance for HEFA bonds in 1997, we searched for
opportunities within the secondary market. The Fund focused increasingly on
good underlying credits within the uninsured hospital sector.
o Finally, the Fund was involved in a private placement. In this issue, a
formerly troubled credit, Atlanticare Medical Center, signed an agreement to
affiliate with Partners Healthcare, thus improving management and lowering
operating costs, and resulting in an improvement of the credit.
Performance for the Past Year
o Based on net asset value, the Fund had a total return of 13.1% for the year
ended December 31, 1997. That return was the result of a rise in net asset
value per share from $13.01 on December 31, 1996 to $13.90 on December 31,
1997, and the reinvestment of all distributions.
o Based on the most recent dividend and the December 31 net asset value per
share of $13.90, the Fund had a distribution rate of 5.35%. To equal that in a
taxable investment, a Massachusetts taxpayer in the state and 36% federal tax
bracket (43.68% combined rate) would need 9.61%.
o On December 31, 1997, the Fund's net asset value stood at a 0.29% discount to
the Fund's closing share price on the American Stock Exchange.
YOUR INVESTMENT AT WORK
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MASSACHUSETTS TURNPIKE AUTHORITY
REVENUE BONDS
o These bonds were issued by the Massachusetts Turnpike Authority, operator of
the Commonwealth's largest toll road.
o The Authority recently initiated a reorganization of its toll structures,
funneling toll proceeds toward the benefit of users in specific areas and
projects, including Boston's Central Artery/Third Harbor Tunnel Project.
o As a result of the restructuring, these bonds were upgraded from A to AAA. In
addition, the bonds went from callable to non-callable status. Those
developments each contributed to a significant price appreciation for the
Fund's investment.
o This bond represents a major investment in the Commonwealth's infrastructure
in order to better meet the transportation needs of the next century.
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Mutual fund shares are not insured by the FDIC and are not deposits or other
obligations of, or guaranteed by, any depository institution. Shares are subject
to investment risks, including possible loss of principal invested.
- --------------------------------------------------------------------------------
Portfolio Ratings(1)
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By total net assets
Aaa 45.8%
Aa 12.5%
A 22.1%
Baa 10.8%
Non-Rated 8.1%
Fund Overview(1)
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Number of Issues 39
Average Maturity 20.38 Yrs.
Effective Maturity 9.49
Average Rating AA-
Average Call 7.4 Yrs.
Average Dollar Price $107.31
(1) Because the Fund is actively managed, Portfolio Ratings and Portfolio
Overview are subject to change.
Past performance is no guarantee of future results. The value of an
investment in the Fund will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. In addition, share price is
subject to market influences.
<PAGE>
<TABLE>
Massachusetts Health & Education Tax-Exempt Trust as of December 31, 1977
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PORTFOLIO OF INVESTMENTS
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TAX-EXEMPT INVESTMENTS -- 100.0%
<CAPTION>
RATINGS (UNAUDITED)
- ------------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------
Education - 15.3%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA $1,000 Massachusetts HEFA, Massachusetts Institute of
Technology,
5.00%, 7/1/23 $ 980,230
A3 NR 500 Massachusetts Industrial Finance Agency (IFA),
The Park School,
5.90%, 9/1/26 521,675
Baa1 BBB 2,110 Massachusetts IFA, Springfield College,
5.625%, 9/15/10 2,151,398
A3 A- 1,500 Massachusetts IFA, Clark University,
7.00%, 7/1/12 1,634,130
A1 A+ 1,000 Massachusetts IFA, Holy Cross College,
6.45%, 1/1/12 1,099,580
- --------------------------------------------------------------------------------------------------------------
$ 6,387,013
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Escrowed - 0.5%
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Aaa AAA $ 200 Massachusetts Turnpike Authority,
5.00%, 1/1/20 $ 202,810
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General Obligation - 8.4%
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Aa3 AA+ $1,000 Massachusetts Water Pollution Abatement Trust,
6.375%, 2/1/15 $ 1,099,970
A1 A+ 2,000 University of Massachusetts Building
Authority, 6.875%, 5/1/14 2,417,560
