<PAGE>
As filed with the Securities and Exchange Commission on January 25, 1996
Registration No. 2-75276
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 27
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 28
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
(Exact name of Registrant as Specified in Charter)
140 Garden Street
Hartford, Connecticut 06154
(Address of Principal Executive Office)(Zip Code)
Registrant's Telephone Number, Including Area Code: (203) 987-5047
Ann F. Lomeli, Secretary
Connecticut Mutual Investment Accounts, Inc.
140 Garden Street
Hartford, Connecticut 06154
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
:X: on January 28, 1996 pursuant to paragraph (b)(1) of Rule 485.
Registrant has registered an indefinite number of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 promulgated under the Investment
Company Act of 1940. The Rule 24f-2 Notice for the fiscal year ended
September 30, 1995 was filed for the Registrant's following series on or about
November 15, 1995: CMIA National Municipals Account, CMIA California
Municipals Account, CMIA Massachusetts Municipals Account, CMIA New York
Municipals Account and CMIA Ohio Municipals Account.
National Municipals Portfolio, California Municipals Portfolio,
Massachusetts Municipals Portfolio, New York Municipals Portfolio and Ohio
Municipals Portfolio have each executed this Registration Statement.
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
CMIA National Municipals Account, CMIA California Municipals Account,
CMIA Massachusetts Municipals Account, CMIA New York Municipals Account and
CMIA Ohio Municipals Account.
Cross-Reference Sheet Showing Location in Prospectus and
Statement of Additional Information of Information Required by
Items of the Registration Form
Location in Prospectus
Form N-1A Item Number or Statement of Additional
and Caption Information
-------------------------------------- ------------------------------
1. Cover Page....................... Cover Page.
2. Synopsis......................... Expense Information.
3. Condensed Financial
Information.................... Financial Highlights.
4. General Description of
Registrant..................... The Company in Detail.
5. Management of the Fund........... The Company in Detail -- The
Portfolios, -- The
Portfolios' Manager.
6. Capital Stock and Other
Securities..................... Thr Company in Detail -- The
Company and its Accounts
7. Purchase of Securities
Being Offered.................. Your Account -- How to Buy
Shares, -- Share Price, --
Reinstatement Privilege;
Shareholder and Account
Policies, How to Exchange
Shares, Investor Services,
Transaction Details.
8. Redemption or Repurchase......... Your Account -- How to Sell
Shares; Shareholder and
Account Policies.
<PAGE>
Location in Prospectus
Form N-1A Item Number or Statement of Additional
and Caption Information
-------------------------------------- ------------------------------
9. Pending Legal Proceedings........ Not Applicable.
10. Cover Page....................... Cover Page.
11. Table of Contents................ Cover Page.
12. General Information and
History........................ Cover Page; Description of
Shares.
13. Investment Objectives and
Policy......................... Investment Objectives and
Policies; Investment
Restrictions.
14. Management of the Fund........... Management; Investment
Adviser; Administration and
Fund Expenses.
15. Control Persons and Principal
Holders of Securities.......... Management.
16. Investment Advisory and
Other Services................. Management; Investment
Adviser; Administration and
Fund Expenses; Distribution
Arrangements; Distribution
Financing Plan; Custodian;
Independent Certified Public
Accountants.
17. Brokerage Allocation and
Other Practices................ Portfolio Security
Transactions.
18. Capital Stock and Other
Securities..................... Management.
19. Purchase, Redemption and Pricing
of Securities Being Offered.... Purchase and Redemption of
Shares; Determination of Net
Asset Value.
20. Tax Status....................... Taxes.
21. Underwriters..................... Distribution Arrangements.
- 2 -
<PAGE>
Location in Prospectus
Form N-1A Item Number or Statement of Additional
and Caption Information
-------------------------------------- ------------------------------
22. Calculation of Performance
Data........................... Investment Performance.
23. Financial Statements............. Financial Statements.
-3-
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
140 GARDEN STREET - HARTFORD, CONNECTICUT 06154
1-800-322-CMIA
January 28, 1996
Connecticut Mutual Investment Accounts, Inc. (Company) is an open-end
management investment company consisting of thirteen separate mutual funds. The
Accounts being offered hereby are: CMIA National Municipals Account (National
Account), CMIA California Municipals Account (California Account), CMIA
Massachusetts Municipals Account (Massachusetts Account), CMIA New York
Municipals Account (New York Account) and CMIA Ohio Municipals Account (Ohio
Account) (each, an Account and collectively, the Accounts). Shares of the
Accounts are available only where they may be legally sold.
The National Account is designed for investors seeking current income exempt
from regular federal income tax. The California, Massachusetts, New York and
Ohio Accounts are designed for investors seeking current income exempt from both
regular federal income tax and from personal income tax of their respective
states (and in the case of the New York Account, New York City personal income
taxes). In seeking current income, each Account invests its assets in a
corresponding open-end investment company (Portfolio) having the same investment
objective as the Account, rather than directly investing in and managing its own
portfolio of securities as an historically structured mutual fund would.
Each Portfolio has engaged the services of Boston Management and Research, a
wholly owned subsidiary of Eaton Vance Management, as its investment adviser
(Investment Adviser). The shares of each Account are distributed and
underwritten by Connecticut Mutual Financial Services, L.L.C. (CMFS) an indirect
wholly owned subsidiary of Connecticut Mutual Life Insurance Company (CML).
The Prospectus contains important information, including how the Accounts
invest and the services available to shareholders. A Statement of Additional
Information (SAI), dated January 28, 1996, has been filed with the Securities
and Exchange Commission (SEC). The SAI is incorporated herein by reference and
is legally considered a part of this Prospectus. The SAI is available free upon
request by calling 1-800-322-CMIA.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
SHARES OF THE ACCOUNTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION, AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE ACCOUNTS INVOLVE INVESTMENT RISKS,
INCLUDING FLUCTUATIONS IN VALUE AND THE POSSIBLE LOSS OF SOME OR ALL OF THE
PRINCIPAL INVESTMENT.
----------------
PLEASE READ THIS PROSPECTUS BEFORE INVESTING AND KEEP IT ON FILE FOR FUTURE
REFERENCE.
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
---------------
PROSPECTUS
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
EXPENSE INFORMATION.................................................................................. 3
FINANCIAL HIGHLIGHTS................................................................................. 5
THE COMPANY IN DETAIL................................................................................ 6
INVESTMENT OBJECTIVE AND POLICIES................................................................ 6
THE PORTFOLIOS' INVESTMENTS...................................................................... 8
THE PORTFOLIOS' INVESTMENT TECHNIQUES............................................................ 14
OTHER INFORMATION CONCERNING THE PORTFOLIOS...................................................... 16
THE COMPANY AND ITS ACCOUNTS..................................................................... 16
THE PORTFOLIOS................................................................................... 18
THE PORTFOLIOS' MANAGER.......................................................................... 19
BREAKDOWN OF EXPENSES............................................................................ 20
DIVIDENDS, CAPITAL GAINS AND TAXES............................................................... 23
PERFORMANCE...................................................................................... 27
YOUR ACCOUNT......................................................................................... 28
HOW TO BUY SHARES................................................................................ 28
SHARE PRICE...................................................................................... 30
REINSTATEMENT PRIVILEGE.......................................................................... 32
HOW TO SELL SHARES............................................................................... 32
INVESTOR SERVICES................................................................................ 35
SHAREHOLDER AND ACCOUNT POLICIES..................................................................... 37
TRANSACTION DETAILS.............................................................................. 37
EXCHANGE RESTRICTIONS............................................................................ 38
APPENDIX A........................................................................................... A-1
APPENDIX B........................................................................................... B-1
APPENDIX C........................................................................................... C-1
</TABLE>
2
<PAGE>
EXPENSE INFORMATION
EXPENSES
The following table lists Shareholder Transaction Expenses and estimated
Annual Operating Expenses for the current fiscal year related to an investment
in each of the Accounts. Annual Operating Expenses are based on expenses for
shares of each Account incurred in the fiscal year ended September 30, 1995.
<TABLE>
<CAPTION>
NATIONAL CALIFORNIA MASSACHUSETTS NEW YORK OHIO
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..... 4.00% 4.00% 4.00% 4.00% 4.00%
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, as applicable)(1)............. None None None None None
Exchange Fee(2)........................... None None None None None
ANNUAL OPERATING EXPENSES OF EACH ACCOUNT
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees........................... .45% .50% .46% .47% .46%
12b-1 Fees(3) (after expense limitation).. .00 .00 .00 .00 .00
Other Expenses(4)
(after expense limitation).............. .35 .30 .34 .33 .34
-- -- -- -- --
Total Operating Expenses of each Account
(after expense limitation).............. .80% .80% .80% .80% .80%
-- -- -- -- --
-- -- -- -- --
</TABLE>
- ---------
(1) Purchases of $500,000 or more are not subject to an initial sales charge
but may be subject to a contingent deferred sales charge of 1% if the
shares are redeemed within 12 months after the calendar month of purchase.
See SHARE PRICE-- CONTINGENT DEFERRED SALES CHARGE.
(2) All exchanges in excess of 12 exchanges in a 12-month period are subject
to an exchange fee of .75% of the net asset value of the shares redeemed.
See "Exchange Restrictions."
(3) The Fund's distributor, CMFS, has voluntarily agreed not to impose any
reimbursement to which it may be entitled pursuant to each Account's Rule
12b-1 distribution plan. In the absence of such a voluntary agreement,
each Account would pay up to .25% of the Account's average daily net
assets.
(4) CMFS has voluntarily and temporarily agreed to limit or otherwise absorb
each Account's operating expenses except taxes and interest on borrowed
money, if any, to limit the total annual operating expenses of each
Account to .80% of the Account's average daily net assets.
3
<PAGE>
EXAMPLE: Assuming that an Account's annual return is 5% and that its
operating expenses are exactly as described above, if you closed your
account after the number of years indicated below, for every $1,000
invested, your investment would bear the following amounts in total
expenses:
<TABLE>
<CAPTION>
NATIONAL CALIFORNIA MASSACHUSETTS NEW YORK OHIO
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
----------- ------------- ----------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
After 1 year......................... $ 48 $ 48 $ 48 $ 48 $ 48
After 3 years........................ 65 65 65 65 65
After 5 years........................ 83 83 83 83 83
After 10 years....................... 135 135 135 135 135
</TABLE>
The purpose of the above table and Example is to summarize the aggregate
expenses of each Account and its corresponding Portfolio and to assist investors
in understanding the various costs and expenses that investors in an Account
will bear directly or indirectly. See, "Breakdown of Expenses." THESE EXAMPLES
ILLUSTRATE THE EFFECT OF EXPENSES, AND SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
The Directors of the Company believe that over time the aggregate per share
expenses of an Account and its corresponding Portfolio should be approximately
equal to the per share expenses which each Account would incur if the Company
retained the services of an investment adviser on behalf of each Account and the
assets of an Account were invested directly in the type of securities being held
by its corresponding Portfolio. Other investment companies with different
distribution arrangements and fees are investing in the Portfolios and
additional such companies may do so in the future. See "The Portfolios--Special
Information on the Account/Portfolio Investment Structure."
4
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
FINANCIAL HIGHLIGHTS
The following information for the period from October 3, 1994 (inception) to
September 30, 1995 has been derived from audited financial statements together
with the auditor's report for the year ended September 30, 1995 which is
included in the Statement of Additional Information and incorporated herein by
reference. Additional information about the performance of the shares of each
Account is contained in the Accounts' 1995 Annual Report to Shareholders which
may be obtained without charge by calling or writing the Company at the
telephone number or address on the cover page of this Prospectus.
Selected data for a share of capital stock outstanding throughout the
period:
<TABLE>
<CAPTION>
YEAR ENDED NATIONAL CALIFORNIA MASSACHUSETTS NEW YORK OHIO
SEPTEMBER 30, MUNICIPALS MUNICIPALS MUNICIPALS MUNICIPALS MUNICIPALS
1995 (A) ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- -------------------------------------------------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Investment Income............................. $ .61 $ .56 $ .56 $ .52 $ .50
Dividends from Net Investment Income.............. $ (.61) $ (.56) $ (.56) $ (.52) $ (.50)
Net Realized and Unrealized Gain (Loss) on
Investments...................................... $ .70 $ .22 $ .33 $ .41 $ .54
Distributions from Net Realized Gain on
Investments...................................... $-- $-- $-- $-- $--
Net Asset Value at Beginning of Period............ $10.00 $10.00 $10.00 $10.00 $10.00
Net Asset Value at End of Period.................. $10.70 $10.22 $10.33 $10.41 $10.54
Ratio of Operating Expenses to Average Net Assets
(b).............................................. .80% .80% .80% .80% .80%
Ratio of Interest Expenses to Average Net Assets
(b).............................................. .02% -- % -- % .01% .03%
Ratio of Net Investment Income to Average Net
Assets (b)....................................... 6.45% 5.91% 5.53% 5.48% 5.40%
Net Assets at End of Period (in Thousands)........ $3,058 $ 435 $ 138 $ 374 $ 372
Annual Total Return (c)........................... 13.40% 8.06% 9.23% 9.63% 10.71%
- -------
(a) For the period from October 3, 1994 (Inception) to September 30, 1995
(b) Annualized
(c) Annual total returns do not include the effect of sales charges
</TABLE>
5
<PAGE>
THE COMPANY IN DETAIL
INVESTMENT OBJECTIVE AND POLICIES
Each Account has its own investment objective and policies which are designed
to meet specific investment goals and, except as noted below, can be changed
without shareholder approval. There can be no guarantee, however, that the
Accounts will meet their goals.
