UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07660
Name of Fund: The Massachusetts Health & Education Tax-Exempt Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: John M. Loffredo, Chief Executive
Officer, The Massachusetts Health & Education Tax-Exempt Trust, 800
Scudders Mill Road, Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011,
Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 12/31/04
Date of reporting period: 01/01/04 - 12/31/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
The Massachusetts Health &
Education Tax-Exempt Trust
Annual Report
December 31, 2004
[LOGO] Merrill Lynch Investment Managers
The Massachusetts Health & Education
Tax-Exempt Trust
The Benefits and Risks of Leveraging
The Massachusetts Health & Education Tax-Exempt Trust utilizes leverage to seek
to enhance the yield and net asset value of its Common Shares. However, these
objectives cannot be achieved in all interest rate environments. To leverage,
the Trust issues Preferred Shares, which pay dividends at prevailing short-term
interest rates, and invests the proceeds in long-term municipal bonds. The
interest earned on these investments, net of dividends to Preferred Shares, is
paid to Common Shareholders in the form of dividends, and the value of these
portfolio holdings is reflected in the per share net asset value of the Trust's
Common Shares. However, in order to benefit Common Shareholders, the yield curve
must be positively sloped; that is, short-term interest rates must be lower than
long-term interest rates. At the same time, a period of generally declining
interest rates will benefit Common Shareholders. If either of these conditions
change, then the risks of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Share capitalization of
$100 million and the issuance of Preferred Shares for an additional $50 million,
creating a total value of $150 million available for investment in long-term
municipal bonds. If prevailing short-term interest rates are approximately 3%
and long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million of Preferred
Shares based on the lower short-term interest rates. At the same time, the
fund's total portfolio of $150 million earns the income based on long-term
interest rates. Of course, increases in short-term interest rates would reduce
(and even eliminate) the dividends on the Common Shares.
In this case, the dividends paid to Preferred Shareholders are significantly
lower than the income earned on the fund's long-term investments, and therefore
the Common Shareholders are the beneficiaries of the incremental yield. However,
if short-term interest rates rise, narrowing the differential between short-term
and long-term interest rates, the incremental yield pickup on the Common Shares
will be reduced or eliminated completely. At the same time, the market value of
the fund's Common Shares (that is, its price as listed on the American Stock
Exchange) may, as a result, decline. Furthermore, if long-term interest rates
rise, the Common Shares' net asset value will reflect the full decline in the
price of the portfolio's investments, since the value of the fund's Preferred
Shares does not fluctuate. In addition to the decline in net asset value, the
market value of the fund's Common Shares may also decline.
As a part of its investment strategy, the Trust may invest in certain securities
whose potential income return is inversely related to changes in a floating
interest rate ("inverse floaters"). In general, income on inverse floaters will
decrease when short-term interest rates increase and increase when short-term
interest rates decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Trust to the risks of reduced or
eliminated interest payments and losses of invested principal. In addition,
inverse floaters have the effect of providing investment leverage and, as a
result, the market value of such securities will generally be more volatile than
that of fixed-rate, tax-exempt securities. To the extent the Trust invests in
inverse floaters, the market value of the Trust's portfolio and the net asset
value of the Trust's shares may also be more volatile than if the Trust did not
invest in these securities. As of December 31, 2004, the Trust did not invest in
inverse floaters.
Swap Agreements
The Trust may also invest in swap agreements, which are over-the-counter
contracts in which one party agrees to make periodic payments based on the
change in market value of a specified bond, basket of bonds, or index in return
for periodic payments based on a fixed or variable interest rate or the change
in market value of a different bond, basket of bonds or index. Swap agreements
may be used to obtain or reduce exposure to a bond or market without owning or
taking physical custody of securities. Swap agreements involve the risk that the
party with whom the Trust has entered into the swap will default on its
obligation to pay the Trust and the risk that the Trust will not be able to meet
its obligations to pay the other party to the agreement.
2 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004
A Letter From the President and Chief Investment Officer
Dear Shareholder
The U.S. equity market ended 2004 in positive territory, although not without
some suspense along the way. Fixed income markets also performed well, with high
yield bond investors enjoying some of the greatest returns.
Over the past year, the equity market generally found support from a healthy
economic environment, above-average corporate earnings, increased capital
spending and still-low interest rates. Stalling the momentum somewhat throughout
the year was a contentious election, negligible inflation amid a rising federal
funds interest rate, record-high oil prices and the seemingly ever-present
worries over terrorism and the war in Iraq.
Still, the Standard & Poor's 500 Index posted a 12-month return of +10.88% and a
six-month return of +7.19% as of December 31, 2004. The fourth quarter of the
year proved to be the most telling, as the S&P 500 Index was up only 1.51%
year-to-date as of September 30, 2004. As the price of oil relaxed and election
uncertainties subsided, the market headed more convincingly upward in the last
quarter of the year.
Given the relatively positive environment for equities, the favorable
performance of the bond market came as somewhat of a surprise. The Lehman
Brothers Aggregate Bond Index posted a 12-month return of +4.34% and a six-month
return of +4.18% as of December 31, 2004. The tax-exempt market performed just
as well, with a 12-month return of +4.48% and a six-month return of +5.19%, as
measured by the Lehman Brothers Municipal Bond Index. Those comfortable with a
higher degree of risk benefited this past year, as the Credit Suisse First
Boston High Yield Index posted a 12-month return of +11.95% and a six-month
return of +9.26%. Interestingly, as the Federal Reserve Board began raising its
target short-term interest rate, long-term bond yields were little changed. In
fact, the yield on the 10-year Treasury was 4.24% at year-end compared to 4.27%
at December 31, 2003. The yield on the two-year Treasury climbed to 3.08% at
year-end 2004 from 1.84% a year earlier.
As always, our investment professionals are closely monitoring the markets, the
economy and the overall environment in an effort to make well-informed decisions
for the portfolios they manage. For the individual investor, the key to
investment success -- particularly during uncertain times -- is to maintain a
long-term perspective and adhere to the disciplines of asset allocation,
diversification and rebalancing. We encourage you to work with your financial
advisor to ensure these time-tested techniques are incorporated into your
investment plan.
We thank you for trusting Merrill Lynch Investment Managers with your investment
assets, and we look forward to serving you in the new year and beyond.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Chief Investment Officer
Merrill Lynch Investment Managers
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Trust's Portfolio Managers
At period-end, the Trust was fully invested and positioned to reflect our
generally neutral outlook for interest rates.
Describe the market environment relative to municipal bonds.
U.S. Treasury bond yields generally moved lower over the past 12 months, while
displaying considerable monthly volatility along the way. Early in the year,
yields declined as bond prices, which move in the opposite direction, rose. The
rise in bond prices came as somewhat of a surprise, as economic conditions in
the United States continued to improve. However, solid job creation remained
elusive and consumer confidence faltered. Under these circumstances, investors
became increasingly convinced that the Federal Reserve Board (the Fed) would
hold short-term interest rates at their historic lows throughout most of 2004.
By mid-March, long-term U.S. Treasury bond yields had declined 42 basis points
(.42%) to 4.65%.
In early April, monthly employment reports began to show unexpectedly large
gains. Associated improvements in consumer confidence and spending led some
investors to believe that the Fed may raise short-term interest rates to ensure
that resurgent economic activity did not endanger the positive inflationary
environment. By early June, long-term U.S. Treasury bond yields had risen above
5.50%.
For the remainder of the period, however, bond yields generally declined.
Earlier strength in payroll growth waned while inflationary measures remained
negligible. More important, in late June, the Fed raised its short-term interest
rate target by 25 basis points to 1.25%, the first change in more than a year.
