Form N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-07660
The Massachusetts Health & Education Tax-Exempt Trust
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(Exact Name of Registrant as Specified in Charter)
The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109
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(Address of Principal Executive Offices)
Alan R. Dynner
The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109
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(Name and Address of Agent for Services)
(617) 482-8260
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(Registrant's Telephone Number)
December 31
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Date of Fiscal Year End
December 31, 2003
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Date of Reporting Period
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Item 1. Reports to Stockholders
[EATON VANCE LOGO]
[PHOTO: Wall of Educational Institution]
Annual Report December 31, 2003
[PHOTO: Highway]
THE
MASSACHUSETTS
HEALTH &
EDUCATION
TAX-EXEMPT
TRUST
[PHOTO: Boston, MA Skyline]
EATON VANCE MANAGEMENT
PRIVACY NOTICE
The Eaton Vance organization is committed to ensuring your financial
privacy. This notice is being sent to comply with privacy regulations of
the Securities and Exchange Commission. The financial institution above
has in effect the following policy with respect to nonpublic personal
information about its customers:
* Only such information received from you, through application forms or
otherwise, and information about your Eaton Vance fund transactions will
be collected.
* None of such information about you (or former customers) will be
disclosed to anyone, except as permitted by law (which includes
disclosure to employees necessary to service your account).
* Policies and procedures (including physical, electronic and procedural
safeguards) are in place that are designed to protect the confidentiality
of such information.
For more information about Eaton Vance's privacy policies, call:
1-800-262-1122.
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IMPORTANT NOTICE
REGARDING DELIVERY OF
SHAREHOLDER DOCUMENTS
The Securities and Exchange Commission permits funds to deliver only one
copy of shareholder documents, including prospectuses, proxy statements
and shareholder reports, to fund investors with multiple accounts at the
same residential or post office box address. This practice is often
called "householding" and it helps eliminate duplicate mailings to
shareholders.
Eaton Vance, or your financial adviser, may household the mailing of your
documents indefinitely unless you instruct Eaton Vance, or your financial
adviser, otherwise.
If you would prefer that your Eaton Vance documents not be householded,
please contact Eaton Vance at 1-800-262-1122, or contact your financial
adviser.
Your instructions that householding not apply to delivery of your Eaton
Vance documents will be effective within 30 days of receipt by Eaton
Vance or your financial adviser.
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From time to time, funds are required to vote proxies related to the
securities held by the funds. The Eaton Vance Funds vote proxies
according to a set of policies and procedures approved by the Funds'
Boards. You may obtain a description of these policies and procedures
without charge, upon request, by calling 1-800-262-1122. This description
is also available on the Securities and Exchange Commission's website at
http://www.sec.gov.
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The Massachusetts Health & Education Tax-Exempt Trust as of December 31, 2003
LETTER TO SHAREHOLDERS
[PHOTO WITH CAPTION "Thomas J. Fetter, President"]
Amid the market volatility and external political shocks of recent
years, many investors have become more concerned with risk management.
That trend has been especially true in the municipal bond market, where
the use of bond insurance has become increasingly common. Today, roughly
half of all municipal bond issuance is composed of insured bonds. As
part of our continuing educational series, we thought it might be
helpful to discuss bond insurance and its impact on the municipal
market.
The use of bond insurance has grown
dramatically over the years...
Municipal bond insurance was initially developed in 1971, when AMBAC
Assurance Corp., the nation's first municipal insurer, offered insurance
as a way to guarantee principal and interest payments on bond issues in
the event of a bond default. Over the following three decades, the
municipal market has witnessed a surge in the use of insurance. For
example, in 1980, just 3% of all municipal issuance was insured.
However, by late 2003, that figure had risen to roughly 50%. Insurance
has clear benefits for purchasers: the elimination of default risk of
the underlying issuer, AAA quality ratings and an enhancement of an
issue's liquidity. (It's important to note that, while insured bonds are
insured as to principal and interest payments, they still remain subject
to interest rate and market risks.)
The mechanics of municipal bond
insurance...
We start with the underlying reality that an issuer with a AAA credit
rating will pay less in interest expense than an issuer with a lower
credit rating. Thus, an issuer must first determine whether purchasing
insurance is financially feasible. That is, will the interest savings
offset the cost of insurance? If so, the issuer must then qualify for
insurance. Just as an individual must qualify for insurance, so must a
bond issuer meet certain criteria. The issuer provides key financial
data and documents to potential insurers that are then used to assess
the issuer's financial strength and underlying fundamentals. If the
issuer qualifies, insurance is then effected by
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Shares of the Trust 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. Yield will vary.
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"direct purchase," with the payment of a one-time premium by the issuer.
The premium fee is calculated as a percentage of the value of the bond
issue - typically, around 50 basis points (0.50%), but more if the
credit entails higher risk. (An alternative method of purchase involves
"elective bidding," in which the insurance is purchased by bond dealers,
who determine at the time the bond is sold whether it is more attractive
as an insured or uninsured bond.)
In-depth credit analysis includes
insurers as well as bond issuers...
When analyzing municipal bonds, an investor naturally researches the
issuer's fundamentals. However, if the bond is insured, the analyst is
concerned with the soundness of the insurer as well. At Eaton Vance,
analysis of the insured segment is an integral part of our total
municipal research effort. Research includes, among other areas,
analysis of an insurer's claims-paying ability, its capital structure
and the overall quality of its portfolio of policies. Based on
claims-paying ability, there are currently six bond insurers rated AAA
by Moody's Investors Service, Standard & Poor's and Fitch Ratings - the
nation's leading rating agencies.
Insurers can play a valuable role in
structuring bond deals and improving
credit quality...
Insurers play an important role in capital formation for municipal
borrowers, working closely with municipal officials to forge deals that
raise capital for vital projects at affordable interest rates. In so
doing, the insurers can help states and municipalities achieve more
efficient fiscal management. Insurers often re-structure bond deals by
insisting on provisions that are intended to make the deal more secure.
That has proved a major benefit to investors in recent years. In a more
risk-conscious climate, we believe that an ongoing analysis of the
insured market is a necessary discipline to invest successfully in
today's municipal market.