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$ 3,517,530
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Healthcare - 2.5%
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Aa2 NR $1,000 Massachusetts Health & Education Facilities
Authority, Youville House, (AMT),
6.25%, 2/15/41 $ 1,062,560
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Hospitals - 21.7%
- --------------------------------------------------------------------------------------------------------------
NR NR $2,260 Massachusetts HEFA, Atlanticare Medical
Center, 8.00%, 12/1/13 $ 2,564,874
Aa2 NR 1,500 Massachusetts HEFA, Daughters of Charity,
6.10%, 7/1/14 1,614,105
A2 A 1,150 Massachusetts HEFA, New England Deaconess
Hospital, 6.875%, 4/1/22 1,260,377
NR A- 750 Massachusetts HEFA, Jordan Hospital,
6.875%, 10/1/22 821,932
Baa2 BBB 800 Massachusetts HEFA, Sisters of Providence,
6.625%, 11/15/22 854,480
Baa3 BB $1,000 Massachusetts HEFA, Milford-Whitinsville
Hospital, 7.75%, 7/15/17 1,099,090
NR BBB- 400 Massachusetts HEFA, North Adams Hospital,
6.625%, 7/1/18 428,936
Aaa AAA 400 Massachusetts HEFA, Partners Healthcare,
5.375%, 7/1/24 405,312
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$ 9,049,106
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Industrial Development Revenue - 3.6%
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A3 A- $1,500 Massachusetts IFA, General Motors, 5.55%,
4/1/09 $ 1,532,475
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Insured Education - 16.9%
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Aaa AAA $1,420 Massachusetts HEFA, Boston College, (FGIC),
6.625%, 7/1/21 $ 1,546,820
Aaa AAA 1,765 Massachusetts HEFA, Northeastern University,
(MBIA), 6.55%, 10/1/22 1,948,207
Baa AAA 1,000 Massachusetts HEFA, Suffolk University,(CLEE),
6.25%, 7/1/12 1,075,060
Aaa AAA 900 Massachusetts HEFA, Berklee, (MBIA),
5.10%, 10/1/27 887,715
NR AAA 515 Massachusetts IFA, Assumption College, (CLEE),
6.00%, 7/1/26 556,236
Aaa AAA 1,000 Massachusetts HEFA, Tufts University, (FGIC),
5.95%, 8/15/18 1,054,780
- --------------------------------------------------------------------------------------------------------------
$ 7,068,818
- --------------------------------------------------------------------------------------------------------------
Insured Hospitals - 24.3%
- --------------------------------------------------------------------------------------------------------------
Aaa AAA $ 750 Massachusetts HEFA, University Hospital,
(MBIA), 7.25%, 7/1/19 $ 812,978
Aaa AAA 1,000 Massachusetts HEFA, North Shore Medical
Center, (MBIA),
5.625%, 7/1/14 1,051,690
NR AAA 500 Massachusetts HEFA, Winchester Hospital,
(CLEE), 5.80%, 7/1/09 539,445
Aaa AAA 800 Massachusetts HEFA, Baystate Center, (FSA),
6.00%, 7/1/26 868,824
Aaa AAA 1,000 Massachusetts HEFA, Baystate Center, (FGIC),
5.00%, 7/1/20 965,940
Aaa AAA 500 Massachusetts HEFA, Hallmark Health Systems,
(FSA), 5.00%, 7/1/27 486,470
Aaa AAA 1,250 Massachusetts HEFA, Dana Farber Cancer
Institute, (FGIC),
6.00%, 12/1/10 1,362,200
NR AAA 595 Massachusetts HEFA, Valley Regional Health
System, (CLEE),
5.75%, 7/1/18 622,662
Aaa AAA 500 Massachusetts HEFA, Mt. Auburn Hospital,
(MBIA), 6.25%, 8/15/14 550,985
Aaa AAA 1,725 Massachusetts HEFA, Addison Gilbert Hospital,
(MBIA), 5.75%, 7/1/23 1,795,242
Aaa AAA 1,000 Massachusetts HEFA, Berkshire Health System,
(MBIA), 6.00%, 10/1/19 1,082,530
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$10,138,966
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Insured Transportation - 0.8%
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Aaa AAA $ 310 Massachusetts Turnpike Authority, (MBIA),
5.00%, 1/1/20 $ 314,355
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Insured Water & Sewer - 0.5%
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Aaa AAA $ 200 Massachusetts Water Resource Authority,
(MBIA), 5.00%, 3/1/22 $ 194,518
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Nursing Home - 2.0%
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NR NR $ 750 Massachusetts IFA, Age Institute of
Massachusetts, 8.05%, 11/1/25 $ 843,218
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Special Tax - 3.5%
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Aa3 AA $1,500 Massachusetts Special Obligations,
5.00%, 6/1/17 $ 1,481,580
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Total Tax-Exempt Investments - 100.0%
(identified cost $38,194,606) $41,792,949
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO:
(1) Portfolio Overview: (unaudited)
Number of Issues 39
Average Maturity 20.4 yrs.
Effective Maturity 9.5 yrs.
