<PAGE>
[EV logo] Investing
for the -----------
21st EDUCATION
Century -----------
[Photo of Brick Wall]
Semiannual Report June 30, 1998
[Photo of highway at night] THE MASSACHUSETTS HEALTH & EDUCATION
TAX-EXEMPT TRUST
Eaton Vance
Global Management-Global Distribution
[Daytime photo of Boston skyline and waterfront]
<PAGE>
The Massachusetts Health & Education Tax-Exempt Trust as of June 30, 1998
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INVESTMENT UPDATE
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[Photo of Robert B. MacIntosh]
- ------------------------------
Robert B. MacIntosh,
Portfolio Manager
INVESTMENT ENVIRONMENT
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THE ECONOMY
o The Massachusetts economy continued to surge in the first half of 1998. The
Commonwealth's June unemployment rate remained well below that of the nation,
at 3.4%. The service sector paced job creation, with business, management,
engineering and finance providing the lion's share of new jobs.
o Inflation remained well under control as the Asian economic difficulties
resulted in slowing demand in some sectors. Not surprisingly, interest rates
moved lower. The yield on the 30-year Treasury bond declined from 5.92% at
December 31, 1997, to 5.63% at June 30, 1998, while 30-year municipal yields
finished unchanged at 5.19%.
o The municipal market underperformed the taxable bond market during the
six-month period. The Lehman Brothers Municipal Bond Index(1) had a return of
2.7%, trailing the 4.2% return for the Lehman Government Bond Index.(1)
THE FUND
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MANAGEMENT DISCUSSION
o In a generally quiet municipal market, management focused on structural
adjustments, including improving the Portfolio's call protection. We continued
to seek value in the non-rated segment of the market, adding an attractive
credit in Forge Hill Assisted Living Project.
o The Fund benefited from the pre-refunding of several issues during the period.
While the prerefunded bonds continued to earn income for the Fund, their new
Treasury-backed status resulted in improved credit quality.
o The Portfolio reduced its position in Massachusetts Turnpike Authority bonds
following the sharp price appreciation in the bonds. Following a restructuring
of the Authority's toll system, the bonds were upgraded and subsequently
performed very well.
PERFORMANCE FOR THE PAST SIX MONTHS
o Based on net asset value, the Fund had a total return of 3.1% for the six
months ended June 30, 1998. That return was the result of a rise in net asset
value from $13.90 on December 31, 1997 to $13.96 on June 30, 1998, and the
reinvestment of all distributions.
o Based on the most recent dividend and the June 30 net asset value per share of
$13.96, the Fund had a distribution rate of 5.33%.(2) To equal that
distribution rate in a taxable investment, a Massachusetts taxpayer in the
combined state and 36% federal tax bracket (43.68% combined rate) would need
9.46%. The Fund's SEC 30-day yield was 4.73% at June 30.(3)
o On June 30, 1998, the Fund's closing price on the American Stock Exchange was
$13.875, representing a 0.61% discount to the Fund's net asset value.
YOUR INVESTMENT AT WORK
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MASSACHUSETTS INDUSTRIAL FINANCE AGENCY COLLEGE OF THE HOLY CROSS
o Holy Cross is a Jesuit-run, coeducational college in Worcester. In recent
years, the 2,500-student institution has consistently ranked among the
nation's leading liberal arts colleges.
o These bonds were issued to finance the construction and renovation of
dormitories, classrooms and office facilities.
o With a 6.45% coupon, the bond provides excellent tax-free income for the
Portfolio.
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(1) It is not possible to invest directly in an Index. (2) The Fund's
distribution rate represents actual distributions paid to shareholders and is
calculated by dividing the last distribution per share (annualized) by the net
asset value. (3)The Fund's SEC yield is calculated by dividing the net
investment income per share for the 30-day period by the net asset value at the
end of the period and annualizing the result. (4) Returns are historical and are
calculated by determining the percentage change in net asset value and share
price with all distributions reinvested. (5) Because the Fund is actively
managed, sector weightings and Portfolio Overview are subject to change. Five
largest industry weightings represent 84.9% of the Portfolio's investments. *
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. In addition, share price is subject to market
influences.
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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.