Sincerely,
/s/ THOMAS J. FETTER
Thomas J. Fetter
President
February 11, 2004
The Massachusetts Health & Education Tax-Exempt Trust as of December 31, 2003
MANAGEMENT DISCUSSION
The U.S. economy saw encouraging growth in the year ended December 31,
2003. Consumer spending picked up, as tax cuts added to discretionary
incomes. Capital spending - which has been very slow to recover -
rebounded somewhat, as companies increased their investment in new
technology and machinery. The equity markets, which typically anticipate
future economic trends, mounted a strong rally.
Service industries led the recovery, while
manufacturing improved slightly...
The manufacturing sector showed signs of a modest revival during the
period, while service sectors such as health care, tourism and
information technology also gained ground. The residential real estate
sector remained strong, although the commercial segment continued to
lag. Financial services gathered some momentum due to increasing
investor confidence and stronger equity markets. Meanwhile, the retail
sector benefited from tax cuts enacted earlier in the year, which
boosted consumer spending.
With inflation in check, the Federal Reserve has
kept interest rates low...
The nation's Gross Domestic Product grew a remarkable 8.2% in the third
quarter of 2003, followed by a 4.0% rise in the fourth quarter. The data
suggested that an economy plagued by numerous false starts in the past
year had finally gained some traction. Typical of an early-stage
recovery, however, the labor markets were slow to rebound. The nation's
unemployment rate was 5.7% in December 2003. While job growth was
generally disappointing, there were signs of incremental hiring in some
sectors, including temporary agencies, the financial services sector and
smaller companies. The building trades remained strong, as low mortgage
rates prompted brisk residential construction.
Inflation, meanwhile, has been modest. Prices for finished goods
remained fairly stable, although health care costs continued to rise and
prices for manufacturing inputs and commodities such as oil and natural
gas remained high. With inflation generally under control, the Federal
Reserve has maintained an accommodative monetary policy, holding its
Federal Funds rate - a key short-term interest rate barometer - at
1.00%, where it has stood since June.
While signs of a more robust economy have driven a strong rally in the
equity markets, the bond markets have given up some of their gains of
the past year. Ten-year Treasury bond yields - which began the year at
3.82% - rose to 3.95% by December 31, 2003, in response to a reviving
economy, thereby prompting a market correction. Nonetheless, the Lehman
Brothers Municipal Bond Index posted a solidly positive total return of
5.31% for the year ended December 31, 2003.1
State tax rates have risen in 2003, even as federal
rates have been reduced...
While federal tax rates were lowered in 2003, the opposite was true of
state tax rates. A revenue shortfall has left many state governments
with the difficult choice between raising taxes or cutting services. The
result has been a widespread trend toward higher income and property
taxes. This has left taxpayers with a larger state tax burden and, once
again, made a strong case for municipal bonds as one of the few
remaining ways to trim one's state tax bill. Therefore, we believe that
municipal bonds continue to merit consideration from tax-conscious
investors.
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Trust Information
as of December 31, 2003
Performance 2
Average Annual Total Returns (by share price, American Stock Exchange)
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One Year 20.11%
Five Years 6.38
Ten Years 5.87
Average Annual Total Returns (by net asset value)
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One Year 7.26%
Five Years 5.79
Ten Years 5.79
Five Largest Categories 3
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Education 40.4%
Insured Hospitals* 21.9%
Hospitals 15.9%
Insured Education* 9.9%
Escrowed/Prerefunded 9.7%
1 It is not possible to invest directly in an Index.
2 Returns are historical and are calculated by determining the
percentage change in net asset value or share price with all
distributions reinvested. Performance results reflect the effect of
leverage resulting from the Trust's issuance of Auction Preferred
Shares.
3 Five Largest Categories account for 97.8% of the Trust's net assets
applicable to common shares, determined by dividing the total market
value of the holdings by the net assets applicable to common shares of
the Trust. Categories are subject to change.
* Private insurance does not remove the risk of loss of principal
associated with insured investments 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. Performance is for the
stated time period only; due to market volatility, the Trust's current
performance may be different. Yield will vary.
The Massachusetts Health & Education Tax-Exempt Trust as of December 31, 2003
MANAGEMENT DISCUSSION
[PHOTO WITH CAPTION "Robert B. MacIntosh, Portfolio Manager"]
Management Discussion
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* The Massachusetts economy took steps toward recovery in 2003, as
rising demand for technology and improving financial markets boosted
the state's leading industries. A strong residential building climate
lifted the construction sector. The state's December 2003 jobless rate
was 5.7%, above the 5.5% rate of a year ago.
* The Trust was able to take advantage of active new issuance with
education bonds, its largest sector weighting at December 31, 2003.
The Trust's investments included some of the Commonwealth's most
renowned colleges and universities.
* The issuance of Massachusetts hospital bonds was especially low in
2003. However, given the industry's continuing competitive and
cost-related pressures, the Trust remained selective with respect to
hospital investments, focusing predominantly on insured* institutions
with superior finances and sound fundamentals.
* The Trust also had an exposure to escrowed bonds. Escrowed issues
are those that have been pre-refunded by their issuers to take
advantage of lower rates, not unlike the widespread refinancing of
mortgages by homeowners. Backed by Treasury bonds, escrowed bonds are
deemed to be very high quality by investors.
* As the municipal market adjusted to changing economic conditions,
management used the opportunity to fine-tune the Trust's coupon
structure. In addition, amid a quickening pace of bond calls, the
Trust added a non-callable issue for a prominent, Boston-based
educational foundation.
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The views expressed in this report are those of the portfolio manager
and are current only through the end of the period of the report as
stated on the cover. These views are subject to change at any time
based upon market or other conditions, and Eaton Vance disclaims any
responsibility to update such views. These views may not be relied on as
investment advice and, because investment decisions for an Eaton Vance
fund are based on many factors, may not be relied on as an indication of
trading intent on behalf of any Eaton Vance fund.
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The Trust
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Performance for the Past Year
* Based on share price (traded on the American Stock Exchange), the
Trust had a total return of 20.11% for the year ended December 31,
2003. That return was the result of an increase in share price from
$13.48 on December 31, 2002 to $15.26 on December 31, 2003, and the
reinvestment of $0.824 in regular monthly dividends.1
* Based on net asset value, the Trust had a total return of 7.26% for
the year ended December 31, 2003. That return was the result of an
increase in net asset value per share from $13.76 on December 31, 2002
to $13.91 on December 31, 2003, and the reinvestment of all
distributions.