NATIONAL ACCOUNT
THE NATIONAL ACCOUNT IS A DIVERSIFIED SERIES OF THE COMPANY. THE NATIONAL
ACCOUNT'S INVESTMENT OBJECTIVE IS TO PROVIDE CURRENT INCOME EXEMPT FROM REGULAR
FEDERAL INCOME TAX. The National Account seeks to achieve its investment
objective by investing its assets in the National Municipals Portfolio (National
Portfolio), a separate registered investment company sponsored by Eaton Vance
Management (Eaton Vance). Under normal market conditions and as a matter of
fundamental policy, the National Account (either directly or indirectly through
another open-end management investment company with substantially the same
investment objective, policies and restrictions) and the National Portfolio will
invest at least 80% of their respective assets in municipal obligations issued
by or on behalf of states, territories and possessions of the United States and
the District of Columbia and their political subdivisions, agencies or
instrumentalities, the interest on which is exempt from regular Federal income
tax.
At least 65% of the National Portfolio's net assets will normally be invested
in obligations which are rated Baa or higher by Moody's Investors Service, Inc.
(Moody's) or BBB by Standard & Poor's Ratings Group (S&P) or Fitch Investors
Service, Inc. (Fitch) or, if unrated, determined by the Investment Adviser to be
of investment grade quality (investment grade obligations). Up to 35% of the
National Portfolio's net assets may be invested in obligations which are rated
below Baa by Moody's or BBB by S&P and Fitch (but not rated lower than B) or, if
unrated, determined by the Investment Adviser to be of comparable quality (below
investment grade obligations). Securities rated below BBB or Baa are commonly
known as "junk bonds" and are subject to greater credit and market risks as
described under the caption, "--The Portfolios' Investments--Portfolio
Quality--Risk Factors."
CALIFORNIA ACCOUNT
THE CALIFORNIA ACCOUNT IS A NON-DIVERSIFIED SERIES OF THE COMPANY. THE
CALIFORNIA ACCOUNT'S INVESTMENT OBJECTIVE IS TO PROVIDE CURRENT INCOME EXEMPT
FROM BOTH REGULAR FEDERAL INCOME TAX AND CALIFORNIA PERSONAL INCOME TAX. The
California Account seeks to achieve its investment objective by investing its
assets in the California Municipals Portfolio (California Portfolio), a separate
registered investment company sponsored by Eaton Vance. Under normal market
conditions and as a matter of fundamental policy, the California Account (either
directly or indirectly through another open-end management investment company
with substantially the same investment objective, policies and restrictions) and
the California Portfolio will invest at least 80% of their respective net assets
in municipal obligations, the interest on which is exempt from regular Federal
income tax and from California taxes which each of the California Portfolio and
California Account seek to avoid in
6
<PAGE>
accordance with their respective investment objectives. At least 65% of the
California Portfolio's total assets will normally be invested in such municipal
obligations issued by or on behalf of California or its political subdivisions.
At least 75% of the California Portfolio's net assets will normally be
invested in investment grade obligations and up to 25% of the California
Portfolio's net assets may be invested in below investment grade obligations.
MASSACHUSETTS ACCOUNT
THE MASSACHUSETTS ACCOUNT IS A NON-DIVERSIFIED SERIES OF THE COMPANY. THE
MASSACHUSETTS ACCOUNT'S INVESTMENT OBJECTIVE IS TO PROVIDE CURRENT INCOME EXEMPT
FROM REGULAR FEDERAL INCOME TAX AND MASSACHUSETTS STATE PERSONAL INCOME TAXES.
The Massachusetts Account seeks to achieve its investment objective by investing
its assets in the Massachusetts Municipals Portfolio (Massachusetts Portfolio),
a separate registered investment company sponsored by Eaton Vance. Under normal
market conditions and as a matter of fundamental policy, the Massachusetts
Account (either directly or indirectly through another open-end management
investment company with substantially the same investment objective, policies
and restrictions) and the Massachusetts Portfolio will invest at least 80% of
their respective net assets in municipal obligations, the interest on which is
exempt from regular Federal income tax and from Massachusetts taxes which each
of the Massachusetts Portfolio and Massachusetts Account seek to avoid in
accordance with their respective investment objectives. At least 65% of the
Massachusetts Portfolio's total assets will normally be invested in such
municipal obligations issued by or on behalf of Massachusetts or its political
subdivisions.
At least 70% of the Massachusetts Portfolio's net assets will normally be
invested in investment grade obligations and up to 30% of the Massachusetts
Portfolio's assets may be invested in below investment grade obligations.
NEW YORK ACCOUNT
THE NEW YORK ACCOUNT IS A NON-DIVERSIFIED SERIES OF THE COMPANY. THE NEW YORK
ACCOUNT'S INVESTMENT OBJECTIVE IS TO PROVIDE CURRENT INCOME EXEMPT FROM REGULAR
FEDERAL INCOME TAX AND NEW YORK STATE AND NEW YORK CITY PERSONAL INCOME TAXES.
The New York Account seeks to meet its investment objective by investing its
assets in the New York Municipals Portfolio (New York Portfolio), a separate
registered investment company sponsored by Eaton Vance. Under normal market
conditions and as a matter of fundamental policy, the New York Account (either
directly or indirectly through another open-end management investment company
with substantially the same investment objective, policies and restrictions) and
the New York Portfolio will invest at least 80% of their respective net assets
in municipal obligations, the interest on which is exempt from regular Federal
income tax and from New York State and New York City taxes which each of the New
York Portfolio and New York Account seek to avoid in accordance with their
respective investment objectives. At least 65% of the New York Portfolio's total
assets will normally be invested in such municipal obligations issued by or on
behalf of New York or its political subdivisions.
7
<PAGE>
At least 70% of the New York Portfolio's net assets will normally be invested
in investment grade obligations and up to 30% of the New York Portfolio's assets
may be invested in below investment grade obligations.
OHIO ACCOUNT
THE OHIO ACCOUNT IS A NON-DIVERSIFIED SERIES OF THE COMPANY. THE OHIO
ACCOUNT'S INVESTMENT OBJECTIVE IS TO PROVIDE CURRENT INCOME EXEMPT FROM REGULAR
FEDERAL INCOME TAX AND OHIO STATE PERSONAL INCOME TAX. The Ohio Account seeks to
achieve its investment objective by investing its assets in the Ohio Municipals
Portfolio (Ohio Portfolio), a separate registered investment company sponsored
by Eaton Vance. Under normal market conditions and as a matter of fundamental
policy, the Ohio Account (either directly or indirectly through another open-end
management investment company with substantially the same investment objective,
policies and restrictions) and the Ohio Portfolio will invest at least 80% of
their respective net assets in municipal obligations, the interest on which is
exempt from regular Federal income tax and from Ohio taxes which each of the
Ohio Portfolio and Ohio Account seek to avoid in accordance with their
respective investment objectives. At least 65% of the Ohio Portfolio's total
assets will normally be invested in such municipal obligations issued by or on
behalf of Ohio or its political subdivisions.
At least 80% of the Ohio Portfolio's net assets will normally be invested in
investment grade obligations and up to 20% of the Ohio Portfolio's assets may be
invested in below investment grade obligations.
THE PORTFOLIOS' INVESTMENTS
TYPES OF MUNICIPAL OBLIGATIONS. Municipal obligations eligible for the
exemption from regular state and/or Federal taxes and municipal obligations
eligible for such exemption but which pay interest which may be treated as a tax
preference item under the Federal alternative minimum tax are issued for a wide
variety of both governmental and private undertakings. Such municipal
obligations include bonds, notes and commercial paper.
In general, there are three categories of municipal obligations the interest
on which is exempt from all types of Federal income taxes and which is not a tax
preference item for purposes of the Federal alternative minimum tax applicable
to individuals: (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. The interest on a fourth
category of municipal obligations consisting of certain "private activity bonds"
issued after August 7, 1986 is exempt from regular Federal income tax applicable
to individuals (and corporations), but the interest earned on such obligations
(including a distribution by an Account derived from such interest) is treated
as a tax preference item which could subject the recipient to or increase his
liability for the Federal alternative minimum tax. Each Portfolio will treat all
obligations included in the foregoing four categories and similar obligations
issued by the governments of Puerto Rico, the U.S. Virgin Islands and Guam (the
"Territories") as tax-exempt
8
<PAGE>
municipal obligations for purposes of complying with the requirement to invest
80% of its assets in certain tax-free obligations. Under normal market
conditions, each State Portfolio will invest at least 65% of its total assets in
obligations issued by the respective State or its political subdivisions. It
should be noted that, for corporate shareholders of an Account, an Account's
distributions derived from interest on all state obligations (whenever issued)
are taken into account for purposes of computing the alternative minimum tax
applicable to corporations.
No Portfolio may invest more than 20% of its net assets in obligations the
interest on which is subject to regular Federal income tax and/or state (and, in
the case of the New York Portfolio, city) personal income taxes. Each Portfolio
may invest without limit in obligations, the interest on which is a tax
preference item for purposes of the Federal alternative minimum tax.
Public purpose municipal bonds include general obligation bonds and revenue
bonds. General obligation bonds are backed by the taxing power of the issuing
municipality and are considered one of the safest type of bonds. Revenue bonds
are backed by the revenues of a project or facility such as the tolls from a
toll bridge. Municipal notes include bond anticipation notes, tax anticipation
notes and revenue anticipation notes. Bond, tax and revenue anticipation notes
are short-term obligations that will be retired with the proceeds of an
anticipated bond issue, tax revenue or facility revenue, respectively.
PORTFOLIO QUALITY. Each Portfolio invests a significant portion of its
respective assets in investment grade obligations, as described above in the
discussion of each Portfolio's investment objective. Obligations rated in the
lowest investment grade (BBB or Baa) and unrated obligations may have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. The Portfolios
will not invest in obligations which are rated below B at the time of purchase.
See "Downgrade and Default" below, for a discussion of the Portfolios' holdings
of obligations whose ratings drop below B.
RISK FACTORS. Obligations rated below investment grade may provide greater
opportunities for investment income and higher yield than investment grade
obligations but are subject to risks not generally associated with an investment
in investment grade obligations. The market for high yield obligations is
relatively new and has not been exposed for a long period of time to the effects
of cyclical and sometimes adverse changes in the economy. The prices of high
yield obligations have been less sensitive to interest rate changes than higher
rated investments, but are more sensitive to adverse economic changes or
individual corporate developments. During an economic downturn or substantial
period of rising interest rates, issuers may experience financial stress that
adversely affects their ability to meet principal and interest payment
obligations. If an issuer of a high yield obligation defaults, a Portfolio may
incur additional expense to seek recovery of its investment. High yield
obligations may contain redemption or call provisions that, if exercised, may
require the Portfolio to replace the security with a lower yielding security,
resulting in a decreased return for investors. The market for high yield
obligations is likely to be less liquid than the market for higher rated
obligations and the judgment of the Portfolio's Investment Adviser may play a
greater role in the valuation of high yield obligations. Market conditions may
restrict the availability of high yield obligations and may affect the choice of
securities to be sold when a Portfolio attempts to meet redemption requests.
9
<PAGE>
A Portfolio is dependent on the Investment Adviser's judgment, analysis and
experience in evaluating the quality of high yield obligations. In evaluating
the credit quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The Investment Adviser will attempt to reduce the risks of investing in
high yield obligations through active portfolio management, credit analysis and
attention to current developments and trends in the economy and the financial
markets. See Appendix A for a description of Moody's, S&P's and Fitch's rating
categories for municipal obligations. See Appendix B for a description of
National Portfolio's asset composition as of September 30, 1995.
DOWNGRADE AND DEFAULT. Each Portfolio may retain in its portfolio an
obligation whose rating, after acquisition, drops below B, if such retention is
considered desirable by the Portfolio's Investment Adviser; provided, however,
that each Portfolio's holdings of obligations rated below investment grade
(including those obligations whose ratings drop below B) will not exceed 35% of
its net assets. In the event the rating of an obligation held by a Portfolio is
downgraded, causing the Portfolio to exceed this limitation, the Investment
Adviser will (in an orderly fashion within a reasonable period of time) dispose
of such obligations as it deems necessary in order to comply with the
Portfolio's credit quality limitations. Obligations rated B by S&P, Moody's or
Fitch are generally regarded as being vulnerable to default, and adverse
conditions are likely to impair the capacity to pay interest and principal.
Similarly, each Portfolio may retain defaulted obligations in its respective
portfolio when such retention is considered desirable by the Investment Adviser.
The National Portfolio may also acquire other securities issued in exchange for
such obligations or issued in connection with the debt restructuring or
reorganization of the issuers (or of the underlying sources of funds for debt
service) or where such acquisition, in the judgment of the Investment Adviser,
may enhance the value of such obligations or would otherwise be consistent with
such Portfolio's investment policies.
MATURITY. It is expected that each Portfolio's investments will normally
include substantial amounts of long-term municipal obligations with maturities
of ten years or more, because such long-term obligations generally produce
higher income than short-term obligations. Such long-term obligations are more
susceptible to market fluctuations resulting from changes in interest rates than
shorter term obligations. Since each Portfolio's objective is to provide current
income, the Portfolio will invest in municipal obligations with an emphasis on
income and not on stability of the Portfolio's net asset value. See "-- Other
Information Concerning The Portfolios -- Fluctuations in Net Asset Value and
Income" below. However, a Portfolio's average maturity may vary (generally
between 15 and 30 years) depending on anticipated market conditions.
