UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
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, President, 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: 12/31/06
Date of reporting period: 01/01/06 - 06/30/06
Item 1 - Report to Stockholders
Semi-Annual Report
June 30, 2006
The Massachusetts Health &
Education Tax-Exempt Trust
The Massachusetts Health & Education Tax-Exempt Trust
Announcement to Shareholders
On February 15, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch & Co.,
Inc. ("Merrill Lynch") entered into an agreement to contribute Merrill Lynch's
investment management business, Merrill Lynch Investment Managers, L.P. and
certain affiliates (including Fund Asset Management, L.P. and Merrill Lynch
Investment Managers International Limited), to BlackRock to create a new
independent company ("New BlackRock") that will be one of the world's largest
asset management firms with over $1 trillion in assets under management (based
on combined assets under management as of June 30, 2006) (the "Transaction").
The Transaction is expected to close at the end of the third quarter of 2006, at
which time the new company will operate under the BlackRock name. The Trust's
Board of Trustees has approved a new investment advisory agreement with
BlackRock Advisors, Inc. or its successor on substantially the same terms and
for the same advisory fee as the current investment advisory agreement with the
Investment Adviser. If the new agreement is approved by the Trust's
shareholders, BlackRock Advisors, Inc. or its successor is expected to become
the investment adviser of the Trust upon the closing of the Transaction.
Portfolio Information as of June 30, 2006
Quality Ratings by Percent of Total
S&P/Moody's Investments
--------------------------------------------------------------------------------
AAA/Aaa ................................................. 39.5%
AA/Aa ................................................... 18.2
A/A ..................................................... 11.8
BBB/Baa ................................................. 13.0
BB/Ba ................................................... 2.9
B/B ..................................................... 3.0
NR (Not Rated) .......................................... 11.0
Other* .................................................. 0.6
--------------------------------------------------------------------------------
* Includes portfolio holdings in variable rate demand notes.
2 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006
A Letter From the President
Dear Shareholder
By now, you have probably heard of the important changes unfolding at Merrill
Lynch Investment Managers ("MLIM"). We have been communicating with
shareholders, via letters like this and in a detailed proxy mailing, about
MLIM's impending union with another highly regarded investment manager --
BlackRock, Inc. ("BlackRock"). This transaction marks the next chapter in MLIM's
growth story and, we believe, will be a benefit to our investors.
MLIM, a division of Merrill Lynch with over $583 billion in assets under
management, is a leading investment manager offering more than 100 investment
strategies in vehicles ranging from mutual funds to institutional portfolios.
BlackRock, with $464.1 billion in assets under management, is one of the largest
publicly traded investment management firms in the United States managing assets
on behalf of institutional and individual investors worldwide through a variety
of equity, fixed income, liquidity and alternative investment products. At the
completion of the transaction, which is expected by the end of third quarter
2006, the resultant firm will be a top-10 investment manager worldwide with over
$1 trillion in assets under management.*
The combined company, to be known as BlackRock, will provide a wide selection of
high-quality investment solutions across a range of asset classes and investment
styles. The organization will have over 4,500 employees in 18 countries and a
major presence in key markets worldwide. MLIM and BlackRock possess
complementary capabilities that together create a well-rounded organization
uniting some of the finest money managers in the industry. The firms share
similar values and beliefs -- each strives for excellence in all areas, and both
make investment performance their single most important mission. As such, our
combination only reinforces our commitment to shareholders.
Most of MLIM's investment products -- including mutual funds, separately managed
accounts, annuities and variable insurance funds -- eventually will carry the
"BlackRock" name. This will be reflected in newspaper and online information
sources beginning in October. Your account statements will reflect the BlackRock
name beginning with the October month-end reporting period. Unless otherwise
communicated via a proxy statement, your funds will maintain the same investment
objectives that they do today. Importantly, the MLIM/BlackRock union will not
affect your brokerage account or your relationship with your financial advisor.
If you are a client of Merrill Lynch, you will remain a client of Merrill Lynch.
As always, we thank you for entrusting us with your investment assets. We look
forward to continuing to serve your investment needs with even greater strength
and scale as the new BlackRock.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Chief Investment Officer
Merrill Lynch Investment Managers
* $1.047 trillion in assets under management as of June 30, 2006.
Data, including assets under management, are as of June 30, 2006.
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006 3
A Discussion With Your Trust's Portfolio Managers
The Trust provided favorable results, benefiting from our yield curve and
duration strategies and ample exposure to lower-rated credits -- the market's
top performers.
Describe the market environment relative to municipal bonds.
Long-term bond yields rose sharply during the past six months, with much of the
increase occurring in the latter three months. Bond prices, which move opposite
of yields, declined. In all, 30-year U.S. Treasury bond yields rose 65 basis
points (.65%) to end the period at 5.19%, while 10-year U.S. Treasury note
yields rose 76 basis points to 5.15%, the highest level since May 2002. For its
part, the Federal Reserve Board (the Fed) continued to raise short-term interest
rates at each of its meetings during the period, bringing the federal funds rate
to 5.25%.
Municipal bond yields also rose in recent months, but the market's strong
technical position provided significant price support, allowing municipal bond
prices to decline less than taxable bond prices. As measured by Municipal Market
Data, yields on AAA-rated issues maturing in 30 years rose 24 basis points to
4.63% and yields on AAA-rated issues maturing in 10 years rose 38 basis points
to 4.14%.
The municipal market has been supported by increased retail investor demand and
declining supply. Year-to-date, over $179 billion in new long-term tax-exempt
bonds was underwritten, a decline of 14% compared to the first half of 2005 and
the lowest initial semi-annual volume in the past four years. The decline has
largely been the result of a 52% drop in refunding activity so far this year.
Rising bond yields have made the refinancing of existing higher-couponed debt
less attractive, as the potential savings have rapidly diminished. In addition,
the improved fiscal conditions of many state and local governments have resulted
in lower borrowing trends, as many new municipal capital projects have been
financed from existing budget surpluses. At the same time, municipal bond fund
flows have remained positive. As reported by the Investment Company Institute,
open-end tax-exempt bond funds received net new cash inflows of over $6.2
billion in the first five months of 2006, compared to $1.4 billion during the
same period in 2005.
Describe conditions in the Commonwealth of Massachusetts.
Through May 2006, Massachusetts' revenue collections for fiscal year 2006 were
up 7.8% compared to the same period in fiscal year 2005. With one month
remaining in the fiscal year, revenues had already exceeded the projected full
year total by $875 million. The largest increase continued to derive from
corporate tax collections.
Massachusetts' unemployment rate stood at 5.0% as of May 2006, above the
national average of 4.6%. The financial services and manufacturing sectors
continue to show some job expansion, while trade, transportation and utilities
are the primary sectors experiencing negative growth. In April, Governor Mitt
Romney signed into law a bill that would require all Massachusetts citizens to
have some form of health insurance. The plan, aimed at extending coverage to the
state's estimated 500,000 uninsured, is projected to cost $316 million in the
first year. Roughly $45 million will be absorbed by the Commonwealth, with the
remaining funding expected in the form of federal reimbursements.