* Based on the most recent dividend and a share price of $15.26, the
Trust had a market yield of 5.69% at December 31, 2003.2 The Trust's
market yield is equivalent to a taxable yield of 9.24%.3
* On December 31, 2003, the Trust's share price on the American Stock
Exchange traded at a 9.7% premium to its underlying net asset value.
Rating Distribution 4,5
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By total investments
[PIE CHART divided proportionally as follows: AAA -- 40.5%, AA -- 15.4%,
A -- 14.0%, BBB -- 17.7%, BB -- 1.1%, Non-Rated -- 11.3%]
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Federal income tax information on distributions. For Federal income tax
purposes, 97.30% of the total dividends paid by the Trust from net
investment income during the year ended December 31, 2003 was designated
as an exempt interest dividend.
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Trust Overview 4
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Number of Issues 52
Average Maturity 24.4 Years
Effective Maturity 10.0 Years
Average Rating A+
Average Call 8.3 Years
Average Dollar Price $104.87
1 A portion of the Trust's income may be subject to federal and state
income tax and/or federal alternative minimum tax.
2 The Trust's market yield is calculated by dividing the most recent
dividend per share by the share price at the end of the period and
annualizing the result.
3 Taxable-equivalent yield assumes maximum 38.45% combined federal and
state income tax rate. A lower rate would result in a lower
tax-equivalent figure.
4 Because the Trust is actively managed, Rating Distribution and Trust
Overview are subject to change.
5 Rating Distribution is determined by dividing the total market value
of the issues by the total investments of the Trust.
* Private insurance does not remove the risk of loss of principal
associated with insured investments due to changes in market
conditions.
Past performance is no guarantee of future results. Investment return
and market price will fluctuate so that shares, when sold, may be
worth more or less than their original cost.
The Massachusetts Health & Education Tax-Exempt Trust as of December 31, 2003
PORTFOLIO OF INVESTMENTS
Ratings
(Unaudited) Principal
- ------------ Amount
Standard (000's
Moody's & Poor's Omitted) Security Value
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Education -- 40.4%
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NR A $1,100 Massachusetts DFA, Belmont Hill School,
5.00%, 9/1/31 $ 1,118,909
A3 BBB+ 1,500 Massachusetts DFA, Boston University,
5.45%, 5/15/59 1,550,550
NR BBB 1,000 Massachusetts DFA, Massachusetts College of
Pharmacy and Health Sciences,
5.75%, 7/1/33 1,001,010
A1 NR 400 Massachusetts DFA, Middlesex School,
5.00%, 9/1/33 405,948
Baa2 BBB 400 Massachusetts DFA, Suffolk University,
5.75%, 7/1/19 415,072
NR BBB 600 Massachusetts DFA, Western New England
College, 5.875%, 12/1/22 608,064
NR BBB- 540 Massachusetts DFA, Wheeler School,
6.50%, 12/1/29 567,362
Baa2 NR 250 Massachusetts DFA, Xaverian Brothers
High School, 5.65%, 7/1/29 254,585
Aa3 AA- 1,500 Massachusetts HEFA, Boston College,
5.125%, 6/1/37 1,547,775
Aaa AAA 1,800 Massachusetts HEFA, Harvard University,
5.125%, 7/15/37 1,868,004
Aa1 AA+ 1,750 Massachusetts HEFA, Wellesley College,
5.00%, 7/1/33 1,794,573
NR NR 1,420 Massachusetts HEFA, Wheaton College,
6.00%, 1/1/18(1) 1,530,987
Baa1 NR 400 Massachusetts IFA, Wentworth Institute of
Technology, 5.75% 10/1/28 410,156
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$13,072,995
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Escrowed / Prerefunded -- 9.7%
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Aaa AA+ $1,500 Massachusetts HEFA, Daughters of Charity,
6.10%, 7/1/14,
Prerefunded to 7/1/06 $ 1,572,135
Aa2 NR 1,000 Massachusetts HEFA, Youville House,
6.25%, 2/15/41,
Prerefunded to 2/15/07 1,150,090
Aaa A 1,000 Rail Connections Inc., MA, (ACA),
0.00%, 7/1/20,
Prerefunded to 7/1/09 429,630
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$ 3,151,855
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Health Care -- 1.2%
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NR NR $ 425 Massachusetts DFA, MCHSP,
6.60%, 8/15/29 $ 379,482
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Hospitals -- 15.9%
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A1 A+ $1,000 Massachusetts HEFA, Baystate Medical Center,
5.75%, 7/1/33 $ 1,039,840
NR BBB+ 350 Massachusetts HEFA, Berkshire Healthcare,
6.25%, 10/1/31 362,278
Baa3 BBB 400 Massachusetts HEFA, Caritas Christi Obligated
Group, 6.25%, 7/1/22 383,152
NR A- 800 Massachusetts HEFA, Covenant Health,
6.00%, 7/1/22 850,264
NR A- 400 Massachusetts HEFA, Covenant Health,
6.00%, 7/1/31 419,896
Baa2 BBB- 1,000 Massachusetts HEFA, Milford-Whitinsville,
6.35%, 7/15/32 1,005,860
Aa3 AA- 1,000 Massachusetts HEFA, Partners Healthcare,
5.75%, 7/1/32 1,072,780
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$ 5,134,070
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Industrial Development Revenue -- 4.6%
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Baa1 BBB $1,500 Massachusetts IFA, General Motors,
5.55%, 4/1/09 $ 1,502,370
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Insured Education -- 9.9%
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Aaa AAA $ 400 Massachusetts DFA, Olin College,
(XLCA), 5.25%, 7/1/33 $ 415,616
Aaa AAA 700 Massachusetts DFA, WGBH Educational
Foundation, (AMBAC), 5.75%, 1/1/42 828,492
Aaa AAA 775 Massachusetts HEFA, Simmons College,
(FGIC), 5.00%, 10/1/33 796,933
Aaa AAA 230 Massachusetts HEFA, University of
Massachusetts Amherst, (FGIC),
5.125%, 10/1/34 238,165
Aaa AAA 825 Massachusetts State College Building
Authority, (XLCA), 5.50%, 5/1/39 937,390
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$ 3,216,596
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Insured Hospitals -- 21.9%
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Aaa AAA $1,225 Massachusetts HEFA, Addison Gilbert