NON-DIVERSIFIED STATUS. Each of the California Portfolio, Massachusetts
Portfolio, New York Portfolio and Ohio Portfolio is classified as
"non-diversified" under the Investment Company Act of 1940, as amended
(Investment Company Act). A non-diversified Portfolio may invest more of its
assets in the securities of a single issuer than a diversified Portfolio can. A
diversified Portfolio is also restricted in the amount of its assets that may be
invested in a single issuer. Each of these Portfolios, with respect to 50% of
its assets, may invest more than 5% of its assets in securities of a single
issuer. Because of the relatively small number of issuers of obligations in
their respective states, these
10
<PAGE>
Portfolios are likely to invest a greater percentage of their assets in
securities of a single issuer than would a diversified fund. Therefore these
Portfolios would be more susceptible to adverse economic or political
occurrences affecting any of such issuers. These Portfolios will also be subject
to an increased risk of loss if such an issuer is unable to make interest or
principal payments or if the market value of such issuer's securities declines.
CONCENTRATION IN ISSUERS IN A SINGLE STATE AND OBLIGATIONS OF SAME TYPE. The
California, Massachusetts, New York and Ohio Portfolios will concentrate their
investments in issuers in their respective states. The National Portfolio may
invest more than 25% of its assets in issuers located in a single state. Each
Portfolio is, therefore, more susceptible to factors adversely affecting issuers
in one state than other mutual funds which do not concentrate in a specific
state. Municipal obligations of issuers in a single state may be adversely
affected by economic developments and by legislation and other governmental
activities in that state. To the extent that any Portfolio's assets are
concentrated in municipal obligations of issuers of a single state, that
Portfolio may be subject to an increased risk of loss. Each Portfolio may also
invest in the obligations of the governments of the Territories. See Appendix C
for a description of economic and other factors relating to California,
Massachusetts, New York, Ohio and the Territories.
In addition, each Portfolio may concentrate 25% or more of its respective
assets in obligations of the same general type, including without limitation:
general obligations of a particular state and such state's political
subdivisions; lease rental obligations of state and local authorities;
obligations of state and local housing finance authorities, municipal utilities
systems or public housing authorities; obligations of hospitals or life care
facilities; or industrial development or pollution control bonds issued for
electric utility systems, steel companies, paper companies or other purposes.
This may make the Portfolios more susceptible to adverse economic, political, or
regulatory occurrences affecting a particular category of issuers. As the
Portfolios' concentration in the securities of a particular category of issuer
increases, the potential for fluctuation in the value of the corresponding
Account's shares also increases.
MUNICIPAL LEASES. Each Portfolio may invest in municipal leases and
participations therein. These are obligations in the form of a lease or
installment purchase arrangement which is entered into by state and 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. A trustee is usually responsible for
administering the terms of the participation and enforcing the participants'
rights in the underlying lease.
Municipal leases frequently involve special risks not normally associated
with general obligation or revenue bonds. Leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased asset
to pass eventually to the governmental issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations are deemed to be inapplicable because of the inclusion
in many leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease or
11
<PAGE>
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Such arrangements,
therefore, are subject to the risk that the governmental issuer will not
appropriate funds for lease payments.
Certain municipal lease obligations may be considered illiquid for the
purpose of each Portfolio's 15% limitation on investments in illiquid
securities, while other municipal lease obligations owned by a Portfolio may be
determined by its Investment Adviser, pursuant to guidelines adopted by the
Trustees of the Portfolio, to be liquid securities for the purpose of such
limitation. In determining the liquidity of municipal lease obligations, each
Portfolio's Investment Adviser will consider a variety of factors including: (1)
the willingness of dealers to bid for the security; (2) the number of dealers
willing to purchase or sell the obligation and the number of other potential
buyers; (3) the frequency of trades and quotes for the obligation; and (4) the
nature of the marketplace trades. In addition, the Investment Adviser will
consider factors unique to particular lease obligations affecting the
marketability thereof. These include the general creditworthiness of the
municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by the Portfolio. In
the event a Portfolio acquires an unrated municipal lease obligation, the
Investment Adviser will be responsible for determining the credit quality of
such obligations on an ongoing basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS. Each Portfolio may invest in zero coupon bonds. Such
bonds are debt obligations which do not require the periodic payment of interest
and are issued at a significant discount from face value. The discount
approximates the total amount of interest the bonds will accrue and compound
over the period until maturity at a rate of interest reflecting the market rate
of the security at the time of issuance. Zero coupon bonds benefit the issuer by
mitigating its need for cash to meet debt service, but also require a higher
rate of return to attract investors who are willing to defer receipt of such
cash. Such bonds experience greater volatility in market value due to changes in
interest rates than debt obligations which provide for regular payments of
interest. Each Portfolio will accrue income on such bonds for tax and accounting
purposes, in accordance with applicable law, each corresponding Account's
proportionate share of which income is distributable to shareholders of that
Account. Because no cash is received at the time such income is accrued, a
Portfolio may be required to liquidate other portfolio securities to generate
cash that its corresponding Account may withdraw from the Portfolio to enable
the Account to satisfy its distribution obligations.
INVERSE FLOATERS. Each Portfolio may invest in various types of derivative
municipal securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse floaters").
Derivatives are securities that provide for payments based on or derived from
the performance of an underlying asset, index or other economic benchmark. An
investment in derivative instruments, such as inverse floaters, may involve
greater risk than an investment in a fixed rate bond. Because changes in the
interest rate on the other security or index inversely affect the residual
interest paid on the inverse floater, the value of an inverse floater is
generally more volatile than that of a fixed rate bond. Inverse floaters have
interest rate adjustment formulas which generally reduce or, in the extreme,
eliminate the interest paid to the Portfolio when short-term interest rates
rise, and increase the interest paid to the Portfolio when short-term interest
rates fall. Inverse floaters have varying degrees of liquidity, and the market
for these securities is new and relatively volatile.
12
<PAGE>
These securities tend to underperform the market for fixed rate bonds in a
rising interest rate environment, but tend to outperform the market for fixed
rate bonds when interest rates decline. Shifts in long-term interest rates may
alter this tendency, however. In return for this volatility, inverse floaters
typically offer the potential for yields exceeding the yields available on fixed
rate bonds with comparable credit quality and maturity. These securities usually
permit the investor to convert the floating rate to a fixed rate (normally
adjusted downward), and this optional conversion feature may provide a partial
hedge against rising interest rates if exercised at an opportune time. Inverse
floaters are leveraged because they provide two or more dollars of bond market
exposure for every dollar invested. As a matter of operating policy, each
Portfolio currently may invest up to 7.5% of its net assets in inverse floaters.
INSURED OBLIGATIONS. Each Portfolio may also purchase municipal bonds that
are additionally secured by insurance, bank credit agreements, or escrow
accounts. The credit quality of companies which provide such credit enhancements
will affect the value of those securities. Insurance generally will be obtained
from insurers with a claims-paying ability rated Aaa by Moody's or AAA by S&P or
Fitch. Insured obligations held by a Portfolio will be insured as to their
scheduled payment of principal and interest under either (i) an insurance policy
obtained by the issuer or underwriter of the obligation at the time of its
original issuance or (ii) an insurance policy obtained by the Portfolio or a
third party subsequent to the obligation's original issuance (which may not be
reflected in the obligation's market value). In either event, such insurance may
provide that in the event of non-payment of interest or principal when due with
respect to an insured obligation, the insurer is not required to make such
payment until a specified time has lapsed (which may be 30 days or more after
notice). Although the insurance feature reduces certain financial risks, the
premiums for insurance and the higher market price paid for insured obligations
may reduce the corresponding Account's current yield. The insurance does not
guarantee the market value of the insured obligations or the net asset value of
the corresponding Account.
VARIABLE RATE INSTRUMENTS. Each Portfolio may invest in variable rate
instruments, which provide for interest rate adjustments at specified intervals.
Rate adjustments on such securities are usually set at the issuer's discretion,
in which case the Portfolio would normally have the right to resell the security
to the issuer or its agent. Alternatively, rate revisions may be determined in
accordance with a prescribed formula or other contractual procedure. A Portfolio
may also acquire put options in combination with the purchase of underlying
securities or may separately acquire put options that relate to securities held
by the Portfolio. Such put options would give the Portfolio the right to require
the issuer or some other person to purchase the underlying security at an agreed
upon price.
SHORT-TERM TAXABLE OBLIGATIONS. Under normal market conditions, each
Portfolio may invest up to 20% of its net assets in short-term obligations the
interest on which is subject to regular Federal income tax and/or state (and, in
the case of the New York Portfolio, city) personal income taxes. Such short-term
taxable obligations may include, but are not limited to, certificates of
deposit, commercial paper, short-term notes and obligations issued or guaranteed
by the U.S. Government or any of its agencies or instrumentalities. During
periods of adverse market conditions as determined by the Investment Adviser,
each Portfolio may temporarily invest for defensive purposes more than 20% of
its assets in such short-term taxable obligations. All of such short-term
taxable obligations, other than
13
<PAGE>
U.S. Government securities, will be (i) with respect to the California
Portfolio, Massachusetts Portfolio, New York Portfolio and Ohio Portfolio, high
quality obligations which are rated at least Aa or P-2 for notes and commercial
paper by Moody's, which are rated at least AA or A-2 for notes and commercial
paper by S&P, or which are rated at least AA or F-2 for notes and commercial
paper by Fitch; (ii) with respect to the National Portfolio, investment grade
obligations which are rated Baa or better for notes or P-3 or better for
commercial paper by Moody's, BBB or better for notes or A-3 or better for
commercial paper by S&P, or which are rated at least AA or F-2 for notes and
commercial paper by Fitch; or (iii) with respect to all Portfolios, if unrated,
deemed to be of comparable quality by the Investment Adviser.
THE PORTFOLIOS' INVESTMENT TECHNIQUES
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a
"when-issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield are generally fixed on the date of
commitment to purchase. However, the market value of the securities may
fluctuate prior to delivery and upon delivery the securities may be worth more
or less than a Portfolio agreed to pay for them. A Portfolio will not accrue
income in respect of a when-issued security prior to its stated delivery date.
Each Portfolio will maintain in a segregated account sufficient assets to cover
its purchase obligations. Each Portfolio may also purchase instruments that give
the Portfolio the option to purchase a municipal obligation when and if issued.
FUTURES AND RELATED OPTIONS TRANSACTIONS. To hedge against changes in
interest rates, each Portfolio may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on any of such futures
contracts. The Portfolio may also enter into closing purchase and sale
transactions with respect to any of such contracts and options. Futures
contracts and options on futures are derivative contracts and may pose
additional risk to a Portfolio invested in such contracts. The futures contracts
may be based on various debt securities (such as U.S. Government securities),
securities indices and other financial instruments and indices. Each Portfolio
will engage in futures and related options transactions for bona fide hedging
purposes as defined in and permitted by regulations of the Commodity Futures
Trading Commission.
A Portfolio may not purchase or sell futures contracts or purchase or sell
related options, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of margin deposits on the
Portfolio's outstanding positions in futures and related options and the amount
of premiums paid for outstanding positions in options on futures would exceed 5%
of the market value of the Portfolio's net assets. There are no percentage
limitations on a Portfolio's transactions in futures contracts or options on
futures except that 80% of each Portfolio's assets must be invested in tax-
exempt municipal obligations (the interest on which may be treated as a tax
preference item under the Federal alternative minimum tax). These transactions
involve brokerage costs, require margin deposits and, in the case of contracts
and options requiring the Portfolio to purchase securities, obligate the
Portfolio to segregate liquid high grade debt securities in an amount equal to
the underlying value of such contracts and options. In addition, while
transactions in futures contracts and options on futures may reduce certain
risks, such transactions themselves involve (1) liquidity risk that contractual
positions cannot be easily closed out in the event of market changes, (2)
correlation risk that changes in
14
<PAGE>
the value of hedging positions may not match the market fluctuations intended to
be hedged (especially given that the only futures contracts currently available
to hedge debt obligations are futures on various U.S. Government securities and
on municipal securities indices), (3) market risk that an incorrect prediction
by an Investment Adviser of interest rates may cause a Portfolio to perform less
well than if such positions had not been entered into, and (4) skills different
from those needed to select portfolio securities. An Account's distributions
attributable to any net gains realized on a Portfolio's transactions in futures
and options on futures will be taxable. See "Distributions and Taxes."
SECURITIES LENDING. Each Portfolio may also lend its portfolio securities.
Under present regulatory policies, such loans may be made to institutions, such
as certain broker-dealers, and are required to be secured continuously by
collateral in cash, cash equivalents or U.S. Government securities maintained on
a current basis at an amount at least equal to the market value of the
securities loaned held in a segregated account by the Portfolio's custodian. If
the Investment Adviser decides to make securities loans, the value of the
securities loaned would not exceed 30% of the value of the total assets of the
Portfolio. A Portfolio may experience a loss or delay in the recovery of its
securities if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with the Portfolio.
SHORT-TERM TRADING. Each Portfolio may engage in short-term trading.
Securities may be sold in anticipation of a market decline (a rise in interest
rates) or purchased in anticipation of a market rise (a decline in interest
rates) and later sold. In addition, a security may be sold and another purchased
at approximately the same time to take advantage of what each Portfolio believes
to be a temporary disparity in the normal yield relationship between the two
securities. Yield disparities may occur for reasons not directly related to the
investment quality of particular issues or the general movement of interest
rates, such as changes in the overall demand for or supply of various types of
debt obligations or changes in the investment objectives of investors. Such
trading may be expected to increase a Portfolio's portfolio turnover rate, which
may increase capital gains and the expenses incurred in connection with such
trading. Each Portfolio anticipates that its annual portfolio turnover rate will
generally not exceed 100% (excluding turnover of securities having a maturity of
one year or less).
