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STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 26, 1999
EATON VANCE OHIO MUNICIPAL INCOME TRUST
24 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(800) 225-6265
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TABLE OF CONTENTS
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Additional Investment Information and Restrictions.......... B-2
Trustees and Officers....................................... B-7
Investment Advisory and Other Services...................... B-10
Determination of Net Asset Value............................ B-11
Portfolio Trading........................................... B-11
Taxes....................................................... B-13
Other Information........................................... B-15
Auditors.................................................... B-15
Financial Statements........................................ B-16
Independent Auditors' Report................................ B-18
Appendix A: Ratings of Municipal Bonds...................... B-19
Appendix B: Tax Equivalent Yield Table...................... B-24
Appendix C: Ohio and U.S. Territory Information............. B-25
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THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE PROSPECTUS OF EATON VANCE OHIO MUNICIPAL INCOME TRUST (THE
"TRUST") DATED JANUARY 26, 1999, AS SUPPLEMENTED FROM TIME TO TIME, WHICH IS
INCORPORATED HEREIN BY REFERENCE. THIS STATEMENT OF ADDITIONAL INFORMATION
SHOULD BE READ IN CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE
OBTAINED WITHOUT CHARGE BY CONTACTING YOUR FINANCIAL INTERMEDIARY OR CALLING THE
TRUST AT 1-800-225-6265.
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Capitalized terms used in this Statement of Additional Information and not
otherwise defined have the meanings given them in the Trust's Prospectus.
ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
Municipal Obligations. Municipal obligations are issued to obtain funds
for various public and private purposes. Municipal obligations include long-term
obligations, which are often called municipal bonds, as well as tax-exempt
commercial paper, project notes and municipal notes such as tax, revenue and
bond anticipation notes of short maturity, generally less than three years.
Market rates of interest available with respect to municipal obligations may be
lower than those available with respect to taxable securities, although such
differences may be partially or wholly offset by the effects of federal income
tax on income derived from such taxable securities. While most municipal bonds
pay a fixed rate of interest semi-annually in cash, some bonds pay no periodic
cash interest but instead make a single payment at maturity representing both
principal and interest. Municipal obligations may be issued or subsequently
offered with interest coupons materially greater or less than those then
prevailing, with price adjustments reflecting such deviation.
In general, there are three categories of municipal obligations the
interest on which is exempt from federal income tax and is not a tax preference
item for purposes of the AMT: (i) certain "public purpose" obligations (whenever
issued), which include obligations issued directly by state and local
governments or their agencies to fulfill essential governmental functions; (ii)
certain obligations issued before August 8, 1986 for the benefit of
non-governmental persons or entities; and (iii) certain "private activity bonds"
issued after August 7, 1986 which include "qualified Section 501(c)(3) bonds" or
refundings of certain obligations included in the second category. Interest on
certain "private activity bonds" issued after August 7, 1986 is exempt from
regular federal income tax, but is treated as a tax preference item that could
subject the recipient to or increase the recipient's liability for the AMT. For
corporate shareholders, the Trust's distributions derived from interest on all
municipal obligations (whenever issued) is included in "adjusted current
earnings" for purposes of the AMT as applied to corporations (to the extent not
already included in alternative minimum taxable income as income attributable to
private activity bonds). In assessing the federal income tax treatment of
interest on any such obligation, the Trust will rely on an opinion of the
issuer's counsel (when available) obtained by the issuer or other reliable
authority and will not undertake any independent verification thereof.
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. Issuers of general obligation bonds include
states, counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects including the
construction or improvement of schools, highways and roads, water and sewer
systems and a variety of other public purposes. The basic security of general
obligation bonds is the issuer's pledge of its faith, credit, and taxing power
for the payment of principal and interest. The taxes that can be levied for the
payment of debt service may be limited or unlimited as to rate and amount.
Revenue bonds are generally secured by the net revenues derived from a
particular facility or group of facilities or, in some cases, from the proceeds
of a special excise or other specific revenue source. Revenue bonds have been
issued to fund a wide variety of capital projects including: electric, gas,
water, sewer and solid waste disposal systems; highways, bridges and tunnels;
port, airport and parking facilities; transportation systems; housing
facilities, colleges and universities and hospitals. Although the principal
security behind these bonds varies widely, many provide additional security in
the form of a debt service reserve fund whose monies may be used to make
principal and interest payments on the issuer's obligations. Housing finance
authorities have a wide range of security including partially or fully insured,
rent subsidized and/or collateralized mortgages, and/or the net revenues from
housing or other public projects. In addition to a debt service reserve fund,
some authorities provide further security in the form of a state's ability
(without legal obligation) to make up deficiencies in the debt service reserve
fund. Lease rental revenue bonds issued by a state or local authority for
capital projects are normally secured by annual lease rental payments from the
state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality. Industrial development and pollution
control
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bonds, although nominally issued by municipal authorities, are in most cases
revenue bonds and are generally not secured by the taxing power of the
municipality, but are usually secured by the revenues derived by the authority
from payments of the industrial user or users. The Trust may on occasion acquire
revenue bonds which carry warrants or similar rights covering equity securities.
Such warrants or rights may be held indefinitely, but if exercised, the Trust
anticipates that it would, under normal circumstances, dispose of any equity
securities so acquired within a reasonable period of time.
The obligations of any person or entity to pay the principal of and
interest on a municipal obligation are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of any person or entity to pay when due
principal of and interest on a municipal obligation may be materially affected.
There have been recent instances of defaults and bankruptcies involving
municipal obligations which were not foreseen by the financial and investment
communities. The Trust will take whatever action it considers appropriate in the
event of anticipated financial difficulties, default or bankruptcy of either the
issuer of any municipal obligation or of the underlying source of funds for debt
service. Such action may include retaining the services of various persons or
firms (including affiliates of the Adviser) to evaluate or protect any real
estate, facilities or other assets securing any such obligation or acquired by
the Trust as a result of any such event, and the Trust may also manage (or
engage other persons to manage) or otherwise deal with any real estate,
facilities or other assets so acquired. The Trust anticipates that real estate
consulting and management services may be required with respect to properties
securing various municipal obligations in its portfolio or subsequently acquired
by the Trust. The Trust will incur additional expenditures in taking protective
action with respect to portfolio obligations in default and assets securing such
obligations. To enforce its rights in the event of a default in the payment of
interest or repayment of principal, or both, the Trust may take possession of
and manage the assets or have a receiver appointed to collect and disburse
pledged revenues securing the issuer's obligations on such securities, which may
increase the operating expenses and adversely affect the net asset value of the
Trust. Any income derived from the ownership of operation of such assets may not
be tax-exempt. In addition, the Trust's intention to qualify as a "regulated
investment company" ("RIC") under the Code may limit the extent to which the
Trust may exercise its rights by taking possession of such assets, because as a
RIC, the Trust is subject to certain limitations on its investments and on the
nature of its income.
The yields on municipal obligations are dependent on a variety of factors,
including purposes of issue and source of funds for repayment, general money
market conditions, general conditions of the municipal bond market, size of a
particular offering, maturity of the obligation and rating of the issue. The
ratings of Moody's, S&P and Fitch represent their opinions as to the quality of
the municipal obligations which they undertake to rate. It should be emphasized,
however, that ratings are based on judgment and are not absolute standards of
quality. Consequently, municipal obligations with the same maturity, coupon and
rating may have different yields while obligations of the same maturity and
coupon with different ratings may have the same yield. In addition, the market
price of municipal obligations will normally fluctuate with changes in interest
rates, and therefore the net asset value of the Trust will be affected by such
changes.