How did the Trust perform during the period?
For the six-month period ended June 30, 2006, the Common Shares of Massachusetts
Health & Education Tax-Exempt Trust had net annualized yields of 5.52% and
5.40%, based on a period-end per share net asset value of $13.29 and a per share
market price of $13.60, respectively, and $.364 per share income dividends. Over
the same period, the total investment return on the Trust's Common Shares was
+.53%, based on a change in per share net asset value from $13.59 to $13.29, and
assuming reinvestment of all distributions.
Trust performance for the six-month period was favorable. For some context, the
Lehman Brothers Municipal Bond Index -- a measure of the national municipal bond
market, although not the Trust's benchmark -- returned +.28% for the six-month
period. Factors that contributed to performance included our yield curve
exposure, a shift to a more defensive stance on interest rates, and ample
exposure to lower-rated, higher-yielding credits. Specifically, our focus on
longer-dated bonds proved advantageous as the curve flattened and the long end
outperformed. Meanwhile, our somewhat defensive duration stance, which we had
adopted for the bulk of the period in an effort to manage interest rate risk,
also proved favorable as markets weakened (that is, prices fell and rates rose).
Finally, the Trust's exposure to lower-rated paper benefited performance as
credit spreads (versus higher-quality issues of comparable maturity) continued
to contract. The Trust had maintained an overweight stance in lower-rated and
speculative-grade paper for
4 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006
some time, although we began to reduce exposure during the past year.
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 fund, 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 return based
on changes in the Trust's net asset value.
What changes were made to the portfolio during the period?
We continued to reduce our overweighting to lower-rated investment grade and
speculation grade (lower than BBB) bonds, ending the period with a market
weighting in these sectors. As such, portfolio activity was driven primarily by
the need to reinvest the proceeds from the sale of these bonds, as well as the
proceeds from bonds that were called by their issuers prior to maturity. Our
strategy, particularly late in the period as the market backed up and yields
became more attractive, was to target higher-rated bonds in the 30-year maturity
range. These issues offered attractive yields, especially compared to the
lower-rated holdings that had been sold. Given the very tight credit spreads,
there was a fairly attractive tradeoff between the prices at which we were able
to sell our lower-investment-grade holdings and the yields available in
higher-rated paper. In particular, we found value in some less expensive insured
names, particularly bonds backed by insurers Radian and ACA. Most purchases made
during the period fell within the health, education and non-profit sectors, in
keeping with the Trust's primary investment objective. (The Trust must invest
80% of its net assets in these types of credits.) Although municipal bond supply
generally has declined, we were still able to find plenty of opportunity in
these sectors.
Notably, the increase in bond calls is a typical phenomenon in an environment
where interest rates are low and credit spreads are contracting, as issuers find
it economical to refinance their existing debt. However, as the portfolio's
seasoned, higher-coupon holdings are called by their issuers, our reinvestment
prospects are less and less appealing. It is not possible to reinvest at the
same levels as those former holdings. That, in conjunction with the higher cost
of borrowing associated with the issuance of preferred stock, impacts the
dividend income generated by the Trust. This is an industry-wide experience that
requires us -- and our competitors -- to adjust to a lower interest rate
environment.
For the six months ended June 30, 2006, the Trust's Auction Preferred Shares
(APS) had an average yield of 3.13% for Series A and 3.06% for Series B. The Fed
raised the short-term interest rate target 100 basis points during the six-month
period and this continued to affect the Trust's borrowing costs. Still, the
tax-exempt yield curve maintained a positive slope, allowing us to borrow at a
lower rate than where we invest and generating an income benefit to the holders
of Common Shares from the leveraging of Preferred Shares. However, should the
spread between short-term and long-term interest rates narrow, the benefits of
leveraging 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
39.17% of total net assets, before the deduction of Preferred Shares. (For a
more complete explanation of the benefits and risks of leveraging, see page 6 of
this report to shareholders.)
How would you characterize the Trust's position at the close of the period?
Despite having outperformed other fixed income markets over the past six months
or so, municipal bonds more recently have given up some of those gains. Given
the extent of the decline and the marginal improvement in the market's relative
value, we have adopted a slightly more constructive stance for the portfolio,
reflected in a slightly longer duration.
In terms of our investment focus, we are now seeing more value in the 10-year to
15-year segments of the municipal yield curve -- the same areas that
underperformed as the curve flattened. As a result, future investments are
likely to take place in that maturity range. Proceeds for these purchases are
likely to come either from some of the Trust's longer-term (generally 30-year)
holdings and from any additional bond calls that may arise.
Theodore R. Jaeckel Jr., CFA
Vice President and Portfolio Manager
Robert D. Sneeden
Vice President and Portfolio Manager
July 6, 2006
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006 5
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 June 30, 2006, the Trust did not invest in
inverse floaters.
Swap Agreements
The Trust may 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.