Hospital, (MBIA), 5.75%, 7/1/23 $ 1,253,089
Aaa AAA 800 Massachusetts HEFA, Baystate Medical
Center, (FSA), 6.00%, 7/1/26 883,208
Aaa AAA 1,000 Massachusetts HEFA, Berkshire Health
System, (MBIA), 6.00%, 10/1/19 1,085,820
Aaa AAA 1,250 Massachusetts HEFA, Dana Farber Cancer
Institute, (FGIC), 6.00%, 12/1/10 1,279,675
Aaa AAA 500 Massachusetts HEFA, Mt. Auburn Hospital,
(MBIA), 6.25%, 8/15/14 524,565
Aaa AAA 500 Massachusetts HEFA, New England Medical
Center, (FGIC), 5.00%, 5/15/22 518,490
Aaa AAA 1,000 Massachusetts HEFA, North Shore Medical
Center, (MBIA), 5.625%, 7/1/14 1,040,370
Aaa AAA 100 Massachusetts HEFA, Partners Healthcare,
(MBIA), 5.375%, 7/1/24 107,382
NR AAA 395 Massachusetts HEFA, Valley Regional Health
System, (CLEE), 5.75%, 7/1/18 409,994
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$ 7,102,593
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Insured Public Power -- 2.3%
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Aaa NR $ 500 Puerto Rico Electric Power Authority, (MBIA),
Variable Rate, 7/1/16(3)(4) $ 757,590
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Insured Special Tax -- 4.7%
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NR NR $1,000 Puerto Rico IFA, (AMBAC), Variable Rate,
7/1/28(2)(3) $ 1,052,600
NR AAA 420 Puerto Rico IFA, (AMBAC), Variable Rate,
7/1/28(4) 453,138
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$ 1,505,738
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Insured Water & Sewer -- 1.7%
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Aaa AAA $ 500 Massachusetts Water Resources Authority,
(FGIC), 5.75%, 8/1/39 $ 559,490
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Life Care -- 3.7%
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NR BBB- $ 855 Massachusetts DFA, Edgecombe Project,
6.75%, 7/1/21 $ 873,861
NR NR 340 Massachusetts IFA, Forge Hill,
6.75%, 4/1/30 314,867
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$ 1,188,728
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Miscellaneous -- 4.1%
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Ba2 BB $ 495 Massachusetts HEFA, Learning Center
for the Deaf, 6.125%, 7/1/29 $ 448,713
NR AAA 700 Puerto Rico IFA, Variable Rate,
10/1/34(3)(4) 887,005
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$ 1,335,718
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Nursing Home -- 4.5%
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NR NR $ 240 Massachusetts DFA, Odd Fellows,
6.25%, 1/1/15 $ 221,167
NR NR 500 Massachusetts HEFA, Christopher House,
6.875%, 1/1/29 481,225
NR NR 750 Massachusetts IFA, Age Institute of
Massachusetts, 8.05%, 11/1/25 746,055
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$ 1,448,447
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Public Power -- 1.3%
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NR A- $ 400 Puerto Rico Electric Power Authority,
Variable Rate, 7/1/29(2)(3) $ 424,888
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Transportation -- 2.7%
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NR AA- $ 830 Massachusetts Bay Transportation Authority,
Variable Rate, 3/1/27(2)(3) $ 857,299
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Total Tax-Exempt Investments -- 128.6%
(identified cost $39,403,677) $41,637,859
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Other Assets, Less Liabilities -- 2.3% $ 752,225
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Auction Preferred Shares Plus
Accumulated Unpaid Dividends -- (30.9%) ($10,000,000)
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Net Assets -- 100% $32,390,084
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Notes to Portfolio:
(1) Private Placement Securities -- Information relating to the initial
acquisition and market valuation of private placement securities is
presented below:
Percentage
of Net Assets
Acquisition Applicable to
Cost Value Common Shares
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Massachusetts HEFA,
Wheaton College
(acquired 1/12/98) $1,420,000 $1,530,987 4.7%
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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.
(2) Security has been issued as an inverse floater bond.
(3) Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(4) Security has been issued as a leveraged inverse floater.
(5) Portfolio Overview:
Number of Issues 52
Average Maturity (Years) 24.4 yrs
Effective Maturity (Years) 10.0 yrs
Average Call (Years) 8.3 yrs
Duration (Years) 7.6
Average Rating A+
(6) Health and Educational Obligors -- At December 31, 2003, the Trust
held securities issued by health and educational obligors with a value
of $34,713,849 (representing 83.4% of total investments).
(7) 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, 2003, 32.6%
of total investments is 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) $ 4,768,816 11.5%
Financial Guaranty Insurance Company (FGIC) 3,392,753 8.2%
AMBAC Financial Group, Inc. (AMBAC) 2,334,230 5.6%
XL Capital Assurance, Inc. (XLCA) 1,353,006 3.2%
Financial Security Assurance, Inc. (FSA) 883,208 2.1%
American Capital Access (ACA) 429,630 1.0%
College Construction Loan Insurance Corporation (CLEE) 409,994 1.0%
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Total Insured Securities $13,571,637 32.6%
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(8) Summary of Ratings:
Percentage
Number of Total
Ratings of Issues Value Investments
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AAA/Aaa 21 $16,846,181 40.5%
AA/Aa 5 6,422,517 15.4%
A/A 7 5,810,295 14.0%
BBB/Baa 11 7,383,770 17.7%
BB/Ba 1 448,713 1.1%
NR 7 4,726,383 11.3%
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Total 52 $41,637,859 100.0%
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The ratings indicated are the most recent Moody's and Standard & Poor's
ratings believed to be available at December 31, 2003. 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, 2003.
The accompanying notes are an integral part of these financial statements.