Average Call 7.4 yrs.
Duration 6.4 yrs.
Average Rating AA-
Average Coupon 6.3
(2) Massachusetts HEFA Securities - At December 31, 1997, the Trust held
securities issued by the Massachusetts Health & Education Facilities
Authority (HEFA) with a value of $27,743,444 (representing 66.4% 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, 1997, 42.4% 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
insured securities by financial institution are as follows:
PERCENTAGE
OF TOTAL
VALUE INVESTMENTS
----------- -------------
Municipal Bond Insurance Association (MBIA) $ 8,638,220 20.7%
Financial Guaranty Insurance Company (FGIC) 4,929,740 11.8%
College Construction Loan Insurance Corporation
(CLEE) 2,793,403 6.7%
Financial Security Assurance Incorporated (FSA) $1,355,294 3.2%
----------- -----
Total Insured Securities $17,716,657 42.4%
=========== =====
(4) Summary of Ratings: (unaudited)
PERCENTAGE
NUMBER OF TOTAL
RATINGS OF ISSUES VALUE INVESTMENTS
---------- ------------ -------------
AAA/Aaa 22 $19,305,009 46.2%
AA/Aa 4 5,258,215 12.6%
A/A 7 9,287,729 22.2%
BBB/Baa 4 4,533,904 10.8%
NR 2 3,408,092 8.2%
---------- ------------ -------------
Total 39 $41,792,949 100.0%
========== ============ =============
The ratings indicated are the most recent Moody's and Standard & Poors ratings
believed to be available at December 31, 1997. 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, 1997.
(5) Private Placement Security - Information relating to the initial
acquisition and market valuation of the private placement security is
presented below:
ACQUISITION PERCENTAGE
COST VALUE OF NET ASSETS
---------- ---------- -------------
Massachusetts HEFA, Atlanticare
Medical Center "AMC" (acquired
12/15/93) $2,450,000 $2,564,874 6.09%
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.
<PAGE>
Massachusetts Health & Education Tax-Exempt Trust as of December 31, 1997
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FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1997
Assets
- -------------------------------------------------------------------------------
Total Investments, at value
(identified cost, $38,194,606) $41,792,949
Interest receivable 831,829
Receivable from the Administrator (Note 4) 17,466
Deferred organization expenses 2,099
Other assets 1,944
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TOTAL ASSETS $42,646,287
- -------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------
Payable for securities purchased $ 482,878
Due to Bank 29,375
Accrued expenses and other liabilities 52,361
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TOTAL LIABILITIES $ 564,614
- -------------------------------------------------------------------------------
NET ASSETS $42,081,673
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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, 2,308,508 shares issued and outstanding 23,085
Additional paid-in capital 31,958,400
Accumulated net realized loss from investment transactions (3,536,269)
Undistributed net investment income 38,114
Unrealized appreciation of investments 3,598,343
- -------------------------------------------------------------------------------
NET ASSETS $42,081,673
- -------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO PREFERRED SHAREHOLDERS -
Auction preferred shares, at liquidation value $10,000,000
Cumulative undeclared dividends 1,062
- -------------------------------------------------------------------------------
$10,001,062
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 32,080,611
- -------------------------------------------------------------------------------
TOTAL $42,081,673
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Net Asset value per common share
- -------------------------------------------------------------------------------
($32,080,611 / 2,308,508 common shares issued and outstanding) $ 13.90
- -------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
For the Year Ended
December 31, 1997
Investment Income
- --------------------------------------------------------------------------------
Interest income $2,406,337
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 142,637
Administration fee (Note 4) 61,229
Trustees' fees (Note 4) 30,000
Custodian and transfer agent fees (Note 1) 57,078
Legal and accounting services 42,209
Preferred share remarketing agent fee 24,960
Exchange membership fees 7,500
Preferred shares auction agent fees 5,200
Printing and postage 23,635
Amortization of organization expenses 3,600
Miscellaneous 9,063
- --------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 407,111
- --------------------------------------------------------------------------------
Deduct -
Waiver of expenses by the Administrator (Note 4) $ 17,466
Reduction of custody fees (Note 1) 2,489
- --------------------------------------------------------------------------------
TOTAL $ 19,955
- --------------------------------------------------------------------------------
NET OPERATING EXPENSES $ 387,156
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME $2,019,181
- --------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
on Investments
- --------------------------------------------------------------------------------
Net realized gain from investment transactions $ 112,520
Net change in unrealized appreciation of investments 1,927,989
- --------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS $2,040,509
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,059,690
- --------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
Massachusetts Health & Education Tax-Exempt Trust as of December 31, 1997