In its accompanying statement, the Fed called for a "measured" approach to
interest rate increases. The prospect for a moderate tightening sequence helped
support higher bond prices for the remainder of the Trust's fiscal year. Four
subsequent Fed rate hikes brought the federal funds rate to 2.25% at period-end,
but had limited market impact as monthly U.S. employment gains remained modest.
In addition, strong currency-related demand for U.S. Treasury issues from many
foreign governments helped bolster fixed income bond prices, as did the dramatic
increase in oil prices, which was viewed by some as depressing both consumer
spending and overall economic activity. By the end of December 2004, long-term
U.S. Treasury bond yields stood at 4.85%, a decline of 24 basis points over the
past year. The 10-year U.S. Treasury note yield fell three basis points during
the period to 4.24%.
Yield volatility was more subdued in the tax-exempt market. Long-term revenue
bond yields, as measured by the Bond Buyer Revenue Bond Index, declined three
basis points over the past year. AAA-rated issues maturing in 30 years, as
reported by Municipal Market Data, saw their yields fall just two basis points
to 4.61%. In contrast, yields on 10-year, AAA-rated issues rose 12 basis points
to 3.52%.
Describe conditions in Massachusetts.
The Massachusetts economy showed signs of a sustained recovery in revenue
collections during the second half of the 2004 fiscal year, and indications are
that the commonwealth could build on its positive momentum in fiscal year 2005.
Massachusetts's unemployment rate continued to fall, ending November 2004 at
4.6%, below the national average of 5.4%. These trends suggest that
Massachusetts is again approaching the economic stability it enjoyed as recently
as 2001. The commonwealth's budget for the 2005 fiscal year projected financial
reserves of just over $800 million, a figure that will be easily surpassed if
revenues continue at their current pace. For the first fiscal quarter, tax
collections were nearly 6% higher than for the same period in fiscal year 2004.
Massachusetts's fiscal 2006 budget, filed in late January, is expected to boost
the amount of state aid to cities by 4.3%. Massachusetts's debt levels, however,
remain the second-highest in the United States, due in part to the costs of the
Central Artery/Tunnel project (the "Big Dig"). Also, the creation of the School
Building Assistance Program, which changes how school construction is financed
in the commonwealth, is likely to add to current debt levels.
How did the Trust perform during the fiscal year?
For the 12-month period ended December 31, 2004, the Common Shares of
Massachusetts Health & Education Tax-Exempt Trust had net annualized yields of
6.26% and 5.30%, based on a year-end per share net asset value of $13.74 and a
per share market price of $16.24, respectively, and $.860 per share income
dividends. Over the same period, the total investment return on the Trust's
Common Shares was +6.08%, based on a change in per share net asset value from
$13.91 to $13.74, and assuming reinvestment of all distributions.
4 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004
Upon assuming management of the Trust on September 1, 2004, we invested most of
the portfolio's cash reserves in what we believed to be attractive lower-rated
and non-investment grade Massachusetts bonds. This strategy benefited
performance as credit spreads continued to tighten in the months that followed.
Detracting from performance was the Trust's relatively low leverage ratio --
approximately 24% of portfolio assets -- compared to other similarly managed
portfolios. In a generally favorable market environment for bonds during the
final four months of 2004, the lower leverage ratio hindered the Trust's total
return.
For the six-month period ended December 31, 2004, the total investment return on
the Trust's Common Shares was +6.59%, based on a change in per share net asset
value from $13.42 to $13.74, and assuming reinvestment of all distributions.
For a description of the Trust's total investment return based on a change in
the per share market value of the Trust's Common Shares (as measured by the
trading price of the Trust's shares on the American Stock Exchange), and
assuming reinvestment of dividends, please refer to the Financial Highlights
section of this report. As a closed-end trust, the Trust's shares may trade in
the secondary market at a premium or discount to the Trust's net asset value. As
a result, total investment returns based on changes in the market value of the
Trust's Common Shares can vary significantly from total investment returns based
on changes in the Trust's net asset value.
What changes were made to the portfolio during the period?
As mentioned earlier, we looked to take advantage of what we believed would be a
further contraction in credit spreads by investing the Trust's available cash
reserves in non-rated and lower-rated Massachusetts bonds. In line with the
Trust's investment mandate, virtually all of these new investments were made in
the not-for-profit health care and education sectors. By prospectus, the Trust
must hold at least 80% of its assets in these areas, and at period-end we were
comfortably above this figure at 86%.
For the six months ended December 31, 2004, the Trust's Auction Preferred Shares
(APS) had an average yield of 1.22%. These attractive funding levels, in
combination with a steep tax-exempt yield curve, continued to generate
significant income to the Trust's Common Shareholders. Although the Fed is
expected to continue raising short-term interest rates, subsequent increases are
expected to be gradual and should not have an immediate material impact on the
positive advantage leverage has had on the yield of the Trust's Common Shares.
However, should the spread between short-term and long-term interest rates
narrow, the benefits of leverage will decline, and as a result, reduce the yield
on the Trust's Common Shares. At the end of the period, the Trust's leverage
amount, due to APS, was 24% of total net assets, before the deduction of
Preferred Shares. (For a more complete explanation of the benefits and risks of
leveraging, see page 2 of this report to shareholders.)
How would you characterize the Trust's position at the close of the period?
At period-end, the Trust was fully invested and positioned to reflect our
generally neutral outlook for interest rates. We anticipate that dividends on
the Trust's Preferred Shares will rise in conjunction with further Fed monetary
tightening. We are not, however, expecting a significant rise in yields for
long-term Massachusetts municipal securities. We believe the technical
characteristics of the commonwealth's tax-exempt market remain favorable. With
municipal bond yields relatively attractive compared to their taxable
counterparts, we expect to see reduced supply along with solid investor demand
for tax-exempt bonds in the coming year.