BORROWING. Each Portfolio may borrow money up to 33 1/3% of the value of the
Portfolio's total assets (including the amount borrowed) but only if such
borrowing is incurred as a temporary measure for extraordinary or emergency
purposes or to facilitate the orderly sale of portfolio securities to
accommodate redemption requests; provided, however, that each Portfolio may
temporarily borrow only up to 5% of the value of its total assets in the event
that the borrowing is incurred to satisfy redemption requests or settle
securities transactions. Each Portfolio may issue senior securities to evidence
such indebtedness. No Portfolio will purchase securities while outstanding
temporary bank borrowings, including reverse repurchase agreements, exceed 5% of
its total assets, except that a Portfolio may increase its investment in an
open-end management investment company with substantially the same investment
objective, policies and restrictions as the Portfolio while such borrowings are
outstanding.
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<PAGE>
OTHER INFORMATION CONCERNING THE PORTFOLIOS
FLUCTUATIONS IN NET ASSET VALUE AND INCOME. The net asset value of the
shares of an Account will change in response to fluctuations in prevailing
interest rates and changes in the value of the securities held by a
corresponding Portfolio. When interest rates rise, the value of securities held
by a Portfolio can generally be expected to decline. Conversely, when interest
rates decline, the value of securities held by a Portfolio can generally be
expected to rise. Furthermore, the tax-exempt income provided by the municipal
obligations held by a Portfolio will fluctuate over time. In addition, each
Portfolio may invest in zero coupon municipal obligations which may have
speculative characteristics and in inverse floater municipal obligations which
may be more speculative than other municipal obligations. These obligations are
subject to greater fluctuations in value due to changes in interest rates than
other tax-exempt obligations. An investment in shares of an Account does not
constitute a complete investment program.
MARKET CONDITIONS. The Investment Adviser believes that, in general, the
secondary market for municipal obligations is less liquid than that for taxable
debt obligations or for large issues of municipal obligations that trade in a
national market. No established resale market exists for certain of the
municipal obligations in which the Portfolios may invest. These considerations
may have the effect of restricting the availability of such obligations, may
affect the choice of securities sold to meet redemption requests and may have
the effect of limiting a Portfolio's ability to sell or dispose of such
securities. Also, valuation of such obligations may be more difficult. The SEC
has adopted a rule which will require issuers of municipal obligations to
provide financial information on an ongoing basis. This rule may reduce the
liquidity and value of some of the obligations held by a Portfolio to the extent
the issuers of such obligations fail to comply with the rule.
INVESTMENT RESTRICTIONS. Each Account and its corresponding Portfolio have
adopted certain fundamental investment restrictions which are enumerated in
detail in the SAI and which may not be changed unless authorized by a
shareholder vote and an investor vote, respectively, of the affected Account and
its corresponding Portfolio. Except for such enumerated restrictions and as
otherwise indicated in this Prospectus, the investment objective and policies of
each Account and its corresponding Portfolio are not fundamental and accordingly
may be changed by the Directors of the Company and the Trustees of the affected
Portfolio without obtaining the approval of the affected Account's shareholders
or of the investors in the corresponding Portfolio, as the case may be. If any
changes were made in an Account's investment objective, the Account might have
investment objectives different from the objectives which an investor considered
appropriate at the time the investor became a shareholder in the Account. See
"The Portfolios--Special Information on the Account/Portfolio Investment
Structure" below.
THE COMPANY AND ITS ACCOUNTS
Each Account is a mutual fund: an entity that pools shareholders' money and
invests it toward specified goals. In technical terms, each Account is a
separate "series" of the Company, an open-end management investment company
which was organized as a corporation under the laws of Maryland on December 9,
1981.
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<PAGE>
The Company has authorized 3 billion shares of Common Stock, par value $.10
per share and may create and classify the Common Stock into separate mutual
funds (or investment series or portfolio of shares), without further approval of
the Company's shareholders. In addition to the Accounts, as of the date of this
Prospectus, the Company has established eight other mutual funds which are
offered pursuant to two separate prospectuses. One prospectus includes the
following funds: the Connecticut Mutual Liquid Account, the Connecticut Mutual
Government Securities Account, the Connecticut Mutual Income Account, the
Connecticut Mutual Total Return Account and the Connecticut Mutual Growth
Account. The other prospectus includes the following funds: CMIA LifeSpan
Capital Appreciation Account, CMIA LifeSpan Balanced Account and CMIA LifeSpan
Diversified Income Account (together with the Accounts, the foregoing eight
Accounts are hereby referred to as the "Connecticut Mutual Family of Accounts").
Additional series may be added in the future. Shares of each Account have equal
rights as to voting, redemption, dividends and liquidation within their
respective Accounts.
The Company is governed by a Board of Directors which is responsible for
protecting the interests of the shareholders. The directors are experienced
executives who meet at least quarterly to oversee the activities of each
Account, review contractual arrangements with companies that provide services to
the Accounts and review each Account's performance. The majority of the
Directors are not otherwise affiliated with the Company. Connecticut Mutual Life
Insurance Company ("CML" is the indirect parent of G.R. Phelps Co., Inc. ("G.R.
Phelps"), the administrator to the Accounts, and CMFS, the Accounts'
distributor. CML intends to merge with Massachusetts Mutual Life Insurance
Company during the first quarter of 1996 (the "Merger"). Subject to the
consummation of the Merger and the approval of the Account's shareholders, the
Board of Directors of the Company has approved the selection of OppenheimerFunds
Distributor, Inc. ("OFD") as the principal distributor of the Accounts' shares;
the amendment of the Accounts' Rule 12b-1 distribution plans (as described
below) to permit the payment of service fees to OFD and others, including
affiliates of OFD; and twelve new directors to serve as the Company's Board of
Directors. The changes described above are expected to occur during or at the
close of the 90 day period after the Merger is consummated.
The Company does not hold annual meetings of shareholders. The Company may
hold shareholder meetings, however, to elect or remove directors, change the
fundamental policies of an Account or for other purposes. On matters affecting
only one Account, only the shareholders of that Account are entitled to vote. On
matters relating to all of the Accounts but affecting the Accounts differently,
separate votes by each Account are required. Shareholders holding more than 50%
of the Company's shares can elect all of the Company's directors if they so
choose. Each share is entitled to one vote within each Account.
The Portfolios do not hold annual meetings of investors but may hold investor
meetings to elect or remove Trustees, change fundamental policies, approve
investment advisory agreements or for other purposes. Whenever an Account, as an
investor in its corresponding Portfolio, is requested to vote on matters
pertaining to the Portfolio, that Account will hold a meeting of Account
shareholders and will vote its interest in the corresponding Portfolio for or
against such matters proportionately to the instructions to vote for or against
such matters received from Account shareholders. An Account shall vote shares
for which it receives no voting instructions in the same proportion as the
shares for which it receives voting instructions. For further information
concerning the directors and officers of the Company and the Trustees and
officers of each Portfolio, see the SAI.
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<PAGE>
THE PORTFOLIOS
The Portfolios are organized as trusts under the laws of the State of New
York and are treated as partnerships for federal income tax purposes. A Board of
Trustees is responsible for supervising each Portfolio's investment program. The
Accounts and other entities eligible to invest in the Portfolios (E.G., other
U.S. and foreign investment companies and common and commingled trust funds)
will each be liable for all obligations of the respective Portfolio. However,
the risk of an Account incurring financial loss because of such liability is
limited to circumstances in which both inadequate insurance exists and the
respective Portfolio itself is unable to meet its obligations.
The Directors of the Company have considered the advantages and disadvantages
of investing the assets of an Account in its corresponding Portfolio, as well as
the advantages and disadvantages of the two-tier format. The Directors believe
that because the structure offers greater opportunities for growth in portfolio
assets over time, it affords the potential for economies of scale to the
Accounts.
SPECIAL INFORMATION ON THE ACCOUNT/PORTFOLIO INVESTMENT STRUCTURE
Each Account, unlike other mutual funds which directly acquire and manage
their own portfolios of securities, seeks to achieve its investment objective by
investing its assets in an interest in a corresponding Portfolio, which is a
separate investment company with a substantially identical investment objective.
See, "Investment Objectives and Policies" and "The Portfolios' Investments." A
Portfolio may sell its interests to other mutual funds or institutional
investors unaffiliated with Eaton Vance, CMFS or G.R. Phelps & Co., Inc. (G.R.
Phelps). All other investors will invest in the Portfolio on the same terms and
conditions as the Account and will pay a proportionate share of the Portfolio's
expenses. However, other investors investing in the Portfolio are not required
to sell their shares at the same public offering price as the corresponding
Account due to variations in sales commissions and other operating expenses.
Different investors in a Portfolio may receive different returns on their
investments because of different expenses. Call Eaton Vance Distributors at
1-800-225-6265 for information about other investors in a Portfolio.
The investment objective of an Account may be changed by the Directors of the
Company and the investment objective of a Portfolio may be changed by the
Trustees of the Portfolio without obtaining the approval of the shareholders of
the Account or the investors in the Portfolio, respectively. An Account's
shareholders will be given 30 days' advance written notice of any change in the
Account's or its corresponding Portfolio's investment objective. If the Trustees
or the investors of a Portfolio were to vote to change the Portfolio's
investment objective and/or policies and the Directors or the shareholders of
the corresponding Account did not approve an identical change to that Account's
investment objective and/or policies, the Account might then have an investment
in a corresponding Portfolio whose investment objective and/or policies were not
substantially the same as those of the Account. At that time, the Board of
Directors of the Company would decide what action to take on behalf of the
Account, including withdrawing the Account's assets from the corresponding
Portfolio.
An Account may withdraw (completely redeem) all its assets from the
corresponding Portfolio at any time if the Board of Directors of the Company
determines that it is in the best interests of the Account to do so. At that
time, the Board would decide whether to invest all the assets of the Account in
another pooled investment entity or retain an investment adviser to manage the
Account's assets in
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<PAGE>
accordance with its investment objective. An Account's investment performance
may be affected by a withdrawal of all its assets from the corresponding
Portfolio. An Account's performance and expenses may also be affected by the
withdrawal from its corresponding Portfolio of the assets of one or more of the
other entities investing in that Portfolio.
Accounts which invest all their assets in interests in a separate investment
company are a relatively new development in the mutual fund industry and,
therefore, the Accounts may be subject to more regulation than historically
structured mutual funds.
THE PORTFOLIOS' MANAGER
Each Portfolio has engaged Boston Management and Research (BMR), 24 Federal
Street, Boston, MA, a wholly owned subsidiary of Eaton Vance, as its investment
adviser. BMR, acting under the general supervision of the Board of Trustees of
the Portfolio, manages each Portfolio's investments and affairs. Eaton Vance,
its affiliates and its predecessor companies have been managing assets of
individuals and institutions since 1924 and managing investment companies since
1931. BMR or Eaton Vance acts as investment adviser to investment companies and
various individual and institutional clients with assets under management of
approximately $15 billion. Eaton Vance is a wholly owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Company has not retained the services of an investment adviser on behalf
of any of the Accounts because the Company seeks to achieve the investment
objective of each Account by investing the Account's assets in its corresponding
Portfolio.
The persons primarily responsible for the day-to-day management of each
Portfolio are listed below. Each manager has managed the Portfolio indicated
since it commenced operations, except in the case of Ms. Anderes who began
managing the New York Portfolio in January, 1994 and Ms. Clemson who began
managing the California Portfolio in 1995.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE (LAST FIVE
ACCOUNT MANAGER YEARS)
------------------------ ------------------- -----------------------------------
<S> <C> <C>
National Portfolio Thomas M. Metzold Vice President (since 1991) and
Analyst (high yield municipal bonds
1987-1991), Eaton Vance; and Vice
President, BMR (since 1992)
California Portfolio Cynthia J. Clemson Vice President, Eaton Vance and BMR
(since 1993); Portfolio Manager,
Missouri Tax Free Portfolio, Oregon
Tax Free Portfolio and Tennessee
Tax Free Portfolio (each a fund in
the Eaton Vance fund complex)
(since inception); and employee of
Eaton Vance (since 1985)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE (LAST FIVE
ACCOUNT MANAGER YEARS)
------------------------ ------------------- -----------------------------------
<S> <C> <C>
Massachusetts Portfolio Robert B. MacIntosh Vice President, Eaton Vance (since
1991) and BMR (since 1992); and
Portfolio Manager, Fidelity
Portfolio Management and Research
Company (1986-1991)
New York Portfolio Nicole Anderes Vice President, Eaton Vance and BMR
(since January, 1994); Vice
President and Portfolio Manager,
Lazard Freres Asset Management
(1992-1994); and Vice President and
Manager of Municipal Research,
Roosevelt & Cross (1978-1992)
Ohio Portfolio Thomas J. Fetter Vice President, Eaton Vance (since
1987) and BMR (since 1992); Chief
Investment Officer, Lumberman's
Mutual Insurance Company (until
1987)
</TABLE>
CMFS is the national distributor of the Accounts. National Financial Data
Services (NFDS) performs transfer agent servicing and dividend disbursing
functions for each Account.
BREAKDOWN OF EXPENSES
Like all mutual funds, each Account pays fees and expenses related to its
daily operations. These fees and expenses are neither billed directly to
shareholders nor deducted from individual shareholder accounts but are paid out
of an Account's assets and are reflected in its share price or dividends.
Each Account bears its proportionate share of the advisory fee and other
expenses paid by its corresponding Portfolio. The Accounts also pay other
expenses, which are explained below.