State Concentration. The Trust normally will invest 65% or more of its
total assets in municipal obligations of issuers located in Ohio, and may invest
25% or more of its total assets in a U.S. territory (Puerto Rico, the U.S.
Virgin Islands and Guam). When the Trust does so, it will be sensitive to
factors affecting that jurisdiction, such as changes in the economy, decreases
in tax collection or the tax base, legislation which limits taxes and changes in
issuer credit ratings. Moody's currently rated Puerto Rico general obligations
Baa, while S&P rates them A.
Economic Sector Concentration. The Trust may invest 25% or more of its
total assets in municipal obligations of issuers in the same economic sector.
There could be economic, business or political developments which might affect
all municipal obligations in a particular economic sector. In particular,
investments in the industrial revenue bonds listed above might involve (without
limitation) the following risks.
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Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible federal legislation limiting the rates of increase
of hospital charges.
Electric utilities face problems in financing large construction programs
in an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear facilities),
difficulty in obtaining fuel at reasonable prices and in achieving timely and
adequate rate relief from regulatory commissions, effects of energy conservation
and limitations on the capacity of the capital market to absorb utility debt.
Bonds to finance life care facilities are normally secured only by the
revenues of each facility and not by state or local government tax payments,
they are subject to a wide variety of risks. Primarily, the projects must
maintain adequate occupancy levels to be able to provide revenues sufficient to
meet debt service payments. Moreover, since a portion of housing, medical care
and other services may be financed by an initial deposit, it is important that
the facility maintain adequate financial reserves to secure estimated actuarial
liabilities. The ability of management to accurately forecast inflationary cost
pressures is an important factor in this process. The facilities may also be
affected adversely by regulatory cost restrictions applied to health care
delivery in general, particularly state regulations or changes in Medicare and
Medicaid payments or qualifications, or restrictions imposed by medical
insurance companies. They may also face competition from alternative health care
or conventional housing facilities in the private or public sector.
Municipal Leases. The Trust may invest in municipal leases and
participations therein, which arrangements frequently involve special risks.
Municipal leases are obligations in the form of a lease or installment purchase
arrangement which is issued by state or local governments to acquire equipment
and facilities. Interest income from such obligations is generally exempt from
local and state taxes in the state of issuance. "Participations" in such leases
are undivided interests in a portion of the total obligation. Participations
entitle their holders to receive a pro rata share of all payments under the
lease. The obligation of the issuer to meet its obligations under such leases is
often subject to the appropriation by the appropriate legislative body, on an
annual or other basis, of funds for the payment of the obligations. Investments
in municipal leases are thus subject to the risk that the legislative body will
not make the necessary appropriation and the issuer will not otherwise be
willing or able to meet its obligation. Certain municipal lease obligations are
illiquid.
When-Issued Securities. New issues of municipal obligations are sometimes
offered on a "when-issued" basis, that is, delivery and payment for the
securities normally take place within a specified number of days after the date
of the Trust's commitment and are subject to certain conditions such as the
issuance of satisfactory legal opinions. The Trust may also purchase securities
on a when-issued basis pursuant to refunding contracts in connection with the
refinancing of an issuer's outstanding indebtedness. Refunding contracts
generally require the issuer to sell and the Trust to buy such securities on a
settlement date that could be several months or several years in the future. The
Trust may also purchase instruments that give the Trust the option to purchase a
municipal obligation when and if issued.
The Trust will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but may sell such
securities before the settlement date if it is deemed advisable as a matter of
investment strategy. The payment obligation and the interest rate that will be
received on the securities are fixed at the time the Trust enters into the
purchase commitment. When the Trust commits to purchase a security on a
when-issued basis it records the transaction and reflects the value of the
security in determining its net asset value. Securities purchased on a
when-issued basis and the securities held by the Trust are subject to changes in
value based upon the perception of the creditworthiness of the issuer and
changes in the level of interest rates (i.e. appreciation when interest rates
decline and depreciation when interest rates rise). Therefore, to the extent
that the Trust remains substantially fully invested at the same time
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that it has purchased securities on a when-issued basis, there will be greater
fluctuations in the Trust's net asset value than if it set aside cash to pay for
when-issued securities.
Redemption, Demand and Put Features, and Put Options. Issuers of municipal
obligations reserve the right to call (redeem) the bond. If an issuer redeems
securities held by the Trust during a time of declining interest rates, the
Trust may not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed. Also, some bonds may have "put" or
"demand" features that allow early redemption by the bondholder. Longer term
fixed-rate bonds may give the holder a right to request redemption at certain
times (often annually after the lapse of an intermediate term). These bonds are
more defensive than conventional long term bonds because they may protect to
some degree against a rise in interest rates.
Liquidity and Protective Put Options. The Trust may also enter into a
separate agreement with the seller of a security or some other person granting
the Trust the right to put the security to the seller thereof or the other
person at an agreed upon price. Such agreements are subject to the risk of
default by the other party, although the Trust intends to limit this type of
transaction to institutions (such as banks or securities dealers) which the
Adviser believes present minimal credit risks. The Trust would engage in this
type of transaction to facilitate portfolio liquidity or (if the seller so
agrees) to hedge against rising interest rates. There is no assurance that this
kind of put option will be available to the Trust or that selling institutions
will be willing to permit the Trust to exercise a put to hedge against rising
interest rates. The Trust does not expect to assign any value to any separate
put option which may be acquired to facilitate portfolio liquidity, inasmuch as
the value (if any) of the put will be reflected in the value assigned to the
associated security; any put acquired for hedging purposes would be valued in
good faith under methods or procedures established by the Trustees of the Trust
after consideration of all relevant factors, including its expiration date, the
price volatility of the associated security, the difference between the market
price of the associated security and the exercise price of the put, the
creditworthiness of the issuer of the put and the market prices of comparable
put options. Interest income generated by certain bonds having put or demand
features may be taxable.
Illiquid Obligations. At times, a substantial portion of the Trust's
assets may be invested in securities as to which the Trust, by itself or
together with other accounts managed by the Adviser and its affiliates, holds a
major portion or all of such securities. Under adverse market or economic
conditions or in the event of adverse changes in the financial condition of the
issuer, the Trust could find it more difficult to sell such securities when the
Adviser believes it advisable to do so or may be able to sell such securities
only at prices lower than if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the fair value of such
securities for purposes of computing the Trust's net asset value.
The secondary market for some municipal obligations issued within a state
(including issues which are privately placed with the Trust) is less liquid than
that for taxable debt obligations or other more widely traded municipal
obligations. No established resale market exists for certain of the municipal
obligations in which the Trust may invest. The market for obligations rated
below investment grade is also likely to be less liquid than the market for
higher rated obligations. As a result, the Trust may be unable to dispose of
these municipal obligations at times when it would otherwise wish to do so at
the prices at which they are valued.
Futures Contracts and Options on Futures Contracts. A change in the level
of interest rates may affect the value of the securities held by the Trust (or
of securities that the Trust expects to purchase). To hedge against changes in
rates or as a substitute for the purchase of securities, the Trust may enter
into (i) futures contracts for the purchase or sale of debt securities and (ii)
futures contracts on securities indices. All futures contracts entered into by
the Trust are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Trust may purchase and write call and put
options on futures contracts which are traded on a United States or foreign
exchange or board of trade. The Trust will be required, in connection with
transactions in futures contracts and the writing of options on futures, to make
margin deposits, which will be held by the Trust's custodian for the benefit of
the futures commission merchant through whom the Trust engages in such futures
and options transactions.