Theodore R. Jaeckel Jr., CFA
Vice President and Portfolio Manager
Robert D. Sneeden
Vice President and Portfolio Manager
January 7, 2005
--------------------------------------------------------------------------------
We are pleased to announce that Portfolio Managers Theodore R. Jaeckel Jr. and
Robert D. Sneeden assumed responsibility for the day-to-day management of the
portfolio, effective September 1, 2004. Mr. Jaeckel was named a Managing
Director of Merrill Lynch Investment Managers (MLIM) in 2005. Prior to that, he
was a Director with MLIM from 1997 to 2004 and a Vice President from 1991 to
1996. Mr. Sneeden has been a Vice President of MLIM since 1998.
--------------------------------------------------------------------------------
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004 5
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (in Thousands)
Face
Amount Municipal Bonds Value
===================================================================================================================================
Massachusetts--128.5%
-----------------------------------------------------------------------------------------------------------------------------------
Massachusetts State College Building Authority, Project Revenue Refunding Bonds, Series B (i):
$1,300 4.61%* due 5/01/2021 $ 605
825 5.50% due 5/01/2039 940
-----------------------------------------------------------------------------------------------------------------------
Massachusetts State Development Finance Agency, Education Revenue Bonds:
1,100 (Belmont Hill School), 5% due 9/01/2031 1,118
400 (Middlesex School Project), 5% due 9/01/2033 406
250 (Xaverian Brothers High School), 5.65% due 7/01/2029 258
-----------------------------------------------------------------------------------------------------------------------
Massachusetts State Development Finance Agency, First Mortgage Revenue Bonds, Series A:
855 (Edgecombe Project), 6.75% due 7/01/2021 898
850 (Overlook Communities Inc.), 6.125% due 7/01/2024 843
-----------------------------------------------------------------------------------------------------------------------
825 Massachusetts State Development Finance Agency, Resource Recovery Revenue Bonds (Ogden Haverhill
Associates), AMT, Series A, 6.70% due 12/01/2014 892
-----------------------------------------------------------------------------------------------------------------------
Massachusetts State Development Finance Agency Revenue Bonds:
400 (Franklin W. Olin College), Series B, 5.25% due 7/01/2033 (i) 419
1,000 (Massachusetts College of Pharmacy and Health Sciences), 5.75% due 7/01/2033 1,039
425 (Massachusetts Council of Human Service Providers, Inc.), Series C, 6.60% due 8/15/2029 388
400 (Suffolk University), 5.75% due 7/01/2019 419
500 (Volunteers of America--Ayer Limited Partnership), AMT, Series A, 6.20% due 2/20/2046 (k) 542
700 (WGBH Educational Foundation), Series A, 5.375% due 1/01/2042 (a) 742
1,100 (WGBH Educational Foundation), Series A, 5.75% due 1/01/2042 (a) 1,300
600 (Western New England College), 5.875% due 12/01/2022 633
540 (The Wheeler School), 6.50% due 12/01/2029 568
-----------------------------------------------------------------------------------------------------------------------
Massachusetts State Development Finance Agency, Revenue Refunding Bonds:
1,500 (Boston University), Series P, 5.45% due 5/15/2059 1,587
225 (Odd Fellows Home of Massachusetts), 6.25% due 1/01/2015 211
-----------------------------------------------------------------------------------------------------------------------
Massachusetts State Health and Educational Facilities Authority Revenue Bonds:
800 (Baystate Medical Center), Series E, 6% due 7/01/2026 (e) 851
1,000 (Baystate Medical Center), Series F, 5.75% due 7/01/2033 1,049
350 (Berkshire Health System), Series E, 6.25% due 10/01/2031 367
1,500 (Daughters of Charity-Carney), Series D, 6.10% due 7/01/2006 (g)** 1,539
1,350 (Harvard University), Series FF, 5.125% due 7/15/2037 1,396
1,000 (Milford-Whitinsville Hospital), Series D, 6.35% due 7/15/2032 1,048
500 (New England Medical Center Hospitals), Series H, 5% due 5/15/2022 (c) 523
200 (Partners Healthcare System), VRDN, Series D-5, 2.18% due 7/01/2017 (h) 200
1,000 (Simmons College), Series F, 5% due 10/01/2033 (c) 1,026
230 (University of Massachusetts), Series C, 5.125% due 10/01/2034 (c) 238
1,355 (Wheaton College), Series D, 6% due 1/01/2018 (g)** 1,447
Portfolio Abbreviations
To simplify the listings of The Massachusetts Health & Education Tax-Exempt
Trust's portfolio holdings in the Schedule of Investments, we have abbreviated
the names of many of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
PCR Pollution Control Revenue Bonds
VRDN Variable Rate Demand Notes
6 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
===================================================================================================================================
Massachusetts (concluded)
-----------------------------------------------------------------------------------------------------------------------------------
Massachusetts State Health and Educational Facilities Authority, Revenue Refunding Bonds:
$ 885 (Bay Cove Human Services Issue), Series A, 5.90% due 4/01/2028 $ 854
1,000 (Berkshire Health System), Series D, 6% due 10/01/2019 (f) 1,045
1,500 (Boston College), Series N, 5.125% due 6/01/2037 1,542
400 (Capital Asset Program), VRDN, Series C, 2.16% due 7/01/2010 (f)(h) 400
500 (Christopher House), Series A, 6.875% due 1/01/2029 491
800 (Covenant Health System), 6% due 7/01/2022 862
400 (Covenant Health System), 6% due 7/01/2031 424
495 (Learning Center for Deaf Children), Series C, 6.125% due 7/01/2029 484
500 (Massachusetts Institute of Technology), Series L, 5% due 7/01/2023 554
500 (Milton Hospital), Series C, 5.50% due 7/01/2016 506
100 (Partners Healthcare System), Series A, 5.375% due 7/01/2024 (f) 106
1,000 (Partners Healthcare System), Series C, 5.75% due 7/01/2032 1,089
395 (Valley Regional Health System), Series C, 5.75% due 7/01/2018 (b) 404
1,750 (Wellesley College), 5% due 7/01/2033 1,796
1,000 (Youville House), Series A, 6.25% due 2/15/2007 (d)(g) 1,100
-----------------------------------------------------------------------------------------------------------------------
750 Massachusetts State Industrial Finance Agency, Health Care Facility Revenue Bonds (Age Institute of
Massachusetts Project), 8.05% due 11/01/2025 753
-----------------------------------------------------------------------------------------------------------------------
1,500 Massachusetts State Industrial Finance Agency, PCR (General Motors Corporation), 5.55% due 4/01/2009 1,502
-----------------------------------------------------------------------------------------------------------------------
400 Massachusetts State Industrial Finance Agency, Revenue Bonds (Wentworth Institute of Technology),
5.75% due 10/01/2028 414
-----------------------------------------------------------------------------------------------------------------------
340 Massachusetts State Industrial Finance Agency, Senior Living Facility Revenue Bonds (Forge Hill
Project), AMT, 6.75% due 4/01/2030 323
-----------------------------------------------------------------------------------------------------------------------
1,000 Massachusetts State Water Pollution Abatement Trust, Pool Program Revenue Bonds, Series 10, 5%
due 8/01/2029 1,035
-----------------------------------------------------------------------------------------------------------------------
500 Massachusetts State Water Resource Authority, General Revenue Refunding Bonds, Series A, 5.75%
due 8/01/2039 (c) 560
-----------------------------------------------------------------------------------------------------------------------
1,000 Rail Connections, Inc., Massachusetts, Capital Appreciation Revenue Bonds (Route 128 Parking
Garage), Series B, 6.53%* due 7/01/2009 (g)(j) 441
-----------------------------------------------------------------------------------------------------------------------
1,000 University of Massachusetts Building Authority, Project Revenue Refunding Bonds, Senior Series 04-1,
5.125% due 11/01/2034 (a) 1,038
-----------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$39,440)--128.5% 41,215
=======================================================================================================================
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004 7
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (concluded) (in Thousands)
Shares
Held Short-Term Securities Value
=======================================================================================================================
--+ CMA Massachusetts Municipal Money Fund*** $ --+
=======================================================================================================================
Total Investments (Cost--$39,440****)--128.5% 41,215
Other Assets Less Liabilities--2.7% 861
Preferred Shares, at Redemption Value--(31.2%) (10,000)
--------
Net Assets Applicable to Common Shares--100.0% $ 32,076
========
(a) AMBAC Insured.
(b) Connie Lee Insured.
(c) FGIC Insured.
(d) FHA Insured.
(e) FSA Insured.
(f) MBIA Insured.
(g) Prerefunded.
(h) Security has a maturity of more than one year, but has variable rate and
demand features which qualify it as a short-term security. The rate
disclosed is that currently in effect. This rate changes periodically
based upon prevailing market rates.
(i) XL Capital Insured.
(j) ACA Insured.
(k) GNMA Collateralized.
+ Amount is less than $1,000.
* Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of the purchase by the Trust.
** The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
*** Investments in companies considered to be an affiliate of the Trust (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company act of 1940) were as follows:
(in Thousands)
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
CMA Massachusetts Municipal Money Fund --@ --@
--------------------------------------------------------------------------
@ Amount is less than $1,000.