6 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006
Schedule of Investments (in Thousands)
Face
Amount Municipal Bonds Value
=======================================================================================
Massachusetts--152.5%
---------------------------------------------------------------------------------------
$1,000 Massachusetts Bay Transportation Authority, Special
Assessment Revenue Refunding Bonds, Series A, 5%
due 7/01/2031 $ 1,020
---------------------------------------------------------------------------------------
1,000 Massachusetts State College Building Authority, Project
Revenue Bonds, Series A, 5% due 5/01/2031 (b) 1,022
---------------------------------------------------------------------------------------
825 Massachusetts State College Building Authority, Project
Revenue Refunding Bonds, Series B, 5.50%
due 5/01/2039 (m) 925
---------------------------------------------------------------------------------------
Massachusetts State Development Finance Agency,
Education Revenue Bonds:
1,100 (Belmont Hill School), 5% due 9/01/2031 1,112
400 (Middlesex School Project), 5% due 9/01/2033 403
250 (Xaverian Brothers High School), 5.65% due 7/01/2029 256
---------------------------------------------------------------------------------------
1,000 Massachusetts State Development Finance Agency,
Educational Facility Revenue Bonds (Academy of the
Pacific Rim), Series A, 5.125% due 6/01/2031 (a) 1,003
---------------------------------------------------------------------------------------
Massachusetts State Development Finance Agency, First
Mortgage Revenue Bonds, Series A:
855 (Edgecombe Project), 6.75% due 7/01/2021 911
850 (Overlook Communities Inc.), 6.125%
due 7/01/2024 867
---------------------------------------------------------------------------------------
1,250 Massachusetts State Development Finance Agency, First
Mortgage Revenue Refunding Bonds (Symmes Life Care,
Inc.--Brookhaven at Lexington), Series A, 5%
due 3/01/2035 (k) 1,254
---------------------------------------------------------------------------------------
500 Massachusetts State Development Finance Agency,
Human Service Provider Revenue Bonds (Seven Hills
Foundation & Affiliates), 5% due 9/01/2035 (k) 502
---------------------------------------------------------------------------------------
825 Massachusetts State Development Finance Agency,
Resource Recovery Revenue Bonds (Ogden Haverhill
Associates), AMT, Series A, 6.70% due 12/01/2014 887
---------------------------------------------------------------------------------------
Massachusetts State Development Finance Agency
Revenue Bonds:
1,000 (Boston University), Series T-1, 5%
due 10/01/2039 (b) 1,012
500 (College of Pharmacy and Allied Health Services),
Series D, 5% due 7/01/2027 (c) 507
500 (Curry College), Series A, 5% due 3/01/2035 (a) 488
400 (Franklin W. Olin College), Series B, 5.25%
due 7/01/2033 (m) 413
1,000 (Massachusetts College of Pharmacy and Health
Sciences), 5.75% due 7/01/2033 1,040
425 (Massachusetts Council of Human Service Providers,
Inc.), Series C, 6.60% due 8/15/2029 420
2,000 (Smith College), 5% due 7/01/2035 2,029
500 (Volunteers of America--Ayer Limited Partnership),
AMT, Series A, 6.20% due 2/20/2046 (i) 544
1,000 (WGBH Educational Foundation), Series A, 5.375%
due 1/01/2012 (b)(j) 1,076
1,100 (WGBH Educational Foundation), Series A, 5.75%
due 1/01/2042 (b) 1,277
600 (Western New England College), 5.875%
due 12/01/2012 (j) 654
540 (The Wheeler School), 6.50% due 12/01/2029 568
500 (Williston Northampton School Project), 5%
due 10/01/2025 (m) 512
---------------------------------------------------------------------------------------
Massachusetts State Development Finance Agency,
Revenue Refunding Bonds:
1,500 (Boston University), Series P, 5.45% due 5/15/2059 1,565
500 (Clark University), 5.125% due 10/01/2035 (m) 514
1,500 (Western New England College), Series A, 5%
due 9/01/2033 (c) 1,516
---------------------------------------------------------------------------------------
1,000 Massachusetts State HFA, Housing Revenue Bonds,
AMT, Series A, 5.25% due 12/01/2048 1,002
---------------------------------------------------------------------------------------
Massachusetts State Health and Educational Facilities
Authority Revenue Bonds:
1,000 (Baystate Medical Center), Series F, 5.75%
due 7/01/2033 1,041
350 (Berkshire Health System), Series E, 6.25%
due 10/01/2031 368
1,350 (Harvard University), Series FF, 5.125%
due 7/15/2037 1,380
750 (Milford-Whitinsville Hospital), Series D, 6.35%
due 7/15/2032 782
100 (Partners Healthcare System), VRDN, Series D-5,
3.96% due 7/01/2017 (l) 100
200 (Partners Healthcare System), VRDN, Series D-6,
3.98% due 7/01/2017 (l) 200
1,000 (Simmons College), Series F, 5% due 10/01/2033 (f) 1,017
500 (University of Massachusetts Memorial Healthcare),
Series D, 5% due 7/01/2033 489
230 (University of Massachusetts), Series C, 5.125%
due 10/01/2034 (f) 235
1,285 (Wheaton College), Series D, 6% due 1/01/2018 1,334
---------------------------------------------------------------------------------------
Massachusetts State Health and Educational Facilities
Authority, Revenue Refunding Bonds:
885 (Bay Cove Human Services Issue), Series A, 5.90%
due 4/01/2028 889
1,000 (Boston College), Series N, 5.125% due 6/01/2037 1,018
500 (Christopher House), Series A, 6.875% due 1/01/2029 514
800 (Covenant Health System), 6% due 7/01/2022 849
400 (Covenant Health System), 6% due 7/01/2031 424
495 (Learning Center For Deaf Children), Series C,
6.125% due 7/01/2029 496
500 (Massachusetts Institute of Technology), Series L,
5% due 7/01/2023 530
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)
HFA Housing Finance Agency
PCR Pollution Control Revenue Bonds
VRDN Variable Rate Demand Notes
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006 7
Schedule of Investments (concluded) (in Thousands)
Face
Amount Municipal Bonds Value
=======================================================================================
Massachusetts (continued)
---------------------------------------------------------------------------------------
Massachusetts State Health and Educational Facilities
Authority, Revenue Refunding Bonds (concluded):
$ 500 (Partners Healthcare System), Series C, 5.75%
due 7/01/2032 $ 534
395 (Valley Regional Health System), Series C, 5.75%
due 7/01/2018 (e) 396
1,500 (Wellesley College), 5% due 7/01/2033 1,527
1,000 (Youville House), Series A, 6.25%
due 2/15/2007 (g)(j) 1,034
---------------------------------------------------------------------------------------
750 Massachusetts State Industrial Finance Agency, Health
Care Facility Revenue Bonds (Age Institute of
Massachusetts Project), 8.05% due 11/01/2025 760
---------------------------------------------------------------------------------------
1,500 Massachusetts State Industrial Finance Agency, PCR
(General Motors Corporation), 5.55% due 4/01/2009 1,461
---------------------------------------------------------------------------------------
400 Massachusetts State Industrial Finance Agency Revenue
Bonds (Wentworth Institute of Technology), 5.75%
due 10/01/2008 (j) 422
---------------------------------------------------------------------------------------
340 Massachusetts State Industrial Finance Agency, Senior
Living Facility Revenue Bonds (Forge Hill Project), AMT,
6.75% due 4/01/2030 349
---------------------------------------------------------------------------------------
2,000 Massachusetts State School Building Authority, Dedicated
Sales Tax Revenue Bonds, Series A, 5% due 8/15/2030 (h) 2,044
---------------------------------------------------------------------------------------
1,000 Massachusetts State Water Pollution Abatement Trust,
Pool Program Revenue Bonds, Series 10, 5%
due 8/01/2029 1,023
---------------------------------------------------------------------------------------
1,000 Rail Connections, Inc., Massachusetts, Capital
Appreciation Revenue Bonds (Route 128 Parking
Garage), Series B, 6.53% due 7/01/2009 (a)(j)(n) 446
---------------------------------------------------------------------------------------
500 University of Massachusetts Building Authority, Project
Revenue Refunding Bonds, Senior Series 04-1, 5.125%
due 11/01/2014 (b)(j) 536
=======================================================================================
Puerto Rico--4.4%
---------------------------------------------------------------------------------------
1,285 Puerto Rico Public Buildings Authority, Government
Facilities Revenue Refunding Bonds, Series F, 5.25%
due 7/01/2025 (d)(h) 1,383
---------------------------------------------------------------------------------------
Total Investments (Cost--$47,918*)--156.9% 48,880
Other Assets Less Liabilities--7.3% 2,286
Preferred Shares, at Redemption Value--(64.2%) (20,012)
---------
Net Assets Applicable to Common Shares--100.0% $ 31,154
=========
---------------------------------------------------------------------------------------
* The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost ............................................. $47,802
=======
Gross unrealized appreciation .............................. $ 1,366
Gross unrealized depreciation .............................. (288)
-------
Net unrealized appreciation ................................ $ 1,078
=======
(a) ACA Insured.