MANAGEMENT FEES
Each Portfolio pays an advisory fee to BMR pursuant to the Portfolio's
investment advisory agreement with BMR equal to the aggregate of:
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the Portfolio's total daily net assets in
each Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the Portfolio's total daily gross income
(which portion shall bear the same relationship to the total daily gross
income on such day as that portion of the total daily net assets in the
same Category bears to the total daily net assets on such day) in each
Category as indicated in the charts below.
20
<PAGE>
THE NATIONAL PORTFOLIO AND CALIFORNIA PORTFOLIO
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
- --------------- ----------------------------------------------------------------------- ---------- ------------
<C> <S> <C> <C>
1 up to $500 million..................................................... 0.300% 3.00%
2 $500 million but less than $1 billion.................................. 0.275% 2.75%
3 $1 billion but less than $1.5 billion.................................. 0.250% 2.50%
4 $1.5 billion but less than $2 billion.................................. 0.225% 2.25%
5 $2 billion but less than $3 billion.................................... 0.200% 2.00%
6 $3 billion and over.................................................... 0.175% 1.75%
</TABLE>
At September 30, 1995, the National Portfolio had net assets of
$2,260,646,363. For the fiscal year ended September 30, 1995, the National
Portfolio paid advisory fees of 0.45% of the Portfolio's average daily net
assets.
At September 30, 1995, the California Portfolio had net assets of
$410,670,138. For the fiscal year ended September 30, 1995, the California
Portfolio paid advisory fees of 0.50% of the Portfolio's average daily net
assets.
THE MASSACHUSETTS PORTFOLIO, NEW YORK PORTFOLIO AND OHIO PORTFOLIO
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
- --------------- ----------------------------------------------------------------------- ---------- ------------
<C> <S> <C> <C>
1 up to $20 million...................................................... 0.100% 1.00%
2 $20 million but less than $40 million.................................. 0.200% 2.00%
3 $40 million but less than $500 million................................. 0.300% 3.00%
4 $500 million but less than $1 billion.................................. 0.275% 2.75%
5 $1 billion but less than $1.5 billion.................................. 0.250% 2.50%
6 $1.5 billion but less than $2 billion.................................. 0.225% 2.25%
7 $2 billion but less than $3 billion.................................... 0.200% 2.00%
8 $3 billion and over.................................................... 0.175% 1.75%
</TABLE>
At September 30, 1995, the Massachusetts Portfolio had net assets of
$302,170,247. For the fiscal year ended September 30, 1995, the Massachusetts
Portfolio paid advisory fees of 0.46% of the Portfolio's average daily net
assets. At September 30, 1995, the New York Portfolio had net assets of
$652,736,309. For the fiscal year ended September 30, 1995, the New York
Portfolio paid advisory fees of 0.47% of the Portfolio's average daily net
assets. At September 30, 1995, the Ohio Portfolio had net assets of
$319,016,648. For the fiscal year ended September 30, 1995, the Ohio Portfolio
paid advisory fees of 0.46% of the Portfolio's average daily net assets.
The financial statements of each Portfolio are included in the Accounts' SAI.
The Company, on behalf of each Account, has retained the services of G.R.
Phelps, an indirect wholly owned subsidiary of CML, under an agreement, as
administrator of each Account. G.R. Phelps provides each Account with general
office facilities and supervises the overall administration of each Account.
G.R. Phelps also compiles information and materials relating to each Account,
the corresponding Portfolios, BMR and Eaton Vance and provides such information
to the Company's Board of Directors. For these services, G.R. Phelps currently
receives no compensation.
21
<PAGE>
OTHER EXPENSES
Each Account and its corresponding Portfolio are also responsible for
expenses not expressly stated to be payable by BMR under the Portfolio's
investment advisory agreement. Each Account pays other expenses, such as legal,
audit and custodian fees, proxy solicitation costs and the compensation of
directors who are not affiliated with Connecticut Mutual. Investors Bank & Trust
Company (IBT), with a principal place of business at 89 South Street, Boston,
Massachusetts 02111, provides custodian services to each Portfolio and its
corresponding Account. Each Account contracts with NFDS to perform many
shareholder transaction and accounting functions.
DISTRIBUTION PLAN
Each Account has adopted a distribution plan designed to meet the
requirements of Rule 12b-1 under the Investment Company Act (each, a
Distribution Plan) and the sales charge rules of the National Association of
Securities Dealers, Inc. (NASD). Each Account, pursuant to its Distribution
Plan, may make payments for personal services and/or the maintenance of
shareholder accounts to account executives of CMFS and other broker-dealer firms
with whom CMFS has agreements in amounts not exceeding 0.25% of the Account's
average daily net assets for any fiscal year. Any unreimbursed expenses are not
carried beyond one year from the date of incurrence. Each Distribution Plan was
approved, on behalf of the respective Account, by a majority of the Company's
Directors who are not interested persons of the Company and who have no
financial interest in the respective Plan. No Distribution Plan may be amended
to increase materially the annual percentage limitation of average net assets
that may be spent for the services described in a Distribution Plan without the
approval of the shareholders of the affected Account. CMFS has voluntarily and
temporarily agreed not to impose any reimbursement to which it may be entitled
pursuant to any Distribution Plan.
Distribution of each Account's shares by CMFS will also be encouraged by the
payment by BMR to CMFS of amounts equivalent to .15% of each Account's annual
average daily net assets. Such payments will be made from BMR's own resources,
not Account assets, and will be made in consideration of CMFS' distribution
efforts.
BROKERAGE
Municipal obligations are normally traded on a net basis (without commission)
through broker-dealers and banks acting for their own account. Such firms
attempt to profit from such transactions by buying at the bid price and selling
at the higher asked price of the market, and the difference is customarily
referred to as the spread. In selecting firms which will execute portfolio
transactions BMR judges their professional ability and quality of service and
uses its best efforts to obtain execution at prices which are advantageous to
the Portfolio and at reasonably competitive spreads. Subject to the foregoing,
BMR may consider sales of shares of the Account or of other investment companies
sponsored by BMR or Eaton Vance as a factor in the selection of firms to execute
portfolio transactions.
22
<PAGE>
DIVIDENDS, CAPITAL GAINS AND TAXES
DISTRIBUTIONS
Substantially all of the net investment income allocated to an Account by the
corresponding Portfolio, less the Account's direct and allocated expenses, will
be declared daily as a distribution to Account shareholders of record at the
time of declaration. Such distribution, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the last business day of each
month or the next business day thereafter. Each Account's net realized capital
gains, if any, generally consist of net realized capital gains allocated to the
Account by the corresponding Portfolio for tax purposes; the Account's net
realized capital gains, if any, after taking into account any available capital
loss carryovers, will be distributed at least once a year, usually in December.
FEDERAL INCOME TAXES
In order to qualify as a regulated investment company under the Internal
Revenue Code (the "Code"), as each Account intends to do, each Account must
satisfy certain requirements relating to the sources of its income, the
distribution of its income, and the diversification of its assets. In satisfying
these requirements, each Account will treat itself as owning its proportionate
share of each of the corresponding Portfolio's assets and as entitled to the
income of the Portfolio properly attributable to such share.
As a regulated investment company under the Code, each Account will not pay
federal income or excise taxes to the extent that it distributes to its
shareholders its net investment income and net realized capital gains in
accordance with the timing requirements imposed by the Code. As a partnership
under the Code, each Portfolio also does not expect to pay federal income or
excise taxes.
The Accounts anticipate that each monthly distribution of net investment
income will constitute tax-exempt income to the shareholders for federal income
tax purposes, except for the proportionate part of the distribution that may be
considered taxable income if an Account has taxable income during the tax year.
Shareholders of an Account will receive timely federal income tax information as
to the tax-exempt or taxable status of all distributions made by that Account
for each calendar year.
Distributions of interest on certain municipal obligations, although exempt
from regular federal income tax, constitute a tax preference item under the
federal alternative minimum tax provisions applicable to individuals and
corporations. Distributions from taxable income (including a portion of any
original issue discount with respect to certain stripped municipal obligations
and stripped coupons and accretion of certain market discount) and net
short-term capital gains will be taxable to shareholders as ordinary income.
Distributions from long-term capital gains are taxable to shareholders as long-
term capital gains for federal income tax purposes, regardless of the length of
time Account shares have been owned by the shareholder. Distributions are taxed
in the manner described above whether paid in cash or reinvested in additional
shares of an Account. Tax-exempt distributions received from an Account are
includable in the tax base for determining the taxability of social security and
railroad retirement benefits.
23
<PAGE>
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of an Account is not deductible to the extent the Account's
distributions (not taking into account long-term capital gains) consist of
tax-exempt interest. Further, entities or persons who are "substantial users"
(or persons related to "substantial users") of facilities financed by industrial
development or private activity bonds should consult their tax advisers before
purchasing shares of an Account. "Substantial user" is defined in applicable
Treasury regulations to include a "non-exempt person" who regularly uses in
trade or business a part of a facility financed from the proceeds of industrial
development bonds.
Redemptions and exchanges of shares are taxable transactions. Sales charges
paid upon a purchase of shares of an Account cannot be taken into account for
purposes of determining gain or loss on a redemption or exchange of the shares
before the 91st day after their purchase to the extent shares of such Account or
of another fund are subsequently acquired pursuant to the Account's reinvestment
or exchange privilege. In addition, losses realized on a redemption (including
an exchange) of an Account's shares may be disallowed under certain "wash sale"
rules if within a period beginning 30 days before and ending 30 days after the
date of redemption other shares of the Account are acquired. Any disregarded or
disallowed amounts will result in an adjustment to the shareholder's tax basis
in some or all of any other shares acquired.
Shareholders will receive annually tax information, including Forms 1099 with
respect to taxable distributions, redemption or exchange proceeds, and federal
income tax (if any) withheld by NFDS, to assist in the preparation of their
federal and state income tax returns.
STATE INCOME TAXATION
Under current law, provided that each Account qualifies as a regulated
investment company for federal income tax purposes and the corresponding
Portfolio is treated as a partnership for Massachusetts and federal income tax
purposes, neither the Account nor the Portfolio is liable for any income,
corporate excise or franchise tax in the Commonwealth of Massachusetts.
CALIFORNIA
Under California law, for individuals, estates or trusts subject to the
California personal income tax dividends paid by the California Account and
designated by the California Account as tax-exempt are exempt from California
personal income tax for individuals who reside in California to the extent such
dividends are derived from interest payments on tax-exempt obligations issued by
or on behalf of the State of California and its political subdivisions and
agencies or the government of Puerto Rico, the U.S. Virgin Islands and Guam,
provided that at least 50% of the value of the total assets of the California
Account (including its share of the assets of the California Portfolio) at the
close of each quarter of its taxable year are invested in obligations which if
held by individuals the interest on which would be exempt under either federal
or California law from income taxation by the State of California. Other
distributions from the California Account, including distributions derived from
short-term and long-term capital gains are generally not exempt from the
California personal income tax.
24
<PAGE>
MASSACHUSETTS
The Massachusetts Portfolio has received a letter ruling (the "Ruling") from
the Department of Revenue of The Commonwealth of Massachusetts to the effect
that it will be classified as a partnership for Massachusetts tax purposes. The
Ruling provides that, consequently, interest income received by the
Massachusetts Portfolio on (1) debt obligations issued by The Commonwealth of
Massachusetts or its political subdivisions, including agencies or
instrumentalities thereof ("Massachusetts Obligations"), (2) the Governments of
Puerto Rico, Guam, or the United States Virgin Islands ("Possessions
Obligations"), or (3) the United States ("United States Obligations") will be
treated as if realized directly by investors in the Massachusetts Portfolio. The
Ruling concludes that, provided that an investor in the Massachusetts Portfolio
qualifies as a regulated investment company ("RIC") under the Code and satisfies
certain notice requirements of Massachusetts law, (1) dividends paid by such a
RIC that are treated as tax-exempt interest under the Code and that are directly
attributable to interest on Massachusetts Obligations (including the RIC's
allocable share of interest earned by the Massachusetts Portfolio on such
obligations) and (2) dividends paid by such a RIC that are directly attributable
to interest on Possessions Obligations or United States Obligations (including
the RIC's allocable share of interest earned by the Massachusetts Portfolio on
such obligations) will, in each case, be excluded from Massachusetts gross
income. Because the Massachusetts Fund intends to continue to invest in the
Massachusetts Portfolio, qualify for treatment as a RIC under the Code, and
satisfy the applicable notice requirements, the Massachusetts Fund's
distributions to its shareholders of its allocable share of the interest
received by the Massachusetts Portfolio that is attributable to Massachusetts
Obligations, Possessions Obligations or United States Obligations should
consequently be excluded from Massachusetts gross income for individuals,
estates and trusts that are subject to Massachusetts taxation. The Massachusetts
Account has been advised by its counsel, Hale and Dorr, that distributions
properly designated as capital gain dividends under the Code and attributable to
gains realized by the Massachusetts Portfolio and allocated to the Massachusetts
Account on the sale of certain Massachusetts tax-exempt obligations issued
pursuant to statutes that specifically exempt such gains from Massachusetts
taxation will also be exempt from Massachusetts personal income tax. Other
distributions from the Massachusetts Account included in a shareholder's federal
gross income, including distributions derived from net long-term capital gains
not described in the preceding sentence and net short-term capital gains, are
generally not exempt from Massachusetts personal income tax.
Beginning in 1996, long-term capital gains will generally be taxed in
Massachusetts on a sliding scale at rates ranging from 5% to 0%, with the
applicable tax rate declining as the tax holding period of the assets (beginning
on the later of January 1, 1995 or the date of actual acquisition) increases
from more than one year to more than six years. It is not clear what
Massachusetts tax rate will be applicable to capital gain dividends for taxable
years beginning after 1995.