**** The cost and unrealized appreciation/depreciation of investments as of
December 31, 2004, as computed for federal income tax purposes, were as
follows:
(in Thousands)
--------------------------------------------------------------------------
Aggregate cost ................................... $ 39,345
========
Gross unrealized appreciation .................... $ 1,947
Gross unrealized depreciation .................... (77)
--------
Net unrealized appreciation ...................... $ 1,870
========
See Notes to Financial Statements.
8 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004
Statement of Net Assets
As of December 31, 2004
=====================================================================================================================
Assets
---------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost--$39,440,030) ............................. $ 41,214,768
Investments in affiliated securities, at value
(identified cost--$81) ..................................... 81
Cash ........................................................ 90,718
Receivables:
Interest ................................................. $ 771,162
Securities sold .......................................... 80,000 851,162
------------
Prepaid expenses ............................................ 2,000
------------
Total assets ................................................ 42,158,729
------------
=====================================================================================================================
Liabilities
---------------------------------------------------------------------------------------------------------------------
Payables:
Investment adviser ....................................... 14,082
Administration fees ...................................... 6,035 20,117
------------
Accrued expenses ............................................ 62,920
------------
Total liabilities ........................................... 83,037
------------
=====================================================================================================================
Preferred Shares
---------------------------------------------------------------------------------------------------------------------
Preferred Shares, at redemption value, par value $.01 per
share (400 shares authorized, 200 shares of APS* issued
and outstanding at $50,000 per share liquidation preference) 10,000,000
------------
=====================================================================================================================
Net Assets Applicable to Common Shares
---------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Shares ...................... $ 32,075,692
============
=====================================================================================================================
Analysis of Net Assets Applicable to Common Shares
---------------------------------------------------------------------------------------------------------------------
Common Shares, par value $.01 per share (2,335,112 shares
issued and outstanding) .................................... $ 23,351
Paid-in capital in excess of par ............................ 29,776,284
Undistributed investment income--net ........................ $ 492,966
Undistributed realized capital gains--net ................... 8,353
Unrealized appreciation--net ................................ 1,774,738
------------
Total accumulated earnings--net ............................. 2,276,057
------------
Total--Equivalent to $13.74 net asset value per Common
Share (market price--$16.24) ............................... $ 32,075,692
============
* Auction Preferred Shares.
See Notes to Financial Statements.
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004 9
[LOGO] Merrill Lynch Investment Managers
Statement of Operations
For the Year Ended December 31, 2004
=====================================================================================================================
Investment Income
---------------------------------------------------------------------------------------------------------------------
Interest .................................................... $ 2,385,842
Dividends from affiliates ................................... 81
------------
Total income ................................................ 2,385,923
------------
=====================================================================================================================
Expenses
---------------------------------------------------------------------------------------------------------------------
Investment advisory fees .................................... $ 148,483
Professional fees ........................................... 102,433
Administration fees ......................................... 63,398
Transfer agent fees ......................................... 37,013
Trustees' fees and expenses ................................. 29,712
Commission fees ............................................. 25,417
Printing and shareholder reports ............................ 22,415
Custodian fees .............................................. 15,934
Pricing fees ................................................ 6,329
Accounting services ......................................... 4,467
Listing fees ................................................ 271
Other ....................................................... 9,450
------------
Total expenses before reimbursement ......................... 465,322
Reimbursement of expenses ................................... (62)
------------
Total expenses after reimbursement .......................... 465,260
------------
Investment income--net ...................................... 1,920,663
------------
=====================================================================================================================
Realized & Unrealized Gain (Loss)--Net
---------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net ........................... 619,944
Change in unrealized appreciation on investments--net ....... (459,444)
------------
Total realized and unrealized gain--net ..................... 160,500
------------
=====================================================================================================================
Dividends & Distributions to Preferred Shareholders
---------------------------------------------------------------------------------------------------------------------
Investment income--net ...................................... (78,121)
Realized gain--net .......................................... (17,165)
------------
Total dividends and distributions to Preferred Shareholders . (95,286)
------------
Net Increase in Net Assets Resulting from Operations ........ $ 1,985,877
============
See Notes to Financial Statements.
10 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004
Statements of Changes in Net Assets
For the Year Ended
December 31,
-----------------------------
Increase (Decrease) in Net Assets: 2004 2003
=====================================================================================================================
Operations
---------------------------------------------------------------------------------------------------------------------
Investment income--net ...................................... $ 1,920,663 $ 2,162,085
Realized gain--net .......................................... 619,944 214,271
Change in unrealized appreciation--net ...................... (459,444) (46,713)
Dividends and distributions to Preferred Shareholders ....... (95,286) (79,020)
-----------------------------
Net increase in net assets resulting from operations ........ 1,985,877 2,250,623
-----------------------------
=====================================================================================================================
Dividends & Distributions to Common Shareholders
---------------------------------------------------------------------------------------------------------------------
Investment income--net ...................................... (2,022,704) (1,917,436)
Realized gain--net .......................................... (367,233) --
-----------------------------
Net decrease in net assets resulting from dividends and
distributions to Common Shareholders ....................... (2,389,937) (1,917,436)
-----------------------------
=====================================================================================================================
Common Share Transactions
---------------------------------------------------------------------------------------------------------------------
Value of shares issued to Common Shareholders in reinvestment
of dividends and distributions ............................. 89,668 60,442
-----------------------------
=====================================================================================================================
Net Assets Applicable to Common Shares
---------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets applicable to Common
Shares ..................................................... (314,392) 393,629
Beginning of year ........................................... 32,390,084 31,996,455
-----------------------------
End of year* ................................................ $ 32,075,692 $ 32,390,084
=============================
* Undistributed investment income--net ................... $ 492,966 $ 580,732
=============================
See Notes to Financial Statements.
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004 11
[LOGO] Merrill Lynch Investment Managers
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended December 31,
---------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
-----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ........ $ 13.91 $ 13.76 $ 13.25 $ 13.17 $ 12.45
---------------------------------------------------------------
Investment income--net+ ................... .82 .93 .94 .94 .90
Realized and unrealized gain--net ......... .08 .07 .42 .03 .73
Dividends and distributions to Preferred
Shareholders:
Investment income--net ................. (.03) (.03) (.05) (.11) (.15)
Realized gain--net ..................... (.01) -- -- -- --
---------------------------------------------------------------
Total from investment operations .......... .86 .97 1.31 .86 1.48
---------------------------------------------------------------
Less dividends and distributions to Common
Shareholders:
Investment income--net ................. (.87) (.82) (.80) (.78) (.76)
Realized gain--net ..................... (.16) -- -- -- --
---------------------------------------------------------------
Total dividends and distributions to Common
Shareholders ............................. (1.03) (.82) (.80) (.78) (.76)
---------------------------------------------------------------
Net asset value, end of year .............. $ 13.74 $ 13.91 $ 13.76 $ 13.25 $ 13.17
===============================================================
Market price per share, end of year ....... $ 16.24 $ 15.26 $ 13.48 $ 13.60 $ 12.75
===============================================================
===================================================================================================================================
Total Investment Return
-----------------------------------------------------------------------------------------------------------------------------------
Based on market price per share ........... 14.29% 20.11% 5.10% 13.01% 17.78%
===============================================================
===================================================================================================================================
Ratios Based on Average Net Assets of Common Shares*
-----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement ...... 1.45% 1.16% 1.19% 1.18% 1.29%
===============================================================
Total expenses ............................ 1.45% 1.16% 1.20% 1.20% 1.30%
===============================================================
Total investment income--net .............. 5.97% 6.74% 7.00% 7.02% 7.16%
===============================================================
===================================================================================================================================
Ratios Based on Average Assets of Common & Preferred Shares*
-----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement ...... 1.10% .88% .90% .90% .96%
===============================================================
Total expenses ............................ 1.10% .88% .91% .91% .97%
===============================================================
Total investment income--net .............. 4.55% 5.14% 5.31% 5.31% 5.33%
===============================================================
===================================================================================================================================
Supplemental Data
-----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Shares,
end of year (in thousands) ............... $32,076 $32,390 $31,996 $30,727 $30,500
===============================================================
Portfolio turnover ........................ 20.70% 26.17% 35.56% 12.69% 7.90%
===============================================================
* Do not reflect the effect of dividends to Preferred Shareholders.