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FUND INFORMATION
AS OF JUNE 30, 1998
PERFORMANCE(4)
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AVERAGE ANNUAL TOTAL RETURNS (AT NET ASSET VALUE)
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One Year 10.8%
Life of Fund (7/30/93) 5.9
AVERAGE ANNUAL TOTAL RETURNS (BY MARKET VALUE, ASE)
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One Year 13.8%
Life of Fund (7/30/93) 4.3
5 LARGEST SECTORS(5)
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BY TOTAL INVESTMENTS
INSURED HOSPITAL* 25.0%
HOSPITAL 16.3%
EDUCATION 15.3%
INSURED EDUCATION* 14.9%
ESCROWED 13.4%
FUND OVERVIEW(5)
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Number of Issues 40
Average Maturity 19.9 Yrs.
Effective Maturity 8.6
Average Rating A+
Average Call 5.8 Yrs.
Average Dollar Price $107.8
<PAGE>
The Massachusetts Health & Education Tax-exempt Trust as of June 30, 1998
PORTFOLIO OF INVESTMENTS (Unaudited)
<TABLE>
<CAPTION>
TAX-EXEMPT INVESTMENTS -- 100.0%
RATINGS (UNAUDITED) PRINCIPAL
- ----------------------------- AMOUNT
STANDARD (000'S
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------
EDUCATION -- 15.3%
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<S> <C> <C> <C>
Aa1 AA+ $ 400 Massachusetts HEFA, Amherst College,
5.00%, 11/1/28 $ 390,512
NR NR 1,750 Massachusetts HEFA, Wheaton College,
6.00%, 1/1/18 1,752,153
A3 A- 1,500 Massachusetts IFA, Clark University,
7.00% 7/1/12 1,627,170
Baa1 BBB 2,110 Massachusetts IFA, Springfield College,
5.625%, 9/15/10 2,161,252
Baa1 NR 400 Massachusetts IFA, Wentworth Inst of Tech,
5.75%, 10/1/28 407,896
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$ 6,338,983
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Escrowed -- 13.4%
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NR BBB+ $ 750 Massachusetts HEFA, Jordan Hospital,
6.875%, 10/1/22 $ 839,115
Baa3 NR 1,000 Massachusetts HEFA, Milford-Whitinsville
Hospital, 7.75%, 7/15/17 1,148,190
A2 AAA 1,100 Massachusetts HEFA, New
England Deaconess Hospital,
6.875%, 4/1/22 1,222,958
Aaa BBB 800 Massachusetts HEFA, Sisters
of Providence Hospital,
6.625%, 11/15/22 904,840
A1 A+ 1,000 Massachusetts IFA, Holy Cross College,
6.45%, 1/1/12 1,092,440
Aaa NR 160 Massachusetts Turnpike Authority,
5.00%, 1/1/20 160,469
Aaa AAA 200 Massachusetts Turnpike Authority, (MBIA),
5.00%, 1/1/20 201,446
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$ 5,569,458
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General Obligations -- 8.5%
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Aa3 AA+ $1,000 Massachusetts Water
Pollution Abatement Trust,
6.375%, 2/1/15 $ 1,104,380
Aa3 A+ 2,000 University of Massachusetts Building
Authority,
6.875%, 5/1/14 2,425,220
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$ 3,529,600
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Hospitals -- 16.3%
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NR NR $2,225 Massachusetts HEFA, Atlanticare Medical
Center, 8.00%, 12/1/13 $ 2,519,568
Ba1 NR 425 Massachusetts HEFA, Central New England
Health, 6.125%, 8/1/13 441,401
Ba1 NR 175 Massachusetts HEFA, Central New England
Health, 6.300%, 8/1/18 183,010
Aa2 AA+ 1,500 Massachusetts HEFA, Daughters of Charity,
6.10%, 7/1/14 1,621,185
Baa2 BBB- 500 Massachusetts HEFA, Milford-Whitinsville,
5.25%, 7/15/18 491,775
NR BBB- 400 Massachusetts HEFA, North Adams Hospital,
6.625%, 7/1/18 435,904
Aa2 NR 1,000 Massachusetts HEFA, Youville House,
6.25%, 12/15/41 1,069,220
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$ 6,762,063
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INDUSTRIAL DEVELOPMENT REVENUE -- 3.7%
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A3 A $1,500 Massachusetts IFA, General Motors,
5.55%, 4/1/09 $ 1,529,130
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INSURED EDUCATION -- 14.9%
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Aaa AAA $1,420 Massachusetts HEFA, Boston College, (FGIC),
6.625%, 7/1/21 $ 1,539,592
Aaa AAA 1,765 Massachusetts HEFA, Northeastern University,
(MBIA), 6.55%, 10/1/22 1,944,253