The Massachusetts Health & Education Tax-Exempt Trust as of December 31, 2003
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of December 31, 2003
Assets
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Total Investments, at value (identified cost, $39,403,677) $41,637,859
Receivable for securities sold 75,000
Interest receivable 912,846
Receivable from the transfer agent 8,051
Other assets 1,505
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Total assets $42,635,261
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Liabilities
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Due to bank $ 211,419
Accrued expenses and other liabilities 33,758
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Total liabilities 245,177
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Net assets applicable to Auction Preferred Shares, $0.01 par value;
400 shares authorized, 200 shares issued and outstanding at $50,000
per share liquidation preference plus cumulative unpaid dividends $10,000,000
- -------------------------------------------------------------------------------------------
Net assets applicable to common shares $32,390,084
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Sources of Net Assets:
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Common Shares, $0.01 par value; unlimited number of shares
authorized, 2,328,912 shares issued and outstanding $ 23,289
Additional paid-in capital 29,661,236
Accumulated net realized loss from investment transactions (109,355)
Undistributed net investment income 580,732
Unrealized appreciation of investments 2,234,182
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Net Assets applicable to common shares $32,390,084
- -------------------------------------------------------------------------------------------
Net Asset Value Per Common Share
- -------------------------------------------------------------------------------------------
($32,390,084 divided by 2,328,912
common shares issued and outstanding) $ 13.91
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Statement of Operations
For the Year Ended
December 31, 2003
Investment Income
- -------------------------------------------------------------------------------------------
Interest income $2,533,256
Expenses
- -------------------------------------------------------------------------------------------
Investment advisory fee $ 147,292
Administration fee 63,140
Trustees' fees 24,901
Custodian and transfer agent fees 50,631
Legal and accounting services 33,676
Preferred share remarketing agent fee 23,250
Printing and postage 13,044
Preferred shares auction agent fees 5,001
Miscellaneous 10,236
- -------------------------------------------------------------------------------------------
Total operating expenses $ 371,171
- -------------------------------------------------------------------------------------------
Net investment income $2,162,085
- -------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
on Investments
- -------------------------------------------------------------------------------------------
Net realized gain from investment transactions $ 214,271
Net change in unrealized appreciation of investments (46,713)
- -------------------------------------------------------------------------------------------
Net gain on investments $ 167,558
- -------------------------------------------------------------------------------------------
Distributions to preferred shareholders $ (79,020)
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shares $2,250,623
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
The Massachusetts Health & Education Tax-Exempt Trust as of December 31, 2003
FINANCIAL STATEMENTS CONT'D
Statement of Changes in Net Assets
Increase (Decrease) Year Ended Year Ended
in Net Assets December 31, 2003 December 31, 2002
- --------------------------------------------------------------------------------------------
From Operations:
Net investment income $ 2,162,085 $ 2,192,143
Net realized gain 214,271 63,983
Net change in unrealized appreciation
(depreciation) (46,713) 910,312
Distributions to preferred shareholders (79,020) (119,521)
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations applicable to common shares $ 2,250,623 $ 3,046,917
- --------------------------------------------------------------------------------------------
Distributions to Common Shareholders:
From net investment income (1,917,436) (1,847,879)
- --------------------------------------------------------------------------------------------
Total distributions to common
shareholders $(1,917,436) $(1,847,879)
- --------------------------------------------------------------------------------------------
Capital Share Transactions:
Reinvestment of distributions to
common shareholders $ 60,442 $ 70,402
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from
capital share transactions $ 60,442 $ 70,402
- --------------------------------------------------------------------------------------------
Net increase in net assets $ 393,629 $ 1,269,440
- --------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares:
- --------------------------------------------------------------------------------------------
At beginning of period $31,996,455 $30,727,015
- --------------------------------------------------------------------------------------------
At end of period, including undistributed
net investment income of $580,732 and
$556,299, respectively $32,390,084 $31,996,455
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
The Massachusetts Health & Education Tax-Exempt Trust as of December 31, 2003
FINANCIAL STATEMENTS CONT'D
Financial Highlights
Selected data for a common share outstanding during each period
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period (common shares) $ 13.76 $ 13.25 $ 13.17 $ 12.45 $ 14.06
- ----------------------------------------------------------------------------------------------------------------------------
Investment Operations
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income(c) $ 0.93 $ 0.94 $ 0.94(a) $ 0.90 $ 0.89
Net realized and unrealized gain (loss)
on investments 0.07 0.42 0.03(a) 0.73 (1.63)
Distributions to preferred shareholders (0.03) (0.05) (0.11) (0.15) (0.12)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations applicable
to common shares $ 0.97 $ 1.31 $ 0.86 $ 1.48 $ (0.86)
- ----------------------------------------------------------------------------------------------------------------------------
Less Distributions to Common Shareholders
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income $ (0.82) $ (0.80) $ (0.78) $ (0.76) $ (0.75)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Shareholders $ (0.82) $ (0.80) $ (0.78) $ (0.76) $ (0.75)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period (Common shares) $ 13.91 $ 13.76 $ 13.25 $ 13.17 $ 12.45
- ----------------------------------------------------------------------------------------------------------------------------
Per share market value, end of period (Common shares) $ 15.26 $ 13.48 $ 13.60 $ 12.75 $ 11.50
- ----------------------------------------------------------------------------------------------------------------------------
Total investment return at Market Value 20.11% 5.10% 13.01% 17.78% (18.23%)
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------
Net assets applicable to common shares, end of period
(000 omitted) $32,390 $31,996 $30,727 $30,500 $28,830
Ratios: (as a percentage of average total net assets)
Expenses 0.88% 0.91% 0.91% 0.97% 0.97%
Expenses, after custodian fee reduction 0.88% 0.90% 0.90% 0.96% 0.96%
Net investment income 5.14% 5.31% 5.31%(a) 5.33% 5.05%
Ratios: (as a percentage of average common net assets)
Expenses (b) 1.16% 1.20% 1.20% 1.30% 1.28%
Expenses, after custodian fee reduction (b) 1.16% 1.19% 1.18% 1.29% 1.27%
Net investment income (b) 6.74% 7.00% 7.02%(a) 7.16% 6.68%
Portfolio turnover rate 26% 36% 13% 8% 32%
The Financial Highlights summarize the impact of net investment income,
gains (losses) and distributions on the Trust's net asset value per
common share for the last 5 years. Additionally, important relationships
between certain financial statement items are expressed in ratio form.
The accompanying notes are an integral part of these financial
statements.