+ Based on average shares outstanding.
See Notes to Financial Statements.
12 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004
Notes to Financial Statements
1. Significant Accounting Policies:
The Massachusetts Health & Education Tax-Exempt Trust (the "Trust") is
registered under the Investment Company Act of 1940, as amended, as a
non-diversified, closed-end management investment company. The Trust's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. The Trust determines and makes
available for publication the net asset value of its Common Shares on a daily
basis. The Trust's Common Shares are listed on the American Stock Exchange under
the symbol MHE. The following is a summary of significant accounting policies
followed by the Trust.
(a) Valuation of investments -- Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the last available bid price in the
over-the-counter market or on the basis of values as obtained by a pricing
service. Pricing services use valuation matrixes that incorporate both
dealer-supplied valuations and valuation models. The procedures of the pricing
service and its valuations are reviewed by the officers of the Trust under the
general direction of the Board of Trustees. Such valuations and procedures are
reviewed periodically by the Board of Trustees of the Trust. Financial futures
contracts and options thereon, which are traded on exchanges, are valued at
their closing prices as of the close of such exchanges. Options written or
purchased are valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Swap agreements are valued by quoted fair values received daily by
the Trust from the counterparty. Short-term investments with a remaining
maturity of 60 days or less are valued at amortized cost, which approximates
market value, under which method the investment is valued at cost and any
premium or discount is amortized on a straight line basis to maturity.
Investments in open-end investment companies are valued at their net asset value
each business day. Securities and other assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Trust.
(b) Derivative financial instruments -- The Trust may engage in various
portfolio investment strategies both to increase the return of the Trust and to
hedge, or protect, its exposure to interest rate movements and movements in the
securities markets. Losses may arise due to changes in the value of the contract
or if the counterparty does not perform under the contract.
o Financial futures contracts -- The Trust may purchase or sell financial
futures contracts and options on such futures contracts. Futures contracts
are contracts for delayed delivery of securities at a specific future date
and at a specific price or yield. Upon entering into a contract, the Trust
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Trust agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by the
Trust as unrealized gains or losses. When the contract is closed, the
Trust records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time
it was closed.
o Options -- The Trust may write covered call options and purchase put
options. When the Trust writes an option, an amount equal to the premium
received by the Trust is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked-to-market to
reflect the current market value of the option written. When a security is
purchased or sold through an exercise of an option, the related premium
paid (or received) is added to (or deducted from) the basis of the
security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Trust enters into a closing
transaction), the Trust realizes a gain or loss on the option to the
extent of the premiums received or paid (or gain or loss to the extent the
cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Forward interest rate swaps -- The Trust may enter into forward interest
rate swaps. In a forward interest rate swap, the Trust and the
counterparty agree to make periodic net payments on a specified notional
contract amount, commencing on a specified future effective date, unless
terminated earlier. When the agreement is closed, the Trust records a
realized gain or loss in an amount equal to the value of the agreement.
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004 13
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
(c) Income taxes -- It is the Trust's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
(d) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates. The
Trust amortizes all premiums and discounts on debt securities.
(e) Dividends and distributions -- Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded on
the ex-dividend dates.
(f) Reclassifications -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $92,396 has been reclassified between accumulated net realized capital
gains and undistributed net investment income and $25,442 has been reclassified
between accumulated net realized capital gains and paid-in capital in excess of
par as a result of permanent differences attributable to amortization methods of
premiums and discounts on fixed income securities. These reclassifications have
no effect on net assets or net asset values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust had previously entered into an advisory and administrative agreement
with Eaton Vance Management ("Eaton Vance"), under which Eaton Vance furnished
the Trust with investment research, advisory and administrative services. For
such services, the Trust paid a monthly fee at an annual rate of .35% of the
Trust's average daily net assets, including proceeds from the issuance of
Preferred Shares.
On May 28, 2004, the Board of Trustees voted to appoint Fund Asset Management,
L.P. ("FAM") as the Trust's investment adviser and Princeton Administrators,
L.P. ("Princeton") as the Trust's administrator effective September 1, 2004. The
general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect,
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. FAM and Princeton are owned and controlled by ML & Co.
FAM is responsible for the management of the Trust's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Trust. For such services, the Trust pays a monthly fee
at an annual rate of .35% of the Trust's average daily net assets, including
proceeds from the issuance of Preferred Shares. The Investment Adviser has
agreed to waive its management fees the Trust pays to FAM indirectly through its
investment in CMA Massachusetts Municipal Money Fund. For the year ended
December 31, 2004, FAM reimbursed the Trust in the amount of $62.
The Trust pays Princeton a monthly fee at an annual rate of .15% of the Trust's
average daily net assets, including proceeds from the issuance of Preferred
Shares, for the performance of administrative services (other than investment
advice and related portfolio activities) necessary for the operation of the
Trust.
Certain officers and/or Trustees of the Trust are officers and/or Trustees of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 2004 were $8,425,011 and $9,619,506, respectively.
4. Share Transactions:
Common Shares
The Trust is authorized to issue an unlimited number of Common Shares, par value
$.01 per share. Shares issued and outstanding during the years ended December
31, 2004 and December 31, 2003 increased by 6,200 and 4,343, respectively, as a
result of reinvestment of dividends and distributions.
Preferred Shares
The Trust is authorized to issue an unlimited number of Preferred Shares, par
value $.01 per share. In addition, the Trust has authorized 400 shares of
Auction Preferred Shares, par value $.01 per share. Auction Preferred Shares are
redeemable shares of Preferred Shares of the Trust, with a par value of $.01 per
share and a liquidation preference of $50,000 per share, plus accrued and unpaid
dividends, that entitle their holders to receive cash dividends at an annual
rate that may vary for the successive dividend periods. The yield in effect at
December 31, 2004 was 1.261%.
14 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004
Notes to Financial Statements (concluded)
5. Distributions to Shareholders:
The Trust paid a tax-exempt income dividend to holders of Common Shares in the
amount of $.065000 per share on January 28, 2005 to shareholders of record on
January 19, 2005.
The tax character of distributions paid during the fiscal years ended December
31, 2004 and December 31, 2003 was as follows:
--------------------------------------------------------------------------------
12/31/2004 12/31/2003
--------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .............................. $2,100,825 $1,939,033
Ordinary income ................................ 2,132 57,423
Long-term capital gain ......................... 382,266 --
-------------------------
Total distributions ............................... $2,485,223 $1,996,456
=========================
As of December 31, 2004, the components of accumulated earnings on a tax basis
were as follows:
-------------------------------------------------------------------------------
Undistributed tax-exempt income ................................. $ 395,464
Undistributed ordinary income--net .............................. 21,133
Undistributed long-term capital gains--net ...................... --
----------
Total undistributed earnings--net ............................... 416,597
Capital loss carryforward ....................................... --
Unrealized gains--net ........................................... 1,859,460*
----------
Total accumulated earnings--net ................................. $2,276,057
==========
* The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the difference between book and tax amortization
methods for premiums and discounts on fixed income securities, the
deferral of post-October capital losses for tax purposes and other
book/tax temporary differences.