Baa AAA 1,000 Massachusetts HEFA,
Suffolk University,(CLEE),
6.25%, 7/1/12 1,072,940
Aaa AAA 1,000 Massachusetts HEFA, Tufts University,
(FGIC), 5.95%, 8/15/18 1,050,550
NR AAA 515 Massachusetts IFA, Assumption College,
(CLEE), 6.00%, 7/1/26 556,622
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$ 6,163,957
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INSURED HOSPITALS -- 25.0%
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Aaa AAA $1,725 Massachusetts HEFA, Addison Gilbert
Hospital, (MBIA), 5.75%, 7/1/23 $ 1,797,036
Aaa AAA 800 Massachusetts HEFA, Baystate Medical Center,
(FSA), 6.00%, 7/1/26 869,376
Aaa AAA 1,000 Massachusetts HEFA, Berkshire Health System,
(MBIA), 6.00%, 10/1/19 1,084,610
Aaa AAA 500 Massachusetts HEFA, Catholic Health East,
(AMBAC), 5.00%, 11/15/28 482,935
Aaa AAA 1,250 Massachusetts HEFA, Dana Farber Cancer
Institute, (FGIC), 6.00%, 12/1/10 1,365,200
Aaa AAA 1,500 Massachusetts HEFA, Hallmark Health Systems,
(FSA), 5.00%, 7/1/27 1,208,225
Aaa AAA 500 Massachusetts HEFA, Mt. Auburn Hospital,
(MBIA), 6.25%, 8/15/14 550,575
Aaa AAA 1,000 Massachusetts HEFA, North Shore Medical
Center, (MBIA), 5.625%, 7/1/14 1,049,879
NR AAA 595 Massachusetts HEFA, Valley Regional Health
System, (CLEE), 5.75%, 7/1/18 623,935
Aaa AAA 750 Massachusetts HEFA, University Hospital,
(MBIA), 7.25%, 7/1/19 805,200
NR AAA 500 Massachusetts HEFA, Winchester Hospital,
(CLEE), 5.80%, 7/1/09 540,965
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$ 10,377,936
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LIFE CARE -- 0.8%
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NR NR $ 350 Massachusetts IFA, Forge Hill, 6.75%, 4/1/30 $ 338,426
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NURSING HOME -- 2.1%
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NR NR $ 750 Massachusetts IFA, Age Institute of
Massachusetts, 8.05%, 11/1/25 $ 847,687
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TOTAL TAX-EXEMPT INVESTMENTS -- 100%
(identified cost $38,016,626) $ 41,457,240
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</TABLE>
Notes to Portfolio:
1. Portfolio Overview:
Number of Issues 40
Average Maturity (Years) 19.9 Yrs.
Effective Maturity (Years) 8.6 Yrs.
Average Call (Years) 5.8 Yrs.
Duration (Years) 5.7 Yrs.
Average Rating A+
2. Health and Educational Obligors - At June 30 1998, the Trust held securities
issued by health and educational obligors with a value of $36,937,276
(representing 89.1% of total investments), including securities issued by the
Massachusetts Health & Education Facilities Authority (HEFA) with a value of
$29,005,102 (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 June 30, 1998,
40.4% 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
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Municipal Bond Insurance Association (MBIA) $ 7,432,999 17.9%
Financial Guaranty Insurance Company (FGIC) 3,955,342 9.6%
College Construction Loan Insurance
Corporation (CLEE) 2,794,462 6.7%
Financial Security Assurance Incorporated
(FSA) 2,077,601 5.0%
AMBAC Financial Group Inc. (AMBAC) 482,935 1.2%
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Total Insured Securities $16,743,399 40.4%
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4. Summary of Ratings:
Percentage
Number of Total
Ratings of Issues Value Investments
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AAA/Aaa 20 $19,031,606 46.0%
AA/Aa 5 6,610,517 15.9%
A/A 3 4,248,740 10.2%
BBB/Baa 6 5,484,132 13.2%
BB/Ba 2 624,411 1.5%
NR 4 5,457,834 13.2%
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Total 40 $41,457,240 100.0%
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The ratings indicated are the most recent Moody's and Standard & Poors ratings
believed to be available at June 30, 1998. NR indicates no rating is available
for the security. Ratings are generally ascribed to securities at time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no responsibility to do so, and the ratings indicated do not
necessarily represent ratings the agencies would ascribe to these securities at
June 30, 1998.