(b) AMBAC Insured.
(c) Assured Guaranty Insured.
(d) CIFG Insured.
(e) Connie Lee Insured.
(f) FGIC Insured.
(g) FHA Insured.
(h) FSA Insured.
(i) GNMA Collateralized.
(j) Prerefunded.
(k) Radian Insured.
(l) Security may have a maturity of more than one year at time of issuance,
but has variable rate and demand features that qualify it as a short-term
security. The rate disclosed is that currently in effect. This rate
changes periodically based upon prevailing market rates.
(m) XL Capital Insured.
(n) Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase.
See Notes to Financial Statements.
8 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006
Statement of Net Assets
As of June 30, 2006
=========================================================================================================================
Assets
-------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified
cost--$47,918,461) ........................................................ $ 48,879,670
Cash ....................................................................... 53,467
Receivables:
Securities sold ......................................................... $ 2,316,000
Interest ................................................................ 986,946 3,302,946
------------
Prepaid expenses ........................................................... 4,399
------------
Total assets ............................................................... 52,240,482
------------
=========================================================================================================================
Liabilities
-------------------------------------------------------------------------------------------------------------------------
Payables:
Securities purchased .................................................... 1,000,000
Investment adviser ...................................................... 13,794
Administration fees ..................................................... 5,911
Other affiliates ........................................................ 534 1,020,239
------------
Accrued expenses ........................................................... 54,248
------------
Total liabilities .......................................................... 1,074,487
------------
=========================================================================================================================
Preferred Shares
-------------------------------------------------------------------------------------------------------------------------
Preferred Shares, at redemption value, par value $.01 per share (200
Series A Shares and 200 Series B Shares of APS* authorized, issued and
outstanding at $50,000 per share liquidation preference) .................. 20,011,895
------------
=========================================================================================================================
Net Assets Applicable to Common Shares
-------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Shares ..................................... $ 31,154,100
============
=========================================================================================================================
Analysis of Net Assets Applicable to Common Shares
-------------------------------------------------------------------------------------------------------------------------
Common Shares, par value $.01 per share (2,344,067 shares issued and
outstanding) .............................................................. $ 23,441
Paid-in capital in excess of par ........................................... 29,660,492
Undistributed investment income--net ....................................... $ 224,028
Undistributed realized capital gains--net .................................. 284,930
Unrealized appreciation--net ............................................... 961,209
------------
Total accumulated earnings--net ............................................ 1,470,167
------------
Total--Equivalent to $13.29 net asset value per Common Share
(market price--$13.60) .................................................... $ 31,154,100
============
* Auction Preferred Shares.
See Notes to Financial Statements.
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006 9
Statement of Operations
For the Six Months Ended June 30, 2006
=========================================================================================================================
Investment Income
-------------------------------------------------------------------------------------------------------------------------
Interest ................................................................... $ 1,320,184
=========================================================================================================================
Expenses
-------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ................................................... $ 89,630
Administration fees ........................................................ 38,413
Accounting services ........................................................ 22,820
Commission fees ............................................................ 21,923
Printing and shareholder reports ........................................... 17,609
Professional fees .......................................................... 16,587
Transfer agent fees ........................................................ 12,216
Trustees' fees and expenses ................................................ 11,455
Pricing fees ............................................................... 3,440
Custodian fees ............................................................. 2,157
Listing fees ............................................................... 443
Other ...................................................................... 4,882
------------
Total expenses ............................................................. 241,575
------------
Investment income--net ..................................................... 1,078,609
------------
=========================================================================================================================
Realized & Unrealized Gain (Loss)--Net
-------------------------------------------------------------------------------------------------------------------------
Realized gain on:
Investments--net ........................................................ 61,951
Futures contracts and swaps--net ........................................ 203,236 265,187
------------
Change in unrealized appreciation on investments--net ...................... (854,764)
------------
Total realized and unrealized loss--net .................................... (589,577)
------------
=========================================================================================================================
Dividends & Distributions to Preferred Shareholders
-------------------------------------------------------------------------------------------------------------------------
Investment income--net ..................................................... (308,563)
Realized gain--net ......................................................... (2,210)
------------
Total dividends and distributions to Preferred Shareholders ................ (310,773)
------------
Net Increase in Net Assets Resulting from Operations ....................... $ 178,259
============
See Notes to Financial Statements.
10 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
June 30, December 31,
Increase (Decrease) in Net Assets: 2006 2005
=========================================================================================================================
Operations
-------------------------------------------------------------------------------------------------------------------------
Investment income--net ..................................................... $ 1,078,609 $ 1,938,570
Realized gain--net ......................................................... 265,187 318,444
Change in unrealized appreciation--net ..................................... (854,764) 41,235
Dividends and distributions to Preferred Shareholders ...................... (310,773) (274,318)
-----------------------------
Net increase in net assets resulting from operations ....................... 178,259 2,023,931
-----------------------------
=========================================================================================================================
Dividends & Distributions to Common Shareholders
-------------------------------------------------------------------------------------------------------------------------
Investment income--net ..................................................... (880,528) (1,823,158)
Realized gain--net ......................................................... -- (304,439)
-----------------------------
Net decrease in net assets resulting from dividends and distributions to
Common Shareholders ....................................................... (880,528) (2,127,597)
-----------------------------
=========================================================================================================================
Share Transactions
-------------------------------------------------------------------------------------------------------------------------
Value of shares issued to Common Shareholders in reinvestment of dividends
and distributions ......................................................... 60,054 64,760
Offering and underwriting costs resulting from issuance of Preferred Shares -- (244,927)
Adjustment of offering costs resulting from the issuance of Preferred Shares 4,456 --
-----------------------------
Net increase (decrease) in net assets derived from share transactions ...... 64,510 (180,167)
-----------------------------
=========================================================================================================================
Net Assets Applicable to Common Shares
-------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets applicable to Common Shares ................... (637,759) (283,833)
Beginning of period ........................................................ 31,791,859 32,075,692
-----------------------------
End of period* ............................................................. $ 31,154,100 $ 31,791,859
=============================
* Undistributed investment income--net .................................. $ 224,028 $ 334,510
=============================
See Notes to Financial Statements.