Distributions from the Massachusetts Account will be included in net income,
and in the case of intangible property corporations, shares of the Massachusetts
Account will be included in net worth, for purposes of determining the
Massachusetts excise tax on corporations subject to Massachusetts taxation.
25
<PAGE>
NEW YORK
For individuals subject to the New York State or New York City personal
income tax, dividends paid by the New York Account are exempt from New York
State and New York City income tax for individuals who reside in New York to the
extent such dividends are excluded from gross income for federal income tax
purposes and are derived from interest payments on tax-exempt obligations issued
by or on behalf of New York State and its political subdivisions and agencies,
and the governments of Puerto Rico, the U.S. Virgin Islands and Guam. Other
distributions from the Account, including distributions derived from taxable
ordinary income and net short-term and long-term capital gains, are generally
not exempt from New York State or City personal income tax. Individuals subject
to income taxation by states other than New York will realize a lower after-tax
return than individuals subject to tax by New York State since the dividends
distributed by the New York Municipals Account generally will not be exempt, to
any significant degree, from income taxation by such other states. Interest on
indebtedness incurred or continued to purchase or carry New York Municipals
Account shares is not deductible for New York personal income tax purposes to
the extent attributable to exempt-interest dividends. Persons who may be
"substantial users" (or "related persons" of substantial users) of facilities
financed by industrial development bonds or private activity bonds held by the
New York Municipals Account should consult their tax advisors before purchasing
New York Municipals Account shares.
OHIO
Under Ohio law, distributions made by the Ohio Account will be exempt from
the Ohio personal
income tax to the extent such distributions are properly attributable to
interest payments on (1) obligations issued by or on behalf of the State of Ohio
and its political subdivisions or agencies or instrumentalities of the foregoing
("Ohio Obligations"), or (2) the governments of Puerto Rico, the U.S. Virgin
Islands or Guam or their authorities or municipalities ("Territorial
Obligations"). Distributions made by the Ohio Account also will be excluded from
the net income base of the Ohio corporation franchise tax to the extent such
distributions are excluded from gross income for federal income tax purposes or
are properly attributable to interest payments on Ohio Obligations or
Territorial Obligations. Distributions of profits, including capital gains, will
be exempt from the Ohio personal income tax and excluded from the net income
base of the Ohio corporation franchise tax to the extent such distributions are
properly attributable to the disposition of Ohio Obligations. However, the Ohio
Account's shares will be included in the net worth base of the Ohio corporation
franchise tax. These conclusions regarding Ohio taxation are based on the
assumption that the Ohio Account will qualify, elect to be treated, and continue
to qualify as a regulated investment company under the Code and that at all
times at least 50% of the value of the total assets of the Ohio Account will
consist of Ohio Obligations or similar obligations of other states or their
subdivisions (but excluding Territorial Obligations) determined by treating the
Ohio Account as owning its proportionate share of the assets owned by the Ohio
Portfolio.
NATIONAL
The exemption of interest income for federal income tax purposes does not
necessarily result in exemption under the income or other tax laws of such state
or local taxing authority. Shareholders of the National Account may be exempt
from state and local taxes on the National Account's distributions
26
<PAGE>
of tax-exempt interest income derived from obligations of any state (and/or
municipalities or other political subdivisions, agencies or instrumentalities of
any state) in which they are subject to tax (if the laws of such state provide
for such an exemption and if the requirements, if any, for such an exemption are
satisfied), but such shareholders may be taxable generally on income derived
from obligations issued by other states or other political subdivisions,
agencies or instrumentalities. The National Account will report annually to
shareholders, with respect to net tax-exempt income earned, the percentages
representing the proportionate ratio of such income earned in each state.
PERFORMANCE
The Company may from time to time advertise yields and total returns for the
Accounts. Yields and total returns are based on past results and are not an
indication of future performance. Yield refers to the income generated by an
investment in an Account over a given period of time, expressed as an annual
percentage rate. Yields are calculated according to a standard formula
prescribed by the SEC. Because this differs from other accounting methods, the
quoted yield may not equal the income actually paid to shareholders. Yield is
computed by dividing the net investment income per share of an Account during a
base period of 30 days by the maximum offering price per share of the Account on
the last day of the base period. A taxable-equivalent yield is calculated using
the tax-exempt yield figure and dividing by 1 minus the applicable tax rate,
which may combine federal, state, and (if applicable) local tax rates for
Accounts that concentrate in a particular state's obligations. For a table of
sample taxable equivalent yields, please see Appendix B to the SAI.
Total return is the change in value of an investment in an Account over a
given period, assuming reinvestment of any dividends and capital gains. Average
annual total return is a hypothetical rate of return that, if achieved annually,
would have produced the same cumulative total return if performance had been
constant over the entire period. Average annual total returns smooth out
variations in performance; they are not the same as actual year-by-year results.
The average annual total return for each Account is computed in accordance with
a standardized formula prescribed by the SEC. The calculation assumes the
reinvestment of all dividends and distributions at net asset value. The periods
illustrated would normally include one, five and ten years (or since the
commencement of the public offering of the shares of an Account, if shorter)
through the most recent calendar quarter.
Yield and total return quotations for the Accounts will reflect the maximum
sales charges imposed on purchases of shares of the Account.
One or more additional measures and assumptions, including but not limited to
historical and cumulative total returns; distribution returns; results of actual
or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data may also be used. These data
may cover any period of existence and may or may not include the impact of sales
charges, taxes or other factors. Other investments or savings vehicles and/or
unmanaged market indexes, indicators or economic activity or averages of mutual
funds results, including but not limited to Standard & Poor's 500 Stock Index
and the Dow Jones Industrial Average, may be cited or compared with the
investment results of the Company. Rankings or listings by magazines, newspapers
or independent statistical or rating services, such as Lipper Analytical
Services, Inc., may also be referenced.
An Account's investment results will vary from time to time depending on
market conditions, the composition of the Account's portfolio and operating
expenses. For further information about the calculation methods and uses of an
Account's investment results, see the SAI.
27
<PAGE>
YOUR ACCOUNT
HOW TO BUY SHARES
SHARES OF THE ACCOUNTS ARE NOT AVAILABLE FOR PURCHASE EXCEPT THAT SHARES ARE
ISSUED FOR DIVIDEND REINVESTMENT AND SHAREHOLDERS WITH AN EXISTING ACCOUNT IN
ONE OR MORE OF THE ACCOUNTS MAY PURCHASE ADDITIONAL SHARES OF SUCH ACCOUNTS.
Shares of the Accounts are not a suitable investment for retirement plans. If
you want information about investments for retirement plans, please call your
registered representative or 1-800-234-5606.
MINIMUM INVESTMENTS
<TABLE>
<CAPTION>
INITIAL SUBSEQUENT
INVESTMENT INVESTMENT
----------- ---------------
<S> <C> <C>
- - Automatic Investment Plans.............................................. $ 0 $ 50
- - All Other Purchases..................................................... $ 1,000* $ 50
</TABLE>
*Initial investments may be split among Accounts in amounts of $500 or more.
Minimums may be waived for certain automated payroll deduction plans.
You may purchase shares of an Account through registered representatives of
CMFS, the Company's underwriter, and any securities broker-dealer having a sales
agreement with CMFS. Certain minimum investment requirements may apply as set
forth above.
Shares are credited to your account and certificates are not issued unless
specifically requested. You may request share certificates by writing to the
transfer agent, NFDS, P.O. Box 419694 Kansas City, Missouri, 64179-0948. There
is no cost for issuing share certificates. Transfers, exchanges and redemptions
of shares will be more complicated if certificates have been issued. If your
share certificate is lost or misplaced you will be required to pay a fee and
furnish a bond satisfactory to the Company's transfer agent (usually in the
amount of 2% of the face value of the lost certificate) before the shares can be
transferred or redeemed, or a replacement certificate issued.
The sale of shares of any Account will be suspended during any period when
the determination of its net asset value is suspended pursuant to rules or
orders of the SEC.
IF YOU ARE NEW TO CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC., complete and
sign an account application and mail it along with your check. All orders to
purchase shares are subject to acceptance or rejection by the Company or CMFS.
You may also open your account by wire as described on the next page. If there
is no application accompanying this prospectus, call 1-800-234-5606.
If you buy shares by check, and then redeem those shares by a method other
than by exchange to another CMIA fund, the payment of the proceeds of the
redemption may be delayed for up to fifteen calendar days to ensure that your
check has cleared. Checks must be drawn on U.S. banks. Checks are accepted
subject to collection at full value. If your check does not clear, your purchase
will be cancelled. There will be a $20.00 fee for any check returned for any
reason. You may not use a third party check to purchase shares for a new account
or an existing account.
28
<PAGE>
To avoid the collection period for investments in any Account you can wire
federal funds from your bank, which may charge you a fee. "Wiring federal funds"
means that your bank sends money to the Company's bank through the Federal
Reserve System. To wire funds see "By Wire" in the chart below.
<TABLE>
<CAPTION>
BUYING SHARES TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- ------------------ ------------------------------------------- -------------------------------------------
<S> <C> <C>
BY MAIL - Complete and sign the application. Make - Make your check payable to "CMIA."
your check payable to "CMIA." Mail to the Indicate your account number on your
address indicated on the application. check and mail to NFDS at P.O. Box
419694, Kansas City, MO 64179-0948.
- Exchange by mail: call 1-800-322-CMIA
(select option "2") for instructions
- --------------------------------------------------------------------------------------
BY WIRE - Call 1-800-322-CMIA by 12:00 noon Eastern - Call 1-800-322-CMIA by 12:00 noon Eastern
Time on the day of investment to set up Time on the day of investment to arrange
your account and arrange a wire a wire transaction.
transaction.
- Wire by 4:00 p.m. Eastern time to: - Wire by 4:00 p.m. Eastern time to:
State Street Bank and Trust State Street Bank and Trust
Company Company
Bank Routing #011000028 Bank Routing #011000028
NFDS Account #99042129 NFDS Account #99042129
Specify Account name and include your name Specify Account name and include your name
and new account number. and account number.
- --------------------------------------------------------------------------------------
BY PHONE - Exchange from another Account with the - Exchange from another Account with the
1-800-322-CMIA same registration, including name, same registration, including name,
(select option address and taxpayer ID number. address and taxpayer ID number.
"2")
- --------------------------------------------------------------------------------------
AUTOMATICALLY - You may not open an account - Establish an Automatic Investment Plan or
automatically, but you may complete and Dollar Cost Averaging (DCA) Investment
sign an application; make your check Program. Sign up for these services when
payable to CMIA; and mail to the address opening your account, or call
indicated on the application. 1-800-322-CMIA for information about
adding these services to your account.
</TABLE>
29
<PAGE>
SHARE PRICE
An Account's net asset value (NAV) is calculated every business day, normally
at 4:00 p.m. Eastern time. See "Shareholder and Account Policies -- Transactions
Details," for a discussion of how the Account computes its NAV. Shares of each
Account are sold at the share price next calculated after your purchase order is
received and accepted, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGES AS % OF
---------------------------
DEALER
ALLOWANCE
NET NET AS % OF
AMOUNT OFFERING OFFERING
AMOUNT OF PURCHASE INVESTED PRICE PRICE
- --------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Less than $100,000........................... 4.17% 4.00% 3.50%
$100,000 but less than $250,000.............. 3.36% 3.25% 3.00%
$250,000 but less than $500,000.............. 2.83% 2.75% 2.50%
$500,000 or more............................. 0% 0% 0%
</TABLE>
No sales charge is imposed on purchases of shares of an Account paid from
automatic reinvestment of dividends and capital gain distributions made by that
Account. The sales charge may be reduced and/or eliminated in certain cases as
further described under REDUCING OR ELIMINATING YOUR SALES CHARGE.
The entire sales charge for CMFS retail sales is payable to CMFS and is used
for sales and other distribution expenses. Upon notice to broker-dealers with
whom it has sales agreements, CMFS may pay an amount up to the full applicable
sales charge. CMFS may from time to time, at its own expense, provide
promotional incentives to certain broker-dealers whose representatives have sold
or are expected to sell significant amounts of shares of one or more of the
Accounts. Broker-dealers to whom substantially the entire sales charge is paid
may be deemed to be underwriters as that term is defined under the Securities
Act of 1933.
CONTINGENT DEFERRED SALES CHARGE
Purchases of $500,000 or more are sold without an initial sales charge, but a
sales charge of 1% may be imposed if you sell (or redeem) your shares within one
year of purchase. This charge is called a contingent deferred sales charge or a
CDSC. The 1% charge will be assessed on an amount equal to the current market
value or the original purchase price of the shares sold, whichever is smaller.
In determining whether a CDSC will be charged, it will be assumed that those
shares in your account which are not subject to a CDSC will be sold first. CMFS
may, in its discretion, pay a commission which may be up to the full amount of
the sales charge to its representatives or other broker-dealers who initiate and
are responsible for such purchases as follows: 1% on the first $2,000,000
invested; .80% on the next $1,000,000; .20% on the next $2,000,000; and .08% on
the excess over $5,000,000. CMFS may pay a commission to other broker-dealers
who initiate and are responsible for such purchases as follow: .9% on the first
$2,000,000 invested; .75% on the next $1,000,000; .15% on the next $2,000,000;
and .075% on the excess over $5,000,000. Commissions will be reclaimed by CMFS
if the shares are redeemed within the first 12 months.