5. Private Placement Securities - Information relating to the initial
acquisition and market valuation of the private placement securities is
presented below:
Percentage
Acquisition of
Cost Value Net Assets
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Massachusetts HEFA, Atlanticare
Medical Center "AMC"
(acquired 12/15/93) $2,450,000 $2,519,658 6.1%
Massachusetts HEFA, Wheaton
College (acquired 1/12/98) 1,750,000 1,752,153 4.2%
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Total $4,271,811 10.3%
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AMC has no publicly offered securities of the same class as the private
placement security held by the Trust. Wheaton College has 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 securities, including costs associated with
registering the securities under the Securities Act of 1933, if necessary.
See notes to financial statements
<PAGE>
The Massachusetts Health & Education Tax-Exempt Trust as of June 30, 1998
FINANCIAL STATEMENTS (Unaudited)
Statement of Assets and Liabilities
As of June 30, 1998
Assets
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Total Investments, at value
(identified cost, $38,016,626) $ 41,457,240
Interest receivable 850,820
Receivable from the Administrator (Note 4) 2,409
Deferred organization expenses 315
Other Assets 509
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Total assets $ 42,311,293
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Liabilities
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Due to Bank $ 39,002
Accrued expenses and other liabilities 29,389
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Total liabilities $ 68,391
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Net Assets $ 42,242,902
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Net Assets Were Comprised of:
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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, 2,309,883 shares
issued and outstanding 23,085
Additional paid-in capital 31,977,529
Accumulated net realized loss from investment transactions (3,227,910)
Undistributed net investment income 29,584
Unrealized appreciation of investments 3,440,614
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Net Assets $ 42,242,902
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Net assets applicable to preferred shareholders -
Auction preferred shares, at liquidation value $ 10,000,000
Cumulative undeclared dividends 6,000
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$ 10,006,000
Net assets applicable to common shareholders $ 32,236,902
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Total $ 42,242,902
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Net Asset Value Per Common Share
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($32,236,902 / 2,309,883 common shares issued and outstanding) $ 13.96
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<PAGE>
The Massachusetts Health & Education Tax-Exempt Trust as of June 30, 1998
FINANCIAL STATEMENTS (Unaudited)
Statement of Operations
For the Six Months Ended
June 30, 1998
Investment Income
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Interest income $ 1,212,156
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Expenses
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Investment advisory fee (Note 4) $ 73,224
Administration fee (Note 4) 31,382
Trustees' fees (Note 4) 14,876
Custodian and transfer agent fees (Note 1) 31,431
Legal and accounting services 17,501
Preferred share remarketing agent fee 12,397
Printing and postage 10,016
AMEX membership fees 3,720
Preferred shares auction agent fees 2,628
Amortization of organization expenses 1,785
Rating agency fees 1,480
Miscellaneous 3,184
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Total operating expenses $ 203,624
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Deduct -
Preliminary waiver of expenses by the Administrator (Note 4) $ 2,409
Reduction of custody fees (Note 1) 2,466
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Total $ 4,875
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Net operating expenses $ 198,749
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Net investment income $ 1,013,407
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Realized and Unrealized Gain (Loss)
on Investments:
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Net realized gain from investment transactions $ 308,359
Net change in unrealized appreciation of investments (157,729)
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Net gain on investments $ 150,630
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Net increase in net assets resulting from operations $ 1,164,037
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See notes to financial statements
<PAGE>
The Massachusetts Health & Education Tax-Exempt Trust as of June 30, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended
Increase (Decrease) June 30, 1998 Year Ended
in Net Assets (Unaudited) December 31, 1997
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<S> <C> <C>
From operations -
Net investment income $ 1,013,407 $ 2,019,181
Net realized gain (loss) from investment
transactions 308,359 112,520
Net change in unrealized appreciation
(depreciation) of investments (157,729) 1,927,989