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006 11
Financial Highlights
For the Six
Months Ended For the Year Ended December 31,
The following per share data and ratios have been derived June 30, -------------------------------------------------
from information provided in the financial statements. 2006 2005 2004 2003 2002
=================================================================================================================================
Per Share Operating Performance
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ................... $ 13.59 $ 13.74 $ 13.91 $ 13.76 $ 13.25
----------------------------------------------------------------
Investment income--net*** .............................. .46 .83 .82 .93 .94
Realized and unrealized gain (loss)--net ............... (.25) .15 .08 .07 .42
Dividends and distributions to Preferred Shareholders:
Investment income--net .............................. (.13) (.11) (.03) (.03) (.05)
Realized gain--net .................................. --++ (.01) (.01) -- --
----------------------------------------------------------------
Total from investment operations ....................... .08 .86 .86 .97 1.31
----------------------------------------------------------------
Less dividends and distributions to Common Shareholders:
Investment income--net .............................. (.38) (.78) (.87) (.82) (.80)
Realized gain--net .................................. -- (.13) (.16) -- --
----------------------------------------------------------------
Total dividends and distributions to Common Shareholders (.38) (.91) (1.03) (.82) (.80)
----------------------------------------------------------------
Offering and underwriting costs resulting from the
issuance of Preferred Shares .......................... -- (.10) -- -- --
----------------------------------------------------------------
Adjustment of offering costs resulting from the
issuance of Preferred Shares .......................... --+ -- -- -- --
----------------------------------------------------------------
Net asset value, end of period ......................... $ 13.29 $ 13.59 $ 13.74 $ 13.91 $ 13.76
================================================================
Market price per share, end of period .................. $ 13.60 $ 13.60 $ 16.24 $ 15.26 $ 13.48
================================================================
=================================================================================================================================
Total Investment Return
---------------------------------------------------------------------------------------------------------------------------------
Based on market price per share ........................ 2.80%@ (10.71%) 14.29% 20.11% 5.10%
================================================================
=================================================================================================================================
Ratios Based on Average Net Assets of Common Shares**
---------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement ................... 1.54%* 1.30% 1.45% 1.16% 1.19%
================================================================
Total expenses ......................................... 1.54%* 1.30% 1.45% 1.16% 1.20%
================================================================
Total investment income--net ........................... 6.87%* 6.00% 5.97% 6.74% 7.00%
================================================================
=================================================================================================================================
Supplemental Data
---------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Shares, end of period
(in thousands) ....................................... $31,154 $31,792 $32,076 $32,390 $31,996
================================================================
Portfolio turnover ..................................... 6.08% 16.32% 20.70% 26.17% 35.56%
================================================================
* Annualized.
** Do not reflect the effect of dividends to Preferred Shareholders.
*** Based on average shares outstanding.
+ Amount is less than $.01 per share.
++ Amount is less than ($.01) per share.
@ Aggregate total investment return.
See Notes to Financial Statements.
12 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006
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. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results for the interim period. All
such adjustments are of a normal, recurring nature. 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 ("OTC") markets and are valued at the last available bid price
in the OTC 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 OTC 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's pricing service.
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 JUNE 30, 2006 13
Notes to Financial Statements (concluded)
(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 and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(f) Offering expenses -- Direct expenses relating to the public offering of the
Trust's Preferred Shares were charged to capital at the time of issuance. Any
adjustments to estimates of offering costs were recorded back to capital.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM") and an Administrative Agreement with Princeton
Administrators, L.P. ("Princeton"). 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 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 directors of
FAM, PSI, Princeton, and/or ML & Co.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction is expected to
close at the end of the third quarter of 2006.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 2006 were $3,035,860 and $4,201,449, 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 six months ended June
30, 2006 and the year ended December 31, 2005 increased by 4,386 and 4,569,
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. 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 yields in effect at June 30, 2006
were: Series A, 3.90% and Series B, 3.95%.
Shares issued and outstanding during the six months ended June 30, 2006 remained
constant. Shares issued and outstanding during the year ended December 31, 2005
increased by 200 from the issuance of an additional series of Preferred Shares
on September 30, 2005.
5. Subsequent Event:
The Trust paid a tax-exempt income dividend to holders of Common Shares in the
amount of $.053000 per share on July 28, 2006 to shareholders of record on July
17, 2006.
14 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006
Officers and Trustees
Walter B. Prince, Chairman and Trustee
James F. Carlin, III, Trustee
Thomas H. Green, III, Trustee
Edward M. Murphy, Trustee
Frank Nesvet, Trustee
James M. Storey, Trustee
Donald C. Burke, Vice President and Treasurer
John M. Loffredo, President
Theodore R. Jaeckel Jr., Vice President
Robert D. Sneeden, Vice President
Jeffrey Hiller, Chief Compliance Officer
Brian D. Stewart, Secretary
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 JUNE 30, 2006 15
Disclosure of Investment Advisory Agreement
Activities of and Composition of the Board of Trustees
All but one member of the Fund's Board of Trustees is an independent trustee
whose only affiliation with Fund Asset Management, L.P. (the "Investment
Adviser") or other Merrill Lynch affiliates is as a trustee of the Fund and an
employee of another financial institution. The Chairman of the Board is also an
independent trustee. New trustee nominees are chosen by a Nominating Committee
comprised of independent trustees. All independent trustees also are members of
the Board's Audit Committee and the independent trustees meet in executive
session at each in-person Board meeting. The Board and the Audit Committee meet
in person for at least one day each quarter and conduct other in-person and
telephone meetings throughout the year, some of which are formal board meetings,
and some of which are informational meetings.
Investment Advisory Agreement -- Matters Considered by the Board
Every year, the Board considers approval of the Fund's investment advisory
agreement (the "Investment Advisory Agreement"). The Board assesses the nature,
scope and quality of the services provided to the Fund by the personnel of the
Investment Adviser and its affiliates, including administrative services,
shareholder services, oversight of fund accounting, marketing services and
assistance in meeting legal and regulatory requirements. The Board also receives
and assesses information regarding the services provided to the Fund by certain
unaffiliated service providers.
At various times throughout the year, the Board also considers a range of
information in connection with its oversight of the services provided by the
Investment Adviser and its affiliates. Among the matters considered are: (a)
fees (in addition to management fees) paid to the Investment Adviser and its
affiliates by the Fund; (b) Fund operating expenses paid to third parties; (c)
the resources devoted to and compliance reports relating to the Fund's
investment objective, policies and restrictions, and its compliance with its
Code of Ethics and the Investment Adviser's compliance policies and procedures;
and (d) the nature, cost and character of non-investment management services
provided by the Investment Adviser and its affiliates.
The Board believes that the Investment Adviser is one of the most experienced
global asset management firms and considers the overall services provided by the
Investment Adviser to be of high quality. The Board also believes that the
Investment Adviser is financially sound and well managed and notes that the
Investment Adviser is affiliated with one of America's largest financial firms.
The Board works closely with the Investment Adviser in overseeing the Investment
Adviser's efforts to achieve good performance. As part of this effort, the Board
discusses portfolio manager effectiveness and, when performance is not
satisfactory, discusses with the Investment Adviser taking steps such as
changing investment personnel.
Annual Consideration of Approvals by the Board of Trustees
In the period prior to the Board meeting to consider renewal of the Investment
Advisory Agreement, the Board requests and receives materials specifically
relating to the Fund's Investment Advisory Agreement. These materials are
prepared separately for the Fund, and include (a) information compiled by Lipper
Inc. ("Lipper") on the fees and expenses, investment performance and leverage of
the Fund as compared to a comparable group of funds as classified by Lipper; (b)
information comparing the Fund's market price with its net asset value per
share; (c) a discussion by the Fund's portfolio management team of investment
strategies used by the Fund during its most recent fiscal year; (d) information
on the profitability to the Investment Adviser and its affiliates of the
Investment Advisory Agreement and other relationships with the Fund; and (e)
information provided by the Investment Adviser concerning investment advisory
fees charge to other retail closed-end funds under similar investment mandates.