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Some futures contracts and options thereon may become illiquid under
adverse market conditions. In addition, during periods of market volatility, a
commodity exchange may suspend or limit transactions in an exchange-traded
instrument, which may make the instrument temporarily illiquid and difficult to
price. Commodity exchanges may also establish daily limits on the amount that
the price of a futures contract or futures option can vary from the previous
day's settlement price. Once the daily limit is reached, no trades may be made
that day at a price beyond the limit. This may prevent the Trust from closing
out positions and limiting its losses.
The Trust will engage in futures and related options transactions for bona
fide hedging purposes or non-hedging purposes as defined in or permitted by CFTC
regulations. The Trust will determine that the price fluctuations in the futures
contracts and options on futures used for hedging purposes are substantially
related to price fluctuations in securities held by the Trust or which it
expects to purchase. The Trust will engage in transactions in futures and
related options contracts only to the extent such transactions are consistent
with the requirements of the Code for maintaining its qualification as a RIC for
federal income tax purposes.
Investment Restrictions. The following investment restrictions of the
Trust are designated as fundamental policies and as such cannot be changed
without the approval of the holders of a majority of the Trust's outstanding
voting securities, which as used in this Statement of Additional Information
means the lesser of (a) 67% of the shares of the Trust present or represented by
proxy at a meeting if the holders of more than 50% of the outstanding shares are
present or represented at the meeting or (b) more than 50% of the outstanding
shares of the Trust. As a matter of fundamental policy the Trust may not:
(1) Borrow money, except as permitted by the 1940 Act;
(2) Issue senior securities, as defined in the 1940 Act, other than
(i) preferred shares which immediately after issuance will have asset
coverage of at least 200%, (ii) indebtedness which immediately after
issuance will have asset coverage of at least 300%, or (iii) the borrowings
permitted by investment restriction (1) above;
(3) Purchase securities on margin (but the Trust may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities). The purchase of investment assets with the proceeds
of a permitted borrowing or securities offering will not be deemed to be
the purchase of securities on margin;
(4) Underwrite securities issued by other persons, except insofar as
it may technically be deemed to be an underwriter under the Securities Act
of 1933 in selling or disposing of a portfolio investment;
(5) Make loans to other persons, except by (a) the acquisition of loan
interests, debt securities and other obligations in which the Trust is
authorized to invest in accordance with its investment objective and
policies, (b) entering into repurchase agreements, and (c) lending its
portfolio securities;
(6) Purchase or sell real estate, although it may purchase and sell
securities which are secured by interests in real estate and securities of
issuers which invest or deal in real estate. The Trust reserves the freedom
of action to hold and to sell real estate acquired as a result of the
ownership of securities;
(7) Purchase or sell physical commodities or contracts for the
purchase or sale of physical commodities. Physical commodities do not
include futures contracts with respect to securities, securities indices or
other financial instruments; or
(8) Invest more than 25% of its total assets in securities of issuers
in any one industry.
For purposes of the Trust's investment restrictions, the determination of
the "issuer" of a municipal obligation which is not a general obligation bond
will be made by the Adviser on the basis of the characteristics of the
obligation and other relevant factors, the most significant of which is the
source of funds committed to meeting interest and principal payments of such
obligation.
For purposes of construing restriction (8), securities of the U.S.
Government, its agencies, or instrumentalities, and securities, including Ohio
municipal obligations, backed by the credit of a governmental entity are not
considered to represent industries. However, Ohio municipal obligations backed
only by the assets and
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revenues of non-governmental users may for this purpose be deemed to be issued
by such non-governmental users. Thus, the 25% limitation would apply to such
obligations. As discussed previously in this section and in the Prospectus, it
is nonetheless possible that the Trust may invest more than 25% of its total
assets in a broader economic sector of the market for Ohio municipal
obligations, such as revenue obligations of hospitals and other health care
facilities or electrical utility revenue obligations. The Trust reserves the
right to invest more than 25% of its assets in industrial development bonds and
private activity securities.
The Trust has adopted the following nonfundamental investment policy which
may be changed by the Trustees without approval of the Trust's shareholders. As
a matter of nonfundamental policy, the Trust may not make short sales of
securities or maintain a short position, unless at all times when a short
position is open it either owns an equal amount of such securities or owns
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to, the
securities sold short.
Upon Board of Trustee approval the Trust may invest more than 10% of its
total assets in one or more other management investment companies (or may invest
in affiliated investment companies) to the extent permitted by the 1940 Act and
rules thereunder.
Whenever an investment policy or investment restriction set forth in the
Prospectus or this Statement of Additional Information states a maximum
percentage of assets that may be invested in any security or other asset or
describes a policy regarding quality standards, such percentage limitation or
standard shall be determined immediately after and as a result of the Trust's
acquisition of such security or asset. Accordingly, any later increase or
decrease resulting from a change in values, assets or other circumstances will
not compel the Trust to dispose of such security or other asset. Notwithstanding
the foregoing, the Trust must always be in compliance with the borrowing
policies set forth above.
TRUSTEES AND OFFICERS
The Trust's Trustees and officers are listed below. Except as indicated,
each individual has held the office shown or other offices in the same company
for the last five years. Unless otherwise noted, the business address of each
Trustee and officer is 24 Federal Street, Boston, Massachusetts 02110. Those
Trustees who are "interested persons" of the Trust as defined in the 1940 Act by
virtue of their affiliation with Eaton Vance, BMR, EVC or EV, are indicated by
an asterisk(*).
JESSICA M. BIBLIOWICZ (38), TRUSTEE(1)
President and Chief Operating Officer of John A. Levin & Co. (a registered
investment advisor) (since July 1997) and a Director of Baker, Fentress &
Company which owns John A. Levin & Co. (since July 1997). Formerly Executive
Vice President of Smith Barney Mutual Funds (from July 1994 to June 1997).
Trustee of various investment companies managed by Eaton Vance or BMR since
October 30, 1998.
Address: One Rockefeller Plaza, New York, New York 10020
DONALD R. DWIGHT (67), TRUSTEE (1)
President of Dwight Partners, Inc. (a corporate relations and communications
company). Trustee of various investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (57), VICE PRESIDENT AND TRUSTEE* (2)
Chairman, President and Chief Executive Officer of Eaton Vance, BMR and their
corporate parent and trustee (EVC and EV). Director of EVC and EV. Trustee and
officer of various investment companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (63), TRUSTEE (2)
Jacob H. Schiff Professor of Investment Banking Emeritus, Harvard University
Graduate School of Business Administration. Trustee of Kobrick-Cendant
Investment Trust (mutual funds). Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: 345 Nahatan Road, Westwood, Massachusetts 02090
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NORTON H. REAMER (63), TRUSTEE (3)
Chairman of the Board and Chief Executive Officer, United Asset Management
Corporation (a holding company owning institutional investment management
firms); Chairman, President and Director of UAM Funds (mutual funds). Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
LYNN A. STOUT (41), TRUSTEE (3)
Professor of Law, Georgetown University Law Center. Trustee of various
investment companies managed by Eaton Vance or BMR since October 30, 1998.
Address: 600 New Jersey Avenue, NW, Washington, DC 20001.