The Massachusetts Health & Education Tax-Exempt Trust as of December 31, 2003
FINANCIAL STATEMENTS CONT'D
Financial Highlights
(a) The Trust has adopted the provisions of the AICPA Audit and
Accounting Guide for Investment Companies, as revised, and began
accreting market discounts on debt securities. The effect of this change
for the year ended December 31, 2001 was an increase in net investment
income per common share of $0.01, a decrease in net realized and
unrealized gains per common share of $0.01, an increase in the ratio of
net investment income to average total net assets from 5.24% to 5.31%
and an increase in the ratio of net investment income to average common
assets from 6.93% to 7.02%. Per share data and ratios for the periods
prior to January 1, 2001 have not been restated to reflect this change
in presentation.
(b) Ratios do not reflect the effect of dividend payments to preferred
shareholders. Ratios to average common net assets reflect the Trust's
leveraged capital structure.
(c) Computed using average common shares outstanding throughout the
period.
The accompanying notes are an integral part of these financial statements.
The Massachusetts Health & Education Tax-Exempt Trust as of December 31, 2003
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 amended, 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 Massachusetts "investment grade" tax-exempt
obligations issued on behalf of not-for-profit health and education
institutions.
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements, in accordance
with accounting principles generally accepted in the United States of
America.
Securities Valuation. Municipal securities are normally valued on the basis
of valuations furnished from a pricing service. 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. Investments for which
valuations or market quotations are unavailable are valued at fair value
using methods determined in good faith by or at the direction of the
Trustees. In the event of unusual market disruptions affecting valuation,
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
accretion of discounts on long term debt securities.
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, 2003, the Trust for federal income tax purposes had a
capital loss carryover of $155,614, 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, 2008 ($116,670) and December
31, 2009 ($38,944).
Expense Reductions. Investors Bank & Trust Company (IBT) serves the Trust
as its Custodian and Transfer Agent. Pursuant to its service agreements,
IBT receives a fee reduced by credits which are determined based on the
average daily cash balance the Trust maintains with IBT. All significant
credits used to reduce the Trust's custodian fee are reported as a
reduction of expenses in the statement of operations.
Use of Estimates. The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period. Actual results
could differ from those estimates.
Indemnifications. Under the Trust's organizational documents, its officers
and Trustees may be indemnified against certain liabilities and expenses
arising out of the performance of their duties to the Fund and shareholders
are indemnified against personal liability for the obligations of the
Trust. Additionally, in the normal course of business, the Fund enters into
agreements with service providers that may contain indemnification clauses.
The Fund's maximum exposure under these agreements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred.
2 Auction Preferred Shares (APS)
- --------------------------------------------------------------------------
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, 2003, 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, 2003 was 1.167% . For
the year ended December 31, 2003, the Trust paid dividends to Auction
Preferred shareholders amounting to $79,020, representing an average APS
dividend rate for such period of 0.79%.
The Trust distinguishes between distributions on a tax basis and a
financial reporting basis. Accounting principles generally accepted in
the United States of America require that only distributions in excess
of tax basis earnings and profits be reported in the financial
statements as a return of capital. Permanent differences between book
and tax accounting relating to distributions are reclassified to
paid-in-capital. These differences primarily relate to expired capital
loss carryforwards.
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, 2003, the fee paid for such services amounted to $147,292 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, 2003, the fee paid for such services amounted to $63,140 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.
Trustees who are not affiliates of Eaton Vance are eligible to receive an
annual fee of $5,000 each.
5 Securities Transactions
- --------------------------------------------------------------------------
Purchases and sales (including maturities) of portfolio securities
during the six months ended December 31, 2003, aggregated $11,713,264
and $10,858,398 respectively. There were no purchases and sales of
short-term municipal securities during the year ended December 31, 2003.
The identified cost and unrealized appreciation (depreciation) in value
of the investments owned by the Trust at December 31, 2003, as computed
for federal income tax purposes, were as follows:
Identified cost $39,357,418
- ----------------------------------------------------------
Gross unrealized appreciation $ 2,429,246
- ----------------------------------------------------------
Gross unrealized depreciation (148,805)
- ----------------------------------------------------------
Net unrealized appreciation $ 2,280,441
- ----------------------------------------------------------
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 Year Ended
December 31, 2003 December 31, 2002
- --------------------------------------------------------------------
Beginning shares 2,324,569 2,319,394
Shares issued pursuant to
the Trust's dividend
reinvestment plan 4,343 5,175
- --------------------------------------------------------------------
Ending shares 2,328,912 2,324,569
- --------------------------------------------------------------------
7 Engagement of New Independent Auditors
- --------------------------------------------------------------------------
On March 4, 2003, upon the recommendation of its Audit Committee, the
Board of Trustees of the Trust approved the engagement of Deloitte &
Touche, LLP as the Trust's independent auditors for fiscal year 2003,
replacing PricewaterhouseCoopers LLP ("PWC"). The change was effective
March 17, 2003. During the two previous fiscal years, PWC's reports on
the Trust's financial statements did not contain an adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles. Further, there were
no disagreements with PWC on any matter of accounting principle or
practices, financial statement disclosure, or auditing scope or
procedure.
The Massachusetts Health & Education Tax-Exempt Trust as of December 31, 2003
INDEPENDENT ACCOUNTANTS' REPORT
To the Trustees and Shareholders of
The Massachusetts Health & Education
Tax-Exempt Trust
- --------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of
the The Massachusetts Health & Education Tax-Exempt Trust (the "Trust"),
including the portfolio of investments, as of December 31, 2003, and the
related statement of operations, the statement of changes in net assets
and the financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
statement of changes in net assets for the year ended December 31, 2002,
and the financial highlights for the years ended December 31, 2002,
2001, 2000 and 1999 were audited by other auditors whose report, dated
February 24, 2003, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
December 31, 2003, by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of The Massachusetts Health & Education Tax-Exempt
Trust as of December 31, 2003, the results of its operations, changes in
its net assets and financial highlights for the year then ended in
conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 19, 2004
The Massachusetts Health & Education Tax-Exempt Trust as of December 31, 2003
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 generally effect
such redemptions and/or repurchases to the extent necessary to maintain
applicable asset coverage requirements.
The Massachusetts Health & Education Tax-Exempt Trust as of December 31, 2003
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 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 address noted on the following page. If you
withdraw, you will receive a share certificate in your name for all full
common shares credited to your account under the Plan and a cash payment
for any fraction of a share credited to your account. If you desire, the
Plan Agent will sell your shares in the Plan and send you the proceeds
of the sale, less brokerage commissions and a $2.50 service fee.