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004 15
[LOGO] Merrill Lynch Investment Managers
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees
of The Massachusetts Health & Education
Tax-Exempt Trust:
We have audited the accompanying statement of net assets, including the schedule
of investments, of The Massachusetts Health & Education Tax-Exempt Trust (the
"Trust"), as of December 31, 2004 and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Trust's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of December 31, 2004, by
correspondence with the custodian. We believe that our audits provide 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, 2004, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and its financial highlights
for each of the five years in the period then ended, in conformity with U.S.
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 22, 2005
16 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004
Important Tax Information
All of the net investment income distributions paid by The Massachusetts Health
& Education Tax-Exempt Trust during the taxable year ended December 31, 2004
qualify as tax-exempt interest dividends for federal income tax purposes.
Additionally, the following table summarizes the taxable distributions paid by
the Trust during the year:
--------------------------------------------------------------------------------
Payable Ordinary Long-Term
Date Income Capital Gains
--------------------------------------------------------------------------------
Common Shareholder 12/29/04 None $.157359
--------------------------------------------------------------------------------
Preferred Shareholder 02/12/04 $7.67 None
02/19/04 $2.99 None
11/26/04 None $ 10.96
12/02/04 None $ 18.49
12/09/04 None $ 11.51
12/16/04 None $ 11.51
12/23/04 None $ 11.42
12/30/04 None $ 11.28
--------------------------------------------------------------------------------
Please retain this information for your records.
Quality Profile
The quality ratings of securities in the Trust as of December 31, 2004 were as
follows:
--------------------------------------------------------------------------------
Percent of
Total
S&P Rating/Moody's Rating Investments
--------------------------------------------------------------------------------
AAA/Aaa ................................................. 37.1%
AA/Aa ................................................... 13.4
A/A ..................................................... 10.5
BBB/Baa ................................................. 20.7
BB/Ba ................................................... 3.3
NR (Not Rated) .......................................... 13.5
Other* .................................................. 1.5
--------------------------------------------------------------------------------
* Includes investments in variable rate municipal securities and short-term
securities.
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004 17
[LOGO] Merrill Lynch Investment Managers
Proxy Results
During the six-month period ended December 31, 2004, The Massachusetts Health &
Education Tax-Exempt Trust's Common Shareholders voted on the following
proposal. The proposal was approved at a shareholders' meeting on September 30,
2004. A description of the proposal and number of shares voted are as follows:
----------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
----------------------------------------------------------------------------------------
1. To elect the Trust's Trustees: Edward M. Murphy 2,126,138 18,017
Frank Nesvet 2,124,748 19,407
Walter B. Prince 2,126,138 18,017
James M. Storey 2,117,432 26,723
----------------------------------------------------------------------------------------
During the six-month period ended December 31, 2004, The Massachusetts Health &
Education Tax-Exempt Trust's Preferred Shareholders voted on the following
proposal. The proposal was approved at a shareholders' meeting on September 30,
2004. A description of the proposal and number of shares voted are as follows:
---------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
---------------------------------------------------------------------------------------------------------------
1. To elect the Trust's Trustees: James F. Carlin, III, Thomas H. Green, III,
Edward M. Murphy, Frank Nesvet, Walter B. Prince and James M. Storey 200 0
---------------------------------------------------------------------------------------------------------------
During the six-month period ended December 31, 2004, The Massachusetts Health &
Education Tax-Exempt Trust's Common and Preferred Shareholders voted on the
following proposal. The proposal was approved at a shareholders' meeting on
September 30, 2004. A description of the proposal and number of shares voted are
as follows:
-----------------------------------------------------------------------------------------------------
Shares Shares Voted Shares Voted
Voted For Against Abstain
-----------------------------------------------------------------------------------------------------
2. To approve a new investment advisory agreement
between the Trust and Fund Asset Management, L.P. 2,062,180 31,743 50,232
-----------------------------------------------------------------------------------------------------
18 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004
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, The Bank of New York, as your Plan
Agent, will automatically invest your dividends and capital gains distributions
in Common Shares of the Trust in your account.
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 The Bank of New York, 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.
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.
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.
Plan participants may withdraw from the Plan at any time by writing to the Plan
Agent at the address noted below. 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.
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 correspondence concerning the Plan should be directed to the Plan Agent at
The Bank of New York, Church Street Station, P.O. Box 11258, New York, NY
10286-1258, Telephone: 800-432-8224.
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 DECEMBER 31, 2004 19
[LOGO] Merrill Lynch Investment Managers
Officers and Trustees
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Trustee
------------------------------------------------------------------------------------------------------------------------------------
Thomas H. P.O. Box 9095 Trustee 1993 to Managing Director, Citigroup Global Markets Inc., One None
Green, Princeton, NJ present since 2002; Director in SSB, Public Finance
III* 08543-9095 Department from 1998 to 2001; First Assistant
Age: 45 Attorney General for The Commonwealth of
Massachusetts from 1992 to 1998; Vice President,
Public Finance, First Boston Corporation.
Mr. Green is an interested person of the Trust
because of his affiliation with a brokerage firm.
====================================================================================================================================
Independent Trustees
------------------------------------------------------------------------------------------------------------------------------------
James F. P.O. Box 9095 Trustee 2003 to Executive Vice President, Managing Partner, One None
Carlin, Princeton, NJ present Crosspoint Associates, Inc. (real estate
III* 08543-9095 management and development) since 1993;
Age: 41 Board of Directors, Chart Bank since 1996;
Principal of Alpha Analytical Inc. since 2000;
Former Director of Carlin Insurance.
------------------------------------------------------------------------------------------------------------------------------------
Edward M. P.O. Box 9095 Trustee 1993 to President of the Mentor Network since 2004; One None
Murphy Princeton, NJ present President and Chief Executive Officer of Alliance
08543-9095 Health Incorporated, since March 1999; Formerly,
Age: 57 President and Chief Operating Officer of Olympus
Healthcare Group, Inc.; Senior Vice President of
Tucker Anthony Inc. from 1995 to 1997; Executive
Director of the Massachusetts Health and
Educational Facilities Authority from 1989 to 1995;
Previously, Commissioner of the Massachusetts
Department of Mental Health.
------------------------------------------------------------------------------------------------------------------------------------
Frank P.O. Box 9095 Trustee 2004 to Chief Executive Officer, Libra Group, Inc. since One Director of
Nesvet Princeton, NJ present 1998; Managing Director, Senior Vice President, Jefferson
08543-9095 CFO and Fund Treasurer, New England Funds Pilot
Age: 61 from 1993 to 1998. Variable Fund
(a series of
14 mutual
funds
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 spon-
sored and
managed by
State Street
Global
Advisers)
since 2000.
20 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004
Officers and Trustees (concluded)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Trustees (concluded)
------------------------------------------------------------------------------------------------------------------------------------
Walter B. P.O. Box 9095 Chairman 1993 to Partner of the law firm of Prince, Lobel, One None
Prince Princeton, NJ and Trustee present Glovsky & Tye LLP, since 1988; Board of Directors,
08543-9095 OneUnited Bank.