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Net increase in net assets from operations $ 1,164,037 $ 4,059,690
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Dividends and Distributions -
Preferred Shareholders -
From net investment income $ (162,873) $ (316,776)
Common Shareholders -
From net investment income (859,064) (1,710,145)
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Total dividends and distributions to shareholders $ (1,021,937) $ (2,026,921)
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Capital Share Transactions:
Reinvestment of distributions to shareholders $ 19,129 $ 10,149
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Net increase in net assets resulting from capital
share transactions $ 19,129 $ 10,149
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Net Increase in Net Assets $ 161,229 $ 2,042,918
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Net Assets
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At beginning of period $ 42,081,673 $40,038,755
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At end of period (including undistributed net
investment income of $29,584 and $38,114,
respectively) $ 42,242,902 $42,081,673
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</TABLE>
See notes to financial statements
<PAGE>
The Massachusetts Health & Education Tax-Exempt Trust as of June 30, 1998
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
Selected data for a common share outstanding during each period
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 1998 ------------------------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993(a)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period (common shares) $ 13.90 $ 13.01 $ 13.24 $ 11.32 $ 14.24 $ 13.98(b)
- -----------------------------------------------------------------------------------------------------------------------------
Investment Operations
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.44(i) $ 0.88(i) $ 0.88(i) $ 0.84 $ 0.88 $ 0.26
Net realized and unrealized
gain (loss) on
investments 0.06 0.89 (0.27) 1.94 (2.87) 0.39
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Total from investment
operations $ 0.50 $ 1.77 $ 0.61 $ 2.78 $ (1.99) $ 0.65
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Less Distributions
- -----------------------------------------------------------------------------------------------------------------------------
Preferred Shareholders -
From net investment
income $ (0.07) $ (0.14) $ (0.13) $ (0.15)(g) $ (0.12) $ --
Common Shareholders -
From net investment
income (0.37) (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 $ (0.44) $ (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) $ 13.96 $ 13.90 $ 13.01 $ 13.24 $ 11.32 $ 14.24
- -----------------------------------------------------------------------------------------------------------------------------
Per share market value, end
of period (Common shares) $13.875 $13.938 $12.125 $11.125 $10.375 $15.500
- -----------------------------------------------------------------------------------------------------------------------------
Total investment return at
Market Value 2.24% 21.63% 15.61% 14.12% (28.66%) 5.04%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000's omitted) $42,243 $42,082 $40,039 $40,553 $36,125 $42,850
Ratios (as a percentage of average total net assets):
Expenses(h) 0.96%(e)(f) 0.96%(f) 1.00% 1.17%(f) 1.02%(f) 1.16%(e)(f)
Expenses, after custodian
fee reduction 0.95%(e)(f) 0.95%(f) 0.98% -- -- --
Net investment income 4.84%(e)(f) 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) 1.26%(e)(f) 1.27%(f) 1.34% 1.58%(f) 1.37%(f) 1.21%(e)(f)
Expenses, after custodian
fee reduction(d) 1.25%(e)(f) 1.26%(f) 1.32% -- -- --
Net investment income(d) 6.35%(e)(f) 6.57%(f) 6.86% 6.75%(f) 7.08%(f) 4.36%(e)(f)
Portfolio turnover rate 15% 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>
See notes to financial statements
<PAGE>
The Massachusetts Health & Education Tax-Exempt Trust as of June 30, 1998
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 six months ended June 30, 1998 and the year ended December 31, 1997, net
investment income per common share would have decreased by less than $0.01
during each period, respectively. 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 expense ratios for the year ended December 31, 1996 and periods
thereafter 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.
<PAGE>
The Massachusetts Health & Education Tax-Exempt Trust as of June 30, 1998
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.
Interim Financial Information -- The interim financial statements relating to
June 30, 1998 and for the six month period then ended have not been audited by
independent certified public accountants, but in the opinion of the Trust's
management, reflect all adjustments, consisting only of normal recurring
adjustments necessary for the fair presentation of the financial statements.
2 Auction Preferred Shares
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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 June 30, 1998, 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 June 30, 1998 was 3.65%. For the six months ended June 30, 1998, the
Trust paid dividends to Auction Preferred shareholders amounting to $162,873,
representing an average APS dividend rate for such period of 3.28%
(annualized).