JACK L. TREYNOR (68), TRUSTEE (3)
Investment Adviser and Consultant. Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
THOMAS J. FETTER (55), PRESIDENT
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (41), VICE PRESIDENT
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (53), TREASURER
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
ALAN R. DYNNER (58), SECRETARY
Vice President and Chief Legal Officer of Eaton Vance, BMR, EVC and EV since
November 1, 1996. Previously, he was a Partner of the law firm of Kirkpatrick &
Lockhart LLP, New York and Washington, D.C., and was Executive Vice President of
Neuberger & Berman Management, Inc., a mutual fund management company. Officer
of various investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (62), ASSISTANT TREASURER AND ASSISTANT SECRETARY
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
A. JOHN MURPHY (35), ASSISTANT SECRETARY
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
ERIC G. WOODBURY (41), ASSISTANT SECRETARY
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
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(1) Class I Trustee whose term expires after 1999.
(2) Class II Trustee whose term expires after 2000.
(3) Class III Trustee whose term expires after 2001.
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Messrs. Hayes (Chairman) and Reamer and Ms. Stout are members of the
Special Committee of the Board of Trustees of the Trust. The purpose of the
Special Committee is to consider, evaluate and make recommendations to the full
Board of Trustees concerning (i) all contractual arrangements with service
providers to the Trust, including investment advisory, administrative, transfer
agency, custodial and fund accounting and distribution services, and (ii) all
other matters in which Eaton Vance or its affiliates has any actual or potential
conflict of interest with the Trust or its shareholders.
The Nominating Committee of the Board of Trustees of the Trust is comprised
of four Trustees who are not "interested persons" as that term is defined under
the 1940 Act ("noninterested Trustees"). The Committee has four-year staggered
terms, with one member rotating off the Committee to be replaced by another
noninterested Trustee. The purpose of the Committee is to recommend to the Board
nominees for the position of noninterested Trustee and to assure that at least a
majority of the Board of Trustees is independent of Eaton Vance and its
affiliates.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust. The Audit Committee's functions include
making recommendations to the Trustees regarding the selection of the
independent certified public accountants, and reviewing matters relative to
trading and brokerage policies and practices, accounting and auditing practices
and procedures, accounting records, internal accounting controls, and the
functions performed by the custodian, transfer agent and dividend disbursing
agent of the Trust.
Trustees of the Trust who are not affiliated with the Adviser may elect to
defer receipt of all or a percentage of their annual fees in accordance with the
terms of a Trustees Deferred Compensation Plan (the "Trustees' Plan"). Under the
Trustees' Plan, an eligible Trustee may elect to have his deferred fees invested
by the Trust in the shares of one or more funds in the Eaton Vance Family of
Funds, and the amount paid to the Trustees under the Trustees' Plan will be
determined based upon the performance of such investments. Deferral of Trustees'
fees in accordance with the Trustees' Plan will have a negligible effect on the
Trust's assets, liabilities, and net income per share, and will not obligate the
Trust to retain the services of any Trustee or obligate the Trust to pay any
particular level of compensation to the Trustee. The Trust does not have a
retirement plan for its Trustees.
The fees and expenses of the noninterested Trustees of the Trust are paid
by the Trust. (The Trustees of the Trust who are members of the Eaton Vance
organization receive no compensation from the Trust.) During the year ended
December 31, 1998, the noninterested Trustees of the Trust earned the
compensation set forth below in their capacities as Trustees from the funds in
the Eaton Vance fund complex(1). It is estimated that the noninterested Trustees
will receive from the Trust the amounts set forth below for the fiscal year
ending November 30, 1999.
<TABLE>
<CAPTION>
ESTIMATED
COMPENSATION TOTAL COMPENSATION
NAME FROM TRUST FROM FUND COMPLEX
---- ------------ ------------------
<S> <C> <C>
Jessica M. Bibliowicz............................... $385 N/A
Donald R. Dwight.................................... 385 $156,250(2)
Samuel L. Hayes, III................................ 381 166,250(3)
Norton H. Reamer.................................... 374 156,250
Lynn A. Stout....................................... 385 N/A
Jack L. Treynor..................................... 422 165,000
</TABLE>
- ---------------
(1) As of January 1, 1999 the Eaton Vance fund complex consisted of 143
registered investment companies or series thereof.
(2) Includes $56,250 of deferred compensation.
(3) Includes $41,563 of deferred compensation.
B-9
<PAGE> 10
INVESTMENT ADVISORY AND OTHER SERVICES
Eaton Vance, its affiliates and its predecessor companies have been
managing assets of individuals and institutions since 1924 and of investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment-grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies. Eaton Vance and its affiliates act as
adviser to a family of mutual funds, and individual and various institutional
accounts, including corporations, hospitals, retirement plans, universities,
foundations and trusts.
The Trust will be responsible for all of its costs and expenses not
expressly stated to be payable by Eaton Vance under the Advisory Agreement or
Administration Agreement. Such costs and expenses to be borne by the Trust
include, without limitation: custody and transfer agency fees and expenses,
including those incurred for determining net asset value and keeping accounting
books and records; expenses of pricing and valuation services; the cost of share
certificates; membership dues in investment company organizations; expenses of
acquiring, holding and disposing of securities and other investments; fees and
expenses of registering under the securities laws, stock exchange listing fees
and governmental fees; rating agency fees and preferred share remarketing
expenses; expenses of reports to shareholders, proxy statements and other
expenses of shareholders' meetings; insurance premiums; printing and mailing
expenses; interest, taxes and corporate fees; legal and accounting expenses;
compensation and expenses of Trustees not affiliated with Eaton Vance; expenses
of conducting repurchase offers for the purpose of repurchasing Trust shares;
and investment advisory and administration fees. The Trust will also bear
expenses incurred in connection with any litigation in which the Trust is a
party and any legal obligation to indemnify its officers and Trustees with
respect thereto, to the extent not covered by insurance.
The Advisory Agreement with the Adviser continues in effect to February 28,
2000 and from year to year so long as such continuance is approved at least
annually (i) by the vote of a majority of the noninterested Trustees of the
Trust or of the Adviser cast in person at a meeting specifically called for the
purpose of voting on such approval and (ii) by the Board of Trustees of the
Trust or by vote of a majority of the outstanding interests of the Trust. The
Trust's Administration Agreement continues in effect from year to year so long
as such continuance is approved at least annually by the vote of a majority of
the Trust's Trustees. Each agreement may be terminated at any time without
penalty on sixty (60) days' written notice by the Trustees of the Trust or Eaton
Vance, as applicable, or by vote of the majority of the outstanding shares of
the Trust. Each agreement will terminate automatically in the event of its
assignment. Each agreement provides that, in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations or duties
to the Trust under such agreements on the part of Eaton Vance, Eaton Vance shall
not be liable to the Trust for any loss incurred, to the extent not covered by
insurance.
BMR and Eaton Vance are business trusts organized under Massachusetts law.
Eaton Vance, Inc. ("EV") serves as trustee of BMR and Eaton Vance. BMR, Eaton
Vance and EV are wholly-owned subsidiaries of Eaton Vance Corporation ("EVC"), a
Maryland corporation and publicly-held holding company. EVC through its
subsidiaries and affiliates engages primarily in investment management,
administration and marketing activities. The Directors of EVC are James B.
Hawkes, Benjamin A. Rowland, Jr., John G.L. Cabot, John M. Nelson, Vincent M.
O'Reilly and Ralph Z. Sorenson. All of the issued and outstanding shares of
Eaton Vance are owned by EVC. All of the issued and outstanding shares of BMR
are owned by Eaton Vance. All shares of the outstanding Voting Common Stock of
EVC are deposited in a Voting Trust, the Voting Trustees of which are Messrs.