How to Participate
If you wish to participate in the Plan and your shares are held in your
own name, you may complete the form on the following page and deliver it
to the Plan Agent.
If your shares are held in the name of a brokerage firm, bank, or other
nominee, you should contact your nominee to see if it will participate
in the Plan on your behalf. If you wish to participate in the Plan, but
your brokerage firm, bank or nominee is unable to participate on your
behalf, you should request that your shares be re-registered in your own
name which will enable your participation in the Plan.
Any inquiries regarding the Plan can be directed to Investors Bank &
Trust Company at 1-800-553-1916.
The Massachusetts Health & Education Tax-Exempt Trust as of December 31, 2003
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 9130
Attention OPS22
Boston, MA 02117
- ------------------------------------------------------------------------
The Massachusetts Health & Education Tax-Exempt Trust as of December 31, 2003
MANAGEMENT AND ORGANIZATION
Trust Management
The Trustees of The Massachusetts Health & Education Tax-Exempt Trust
(the Trust) are responsible for the overall management and supervision
of the Trusts' affairs. The Trustees and officers of the Trust are
listed below. Except as indicated, each individual has held the office
shown or other offices in the same company for the last five years. The
"noninterested Trustees" consist of those Trustees who are not
"interested persons" of the Trust, as that term is defined under the
1940 Act. The business address of each Trustee and officer is The Eaton
Vance Building, 255 State Street, Boston, Massachusetts, 02109. As used
below, "Eaton Vance" refers to Eaton Vance Management and "BMR" refers
to Boston Management and Research.
Number of
Term Portfolios in Other
Position(s) of Office Fund Complex Directorships
with the and Time Principal Occupation(s) Overseen Held
Name and Age Trust Served During Past Five Years By Trustee By Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Interested Trustee(s)
Thomas J. Fetter Trustee and One Year Vice President of Eaton Vance One None
Age 60 President Trustee and BMR. Officer of 127 registered
since 2003; investment companies managed by
President Eaton Vance or BMR.
since 1996
Thomas H. Green, III (A) Trustee One Year Managing Director, Salomon One None
Age 44 Trustee Smith Barney (SSB), since 2002.
since 1993 Formerly, Director in SSB, Public
Finance Department (1998-2001).
Formerly, First Assistant Attorney
General for The Commonwealth
of Massachusetts (1992-1998).
Previously, Vice President, Public
Finance, First Boston Corporation.
Mr. Green is an interested person
of the Trust because of his
affiliation with a brokerage firm.
Noninterested Trustee(s)
James F. Carlin III (A) Trustee One Year Executive Vice President, One None
Age 40 Trustee Managing Partner, Crosspoint
since 2003 Associates, Inc. (real estate
management and development)
since 1993. Board of Directors,
Chart Bank since 1996. Principal
of Alpha Analytical Inc. since
2000. Former Director of Carlin
Insurance.
Edward M. Murphy Trustee One Year President and Chief Executive One None
Age 56 Trustee Officer of Alliance Health
since 1993 Incorporated, since March 1999.
Formerly, President and Chief
Operating Officer of Olympus
Healthcare Group, Inc.; Senior
Vice President of Tucker Anthony
Inc. (1995-1997); and the
Executive Director of the
Massachusetts Health and
Educational Facilities Authority
(1989-1995). Previously,
Commissioner of the
Massachusetts Department of
Mental Health.
Frank Nesvet Trustee One Year Chief Executive Officer, Libra One Director of
Age 60 Trustee Group, Inc. (since 1998). Jefferson Pilot
since 2004(1) Managing Director, Senior Variable Fund
Vice President, CFO and Fund (a series of 14
Treasurer, New England Funds mutual funds
(1993-1998). sponsored and
managed by
Jefferson Pilot
Investment
Advisory
Corporation)
(since October
2003). Trustee
and Chairman
of the Audit
Committee of
StreetTRACKS[R]
Series Trust
(a series of 10
exchange-traded
mutual funds
sponsored and
managed by State
Street Global
Advisers) (since
2000).
Walter B. Prince Chairman One Year Partner of the law firm of Prince, One None
Age 55 and Trustee Trustee since Lobel, Glovsky & Tye LLP, since
since 1993 1988. Board of Directors,
OneUnited Bank.
James M. Storey Trustee One Year Corporate Trustee/Director of One Trustee of the
Age 72 Trustee various organizations and State Street
since 1993 corporations, including The Research Funds
U.S. Charitable Gift Trust (consisting of
(a charitable organization 30 portfolios)
sponsored by Eaton Vance), and the SEI
and a practicing attorney. Investment Funds
Formerly, a Partner of the (consisting of
law firm of Dechert, Price & 104 portfolios).
Rhoads (1987-1993).
The Massachusetts Health & Education Tax-Exempt Trust as of December 31, 2003
MANAGEMENT AND ORGANIZATION cont'd
Term of
Position(s) Office and
with the Length of Principal Occupation(s)
Name and Age Trust Service During Past Five Years
Principal Officers Who Are Not Trustees
Robert B. MacIntosh Vice President and Since 1996 Vice President of Eaton Vance
Age 47 Portfolio Manager and BMR. Officer of 127 registered
investment companies managed by
Eaton Vance or BMR.
James M. Wall Secretary Since 2001 Vice President of Eaton Vance and BMR
Age 41 since 2001. Formerly, Senior Vice
President and Deputy General Counsel,
CDC IXIS Asset Management
(1999-2001), and Senior Legal
Counsel, Fidelity Investments
(1997-1999). Officer of 1 registered
investment company managed by
Eaton Vance or BMR.
Kristin S. Anagnost Treasurer Since 2001(2) Assistant Vice President of Eaton Vance
Age 38 and BMR. Officer of 109 registered
investment companies managed by
Eaton Vance or BMR.
(1) Mr. Nesvet was appointed Trustee on January 22, 2004.
(2) Prior to 2001, Ms. Anagnost served as Assistant Treasurer since 1998.
(A) APS Trustee.