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS CONT'D
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
INCREASE (DECREASE) DECEMBER 31, DECEMBER 31,
IN NET ASSETS 1997 1996
- --------------------------------------------------------------------------------
From operations -
Net investment income $ 2,019,181 $ 2,019,437
Net realized gain (loss) from investment
transactions 112,520 (3,793)
Net change in unrealized appreciation
(depreciation) of investments 1,927,989 (593,126)
- -------------------------------------------------------------------------------
Net increase in net assets from
operations $ 4,059,690 $ 1,422,518
- -------------------------------------------------------------------------------
Dividends and Distributions:
Preferred Shareholders -
From net investment income $ (316,776) $ (307,103)
Common Shareholders -
From net investment income (1,710,145) (1,629,252)
- -------------------------------------------------------------------------------
Total dividends and distributions to
shareholders $(2,026,921) $(1,936,355)
- -------------------------------------------------------------------------------
Capital Share Transactions:
Reinvestment of distributions to shareholders $ 10,149 $ --
- -------------------------------------------------------------------------------
Net increase in net assets resulting form
capital share transactions $ 10,149 $ --
- -------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets $ 2,042,918 $ (513,837)
- -------------------------------------------------------------------------------
Net Assets
- -------------------------------------------------------------------------------
At beginning of period $40,038,755 $40,552,592
- -------------------------------------------------------------------------------
At end of period, including undistributed net
investment income of $38,114 and $45,854,
respectively $42,081,673 $40,038,755
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
Massachusetts Health & Education Tax-Exempt Trust as of December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS CONT'D
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A COMMON SHARE OUTSTANDING DURING EACH PERIOD
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period (common shares) $13.01 $13.24 $11.32 $14.24 $13.98(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.88(i) $ 0.88(i) $ 0.84 $ 0.88 $ 0.26
Net realized and unrealized gain (loss) on investments 0.89 (0.27) 1.94 (2.87) 0.39
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 1.77 $ 0.61 $ 2.78 $(1.99) $ 0.65
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Shareholders -
From net investment income $(0.14) $(0.13) $(0.15)(g) $(0.12) $ --
Common Shareholders -
From net investment income (0.74) (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 net realized gains -- -- -- -- (0.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions $(0.88) $(0.84) $(0.86) $(0.93) $(0.26)
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred share offering costs $ -- $ -- $ -- $ -- $(0.13)(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period (Common shares) $13.90 $13.01 $13.24 $11.32 $14.24
- ------------------------------------------------------------------------------------------------------------------------------------
Per share market value, end of period (Common shares) $13.938 $12.125 $11.125 $10.375 $15.500
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return at Market Value 21.63% 15.61% 14.12% (28.66%) 5.04%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $42,082 $40,039 $40,553 $36,125 $42,850
Ratio: (as a percentage of average total net assets)
Expenses(h) 0.96%(f) 1.00% 1.17%(f) 1.02%(f) 1.16%(e)(f)
Expenses, after custodian fee reduction 0.95%(f) 0.98% -- -- --
Net investment income 4.95%(f) 5.12% 5.01%(f) 5.25%(f) 4.19%(e)(f)
Ratios: (as a percentage of average common net assets)
Expenses(d)(h) 1.27%(f) 1.34% 1.58%(f) 1.37%(f) 1.21%(e)(f)
Expenses, after custodian fee reduction(d) 1.26%(f) 1.32% -- -- --
Net investment income(d) 6.57%(f) 6.86% 6.75%(f) 7.08%(f) 4.36%(e)(f)
Portfolio turnover rate 20% 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.
</TABLE>
<PAGE>
Massachusetts Health & Education Tax-Exempt Trust as of December 31, 1997
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS CONT'D
- --------------------------------------------------------------------------------
Financial Highlights
(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 reflects the Trust's
leveraged capital structure.
(e) Annualized.
(f) Reflects expense waivers by the Advisor, Administrator, and/or Shareholder
Servicing Agent during the period. If the Trust had borne all expenses for
the year ended December 31, 1997, net investment income per common share
would have decreased by less than $0.01. If the Trust had borne all
expenses for the year ended December 31, 1995, the year ended December 31,
1994 and the period ended December 31, 1993, net investment income per
common share 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 years ended December 31, 1997 and
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 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.
See notes to financial statements
<PAGE>
Massachusetts Health & Education Tax-Exempt Trust as of December 31, 1997
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
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, 1997, the Trust for federal income tax purposes had a
capital loss carryover of $3,419,024, 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 ($2,253,371) 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).