Age: 56
------------------------------------------------------------------------------------------------------------------------------------
James M. P.O. Box 9095 Trustee 1993 to Corporate Trustee/Director of various organizations One Trustee of
Storey Princeton, NJ present and corporations, including The U.S. Charitable the SEI
08543-9095 Gift Trust (a charitable organization sponsored by Investment
Age: 73 Eaton Vance) and a practicing attorney; Partner Funds
of the law firm of Dechert, Price & Rhoads from (consisting
1987 to 1993. of 126
portfolios).
------------------------------------------------------------------------------------------------------------------------
* Auction Preferred Shares Trustee.
------------------------------------------------------------------------------------------------------------------------------------
Position(s) Length of
Held with Time
Name Address & Age Trust Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Trust Officers*
------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 2004 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
08543-9011 and since 2004; Vice President of FAMD since 1999; Vice President of MLIM and FAM from
Age: 44 Treasurer 1990 to 1997; Director of Taxation of MLIM from 1990 to 2001.
------------------------------------------------------------------------------------------------------------------------------------
John M. P.O. Box 9011 President 2004 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund
Loffredo Princeton, NJ present Management) of MLIM from 1998 to 2000.
08543-9011
Age: 41
------------------------------------------------------------------------------------------------------------------------------------
Theodore P.O. Box 9011 Vice 2004 to Director (Municipal Tax-Exempt Fund Management) of MLIM since 2000; Vice
R. Jaeckel Princeton, NJ President present President of MLIM from 1994 to 2000.
Jr. 08543-9011
Age: 45
------------------------------------------------------------------------------------------------------------------------------------
Robert D. P.O. Box 9011 Vice 2004 to Vice President (Municipal Tax-Exempt Fund Management) of MLIM since 1998;
Sneeden Princeton, NJ President present Assistant Vice President and Portfolio Manager of MLIM from 1994 to 1998.
08543-9011
Age: 52
------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President
Hiller Princeton, NJ Compliance present and Chief Compliance Officer of MLIM since 2004; Global Director of Compliance at
08543-9011 Officer Morgan Stanley Investment Management from 2002 to 2004; Managing Director and
Age: 53 Global Director of Compliance at Citigroup Asset Management from 2000 to 2002;
Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance
Officer at Prudential Financial from 1995 to 2000.
------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Secretary of MLIM, FAM, FAMD and Princeton Services since 2004; Director (Legal
Pellegrino Princeton, NJ present Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to 2002; Attorney
08543-9011 associated with MLIM since 1997.
Age: 44
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* Officers of the Trust serve at the pleasure of the Board of Trustees.
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Custodian
State Street Bank and
Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agents
Common Shares:
The Bank of New York
101 Barclay Street -- 11 East
New York, NY 10286
Preferred Shares:
Deutsche Bank Trust Company
280 Park Avenue, 9th Floor
New York, NY 10018
Amex Symbol
MHE
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004 21
[LOGO] Merrill Lynch Investment Managers
Availability of Quarterly Schedule of Investments
The Trust files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Trust's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Trust's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
22 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004
Electronic Delivery
The Trust offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST DECEMBER 31, 2004 23
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
The Massachusetts Health & Education Tax-Exempt Trust seeks to provide
shareholders as high a level of current income exempt from both regular federal
income taxes and Massachusetts personal income taxes as is consistent with the
preservation of shareholders' capital. The Trust seeks to achieve its investment
objective by investing primarily in Massachusetts tax-exempt obligations issued
on behalf of participating not-for-profit institutions. The Trust will continue
to invest primarily in "investment grade" obligations. The Trust is intended to
be a long-term investment and not a short-term trading vehicle.
This report, including the financial information herein, is transmitted to
shareholders of The Massachusetts Health & Education Tax-Exempt Trust for their
information. It is not a prospectus. Past performance results shown in this
report should not be considered a representation of future performance. The
Trust has leveraged its Common Shares and intends to remain leveraged by issuing
Preferred Shares to provide the Common Shareholders with a potentially higher
rate of return. Leverage creates risks for Common Shareholders, including the
likelihood of greater volatility of net asset value and market price of shares
of the Common Shares, and the risk that fluctuations in the short-term dividend
rates of the Preferred Shares may affect the yield to Common Shareholders.
Statements and other information herein are as dated and are subject to change.
A description of the policies and procedures that the Trust uses to determine
how to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Trust voted proxies
relating to securities held in the Trust's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
The Massachusetts Health & Education Tax-Exempt Trust
Box 9011
Princeton, NJ 08543-9011
#MHET -- 12/04
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the
end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of trustees
has determined that (i) the registrant has the following audit
committee financial expert serving on its audit committee and (ii) each
audit committee financial expert is independent: Frank Nesvet.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending December 31, 2004 - $25,200
Fiscal Year Ending December 31, 2003 - $N/A
(b) Audit-Related Fees - Fiscal Year Ending December 31, 2004 - $0
Fiscal Year Ending December 31, 2003 - $N/A
(c) Tax Fees - Fiscal Year Ending December 31, 2004 - $5,200
Fiscal Year Ending December 31, 2003 - $N/A
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending December 31, 2004 - $0
Fiscal Year Ending December 31, 2003 - $N/A
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant. Any
proposed services exceeding the pre-approved cost levels will require
specific pre-approval by the Committee, as will any other services not
subject to general pre-approval (e.g., unanticipated but permissible
services). The Committee is informed of each service approved subject
to general pre-approval at the next regularly scheduled in-person board
meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending December 31, 2004 - $11,926,355
Fiscal Year Ending December 31, 2003 - $18,621,495
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0%
Item 5 - Audit Committee of Listed Registrants - The following individuals are
members of the registrant's separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of the
Exchange Act (15 U.S.C. 78c(a)(58)(A)):
James F. Carlin, III
Thomas H. Green, III
Walter B. Prince
Edward M. Murphy
James M. Storey
Frank Nesvet
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies -
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill Lynch
Investment Managers, L.P. and/or Fund Asset Management, L.P. (the
"Investment Adviser") authority to vote all proxies relating to the
Fund's portfolio securities. The Investment Adviser has adopted
policies and procedures ("Proxy Voting Procedures") with respect to the
voting of proxies related to the portfolio securities held in the
account of one or more of its clients, including a Fund. Pursuant to
these Proxy Voting Procedures, the Investment Adviser's primary
objective when voting proxies is to make proxy voting decisions solely
in the best interests of each Fund and its shareholders, and to act in
a manner that the Investment Adviser believes is most likely to enhance
the economic value of the securities held by the Fund. The Proxy Voting
Procedures are designed to ensure that that the Investment Adviser
considers the interests of its clients, including the Funds, and not
the interests of the Investment Adviser, when voting proxies and that
real (or perceived) material conflicts that may arise between the
Investment Adviser's interest and those of the Investment Adviser's
clients are properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The
Committee is comprised of the Investment Adviser's Chief Investment
Officer (the "CIO"), one or more other senior investment professionals
appointed by the CIO, portfolio managers and investment analysts
appointed by the CIO and any other personnel the CIO deems appropriate.