Investment Advisor and Administrator
Eaton Vance Management
The Eaton Vance Building
255 State Street
Boston, MA 02109
Custodian, Transfer Agent,
Dividend Disbursing Agent and Registrar
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
Independent Auditors
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116-5022
The Massachusetts Health & Education Tax-Exempt Trust
The Eaton Vance Building
255 State Street
Boston, MA 02109
1-800-225-6265
278-2/04 MHEFASRC
Item 2. Code of Ethics
The registrant has adopted a code of ethics applicable to its Principal
Executive Officer, Principal Financial Officer and Principal Accounting
Officer. The registrant undertakes to provide a copy of such code of
ethics to any person upon request, without charge, by calling
1-800-262-1122.
Item 3. Audit Committee Financial Expert
Frank Nesvet (Chairman), James F. Carlin III, Edward M. Murphy, Walter
B. Prince and James M. Storey comprise the Audit Committee of the Board
of Trustees of the registrant. Mr. Nesvet has been designated by the
Board of Trustees as the registrant's audit committee financial expert.
Mr. Nesvet and each other member of the Audit Committee is "independent"
for purposes of this Item 3.
Item 4. Principal Accountant Fees and Services
(a)-(d)
The following table presents aggregate fees billed to the registrant for
the fiscal years ended December 31, 2002, and 2003 by the registrant's
principal accountant for professional services rendered for the audit of
the registrant's annual financial statements and fees billed for other
services rendered by the principal accountant during those periods.
PricewaterhouseCoopers LLP (PWC) served as the registrant's principal
accountant for fiscal year 2002. Effective March 17, 2003, upon the
recommendation of the registrant's Audit Committee, the Board approved
the engagement of Deloitte & Touche LLP as the registrant's principal
accountant for the 2003 fiscal year, replacing PWC.
Years Ended December 31, 2003 2002
- -----------------------------------------------------------
Audit Fees $14,832 $25,500
Audit-Related Fees(1) 5,778 6,700
Tax Fees(2) 5,300 2,350
All Other Fees(3) 0 0
- -----------------------------------------------------------
Total $25,910 $34,550
===========================================================
(1) Audit-related fees consist of the aggregate fees billed for
assurance and related services that are reasonably related to the
performance of the audit of the registrant's financial statements
and are not reported under the category of audit fees and
specifically include fees for the performance of certain agreed-upon
procedures relating to the registrant's auction preferred shares.
(2) Tax fees consist of the aggregate fees billed for professional
services rendered by the principal accountant relating to tax
compliance, tax advice, and tax planning and specifically include
fees for tax return preparation and other related tax
compliance/planning matters.
(3) All other fees consist of the aggregate fees billed for products
and services provided by the registrant's principal accountant other
than audit, audit-related, and tax services.
(e) (1) The registrant's audit committee has adopted policies and
procedures relating to the pre-approval of services provided by
the registrant's principal accountant (the "Pre-Approval
Policies"). The Pre-Approval Policies establish a framework
intended to assist the audit committee in the proper discharge
of its pre-approval responsibilities. As a general matter, the
Pre-Approval Policies (i) specify certain types of audit,
audit-related, tax, and other services determined to be
pre-approved by the audit committee; and (ii) delineate specific
procedures governing the mechanics of the pre-approval process,
including the approval and monitoring of audit and non-audit
service fees. Unless a service is specifically pre-approved
under the Pre-Approval Policies, it must be separately
pre-approved by the Audit Committee.
The Pre-Approval Policies and the types of audit and non-audit
services pre-approved therein must be reviewed and ratified by
the registrant's audit committee at least annually. The
registrant's audit committee maintains full responsibility for
the appointment, compensation, and oversight of the work of the
registrant's principal accountant.
(e) (2) No services described in paragraphs (b)-(d) above were
approved by the registrant's audit committee pursuant to the "de
minimis exception" set forth in Rule 2-01 (c)(7)(i)(C) of
Regulation S-X.
(f) Not applicable
(g) Aggregate non-audit fees (i.e., fees for audit-related, tax, and
other services) billed by the registrant's principal accountant for
services rendered to the registrant for each of the registrant's
last two fiscal years (2002 and 2003) were $ 9,050 and $ 11,078,
respectively. Aggregate non-audit fees (i.e., fees for
audit-related, tax, and other services) billed by the registrant's
principal accountant for services rendered to the Eaton Vance
organization (which includes the registrant's investment adviser and
any entity controlling, controlled by, or under common control with
the adviser that provides ongoing services to the registrant) for
each of the registrant's last two fiscal years (2002 and 2003) were
$ 0 and $ 458,168, respectively.
(h) The registrant's audit committee has considered whether the
provision by the registrant's principal accountant of non-audit
services to the registrant's investment adviser and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant that were not
pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X is
compatible with maintaining the principal accountant's independence.
Item 5. Audit Committee of Listed Registrants
(a) Registrant has a separately-designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the Exchange
Act. Frank Nesvet (Chairman), James F. Carlin III, Edward M. Murphy,
Walter B. Prince and James M. Storey comprise the Audit Committee of
the Board of Trustees. Each member of the Audit Committee is
"independent" as defined in Item 3 of Form N-CSR.
(b) Not applicable
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies
Not required in this filing.
Item 8. [Reserved]
Item 9. Controls and Procedures
(a) It is the conclusion of the registrant's principal executive
officer and principal financial officer that the effectiveness of
the registrant's current disclosure controls and procedures (such
disclosure controls and procedures having been evaluated within 90
days of the date of this filing) provide reasonable assurance that
the information required to be disclosed by the registrant has been
recorded, processed, summarized and reported within the time period
specified in the Commission's rules and forms and that the
information required to be disclosed by the registrant has been
accumulated and communicated to the registrant's principal executive
officer and principal financial officer in order to allow timely
decisions regarding required disclosure.
(b) There have been no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10. Exhibits
(a)(1) Registrant's Code of Ethics - Not applicable (please see Item 2).
(a)(2)(i) Treasurer's Section 302 certification.
(a)(2)(ii) President's Section 302 certification.
(b) Combined Section 906 certification.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
The Massachusetts Health & Education Tax-Exempt Trust
- -----------------------------------------------------
By: /s/ Thomas J. Fetter
---------------------------
Thomas J. Fetter
President
Date: February 19, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Kristin S. Anagnost
---------------------------
Kristin S. Anagnost
Treasurer
Date: February 19, 2004
By: /s/ Thomas J. Fetter
---------------------------
Thomas J. Fetter
President
Date: February 19, 2004