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 December
31, 1997, 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. 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, 1997 was 3.50%. For the year ended December
31, 1997, the Trust paid dividends to Auction Preferred shareholders
amounting to $316,776, representing an average APS dividend rate for such
period of 3.17%.
4 Investment Advisory Fees and Other 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,
1997, the fee paid for such services amounted to $142,637 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,
1997, the fee paid for such services amounted to $61,229 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. Eaton Vance is
obligated to waive all or a portion of its Administration fee if the normal
operating expenses of the Trust exceed 0.95% of average daily net assets.
During the year ended December 31, 1997, the fee waiver amounted to $17,466.
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 Securities Transactions
- --------------------------------------------------------------------------------
Purchases and sales (including maturities) of portfolio securities during
the year ended December 31, 1997, aggregated $8,281,849 and $7,906,261,
respectively. There were no purchases and sales of short-term municipal
securities during the year ended December 31, 1997.
The identified cost and unrealized appreciation (depreciation) in value of
the investments owned by the Trust at December 31, 1997, as computed for
federal income tax purposes, were as follows:
Identified cost $38,194,606
- -----------------------------------------------------------
Gross unrealized appreciation $ 3,958,343
Gross unrealized depreciation --
- -----------------------------------------------------------
Net unrealized appreciation $ 3,958,343
- -----------------------------------------------------------
6 Capital Transactions
- -------------------------------------------------------------------------------
The Declaration of Trust allows the Trustees to issue an unlimited number of
$0.01 par value shares of common stock. Transactions in common shares were
as follows:
Year Ended December 31,
---------------------------------
1997 1996
- -------------------------------------------------------------------------------
Beginning shares 2,307,763 2,307,763
Shares issues pursuant to the Trust's
dividend reinvestment plan 745 --
- -------------------------------------------------------------------------------
Ending shares 2,308,508 2,307,763
- -------------------------------------------------------------------------------
7 Quarterly Results from Operations (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
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 Low High
- ----------------------------------------------------------------------------------------------------------------------------------
<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
--------------------------------------------------------------------------------------------------------------------------------
March 31, 1997 $ 603 $0.26 $ 509 $0.22 ($ 451) ($0.19) $ 58 $0.03 $12.500 $12.125
June 30, 1997 599 0.26 504 0.22 1,094 0.48 1,598 0.70 12.875 12.125
September 30, 1997 603 0.26 503 0.22 685 0.28 1,189 0.50 13.875 12.750
December 31, 1997 601 0.26 503 0.22 712 0.32 1,215 0.54 14.000 13.250
--------------------------------------------------------------------------------------------------------------------------------
$2,406 $1.04 $2,019 $0.88 $2,040 $0.89 $4,060 $1.77
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Massachusetts Health & Education Tax-Exempt Trust as of December 31, 1997
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
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 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, 1997, 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, 1997 by correspondence with the
custodian and the application of alternative procedures where investments
purchased were not yet received by the custodian, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 6, 1998
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
- --------------------------------------------------------------------------------
<PAGE>
The Massachusetts Health & Education Tax-Exempt Trust as of December 31, 1997
- --------------------------------------------------------------------------------
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
The Massachusetts Health & Education Tax-Exempt Trust
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Officers Board of Trustees
THOMAS J. FETTER, CFA WALTER B. PRINCE, ESQ., CHAIRMAN
President Partner, Peckham, Lobel, Casey, Prince & Tye
ROBERT B. MACINTOSH, CFA JAMES F. CARLIN
Vice President and Chairman of the Massachusetts Board of Higher Education
Portfolio Manager and Chairman & CEO of Carlin Consolidated, Inc.
JAMES L. O'CONNOR THOMAS H. GREEN III, ESQ.
Treasurer First Assistant Attorney General for the Commonwealth of
Massachusetts
ERIC G. WOODBURY, ESQ.
Secretary EDWARD M. MURPHY
Olympus Healthcare Group, Inc., and
Former Executive Director of the
MICHELLE A. ALEXANDER Massachusetts Health & Education Facilities
Assistant Treasurer and Authority
Assistant Secretary
JAMES M. STOREY, ESQ.
Trustee, various investment companies
</TABLE>
<PAGE>
Investment Advisor and Administrator
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Custodian, Transfer Agent,
Dividend Disbursing Agent and Registrar
Investors Bank & Trust Company
200 Clarendon Street, 16th Floor
Boston, MA 02116
The Massachusetts Health & Education Tax-Exempt Trust
24 Federal Street
Boston, MA 02110
- --------------------------------------------------------------------------------
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its
sales charges and expenses. Please read the prospectus carefully before
you invest or send money.
- --------------------------------------------------------------------------------
2/98