Hawkes, Rowland, and Alan R. Dynner, Thomas E. Faust, Jr., Thomas J. Fetter,
Duncan Richardson, William M. Steul and Wharton P. Whitaker. The Voting Trustees
have unrestricted voting rights for the election of Directors of EVC. All of the
outstanding voting trust receipts issued under said Voting Trust are owned by
certain of the officers of BMR and Eaton Vance who are also officers, or
officers and Directors of EVC and EV. As indicated under "Trustees and
Officers", all of the officers of the Trust (as well as Mr. Hawkes who is also a
Trustee) hold positions in the Eaton Vance organization.
B-10
<PAGE> 11
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Trust, IBT.
It is Eaton Vance's opinion that the terms and conditions of such transactions
were not and will not be influenced by existing or potential custodial or other
relationships between the Trust and such banks.
DETERMINATION OF NET ASSET VALUE
The net asset value per Share of the Trust is determined no less frequently
than weekly, generally on the last day of the week that the New York Stock
Exchange (the "Exchange") is open for trading, as of the close of regular
trading on the Exchange (normally 4:00 p.m. New York time). The Trust's net
asset value per Share is determined by IBT, in the manner authorized by the
Trustees of the Trust. Net asset value is computed by dividing the value of the
Trust's total assets, less its liabilities by the number of shares outstanding.
Inasmuch as the market for municipal obligations is a dealer market with no
central trading location or continuous quotation system, it is not feasible to
obtain last transaction prices for most municipal obligations held by the Trust,
and such obligations, including those purchased on a when-issued basis, will
normally be valued on the basis of valuations furnished by a pricing service.
The pricing service uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities,
various relationships between securities, and yield to maturity in determining
value. Taxable obligations for which price quotations are readily available
normally will be valued at the mean between the latest available bid and asked
prices. Open futures positions on debt securities are valued at the most recent
settlement prices, unless such price does not reflect the fair value of the
contract, in which case the positions will be valued by or at the direction of
the Trustees. Other assets are valued at fair value using methods determined in
good faith by the Trustees.
PORTFOLIO TRADING
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by the
Adviser. The Adviser is also responsible for the execution of transactions for
all other accounts managed by it. The Adviser places the portfolio security
transactions of the Trust and of all other accounts managed by it for execution
with many firms. The Adviser uses its best efforts to obtain execution of
portfolio security transactions at prices which are advantageous to the Trust
and at reasonably competitive spreads or (when a disclosed commission is being
charged) at reasonably competitive commission rates. In seeking such execution,
the Adviser will use its best judgment in evaluating the terms of a transaction,
and will give consideration to various relevant factors, including without
limitation the full range and quality of the executing firm's services, the
value of the brokerage and research services provided, the responsiveness of the
firm to the Adviser, the size and type of the transaction, the nature and
character of the market for the security, the confidentiality, speed and
certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any. Municipal obligations,
including state obligations, purchased and sold by the Trust are generally
traded in the over-the-counter market on a net basis (i.e., without commission)
through broker-dealers and banks acting for their own account rather than as
brokers, or otherwise involve transactions directly with the issuer of such
obligations. Such firms attempt to profit from such transactions by buying at
the bid price and selling at the higher asked price of the market for such
obligations, and the difference between the bid and asked price is customarily
referred to as the spread. The Trust may also purchase municipal obligations
from underwriters, and dealers in fixed price offerings, the cost of which may
include undisclosed fees and concessions to the underwriters. On occasion it may
be necessary or appropriate to purchase or sell a security through a broker on
an agency basis, in which case the Trust will incur a brokerage commission.
Although spreads or commissions on portfolio security transactions will, in the
judgment of the Adviser, be reasonable in relation to the value of the services
provided, spreads or commissions exceeding those which another firm might charge
may be paid to firms who
B-11
<PAGE> 12
were selected to execute transactions on behalf of the Trust and the Adviser's
other clients for providing brokerage and research services to the Adviser.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Trust may
receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if the
Adviser determines in good faith that such compensation was reasonable in
relation to the value of the brokerage and research services provided. This
determination may be made on the basis of that particular transaction or on the
basis of overall responsibilities which the Adviser and its affiliates have for
accounts over which they exercise investment discretion. In making any such
determination, the Adviser will not attempt to place a specific dollar value on
the brokerage and research services provided or to determine what portion of the
commission should be related to such services. Brokerage and research services
may include advice as to the value of securities, the advisability of investing
in, purchasing, or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts; effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement); and
the "Research Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
Advisers of investment companies, institutions and other investors to receive
research, analytical, statistical and quotation services, data, information and
other services, products and materials which assist such advisers in the
performance of their investment responsibilities ("Research Services") from
broker-dealer firms which execute portfolio transactions for the clients of such
advisers and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, the Adviser receives Research
Services from many broker-dealer firms with which the Adviser places the Trust's
transactions and from third parties with which these broker-dealers have
arrangements. These Research Services include such matters as general economic,
political, business and market information, industry and company reviews,
evaluations of securities and portfolio strategies and transactions, proxy
voting data and analysis services, technical analysis of various aspects of the
securities market, recommendations as to the purchase and sale of securities and
other portfolio transactions, financial, industry and trade publications, news
and information services, pricing and quotation equipment and services, and
research oriented computer hardware, software, data bases and services. Any
particular Research Service obtained through a broker-dealer may be used by the
Adviser in connection with client accounts other than those accounts which pay
commissions to such broker-dealer. Any such Research Service may be broadly
useful and of value to the Adviser in rendering investment advisory services to
all or a significant portion of its clients, or may be relevant and useful for
the management of only one client's account or of a few clients' accounts, or
may be useful for the management of merely a segment of certain clients'
accounts, regardless of whether any such account or accounts paid commissions to
the broker-dealer through which such Research Service was obtained. The advisory
fee paid by the Trust is not reduced because the Adviser receives such Research
Services. The Adviser evaluates the nature and quality of the various Research
Services obtained through broker-dealer firms and attempts to allocate
sufficient portfolio security transactions to such firms to ensure the continued
receipt of Research Services which the Adviser believes are useful or of value
to it in rendering investment advisory services to its clients.
The Trust and the Adviser may also receive Research Services from
underwriters and dealers in fixed-price offerings, which Research Services are
reviewed and evaluated by the Adviser in connection with its investment
responsibilities. The investment companies sponsored by the Adviser or BMR may
allocate trades in such offerings to acquire information relating to the
performance, fees and expenses of such companies and other mutual funds, which
information is used by the Trustees of such companies to fulfill their
responsibility to oversee the quality of the services provided by various
entities, including the Adviser, to such companies. Such companies may also pay
cash for such information.
Subject to the requirement that the Adviser shall use its best efforts to
seek and execute portfolio security transactions at advantageous prices and at
reasonably competitive spreads or commission rates, the Adviser is authorized to
consider as a factor in the selection of any broker-dealer firm with whom
portfolio orders may be placed the fact that such firm has sold or is selling
shares of the Trust or of other investment companies
B-12
<PAGE> 13
sponsored by the Adviser. This policy is not inconsistent with a rule of the
National Association of Securities Dealers, Inc. ("NASD"), which rule provides
that no firm which is a member of the NASD shall favor or disfavor the
distribution of shares of any particular investment company or group of
investment companies on the basis of brokerage commissions received or expected
by such firm from any source.