The Board also considers other matters it deems important to the approval
process, such as payments made for services related to the valuation and pricing
of Fund portfolio holdings, the Fund's portfolio turnover statistics, and direct
and indirect benefits to the Investment Adviser and its affiliates from their
relationship with the Fund. The Board did not identify any particular
information as controlling, and each member of the Board may have attributed
different weights to the various items considered.
Certain Specific Renewal Data
In connection with the most recent renewal of the Fund's Investment Advisory
Agreement in June 2006, the independent trustees' and Board's review included
the following:
16 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006
Investment Adviser's Services and Fund Performance -- The Board reviewed the
nature, extent and quality of services provided by the Investment Adviser,
including the investment advisory services and the resulting performance of the
Fund. The Board focused primarily on the Investment Adviser's investment
advisory services and the Fund's investment performance. The Board compared Fund
performance -- both including and excluding the effects of the Fund's fees and
expenses -- to the performance of a comparable group of funds. While the Board
reviews performance data quarterly, consistent with the Investment Adviser's
investment goals, the Board attaches primary importance to performance over
relatively long periods of time, typically three to five years.
Relative to closed-end leveraged single-state municipal debt funds deemed
comparable by Lipper, the Board noted that for the period ended December 31,
2005, The Massachusetts Health & Education Tax-Exempt Trust's performance for
the one- year period ranked in the second quintile, for the three- year period
ranked in the third quintile. Prior to 2004, FAM was not the Investment Advisor
for the Fund. The Board also reviewed the Fund's performance based on annualized
yields and noted that the Fund ranked in the first quintile for the past year,
and the fourth quintile for the prior year. The Board concluded that the Fund's
performance supported the continuation of the Investment Advisory Agreement.
The Investment Adviser's Personnel and Investment Process -- The Board reviewed
the Fund's investment objectives and strategies. The Board discussed with senior
management of the Investment Adviser responsible for investment operations and
the senior management of the Investment Adviser's municipal investing group the
strategies being used to achieve the stated objectives. Among other things, the
Board considered the size, education and experience of the Investment Adviser's
investment staff, its use of technology, and the Investment Adviser's approach
to training and retaining portfolio managers and other research, advisory and
management personnel. The Board also reviewed the Investment Adviser's
compensation policies and practices with respect to the Fund's portfolio
manager. The Board also considered the experience of the Fund's portfolio
manager and noted that Mr. Jaeckel has over 23 years of municipal industry
experience. The Board concluded that the Investment Adviser and its investment
staff and the Fund's management team have extensive experience in analyzing and
managing the type of investments used by the Fund and that the Fund benefits
from that experience.
Management Fees and Other Expenses -- The Board reviews the Fund's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels -- the actual rate includes advisory and
administrative service fees and the effects of any fee waivers -- compared to
the other funds considered comparable by Lipper. It also compares the Fund's
total expenses to those of other comparable funds of the Investment Adviser. The
Board noted that contractual management fee rate was below the median fee
charged by comparable funds, as determined by Lipper, while the actual
management fee rate and actual total expense ratio were higher than the median
fees charged by such comparable funds. The Board concluded that the Fund's
management fee and fee rate and overall expense ratio are reasonable compared to
those of other comparable funds.
Profitability -- The Board considered the cost of the services provided to the
Fund by the Investment Adviser, and the Investment Adviser's and its affiliates'
profits relating to the management of the Fund. As part of its analysis, the
Board reviewed the Investment Adviser's methodology in allocating its costs to
the management of the Fund and concluded that there was a reasonable basis for
the allocation. The Board also considered federal court decisions discussing an
investment adviser's profitability and profitability levels considered to be
reasonable in those decisions. The Board concluded that the Investment Adviser's
profits are acceptable in relation to the nature and quality of services
provided and given the level of fees and expenses overall.
Economies of Scale -- The Board considered the extent to which economies of
scale might be realized as the assets of a Fund increase and whether there
should be changes in the management fee rate or structure in order to enable the
Fund to participate in these economies of scale. The Board considered economies
of scale to the extent applicable to the Fund's closed-end structure and
determined that the Fund appropriately benefits from any economies of scale and
no changes were currently necessary.
Conclusion
After the independent trustees deliberated in executive session, a majority of
the Board, including a majority of the independent trustees, approved the
renewal of the existing Investment Advisory Agreement, concluding that the
advisory fee was reasonable in relation to the services provided and that a
contract renewal was in the best interests of the shareholders.
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006 17
Disclosure of New Investment Advisory Agreement
Board Considerations
At a meeting in February 2006, the Board Members were informed of the
Transaction. In May 2006, the Board requested and received information regarding
the Transaction and the proposed New Investment Advisory Agreement. At an
in-person meeting on June 9, 2006, the Board Members, including the Independent
Board Members, discussed and approved the New Investment Advisory Agreement
between the Fund and BlackRock Advisors.
To assist the Board in its consideration of the New Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction in advance of the June 2006 meeting. In addition, the Independent
Board Members received advice from counsel on the legal standards relevant to
the Board Members' deliberations.
At the Board meetings, members of the Board discussed with Merrill Lynch
management and a BlackRock representative the Transaction, its strategic
rationale and BlackRock's general plans and intentions regarding the Fund. At
these Board meetings, representatives of Merrill Lynch and BlackRock made
presentations to and responded to questions from the Board. The Board Members
also inquired about the plans for and anticipated roles and responsibilities of
certain employees and officers of MLIM being transferred to BlackRock in
connection with the Transaction. After the presentations and after reviewing the
written materials provided, the Independent Board Members met in executive
sessions to consider the New Investment Advisory Agreement.
In connection with the Board's review of the New Investment Advisory Agreement,
MLIM and/or BlackRock advised the Board Members about a variety of matters. The
advice included the following, among other matters:
o that there is not expected to be any diminution in the nature, quality and
extent of services provided to the Fund and its shareholders by BlackRock
Advisors, including compliance services;
o that operation of New BlackRock as an independent investment management
firm will enhance its ability to attract and retain talented
professionals;
o that the Fund should benefit from having access to BlackRock's state of
the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions(R) brand name;
o that BlackRock has no present intention to alter any expense waivers and
reimbursements currently in effect and, while it reserves the right to do
so in the future, it would seek the approval of the Board before making
any changes;
o that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they have a different financial
interest in the matters that were being considered than do Fund
shareholders; and
o that under the Transaction Agreement, Merrill Lynch and BlackRock have
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15 (f) of the 1940 Act in
relation to any public funds advised by BlackRock or MLIM, respectively.