The CDSC is waived in the case of redemptions of shares made: (1) by the
estate of the deceased shareholder; (2) upon the disability of the shareholder,
as defined in Section 72(m)(7) of the Code;
30
<PAGE>
(3) in whole or in part, in connection with shares sold to any state, county, or
city, or any instrumentality, department, authority, or agency thereof, that is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
investment management company; (4) in connection with the redemption of shares
of the Company due to a combination with another investment company by virtue of
a merger, acquisition or similar reorganization transaction; (5) in connection
with the Company's right to involuntarily redeem or liquidate an Account; (6) in
connection with automatic redemptions pursuant to a SYSTEMATIC WITHDRAWAL PLAN
but limited to no more than 12% of the original value annually; and (7) as
involuntary redemptions of shares by operation of law, or under procedures set
forth in the Company's Articles of Incorporation, or as adopted by the Board of
Directors of the Company.
REDUCING OR ELIMINATING YOUR SALES CHARGE
REDUCING YOUR SALES CHARGE. You may qualify for a reduced sales charge on
your investments through COMBINED PURCHASES, STATEMENT OF INTENTION AND RIGHTS
OF ACCUMULATION.
COMBINED PURCHASES
You may aggregate purchases of shares of the Accounts and shares of other
accounts in the Connecticut Mutual Family of Accounts with the purchases of the
other persons listed below to achieve discounts in the applicable sales charges.
The sales charge applicable to a current purchase of shares of each Account by a
person listed below is determined by adding the value of shares to be purchased
to the aggregate value (at current offering price) of shares of any of the other
accounts in the Connecticut Mutual Family of Accounts previously purchased and
then owned, provided that CMFS is notified by you or your broker-dealer each
time a purchase is made which would qualify. For example, if you are investing
$100,000 in the Massachusetts Account and your spouse owns shares of other
accounts in the Connecticut Mutual Family of Accounts with a value of $75,000,
you would pay a sales charge of 3.25% of the offering price of the new
investment. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their own
account(s), which may include tax qualified plans, such as an IRA or single
participant Keogh-type plan, or by a company solely controlled by such
individuals as defined in the Investment Company Act. Reduced sales charges also
apply to purchases by a trustee or other fiduciary if the investment is for a
single trust, estate or single fiduciary account, including pension,
profit-sharing or other employee benefit trust created pursuant to a plan
qualified under the Code. Reduced sales charges apply to combined purchases by
or for qualified employee benefit plans of a single corporation, or of
corporations affiliated with each other in accordance with the Investment
Company Act.
STATEMENT OF INTENTION (SOI)
You may combine the current value of all shares held in one or more accounts
with the investment amounts intended over the next 13-month period to qualify
for a reduced sales charge. The SOI may be backdated 90 days. See the SAI for
the terms of the SOI. You must identify on the Application all accounts whose
values are to be combined. If the intended investment is not made within the
13-month period, you must remit the additional sales charges, or sufficient
shares will be redeemed from your account to cover the sales charge.
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<PAGE>
RIGHTS OF ACCUMULATION
The sales charge for new purchases of shares of an Account will be determined
by aggregating the net asset value of all the CMIA accounts owned by the
shareholder at the time of the new purchase. The rules listed under COMBINED
PURCHASES may apply. You must identify on the Application all accounts to be
linked for RIGHTS OF ACCUMULATION.
ELIMINATING YOUR SALES CHARGE. THERE ARE VARIOUS METHODS BY WHICH YOU MAY
ELIMINATE SALES CHARGES ON YOUR INVESTMENTS.
Shares of an Account may be purchased without a sales charge by (1) any
purchaser, provided the total initial amount invested in any Account or Accounts
totals $500,000 or more, including investments made pursuant to the COMBINED
PURCHASES, STATEMENT OF INTENTION AND RIGHTS OF ACCUMULATION features described
in this prospectus; (2) Directors of the Company and members of their immediate
family; (3) NASD registered representatives whose employer consents to such
purchases, and by the spouses and immediate family members of such
representatives, (4) one or more members of a group of at least 1,000 persons
(and persons who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the spouses and
minor dependent children of such persons, pursuant to a marketing program
between CMFS and such group; and (5) an institution acting as a fiduciary on
behalf of an individual or individuals, where such institution is directly
compensated by the individual(s) for recommending the purchase of the shares of
the Company, provided the institution has an agreement with CMFS. Purchases made
pursuant to (1) above may be subject to a CDSC.
REINSTATEMENT PRIVILEGE
A shareholder who has made a partial or complete redemption from an Account
may reinvest all or part of the redemption proceeds in the same Account without
imposition of a sales charge with respect to the amount invested, provided such
reinvestment is effected within 30 days after the date of the redemption. NFDS
must receive from the shareholder both a written request for reinvestment and a
check. The reinvestment will be made at the next calculated net asset value
after receipt. Redemptions are taxable transactions, and special tax rules may
apply if a reinvestment occurs. Each shareholder should consult his/her own tax
adviser as to the tax consequences of any redemption and/or reinvestment.
HOW TO SELL SHARES
You can arrange to take money out of your share account(s) at any time by
selling (redeeming) some or all of your shares. Your shares will be sold at the
next share price calculated after your order is received in good form and
accepted. Share price is normally calculated at 4:00 p.m. Eastern time.
TO SELL SHARES IN AN ACCOUNT, you may use any of the methods described below.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least $1,000
worth of shares in the account to keep it open.
TO SELL SHARES BY WIRE OR TELEPHONE, you will need to sign up for these
services in advance by completing the appropriate sections in the Application.
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<PAGE>
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. Signature guarantees are
designed to protect you and the Company from fraud. Your request to sell shares
must be made in writing and include a signature guarantee if any of the
following situations apply:
- You request in writing to redeem more than $50,000 worth of shares,
- Your account registration has changed within the last 30 days,
- The check is being mailed to a different address than the one on our
account (record address),
- The check is being made payable to someone other than the account owner, or
- The redemption proceeds are being transferred to an Account with a
different registration.
You should be able to obtain a signature guarantee from a bank, broker,
dealer, credit union (if authorized under state law), securities exchange or
association, clearing agency or savings association. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
SELLING SHARES IN WRITING BY MAIL
Write a "letter of instruction" with:
- Your name,
- The Account's name,
- Your account number,
- The dollar amount or number of shares to be redeemed, and
- Any other applicable requirements listed in the table below.
- Mail the letter of instruction to the Company's transfer agent at:
Connecticut Mutual Investment Accounts, Inc.
P.O. Box 419694
Kansas City, Missouri 64179-0948
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<PAGE>
Unless otherwise instructed, the Company will send a check to the record
address.
<TABLE>
<CAPTION>
SELLING SHARES ACCOUNT TYPE SPECIAL REQUIREMENTS
- ------------------ ------------------------------------------- -------------------------------------------
<S> <C> <C>
BY MAIL Individual, Joint Tenant Sole - The letter of instruction must be signed
Proprietorship, UGMA, UTMA by all persons required to sign for
transactions, exactly as their names
appear on the account.
Trust - The trustee must sign the letter
indicating capacity as trustee. If the
trustee's name is not in the account
registration, provide a copy of the trust
document certified within the last 60
days.
Business or Organization - At least one person authorized by
corporate resolution to act on the
account must sign the letter.
- Include a corporate resolution with
corporate seal or a signature guarantee.
Executor, Administrator, Conservator, - Call 1-800-322-CMIA for instructions.
Guardian
- --------------------------------------------------------------------------------------
BY PHONE All account types except retirement - Minimum request: $500, unless closing an
1-800-322-CMIA account.
All account types - You may exchange to other Accounts if
both accounts are registered with the
same name(s), address and taxpayer ID
number.
- --------------------------------------------------------------------------------------
BY WIRE All account types - Minimum wire: $1,000.
- A voided check and your signature, which
must be signature guaranteed, must
accompany a wire redemption request
unless you elected Telephone Redemption
by wire on the initial application.
- Your wire redemption request must be
received before 4:00 p.m. Eastern time
for money to be wired on the next
business day.
</TABLE>
34
<PAGE>
INVESTOR SERVICES
Connecticut Mutual provides a variety of services to help you manage your
account.
24-HOUR SERVICE
Call 1-800-322-CMIA (select option "1") for the following automated services.
After normal business hours, please leave a message and someone will return your
call during normal business hours.
- Account balance
- Last distribution
- Prices
- Account distributions
- Service representative
- Duplicate statement
- Change PIN (Personal Identification Number)
- Duplicate tax forms
INFORMATION SERVICES
TELEPHONE REPRESENTATIVES are available during normal business hours to
provide the information and services you need.
STATEMENTS AND REPORTS sent to you include the following:
- Confirmation statements (after every transaction, except reinvestments,
automatic investments and automatic payroll investments, that affects your
account balance or your account registration)
- Quarterly consolidated account statements which summarize all account
activity year-to-date
- Financial reports (every six months)
Call 1-800-322-CMIA (select option "2") if you need additional copies of
financial reports or historical account information.
INVESTOR SERVICES
One easy way to pursue your financial goals is to invest money regularly. The
Company offers convenient services that let you transfer money into your
account, or between accounts, automatically. While regular investment plans do
not guarantee a profit and will not protect you against loss in a declining
market, they can be an excellent way to invest for retirement, a home,
educational expenses, and other long-term financial goals. Certain restrictions
apply. Call 1-800-322-CMIA for more information.
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<PAGE>
AUTOMATIC INVESTMENT PLAN lets you make regular monthly investments through
an automatic withdrawal from your bank account ($100 minimum per Account). Forms
are available to initiate this program from your registered representative, or
by calling 1-800-322-CMIA.
DOLLAR COST AVERAGING (DCA) INVESTMENT PROGRAMS let you set up monthly
exchanges in amounts of $100 or more from one Account to any other Account.
Sales charges may apply. Use of the DCA PROGRAM permits the purchase of shares
of an Account on a scheduled basis which disregards fluctuations in net asset
value. Dollar cost averaging does not assure a profit and does not protect
against loss in declining markets. Since the DCA PROGRAM involves continuous
investment in securities regardless of the fluctuation of price levels of such
securities, you should consider your financial ability to continue your
purchases through periods of low price levels before deciding to invest this
way.
AUTOMATIC DIVIDEND DIVERSIFICATION (ADD) lets you automatically reinvest
dividends and capital gain distributions paid by one Account into shares of
another Account. The number of shares reinvested will be determined using the
price in effect for the receiving Account on the dividend payment date for the
Account whose dividend is to be invested. Sales charges may apply.
EXCHANGE PRIVILEGE. You may exchange your shares of an Account for shares of
any other account in the Connecticut Mutual Family of Accounts by writing to
NFDS or calling 1-800-322-CMIA. To obtain a current prospectus for other
accounts, please call 1-800-322-CMIA (select option "3"). You should consider
the differences in investment objectives and expenses of an account as described
in its prospectus before making an exchange. The Account you are exchanging into
must be registered for sale in your state.
Exchanges are taxable transactions and may be subject to special tax rules
about which you should consult your own tax adviser. For complete policies and
restrictions governing exchanges, including circumstances under which a
shareholder's exchange privilege may be suspended or revoked, see "Shareholder
and Account Policies -- Exchange Restrictions."
SYSTEMATIC WITHDRAWAL PLANS let you set up monthly redemptions from any
account with a value of $10,000 or more. You may direct the Company to make
regular payments in fixed dollar amounts of $50 or more, or in an amount equal
to the value of a fixed number of shares. If these payments are to go to someone
other than the registered owner(s) of the account, a signature guarantee is
required on the SYSTEMATIC WITHDRAWAL PLAN application. The Company reserves the
right to institute a charge for this service.
Maintaining a SYSTEMATIC WITHDRAWAL PLAN at the same time regular additional
investments are being made into any Account is not recommended because a sales
charge will be imposed on the new shares at the same time shares are being
redeemed to make the periodic payments under the SYSTEMATIC WITHDRAWAL PLAN and
because such redemptions are taxable transactions.
The Company may amend or terminate the SYSTEMATIC WITHDRAWAL PLAN on 30 days'
prior written notice to any participating shareholders.
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<PAGE>
SHAREHOLDER AND ACCOUNT POLICIES
TRANSACTION DETAILS
THE COMPANY IS OPEN FOR BUSINESS each day that the New York Stock Exchange
(NYSE) is open. The Company normally calculates an Account's net asset value as
of the close of business of the NYSE, normally 4:00 p.m. Eastern time.
AN ACCOUNT'S NAV is the value of a single share. The NAV is computed by
adding the value of the Account's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding. Because an Account invests substantially all of its assets
in its corresponding Portfolio, an Account's NAV will reflect the value of its
interest in that Portfolio (which, in turn, reflects the underlying value of the
Portfolio's assets and liabilities).
A PORTFOLIO'S NAV is computed by subtracting the liabilities of the Portfolio
from the value of its total assets. Because the market for municipal obligations
is a dealer market with no central trading location or continuous quotation,
municipal obligations generally are 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. Other assets are valued at fair value using
methods determined in good faith by a Portfolio's Trustees.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify that
your Social Security or other taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income to
the IRS. If you are subject to backup withholding, the IRS may require the
Company to withhold 31% of your taxable distributions and the proceeds of
redemptions (including exchanges).
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. Note that the Company will
not be responsible for any losses resulting from unauthorized transactions if it
follows reasonable procedures designed to verify the identity of the caller.
Telephone representatives will request personalized security codes or other
information and will also record calls. You should verify the accuracy of your
confirmation statements immediately after you receive them. IF YOU DO NOT WANT
THE ABILITY TO REDEEM AND EXCHANGE BY TELEPHONE, CALL 1-800-322-CMIA FOR
INSTRUCTIONS.
IF YOU ARE UNABLE TO REACH THE COMPANY BY PHONE (for example, during periods
of unusual market activity), consider placing your order by mail or by overnight
mail.