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 six months ended June 30,
1998, the fee paid for such services amounted to $73,224 and was equivalent to
0.35% (annualized) of the average daily net assets of the Trust, including net
assets attributable to any Auction Preferred Shares outstanding.
In addition, the Trust also entered into an Administration Agreement with
Eaton Vance, under which Eaton Vance will manage and administer the Trust's
business affairs and, in connection therewith, furnish for use of the Trust,
office space and all necessary office facilities, equipment, and personnel for
administering the affairs of the Trust. For the six months ended June 30,
1998, the fee paid for such services amounted to $31,382 and was equivalent to
0.15% (annualized) of the average daily net assets of the Trust, including net
assets attributable to any Auction Preferred Shares outstanding. Eaton Vance
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 six months ended June 30, 1998, the preliminary fee waiver amounted
to $2,409.
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
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Purchases and sales (including maturities) of portfolio securities during the
six months ended June 30, 1998, aggregated $6,300,238 and $6,779,612
respectively. There were no purchases and sales of short-term municipal
securities during the six months ended June 30, 1998.
The identified cost and unrealized appreciation (depreciation) in value of the
investments owned by the Trust at June 30, 1998, as computed for federal
income tax purposes, were as follows:
Identified cost $38,016,626
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Gross unrealized appreciation $ 3,448,044
Gross unrealized depreciation 7,430
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Net unrealized appreciation $ 3,440,614
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6 Capital Transactions
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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:
Six Months Ended
June 30, 1998 Year Ended
(Unaudited) December 31, 1997
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Beginning shares 2,308,508 2,307,763
Shares issued pursuant to the Trust's
dividend reinvestment plan 1,375 745
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Ending shares 2,309,883 2,308,508
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7 Subsequent Event
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The Board of Trustees of The Massachusetts Health & Education Tax-Exempt Trust
has voted to amend its investment policies. Effective July 22, 1998, the Trust
is required under normal market conditions to invest at least 65% of its total
assets in Massachusetts tax-exempt obligations issued on behalf of
not-for-profit health and education institutions. Previously, the Trust had
been required to invest at least 65% of its total assets in tax-exempt
obligations issued solely by the Massachusetts Health and Education Facilities
Authority. This change will permit the Trust to purchase a greater number of
secondary school bond offerings throughout the Commonwealth. The Trust will
continue to invest at least 80% of its total assets in investment grade
obligations.
<PAGE>
8 Quarterly Results from Operations (Unaudited)
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<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 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
- ----------------------------------------------------------------------------------------------------------------------------------
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 602 0.26 503 0.22 712 0.32 1,215 0.54 14.000 13.250
- ----------------------------------------------------------------------------------------------------------------------------------
$2,407 $1.04 $2,019 $0.88 $2,040 $0.89 $4,060 $1.77
- ----------------------------------------------------------------------------------------------------------------------------------
March 31, 1998 $ 607 $0.26 $ 508 $0.22 $ 68 $0.03 $ 576 $0.25 $14.875 $13.875
June 30, 1998 605 0.26 505 0.22 83 0.03 588 0.25 14.875 13.750
- ----------------------------------------------------------------------------------------------------------------------------------
$1,212 $0.52 $1,013 $0.44 $ 151 $0.06 $1,164 $0.50
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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.
<PAGE>
The Massachusetts Health & Education Tax-Exempt Trust as of June 30, 1998
INVESTMENT MANAGEMENT
The Massachusetts Health & Education Tax-Exempt Trust
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
Portfolio Manager Education and Chairman & CEO of Carlin
Consolidated, Inc.
JAMES L. O'CONNOR
Treasurer THOMAS H. GREEN III, ESQ.
Director of Salomon Smith Barney, Public
Finance Department
ERIC G. WOODBURY, ESQ.
Secretary
EDWARD M. MURPHY
Olympus Healthcare Group, Inc., and Former
KRISTIN S. ANAGNOST Executive Director of the Massachusetts Health
Assistant Treasurer and & Education Facilities Authority
Assistant Secretary
JAMES M. STOREY, ESQ.
Trustee, various investment companies
<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
1-800-225-6265
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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.
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HEFASRC 8/98