The Board Members considered the information provided by Merrill Lynch and
BlackRock above, and, among other factors, the following:
o the potential benefits to Fund shareholders from being part of a combined
fund family with BlackRock-sponsored funds, including possible economies
of scale and broader access to investment opportunities;
o the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
o the compliance policies and procedures of BlackRock Advisors;
o the fact that the schedule of the Fund's total advisory and administrative
fees will not increase by virtue of the New Investment Advisory Agreement,
but will remain the same;
o the terms and conditions of the New Investment Advisory Agreement,
including the fact that the fees to be paid and services to be provided
under the New Investment Advisory Agreement are substantially similar to
its current Investment Advisory Agreement and current Administration
Agreement, the schedule of fees payable under the New Investment Advisory
Agreement will be identical to the combined schedule of fees currently
payable by the Fund under its current Investment Advisory Agreement
18 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006
and current Administration Agreement, and that the Board had previously
approved the current Investment Advisory Agreement and current
Administration Agreement as required by the 1940 Act and had determined
that the Adviser has the capabilities, resources and personnel necessary
to provide the advisory and administrative services currently provided to
the Fund; and
o that Merrill Lynch agreed to pay all expenses of the Fund in connection
with the Board's consideration of the New Investment Advisory Agreement
and related agreements and all costs of shareholder meetings and, as a
result, the Fund would bear no costs in obtaining shareholder approval of
the New Investment Advisory Agreement.
Certain of these considerations are discussed in more detail below.
In their review of the New Investment Advisory Agreement, the Board assessed the
nature, scope and quality of the services to be provided to the Fund by the
personnel of BlackRock Advisors and its affiliates, including administrative
services, shareholder services, oversight of fund accounting, marketing services
and assistance in meeting legal and regulatory requirements. In its review of
the New Investment Advisory Agreement, the Board also considered a range of
information in connection with its oversight of the services to be provided by
BlackRock Advisors and its affiliates. Among the matters considered were: (a)
fees (in addition to management fees) to be paid to BlackRock Advisors and its
affiliates by the Fund; (b) Fund operating expenses paid to third parties; (c)
the resources devoted to and compliance reports relating to the Fund's
investment objective, policies and restrictions, and its compliance with its
Code of Ethics and BlackRock Advisors' compliance policies and procedures; and
(d) the nature, cost and character of non-investment management services to be
provided by BlackRock Advisors and its affiliates.
In the period prior to the Board meetings to consider approval of the current
Investment Advisory Agreement, the Board had requested and received materials
specifically relating to the Fund's current Investment Advisory Agreement. These
materials were prepared separately for the Fund, and included (a) information
compiled by Lipper Inc. ("Lipper") on the fees and expenses and the investment
performance of the Fund as compared to a comparable group of funds as classified
by Lipper; (b) information comparing the Fund's market price with its net asset
value per share; (c) a discussion by the Fund's portfolio management team on
investment strategies used by the Fund during its most recent fiscal year; (d)
information on the profitability to the Adviser of the current Investment
Advisory Agreement and other payments received by the Adviser and its affiliates
from the Fund; and (e) information provided by the Adviser concerning services
related to the valuation and pricing of Fund portfolio holdings, allocation of
Fund brokerage fees, the Fund's portfolio turnover statistics, and direct and
indirect benefits to the Adviser and its affiliates from their relationship with
the Fund.
In their deliberations, the Board Members considered information received in
connection with their most recent approval or continuation of the current
Investment Advisory Agreement, in addition to information provided by BlackRock
and BlackRock Advisors in connection with their evaluation of the terms and
conditions of the New Investment Advisory Agreement. The Board Members did not
identify any particular information that was all-important or controlling, and
the Board Members attributed different weights to the various factors. The Board
Members evaluated all information available to them. The Board Members,
including a majority of the Independent Board Members, concluded that the terms
of the New Investment Advisory Agreement are appropriate, that the fees to be
paid are reasonable in light of the services to be provided to the Fund, and
that the New Investment Advisory Agreement should be approved and recommended to
Fund shareholders.
Nature, Quality and Extent of Services Provided -- The Board reviewed the
nature, extent and quality of services provided by MLIM, including the
investment advisory services and the resulting performance of the Funds, as well
as the nature, quality and extent of services expected to be provided by
BlackRock Advisors. The Board focused primarily on the Adviser's investment
advisory services and the Fund's investment performance, but also considered
certain areas in which both MLIM and the Fund receive services as part of the
Merrill Lynch complex. The Board compared the Fund's performance -- both
including and excluding the effects of the Fund's fees and expenses -- to the
performance of a comparable group of funds, and the performance of a relevant
index or combination of indexes. While the Board reviews performance data at
least quarterly, consistent with the Adviser's investment goals, the Board
attaches more importance to performance over relatively longer periods of time,
typically three to five years.
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006 19
Disclosure of New Investment Advisory Agreement (continued)
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the New Investment Advisory Agreement, the Board
Members considered, among other things, the expected impact of the Transaction
on the operations, facilities, organization and personnel of New BlackRock and
how it would affect the Fund; the ability of BlackRock Advisors to perform its
duties after the Transaction; and any anticipated changes to the current
investment and other practices of the Fund. The Board Members considered
BlackRock's advice, as to the absence of any proposed changes in portfolio
management personnel in the Fund after the closing of the Transaction.
The Board Members were given information with respect to the potential benefits
to the Fund and its shareholders from having access to BlackRock's state of the
art technology and risk management analytic tools, including the investment
tools, provided under the BlackRock Solutions(R) brand name.
The Board Members were advised that, as a result of Merrill Lynch's equity
interest in BlackRock after the Transaction, the Fund would continue to be
subject to restrictions concerning certain transactions involving Merrill Lynch
affiliates (for example, transactions with a Merrill Lynch broker-dealer acting
as principal) absent revised or new regulatory relief. The Board Members were
advised that a revision of existing regulatory relief with respect to these
restrictions was being sought from the Commission and were advised of the
possibility of receipt of such revised regulatory relief. There can be no
assurance that such relief will be obtained.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the Board
Members determined that the nature and quality of services to be provided to the
Fund under the New Investment Advisory Agreement was expected to be as good or
better than that provided under the current Investment Advisory Agreement and
current Administration Agreement. It was noted, however, that it is expected
that there will be changes in personnel following the Transaction and the
combination of MLIM's operations with those of BlackRock. The Board Members
noted that if current portfolio managers or other personnel cease to be
available, the Board would consider all available options, which could include
seeking the investment advisory or other services of BlackRock affiliates.
Accordingly, the Board Members concluded that, overall, they were satisfied at
the present time with assurances from BlackRock and BlackRock Advisors as to the
expected nature, extent and quality of the services to be provided to the Fund
under the New Investment Advisory Agreement.
Costs of Services Provided and Profitability -- It was noted that in conjunction
with the recent review of the current Investment Advisory Agreement, the Board
Members had received, among other things, a report from Lipper comparing the
Fund's fees, expenses and performance to those of a peer group for the Fund
selected by Lipper, and information as to the fees charged by the Adviser to
other registered investment company clients for investment management services.