Municipal obligations considered as investments for the Trust may also be
appropriate for other investment accounts managed by the Adviser or its
affiliates. Whenever decisions are made to buy or sell securities by the Trust
and one or more of such other accounts simultaneously, the Adviser will allocate
the security transactions (including "hot" issues) in a manner which it believes
to be equitable under the circumstances. As a result of such allocations, there
may be instances where the Trust will not participate in a transaction that is
allocated among other accounts. If an aggregated order cannot be filled
completely, allocations will generally be made on a pro rata basis. An order may
not be allocated on a pro rata basis where, for example: (i) consideration is
given to portfolio managers who have been instrumental in developing or
negotiating a particular investment; (ii) consideration is given to an account
with specialized investment policies that coincide with the particulars of a
specific investment; (iii) pro rata allocation would result in odd-lot or de
minimis amounts being allocated to a portfolio or other client; or (iv) where
the Adviser reasonably determines that departure from a pro rata allocation is
advisable. While these aggregation and allocation policies could have a
detrimental effect on the price or amount of the securities available to the
Trust from time to time, it is the opinion of the Trustees of the Trust that the
benefits from the Adviser's organization outweigh any disadvantage that may
arise from exposure to simultaneous transactions.
TAXES
The Trust has elected to be, and intends to qualify for treatment each year
as, a RIC under the Code. Accordingly, the Trust intends to satisfy certain
requirements relating to sources of its income and diversification of its assets
and to distribute substantially all of its net investment income (including tax-
exempt income) and net capital gains in accordance with the timing requirements
imposed by the Code, so as to maintain its RIC status. By doing so, the Trust
will avoid any federal income tax on any income and gains it distributes to its
shareholders. If the Trust failed to qualify as a RIC for any taxable year, it
would be taxed on the full amount of its taxable income for that year without
being able to deduct the distributions it makes to its shareholders and the
shareholders would treat all distributions, including those that otherwise would
qualify as "exempt-interest dividends" (described below), as dividends (that is,
ordinary income) to the extent of the Trusts' earnings and profits.
To avoid incurring a federal excise tax obligation, the Trust must
distribute (or be deemed to have distributed) each calendar year at least an
amount equal to the sum of (i) 98% of its ordinary income (not including
tax-exempt income) for that year, (ii) 98% of its capital gain net income (which
is the excess of its realized capital gains over its realized capital losses),
generally computed on the basis of the one-year period ending on October 31 of
that year, after reduction by any available capital loss carryforwards and (iii)
100% of certain other amounts. Under current law, provided that the Trust
qualifies as a RIC, it should not be liable for any income, corporate excise or
franchise tax in the Commonwealth of Massachusetts.
The Trust's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. The Trust may be required to liquidate securities that it
might otherwise have continued to hold in order to generate cash to enable it to
distribute that income to Trust shareholders and thereby remain qualified for
treatment as a RIC and avoid imposition of the income and excise taxes described
above.
Investments in lower-rated or unrated securities may present special tax
issues for the Trust to the extent that the issuers of these securities default
on their obligations pertaining thereto. The federal tax law is not entirely
clear regarding the consequences of the Trust's taking certain positions in
connection with ownership of distressed securities. For example, there is
uncertainty regarding: (i) when the Trust may or must cease to accrue interest,
original issue discount, or market discount on these securities; (ii) when and
to what extent deductions may be taken for bad debts or worthless securities;
(iii) how payments received on obligations in
B-13
<PAGE> 14
default should be allocated between principal and income; and (iv) whether
exchanges of debt obligations in a workout context are taxable.
Distributions by the Trust of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for the Trust to be able to pay exempt-interest dividends, at
least 50% of the Trust's total assets at the close of each quarter of its
taxable year, must consist of obligations the interest on which is exempt from
regular federal income tax under Code Section 103(a). The portion of exempt-
interest dividends attributable to interest on certain municipal obligations is
treated as a tax preference item for purposes of the AMT. Furthermore,
exempt-interest dividends are included in determining what portion, if any, of a
person's social security and railroad retirement benefits will be includible in
gross income subject to regular federal income tax. Shareholders are required to
report exempt-interest dividends on their federal income tax returns.
If the Trust issues preferred shares, the Trust will designate
distributions made to holders of shares and to holders of those preferred shares
in accordance with each class's proportionate share of each item of Trust income
(such as tax-exempt interest, net capital gains and other taxable income).
A portion of exempt-interest dividends paid by the Trust will not be
tax-exempt to any shareholder who is a "substantial user" of the facilities
financed by tax-exempt obligations held by the Trust or "related persons" of
such substantial users.
Any recognized gain or other income attributable to market discount on
long-term tax-exempt municipal obligations (i.e., obligations with a term of
more than one year) other than, in general, at their original issue, is taxable
as ordinary income. Such an obligation is generally treated as acquired at a
market discount if purchased after its original issue at a price less than (i)
the stated principal amount payable at maturity, in the case of an obligation
that does not have original issue discount, or (ii) in the case of an obligation
that does have original issue discount, the sum of the issue price and any
original issue discount that accrued before the obligation was purchased,
subject to a de minimis exclusion.
Some of the Trust's investment practices are subject to special provisions
of the Code that, among other things, may defer the use of certain losses of the
Trust and affect the holding period of the securities held by the Trust and the
character of the gains or losses realized by the Trust. These provisions may
also require the Trust to recognize income or gain without receiving cash with
which to make distributions in the amounts necessary to satisfy the requirements
for maintaining RIC status and for avoiding income and excise taxes. The Trust
will monitor its transactions and may make certain tax elections in order to
mitigate the effect of these rules and prevent disqualification of the Trust as
a RIC.
Any loss realized upon the sale or exchange of shares held by a shareholder
for six months or less will be disallowed to the extent the shareholder has
received exempt-interest dividends with respect to those shares, and any such
loss that exceeds the disallowed amount will be treated as a long-term capital
loss to the extent of any distribution of net capital gain with respect to those
shares. In addition, a loss realized on a sale of shares will be disallowed to
the extent the shareholder acquires other shares (whether through the
reinvestment of distributions or otherwise) within the period beginning 30 days
before the sale and ending 30 days after the sale.
Taxable dividends (including capital gain dividends) payable by the Trust
to individuals and certain other non-corporate shareholders who have not
provided the Trust with their correct taxpayer identification number ("TIN") and
certain certifications required by the Internal Revenue Service ("IRS"), as well
as shareholders with respect to whom the Trust has received certain
notifications from the IRS are subject to "backup" withholding of federal income
tax at a rate of 31%. An individual's TIN is generally his or her social
security number.
The Trust is not appropriate for non-U.S. investors or as a retirement plan
investment.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as non-U.S. investors insurance companies
and financial institutions. Shareholders should consult their
B-14
<PAGE> 15
own tax advisers with respect to special tax rules that may apply in their
particular situations, as well as the state or local tax consequences of
investing in the Trust and any proposed tax law changes.
OTHER INFORMATION
The Trust is an organization of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may, in
certain circumstances, be held personally liable as partners for the obligations
of the trust. The Declaration of Trust contains an express disclaimer of
shareholder liability in connection with the Trust property or the acts,
obligations or affairs of the Trust. The Declaration of Trust also provides for
indemnification out of the Trust property of any shareholder held personally
liable for the claims and liabilities to which a shareholder may become subject
by reason of being or having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself is unable to meet its obligations. The
Trust believes the risk of any shareholder incurring any liability for the
obligations of the Trust is remote.
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law; but nothing in the Declaration of
Trust protects a Trustee against any liability to the Trust or its shareholders
to which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his office. Voting rights are not cumulative, which means that the
holders of more than 50% of the shares voting for the election of Trustees can
elect 100% of the Trustees and, in such event, the holders of the remaining less
than 50% of the shares voting on the matter will not be able to elect any
Trustees.