The Committee will also include two non-voting representatives from the
Investment Adviser's Legal department appointed by the Investment
Adviser's General Counsel. The Committee's membership shall be limited
to full-time employees of the Investment Adviser. No person with any
investment banking, trading, retail brokerage or research
responsibilities for the Investment Adviser's affiliates may serve as a
member of the Committee or participate in its decision making (except
to the extent such person is asked by the Committee to present
information to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser might
be asked to do so). The Committee determines how to vote the proxies of
all clients, including a Fund, that have delegated proxy voting
authority to the Investment Adviser and seeks to ensure that all votes
are consistent with the best interests of those clients and are free
from unwarranted and inappropriate influences. The Committee
establishes general proxy voting policies for the Investment Adviser
and is responsible for determining how those policies are applied to
specific proxy votes, in light of each issuer's unique structure,
management, strategic options and, in certain circumstances, probable
economic and other anticipated consequences of alternate actions. In so
doing, the Committee may determine to vote a particular proxy in a
manner contrary to its generally stated policies. In addition, the
Committee will be responsible for ensuring that all reporting and
recordkeeping requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires a
case-by-case determination. In such cases, the Committee may elect not
to adopt a specific voting policy applicable to that issue. The
Investment Adviser believes that certain proxy voting issues require
investment analysis - such as approval of mergers and other significant
corporate transactions - akin to investment decisions, and are,
therefore, not suitable for general guidelines. The Committee may elect
to adopt a common position for the Investment Adviser on certain proxy
votes that are akin to investment decisions, or determine to permit the
portfolio manager to make individual decisions on how best to maximize
economic value for a Fund (similar to normal buy/sell investment
decisions made by such portfolio managers). While it is expected that
the Investment Adviser will generally seek to vote proxies over which
the Investment Adviser exercises voting authority in a uniform manner
for all the Investment Adviser's clients, the Committee, in conjunction
with a Fund's portfolio manager, may determine that the Fund's specific
circumstances require that its proxies be voted differently.
To assist the Investment Adviser in voting proxies, the Committee has
retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address special
circumstances that can arise in connection with proxy voting. For
instance, under the Proxy Voting Procedures, the Investment Adviser
generally will not seek to vote proxies related to portfolio securities
that are on loan, although it may do so under certain circumstances. In
addition, the Investment Adviser will vote proxies related to
securities of foreign issuers only on a best efforts basis and may
elect not to vote at all in certain countries where the Committee
determines that the costs associated with voting generally outweigh the
benefits. The Committee may at any time override these general policies
if it determines that such action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote proxies in
respect of an issuer where an affiliate of the Investment Adviser (each, an
"Affiliate"), or a money management or other client of the Investment Adviser
(each, a "Client") is involved. The Proxy Voting Procedures and the Investment
Adviser's adherence to those procedures are designed to address such conflicts
of interest. The Committee intends to strictly adhere to the Proxy Voting
Procedures in all proxy matters, including matters involving Affiliates and
Clients. If, however, an issue representing a non-routine matter that is
material to an Affiliate or a widely known Client is involved such that the
Committee does not reasonably believe it is able to follow its guidelines (or if
the particular proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes of ensuring
that an independent determination is reached, retain an independent fiduciary to
advise the Committee on how to vote or to cast votes on behalf of the Investment
Adviser's clients.
In the event that the Committee determines not to retain an independent
fiduciary, or it does not follow the advice of such an independent
fiduciary, the powers of the Committee shall pass to a subcommittee,
appointed by the CIO (with advice from the Secretary of the Committee),
consisting solely of Committee members selected by the CIO. The CIO
shall appoint to the subcommittee, where appropriate, only persons
whose job responsibilities do not include contact with the Client and
whose job evaluations would not be affected by the Investment Adviser's
relationship with the Client (or failure to retain such relationship).
The subcommittee shall determine whether and how to vote all proxies on
behalf of the Investment Adviser's clients or, if the proxy matter is,
in their judgment, akin to an investment decision, to defer to the
applicable portfolio managers, provided that, if the subcommittee
determines to alter the Investment Adviser's normal voting guidelines
or, on matters where the Investment Adviser's policy is case-by-case,
does not follow the voting recommendation of any proxy voting service
or other independent fiduciary that may be retained to provide research
or advice to the Investment Adviser on that matter, no proxies relating
to the Client may be voted unless the Secretary, or in the Secretary's
absence, the Assistant Secretary of the Committee concurs that the
subcommittee's determination is consistent with the Investment
Adviser's fiduciary duties
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain recurring
proxy issues that are not expected to involve unusual circumstances.
These policies are guidelines only, and the Investment Adviser may
elect to vote differently from the recommendation set forth in a voting
guideline if the Committee determines that it is in a Fund's best
interest to do so. In addition, the guidelines may be reviewed at any
time upon the request of a Committee member and may be amended or
deleted upon the vote of a majority of Committee members present at a
Committee meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
o Proposals related to the composition of the Board of Directors of issuers
other than investment companies. As a general matter, the Committee
believes that a company's Board of Directors (rather than shareholders) is
most likely to have access to important, nonpublic information regarding a
company's business and prospects, and is therefore best-positioned to set
corporate policy and oversee management. The Committee, therefore,
believes that the foundation of good corporate governance is the election
of qualified, independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of the
corporation in a manner that will seek to maximize shareholder value over
time. In individual cases, the Committee may look at a nominee's history
of representing shareholder interests as a director of other companies or
other factors, to the extent the Committee deems relevant.
o Proposals related to the selection of an issuer's independent auditors. As
a general matter, the Committee believes that corporate auditors have a
responsibility to represent the interests of shareholders and provide an
independent view on the propriety of financial reporting decisions of
corporate management. While the Committee will generally defer to a
corporation's choice of auditor, in individual cases, the Committee may
look at an auditors' history of representing shareholder interests as
auditor of other companies, to the extent the Committee deems relevant.
o Proposals related to management compensation and employee benefits. As a
general matter, the Committee favors disclosure of an issuer's
compensation and benefit policies and opposes excessive compensation, but
believes that compensation matters are normally best determined by an
issuer's board of directors, rather than shareholders. Proposals to
"micro-manage" an issuer's compensation practices or to set arbitrary
restrictions on compensation or benefits will, therefore, generally not be
supported.
o Proposals related to requests, principally from management, for approval
of amendments that would alter an issuer's capital structure. As a general
matter, the Committee will support requests that enhance the rights of
common shareholders and oppose requests that appear to be unreasonably
dilutive.
o Proposals related to requests for approval of amendments to an issuer's
charter or by-laws. As a general matter, the Committee opposes poison pill
provisions.
o Routine proposals related to requests regarding the formalities of
corporate meetings.
o Proposals related to proxy issues associated solely with holdings of
investment company shares. As with other types of companies, the Committee
believes that a fund's Board of Directors (rather than its shareholders)
is best-positioned to set fund policy and oversee management. However, the
Committee opposes granting Boards of Directors authority over certain
matters, such as changes to a fund's investment objective, that the
Investment Company Act envisions will be approved directly by
shareholders.
o Proposals related to limiting corporate conduct in some manner that
relates to the shareholder's environmental or social concerns. The
Committee generally believes that annual shareholder meetings are
inappropriate forums for discussion of larger social issues, and opposes
shareholder resolutions "micromanaging" corporate conduct or requesting
release of information that would not help a shareholder evaluate an
investment in the corporation as an economic matter. While the Committee
is generally supportive of proposals to require corporate disclosure of
matters that seem relevant and material to the economic interests of
shareholders, the Committee is generally not supportive of proposals to
require disclosure of corporate matters for other purposes.
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable at this time
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
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/ John M. Loffredo
--------------------------------
John M. Loffredo,
Chief Executive Officer of
The Massachusetts Health & Education Tax-Exempt Trust
Date: February 24, 2005
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/ John M. Loffredo
--------------------------------
John M. Loffredo,
Chief Executive Officer of
The Massachusetts Health & Education Tax-Exempt Trust
Date: February 24, 2005
By: /s/ Donald C. Burke
--------------------------------
Donald C. Burke,
Chief Financial Officer of
The Massachusetts Health & Education Tax-Exempt Trust
Date: February 24, 2005