The information showed that the Fund had fees and expenses within the range of
fees and expenses of comparable funds. The Board reviewed the Fund's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels -- the actual rate includes advisory and
administrative service fees and the effects of any fee waivers -- compared to
the other funds in its Lipper category. The Board also compared the Fund's total
expenses to those of other, comparable funds. The Board considered the services
to be provided by and the fees to be charged by BlackRock Advisors to other
closed-end funds with similar investment mandates and noted that the fees
charged by BlackRock Advisors, including fee waivers and reimbursements, in
those cases were generally comparable to and within the range of those being
charged to the Fund. The Board also noted that, as a general matter, according
to the information provided by BlackRock Advisors, fees charged to institutional
clients were lower than the fees charged to the Fund, but BlackRock Advisors
provided less extensive services to such clients. The Board concluded that the
Fund's management fee and fee rate and overall expense ratio are reasonable
compared to those of other comparable funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the New Investment Advisory Agreement, the Board Members considered, among
other things, whether advisory and administrative fees or other expenses would
change as a result of the Transaction. Based on their review of the materials
provided and the fact that the New Investment Advisory Agreement, which includes
administrative services, is substantially similar to the current Investment
Advisory Agreement and current Administration Agreement in all material
respects, including the rate of compensation, the Board Members determined that
the Transaction should not increase the total fees payable for advisory and
administrative services, including fee waivers and reimbursements, and that
overall Fund expenses were not
20 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006
expected to increase as a result of the Transaction. The Board Members noted
that it was not possible to predict how the Transaction would affect BlackRock
Advisors' profitability from its relationship with the Fund.
The Board Members discussed with BlackRock Advisors its general methodology to
be used in determining its profitability with respect to its relationship with
the Fund. The Board Members noted that they expect to receive profitability
information from BlackRock Advisors on at least an annual basis and thus be in a
position to evaluate whether any adjustments in Fund fees and/or fee breakpoints
would be appropriate.
Fees and Economies of Scale -- The Board considered the extent to which
economies of scale might be realized as the assets of the Fund increase and
whether there should be changes in the management fee rate or structure in order
to enable the Fund to participate in these economies of scale. The Board
determined that changes were not currently necessary. It was noted that because
the Fund has a closed-end structure, it is not expected to increase in size in
the foreseeable future (other than by potential appreciation of assets).
In reviewing the Transaction, the Board Members considered, among other things,
whether advisory and administrative fees or other expenses would change as a
result of the Transaction. Based on the fact that the New Investment Advisory
Agreement, which includes administrative services, is substantially similar to
the current Investment Advisory Agreement and current Administration Agreement
in all material respects, including the rate of compensation, the Board Members
determined that as a result of the Transaction, the Fund's total advisory and
administrative fees would be no higher than the fees under its current
Investment Advisory Agreement and current Administration Agreement. The Board
Members noted that in conjunction with their most recent deliberations
concerning the current Investment Advisory Agreement, the Board Members had
determined that the total fees for advisory and administrative services for the
Fund were reasonable in light of the services provided. It was noted that in
conjunction with the recent review of the current Investment Advisory Agreement
and current Administration Agreement, the Board Members had received, among
other things, a report from Lipper comparing the Fund's fees, expenses and
performance to those of a peer group for the Fund selected by Lipper, and
information as to the fees charged by the Adviser to other registered investment
company clients for investment management services. The Board Members concluded
that, because the rates for advisory and administrative fees for the Fund would
be no higher than its current fee rates, including fee waivers and
reimbursements, the proposed management fee structure was reasonable and that no
changes were currently necessary. The Board Members recognized that BlackRock
may realize economies of scale from the Transaction based on certain
consolidations and synergies of operations, but concluded that the actual
economies of scale could not be predicted in advance.
Fall-Out Benefits -- In evaluating the fall-out benefits to be received by
BlackRock Advisors under the New Investment Advisory Agreement, the Fund's Board
Members considered whether the Transaction would have an impact on the fall-out
benefits received by the Fund's Adviser by virtue of the current Investment
Advisory Agreement. Based on their review of the materials provided, including
materials received in connection with their most recent approval or continuance
of each current Investment Advisory Agreement, and their discussions with
management of MLIM and BlackRock, the Board Members determined that those
benefits could include increased ability for BlackRock to distribute shares of
its funds and other investment products and, where applicable, to obtain
research services using the Fund's portfolio transaction brokerage. The Board
Members noted that any such benefits were difficult to quantify with certainty
at this time, and indicated that they would continue to evaluate them going
forward.
Investment Performance -- The Board Members considered investment performance
for the Fund and concluded that the Fund's performance supported the
continuation of the Investment Advisory Agreement. The Board compared the Fund's
performance -- both including and excluding the effects of the Fund's fees and
expenses -- to the performance of a comparable group of mutual funds. The
comparative information received from Lipper showed Fund performance at various
levels within the range of performance of comparable funds over different time
periods. While the Board reviews performance data at least quarterly, consistent
with the Advisor's investment goals, the Board attaches more importance to
performance over relatively long periods of time, typically three to five years.
Also, the Board Members took into account the investment performance of funds
currently advised by BlackRock Advisors. The Board received comparative
information from Lipper which showed the performance of the funds advised by
BlackRock Advisors and was within the range of performance of comparable funds
over different time periods. The Board noted BlackRock's considerable investment
management experience and capabilities, but were unable to predict what effect,
if any, consummation of the Transaction and these proposed steps would have on
the future performance of the Fund.
THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006 21
Disclosure of New Investment Advisory Agreement (concluded)
Conclusion -- After the Independent Board Members of the Fund deliberated in
executive session, a majority of the Board of the Fund, including a majority of
the Independent Board Members, approved the New Investment Advisory Agreement,
concluding that the advisory fee rate was reasonable in relation to the services
provided and that the New Investment Advisory Agreement is in the best interests
of the shareholders. In approving the New Investment Advisory Agreement, the
Board noted that it anticipated reviewing the continuance of the agreement prior
to the expiration of its initial two-year period.
22 THE MASSACHUSETTS HEALTH & EDUCATION TAX-EXEMPT TRUST JUNE 30, 2006
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.
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 JUNE 30, 2006 23
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
--------------------------------------------------------------------------------
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
The Massachusetts Health & Education Tax-Exempt Trust seeks to provide
shareholders with 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 1-800-637-3863; (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 -- 6/06
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable to this
semi-annual report
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable to this semi-annual
report
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable to this semi-annual report
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 last 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 - Not Applicable to this semi-annual report
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,
President of
The Massachusetts Health & Education Tax-Exempt Trust
Date: August 23, 2006
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,
President of
The Massachusetts Health & Education Tax-Exempt Trust
Date: August 23, 2006
By: /s/ Donald C. Burke
-----------------------------------------------------
Donald C. Burke,
Treasurer of
The Massachusetts Health & Education Tax-Exempt Trust
Date: August 23, 2006