The Declaration of Trust provides that no person shall serve as a Trustee
if shareholders holding two-thirds of the outstanding shares have removed him
from that office either by a written declaration filed with the Trust's
custodian or by votes cast at a meeting called for that purpose. The Declaration
of Trust further provides that the Trustees of the Trust shall promptly call a
meeting of the shareholders for the purpose of voting upon a question of removal
of any such Trustee or Trustees when requested in writing so to do by the record
holders of not less than 10 per centum of the outstanding shares.
The Trust's Prospectus and this Statement of Additional Information do not
contain all of the information set forth in the Registration Statement that the
Fund has filed with the SEC. The complete Registration Statement may be obtained
from the SEC upon payment of the fee prescribed by its Rules and Regulations.
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent accountants for the Trust, providing audit services, tax return
preparation, and assistance and consultation with respect to the preparation of
filings with the SEC.
B-15
<PAGE> 16
EATON VANCE OHIO MUNICIPAL INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 21, 1999
<TABLE>
<S> <C>
ASSETS:
Cash................................................... $100,000
Deferred initial offering expenses..................... 50,000
Receivable from Investment Adviser for expenses subject
to expense reimbursement plan......................... 24,411
Receivable from Investment Adviser for expenses assumed
by Investment Adviser................................. 589
--------
Total assets........................................... $175,000
--------
LIABILITIES:
Initial offering expenses accrued...................... $ 50,000
Accrued expenses....................................... 25,000
--------
Total liabilities...................................... $175,000
--------
Net assets applicable to 6,666.67 common shares of
beneficial interest issued and outstanding................ $100,000
--------
NET ASSET VALUE AND OFFERING PRICE PER SHARE................ $ 15.00
--------
</TABLE>
NOTE TO FINANCIAL STATEMENT
Eaton Vance Ohio Municipal Income Trust was formed under an Agreement and
Declaration of Trust dated December 10, 1998 and has been inactive since that
date except for matters relating to its organization and registration as an
investment company under the Investment Company Act of 1940 and the sale of
6,667.67 shares of its beneficial interest to Eaton Vance Management, the Fund's
administrator. The initial offering expenses, including federal and state
registration and qualification fees, will be deducted from net proceeds, and
will not exceed $0.03 per share, as Eaton Vance Management or an affiliate will
pay any such expenses in excess of $0.03 per share. The initial offering
expenses reflected above assume the initial sale of 1,666,666.67 shares.
B-16
<PAGE> 17
EATON VANCE OHIO MUNICIPAL INCOME TRUST
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM THE DATE OF ORGANIZATION DECEMBER 10, 1998 TO
JANUARY 21, 1999
<TABLE>
<S> <C>
INCOME:..................................................... $ 0
--------
EXPENSES:
Organization expenses..................................... $ 25,000
--------
Total Expenses.............................................. $ 25,000
--------
Less:
Preliminary reduction of expenses subject to expense
reimbursement plan..................................... $(24,411)
Assumption of expenses by Investment Adviser.............. $ (589)
--------
Net Expenses................................................ $ 0
--------
Net Income.................................................. $ 0
--------
</TABLE>
NOTE OF FINANCIAL STATEMENT
Eaton Vance Management, the Trust's administrator, has agreed to bear all
ordinary and organizational expenses of the Trust that exceed 5% of average
weekly net assets (taking into account the deduction of any preferred shares and
related expenses) for the Trust's first fiscal year. In return for this
arrangement, the Trust may reimburse Eaton Vance over the first year of
operations for organizational expenses of the Trust initially borne by the
administrator. In addition, for the period from the date of organization,
December 10, 1998, to January 21, 1999, Eaton Vance has agreed to voluntarily
assume any expenses not covered by the expense reimbursement plan.
B-17
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholder of
Eaton Vance Ohio Municipal Income Trust:
We have audited the accompanying statement of assets and liabilities of
Eaton Vance Ohio Municipal Income Trust (the "Fund") as of January 21, 1999 and
the related statement of operations for the period from the date of organization
December 10, 1998, to January 21, 1999. These financial statements are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements referred to above presents
fairly, in all material respects, the financial position of Eaton Vance Ohio
Municipal Income Trust as of January 21, 1999, and the results of its operations
for the stated period, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Boston, Massachusetts
January 22, 1999
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<PAGE> 19
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risk appear somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
- ---------------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this SAI for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily represent
ratings which would be given to these securities on the date of the Trust's
fiscal year end.
B-19
<PAGE> 20
Absence of Rating -- Where no rating has been assigned or where a rating
has been suspended or withdrawn, it may be for reasons unrelated to the quality
of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note -- Moody's applies numerical modifiers, 1, 2, and 3 in each generic
rating classification from Aa through B in its municipal bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
Ratings -- Moody's ratings for state and municipal short-term obligations
will be designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand
feature, variable rate demand obligation (VRDO). Such ratings will be designated
as VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
B-20
<PAGE> 21
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
C1 -- The Rating C1 is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
p -- The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk of
default upon failure of such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
L -- The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit collateral is
insured by the Federal Deposit Insurance Corp. and interest is adequately
collateralized. In the case of certificates of deposit, the letter "L" indicates
that the deposit, combined with other deposits being held in the same right and
capacity, will be honored for principal and accrued pre-default interest up to
the federal insurance limits within 30 days after closing of the insured
institution or, in the event that the deposit is assumed by a successor insured
institution, upon maturity.
NR -- NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
B-21
<PAGE> 22
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 -- Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a plus(+)
designation.
SP-2 -- Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3 -- Speculative capacity to pay principal and interest.
FITCH IBCA
INVESTMENT GRADE BOND RATINGS
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated 'AAA'. Because bonds rated
in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated 'F-1+'.
A -- Bonds considered to be investment grade and of high credit quality.
The obligors ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore,
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB -- Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified that
could assist the obligor in satisfying its debt service requirements.
B -- Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC -- Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC -- Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
B-22
<PAGE> 23
C -- Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D -- Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be valued on the basis
of their ultimate recovery value in liquidation or reorganization of the
obligor. "DDD" represents the highest potential for recovery on these bonds, and
"D" represents the lowest potential for recovery.
Plus (+) or Minus (-) -- The ratings from AA to C may be modified by the
addition of a plus or minus sign to indicate the relative position of a credit
within the rating category.
NR -- Indicates that Fitch does not rate the specific issue.
Conditional -- A conditional rating is premised on the successful
completion of a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
F-1+ -- Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.
F-1 -- Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2 -- Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as the "F-1+" and "F-1" categories.
F-3 -- Fair Credit Quality. Issues carrying this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near-term adverse change could cause these securities to be
rated below investment grade.
Notes -- Bonds which are unrated expose the investor to risks with respect
to capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Trust is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
B-23
<PAGE> 24
APPENDIX B
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of
tax-exempt bonds yielding from 4.75% to 5.50% under the regular 1999 federal
income tax law and 1998 Ohio state personal income taxes.
<TABLE>
<CAPTION>
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL, AND 4.75% 5.00% 5.25% 5.50%
------------------- ------------------- OH STATE ---------------------------------------------
(TAXABLE INCOME*) TAX BRACKET IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
----------------------------------------- ------------ ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Up to $ 25,750 Up to $ 43,050 19.01% 5.86% 6.17% 6.48% 6.79%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 32.50 7.04 7.41 7.78 8.15
$ 62,451 - $130,250 $104,051 - $158,550 35.32 7.34 7.73 8.12 8.50
$130,251 - $283,150 $158,551 - $283,150 40.35 7.96 8.38 8.80 9.22
Over $283,150 Over $283,150 43.71 8.44 8.88 9.33 9.77
</TABLE>
- ---------------
* Net amount subject to federal and Ohio personal income tax after deductions
and exemptions.
The above indicated federal income tax brackets do not take into account
the effect of a reduction in the deductibility of itemized deductions for
individual taxpayers with adjusted gross income in excess of $126,600. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $126,600 and joint filers
with adjusted gross income in excess of $189,950. The effective tax brackets and
equivalent taxable yields of those taxpayers will be higher than those indicated
above.
The combined federal and Ohio tax brackets are calculated using the highest
Ohio tax rate applicable within each bracket. Taxpayers with taxable income
within such brackets may have lower combined tax brackets and taxable equivalent
yields than indicated above. The combined tax brackets assume that Ohio taxes
are itemized deductions for federal income tax purposes. Investors who do not
itemize deductions on their federal income tax return will have a higher
combined bracket and higher taxable equivalent yield than those indicated above.
The applicable federal tax rates within the brackets are 15%, 28%, 31%, 36% and
39.6%, over the same ranges of income.
Yields shown are for illustration purposes only and are not meant to
represent the Trust's actual yield. No assurance can be given that the Trust
will achieve any specific tax-exempt yield. While it is expected that the Trust
will invest principally in obligations the interest from which is exempt from
the regular federal income tax and Ohio state personal income taxes, other
income received by the Trust may be taxable. It should also be noted that the
interest earned on certain "private activity bonds", while exempt from the
regular federal income tax, is treated as a tax preference item which could
subject the recipient to the AMT. The illustrations assume that the AMT is not
applicable and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax-equivalent yields
set forth above. Investors should consult their tax adviser for additional
information.
B-24
<PAGE> 25
APPENDIX C
OHIO AND U.S. TERRITORY INFORMATION
The following is a summary of certain selected information relating to the
economy and finances of the state of Ohio and the U.S. territories listed below.
It is not a discussion of any specific factors that may affect any particular
issuers of municipal securities. The information is not intended to be
comprehensive and does not include all of the economic and financial
information, such as certain information pertaining to budgets, receipts and
disbursements, about Ohio or such U.S. Territories that would ordinarily be
included in various public documents issued thereby, such as an official
statement prepared in connection with the issuance of general obligation bonds
of Ohio or such U.S. Territories. Such an official statement, together with any
updates or supplements thereto, generally may be obtained upon request to the
budget or equivalent office of Ohio or such U.S. Territories. The information is
derived from selected public documents of the type described above and has not
been independently verified by the Trust.
OHIO
The state of Ohio operates on the basis of a fiscal biennium for its
appropriations and expenditures. The state is effectively prohibited by law from
ending a fiscal year or a biennium in a deficit position. The Governor has the
power to order state agencies to operate within the state's means. The state
carries out most of its operations through the General Revenue Fund ("GRF")
which receives general state revenues not otherwise dedicated. GRF revenues are
derived mainly from personal income and sales taxes and corporate franchise
taxes. State GRF figures generally show a pattern related to national economic
conditions, evident in growth and depletion of its GRF ending fund balances,
with the June 30 (end of fiscal year) GRF fund balance reduced during less
favorable national economic periods and increased during more favorable economic
periods.
Local school districts in Ohio receive a major portion (state-wide
aggregate approximately 44% in recent years) of their operating moneys from
state subsidies, but are dependent on local property taxes, and in 119 districts
from voter-authorized income taxes, for significant portions of their budgets.
Litigation similar to that in other states, has been pending questioning the
constitutionality of Ohio's system of school funding. The Ohio Supreme Court has
recently concluded that aspects of the system (including basic operating
assistance and the loan program referred to below) are unconstitutional, and
ordered the state to provide for and fund a system complying with the Ohio
Constitution, staying its order to permit time for responsive corrective
actions. A small number of the state's 612 local school districts have in any
year required special assistance to avoid year-end deficits. A program has
provided for school district cash need borrowing directly from commercial
lenders, with diversion of state subsidy distributions to repayment if needed.
Recent borrowings under this program totaled $113.2 million for 12 districts in
1997 (including $90 million to one for restructuring its prior loans), and $23.4
million for 10 districts in fiscal year 1998.
For those few municipalities and school districts that on occasion have
faced significant financial programs, there are statutory procedures for a joint
state/local commission to monitor the fiscal affairs and for development of a
financial plan to eliminate deficits and cure any defaults. (Similar procedures
have recently been extended to counties and townships). Since inception for
municipalities in 1979, these "fiscal emergency" procedures have been applied to
26 cities and villages; for 19 of them the fiscal situation was resolved and the
procedures terminated (two cities are in preliminary "fiscal watch" status). As
of December 2, 1998, the 1996 school district "fiscal emergency" provision
applied to six districts, and ten were on preliminary "fiscal watch" status.
PUERTO RICO, THE U.S. VIRGIN ISLANDS AND GUAM
Puerto Rico. Puerto Rico has a diversified economy dominated by the
manufacturing and service sectors. The North American Free Trade Agreement
("NAFTA"), which became effective January 1, 1994, has led to loss of lower wage
jobs such as textiles, but economic growth in other areas, particularly the high
technology area has compensated for that loss.
B-25
<PAGE> 26
The Commonwealth of Puerto Rico differs from the states in its relationship
with the federal government. Most federal taxes, except those such as social
security taxes that are imposed by mutual consent, are not levied in Puerto
Rico. However, in conjunction with the 1993 U.S. budget plan, Section 936 of the
Code was amended and provided for two alternative limitations to the Section 936
credit. The first option limited the credit against such income to 40% of the
credit allowable under then current law, with a five year phase-in period
starting at 60% of the allowable credit. The second option was a wage and
depreciation based credit. Additional amendments to Section 936 in 1996 imposed
caps on these credits, beginning in 1998 for the first option and beginning in
2002 for the second option. More importantly, the 1996 amendments eliminated
both options for taxable years beginning in 2006. The eventual elimination of
tax benefits to those U.S. companies with operations in Puerto Rico may lead to
slower growth in the future. There can be no assurance that this will not lead
to a weakened economy, a lower rating on Puerto Rico's debt or lower prices for
Puerto Rican bonds that may be held by the Portfolio in the long-term.
Puerto Ricans have periodically considered conversion to statehood and such
a vote is likely again in the future. The statehood proposal was again defeated
in December, 1998.
The U.S. Virgin Islands. The United States Virgin Islands (USVI) is
heavily reliant on the tourism industry, with roughly 43% of non-agricultural
employment in tourist-related trade and services. The tourism industry is
economically sensitive and would likely be adversely affected by a recession in
either the United States or Europe.
An important component of the USVI revenue base is the federal excise tax
on rum exports. Tax revenues rebated by the federal government to the USVI
provide the primary security of many outstanding USVI bonds. Since more than 90%
of the rum distilled in the USVI is distilled at one plant, any interruption in
its operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. The USVI is periodically hit by hurricanes.
Several hurricanes have caused extensive damage, which has had a negative impact
on revenue collections. There is currently no rated, unenhanced Virgin Islands
debt outstanding (although there is unrated debt outstanding).
Guam. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. The
Naval Air Station, one of several U.S. military facilities on the island, has
been slated for closure by the Defense Base Closure and Realignment Committee;
however, the administration plans to use these facilities to expand the Island's
commercial airport. Guam is also heavily reliant on tourists, particularly the
Japanese. Guam's general obligation debt is rated BBB by S&P with a negative
outlook.
B-26
<PAGE> 27
EATON VANCE OHIO MUNICIPAL INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 26, 1999
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
TRANSFER AGENT
First Data Investor Services Group
P.O. Box 5123
Westborough, MA 01581-5123
(800) 262-1122
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
CE-OHMITSAI