EACH ACCOUNT RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a
period of time. Each Account also reserves the right to reject any specific
purchase order, including certain purchases by exchange. See "Exchange
Restrictions." Purchase orders may be refused if, in the Company's opinion, they
are of a size that would disrupt management of an Account.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the
next offering price calculated after your order is received and accepted. Note
the following:
37
<PAGE>
- All of your purchases must be made in U.S. dollars and checks must be drawn
on U.S. banks. You may not purchase shares with a third party check.
- If your check does not clear, your purchase will be cancelled and you could
be liable for any losses or fees the Account or its transfer agent has
incurred.
TO AVOID THE COLLECTION PERIOD associated with checks, consider buying shares
by bank wire, U.S. Postal money order, U.S. Treasury check, Federal Reserve
check, or direct deposit instead.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the next
NAV calculated after your request is received and accepted. Note the following:
- Normally, redemption proceeds will be mailed to you on the next business
day, but if making immediate payment could adversely affect an Account, it
may take up to seven days to pay you.
- As mentioned above, an Account may hold payment on redemptions until it is
reasonably satisfied that investments made by check have been collected,
which can take up to 15 calendar days.
- Redemptions may be suspended or payment dates postponed when the NYSE is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the SEC.
The Company's Board of Directors reserves the right to close your account if
it has a current net asset value of less than $1,000 by redeeming all remaining
shares in your account. No such redemption will be effected unless you have been
given at least 60 days' notice and your account has existed at least 24 months.
EXCHANGE RESTRICTIONS
As a shareholder, you have the privilege of exchanging shares of an Account
for shares of any other account in the Connecticut Mutual Family of Accounts.
However, you should note the following:
- The Account you are exchanging into must be registered for sale in your
state.
- You may only exchange between accounts that are registered in the same
name, address and taxpayer identification number.
- The minimum amount you may exchange from one Account into another is $500
or the total value of the Account if less than $500.
- If you wish to make more than 12 exchanges in a 12-month period, an
exchange fee of .75% of the net asset value of the shares redeemed will be
charged. Exchanges made pursuant to the DCA Program are not subject to this
fee.
38
<PAGE>
- You may exchange your shares for shares of any Account in the Connecticut
Mutual Family of Accounts without the imposition of a sales charge at the
time of the exchange.
- Exchanges may have tax consequences for you. Consult your tax adviser for
advice.
- An Account reserves the right to refuse exchange purchases by any person or
group if, in the Company's judgment, an Account would be unable to invest
the money effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
- Your exchanges may be restricted or refused if an Account receives or
anticipates simultaneous orders affecting significant portions of the
Account's assets. In particular, a pattern of exchanges that coincides with
a "market timing" strategy may be disruptive to the Account.
- Although an Account will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time.
Each Account reserves the right to terminate or modify the exchange
privilege in the future.
39
<PAGE>
(This page has been left blank intentionally.)
40
<PAGE>
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 risks 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.
- -------------------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Prospectus 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 a Portfolio's
fiscal year end.
A-1
<PAGE>
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.
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 corporate 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 affecting
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 VMIG,
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 VMIG 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.
A-2
<PAGE>
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months.
Issuers (or supporting institutions) rated PRIME-1 or P-1 have a superior
ability for repayment of senior short-term debt obligations. Prime-I or P-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
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 differ from the highest rated issues only in small degree.
A-3
<PAGE>
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 exhibits 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.
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.
A-4
<PAGE>
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.
PROVISIONAL RATINGS: 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.
MUNICIPAL NOTES
S&P's 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.
A-5
<PAGE>
COMMERCIAL PAPER
S&P's commercial paper ratings are a current assessment of the likelihood of
timely payment of debts considered short-term in the relevant market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely safe
characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short-term debt obligations with doubtful
capacity for payment.
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 had not expired, unless Standard & Poor's believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
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
obligor's 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
A-6
<PAGE>
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.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in actual or imminent default of 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.
A-7
<PAGE>
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. A Portfolio 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.
A-8
<PAGE>
APPENDIX B
NATIONAL MUNICIPALS PORTFOLIO
ASSET COMPOSITION INFORMATION
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
MUNICIPAL BONDS
MOODY'S RATING
PERCENT OF
NET ASSETS
----------
<S> <C>
Aaa................................... 19.25
Aa2................................... 3.61
Aa3................................... 2.13
A1.................................... 2.14
A2.................................... 3.37
Baa1.................................. 7.63
Baa2.................................. 11.23
Baa3.................................. 4.59
Ba1................................... 3.03
Ba2................................... 0.37
B1.................................... 0.88
B2.................................... 0.55
Unrated............................... 41.22
----------
100.00%
<CAPTION>
MUNICIPAL BONDS
S&P'S RATING
PERCENT OF
NET ASSETS
----------
<S> <C>
AAA................................... 21.48
AA+................................... 0.02
AA.................................... 2.36
AA-................................... 2.60
A+.................................... 0.72
A..................................... 1.73
A-.................................... 2.63
BBB+.................................. 3.64
BBB................................... 9.43
BBB-.................................. 3.03
BB+................................... 6.31
BB.................................... 6.23
B..................................... 0.21
Unrated............................... 39.61
----------
100.00%
</TABLE>
The chart above indicates the weighted average composition of the securities
held by the Portfolio for the period ended September 30, 1995, with the debt
securities rated by Moody's and S&P separated into the indicated categories. The
weighted average indicated above was calculated on a dollar weighted basis and
was computed as at the end of each month during the fiscal year. The chart does
not necessarily indicate what the composition of the securities held by the
Portfolio will be in the current and subsequent fiscal years.
B-1
<PAGE>
APPENDIX C
SUMMARIES OF RECENT ECONOMIC DEVELOPMENTS IN
CALIFORNIA, MASSACHUSETTS, NEW YORK, OHIO AND THE TERRITORIES
Because each State Portfolio will normally invest at least 65% of its assets
in the obligations of its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net assets
in obligations issued by the governments of Guam and the U.S. Virgin Islands and
up to 35% of its assets in obligations issued by the government of Puerto Rico.
Set forth below is certain economic and tax information concerning the States in
which the Portfolios invest and the Territories.
The bond ratings provided below are current as of the date of this
Prospectus and are based on economic conditions which may not continue;
moreover, there can be no assurance that particular bond issues may not be
adversely affected by changes in economic, political or other conditions. Unless
stated otherwise, the ratings indicated are for obligations of the State. A
State's political subdivisions may have different ratings which are unrelated to
the ratings assigned to State obligations.
CALIFORNIA. California experienced severe economic and fiscal stress over
the 1991-1995 period. Between 1990 and 1993, California lost 3% of its total
employment base and nearly 16% of higher paying manufacturing jobs. This was
during a period when population increased 6%. The unemployment rate in
California was 9.1% in 1992 and 9.2% in 1993, well above the U.S. rates of 7.4%
and 6.8% for the same periods, respectively. Unemployment was 8.8% in November
1995, compared to 7.7% in November 1994.
The weak economy seriously undermined the government's ability to accurately
estimate tax revenues and has increased social service expenditures for
recession-related welfare case loads. In addition, the continued influx of
illegal immigrants has strained the State's welfare and health care systems. The
result of these various problems was a $2 billion accumulated budget deficit and
a heavy reliance on short-term borrowing for day-to-day operations. Short-term
borrowing increased from 7.8% of general fund receipts in 1990 to 12.4% in 1992
to an estimated 16% in 1995. In July, 1994, the State issued $7 billion in
short-term debt, an unprecedented amount for a state.
The $2 billion budget deficit built up during the 1991 and 1992 fiscal years
and was not adequately addressed during the 1993 or 1994 fiscal years, despite a
Deficit Retirement and Reduction Plan put in place in June, 1993. The budget for
fiscal year 1995 (which commenced on July 1, 1994) includes general fund
expenditures of $40.9 billion, a 4.2% increase over 1993-94, and general fund
revenues of $41.9 billion, a 5.2% increase. Growth in the State's employment
base and attendant revenue growth, led to a current year surplus for fiscal year
1995. If fiscal year 1996 ends near budgeted levels, the accumulated budget
deficit will be eliminated.
On January 17, 1994, a major earthquake struck the Los Angeles area causing
significant property damage. Preliminary estimates of total property damage
approximate $15 billion. The Federal government has approved $9.5 billion for
earthquake relief. The Governor has estimated that the State will have to pay
approximately $1.9 billion for relief not otherwise covered by the Federal aid.
The Governor has
C-1
<PAGE>
proposed to cover $1.05 billion of relief costs from a general obligation bond
issue, but that proposal was rejected by California voters in June 1994. The
Governor subsequently announced that funds earmarked for other projects would be
used for earthquake relief.
On December 7, 1994, Orange County, California (the "County"), together with
its pooled investment fund (the "Fund") filed for protection under Chapter 9 of
the Federal Bankruptcy Code, after reports that the Fund had suffered
significant market losses in its investments caused a liquidity crisis for the
Fund and the County. More than 180 other public entities, most but not all
located in the County, were also depositors in the Fund. As of December 13,
1994, the County estimated the Fund's loss at about $2 billion, or 27% of its
initial deposits of around $7.4 billion. These losses could increase as the
County sells investments to restructure the Fund, or if interest rates rise.
Many of the entities which kept moneys in the Fund, including the County, are
facing cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. The County and some of these
entities have, and others may in the future, default in payment of their
obligations. Moody's and S&P have suspended, reduced to below investment grade
levels, or placed on "Credit Watch" various securities of the County and the
entities participating in the Fund. As of December 1994, the Portfolio did not
hold any direct obligations of the County. However, the Portfolio did hold bonds
of some of the governmental units that had money invested with the County; the
impact of the loss of access to these funds, the loss of expected investment
earnings and the potential loss of some of the principal invested is not known
at this point. There can be no assurances that these holdings will maintain
their current ratings and/or liquidity in the market.
In early June 1995, the County filed a proposal with the bankruptcy court
that would require holders of the County's short-term notes to wait one-year
before being repaid. The existence of this proposal and its adoption could
disrupt the market for short-term debt in California and possibly drive up the
State's borrowing costs. On June 27, 1995 the voters in Orange Country rejected
a proposed one half cent increase in the sales tax, the revenues from which
would have been used to help the County emerge from bankruptcy. The failure of
this measure increases the likelihood that the County will default on some of
their obligations and, more broadly, could have a negative impact on the
perceived credit quality of municipal obligations throughout California.
Although the State of California has no obligation with respect to any
obligations or securities of the County or any of the other participating
entities, under existing legal precedents, the State may be obligated to ensure
that school districts have sufficient funds to operate. Longer term, this
financial crisis could have an adverse impact on the economic recovery that has
only recently taken hold in Southern California.
California voters have approved a series of amendments to the California
State constitution which have imposed certain limits on the taxing and spending
powers of the State and local governments. While the State legislature has, in
the past, enacted legislation designed to assist California issuers in meeting
their debt service obligations, other laws limiting the State's authority to
provide financial assistance to localities have also been enacted. Because of
the uncertain impact of such constitutional amendments and statutes, the
possible inconsistencies in their respective terms and the impossibility of
predicting the level of future appropriations and applicability of related
statutes to such questions, it is not currently possible to assess the impact of
such legislation and policies on the ability of California issuers to pay
interest or repay principal on their obligations.
C-2
<PAGE>
As a result of the significant economic and fiscal problems described above,
the State's debt has been downgraded by all three rating agencies from Aa to A1
by Moody's, from A+ to A by S&P, and from AA to A by Fitch.
MASSACHUSETTS. In recent years, the Commonwealth has experienced a
significant economic slowdown, and has experienced shifts in employment from
labor-intensive manufacturing industries to technology and service-based
industries. The unemployment rate was 5.3% as of October 1995, while the
national unemployment rate was 5.5%.
Effective July 1, 1990, limitations were placed on the amount of direct
bonds the Commonwealth could have outstanding in a fiscal year, and the amount
of the total appropriation in any fiscal year that may be expended for debt
service on general obligation debt of the Commonwealth (other than certain debt
incurred to pay the fiscal 1990 deficit and certain Medicaid reimbursement
payments for prior years and refunding bonds) was limited, for each subsequent
fiscal year, to 105% of the previous year's limit. In addition, the power of
Massachusetts cities and towns and certain tax-supported districts and public
agencies to raise revenue from property taxes to support their operations,
including the payment of debt service, is limited. Property taxes are virtually
the only source of tax revenues available to cities and towns to meet local
costs. This limitation on cities and towns to generate revenues could create a
demand for increases in state-funded local aid. Fiscal 1995 expenditures for
direct Local Aid were $2.976 billion, which is an increase of approximately 9.1%
above the fiscal 1994 level. It is estimated that fiscal 1996 expenditures for
direct Local Aid will be $3.242 billion, which is an increase of approximately
8.9% above the fiscal 1995 level.
General obligations of Massachusetts are rated A1, A+ and A+ by Moody's, S&P
and Fitch, respectively.
NEW YORK. New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a comparatively small share of the
nation's farming and mining activity. However, as the result of a recession
ending in the first quarter of 1993, 560,000 jobs were lost statewide (equal to
6.7% of the peak employment figure for 1989). Although the State has added
approximately 185,000 jobs since November 1992, employment growth in the State
has been hindered during recent years by significant cutbacks in the computer,
manufacturing, defense and banking industries. New York's economy expanded
modestly during 1995, but grew at a rate slower than the nation as a whole. In
the 1992-1993 fiscal year, however, the State began the process of financial
reform. The State Financial Plans for the 1992-1993, 1993-1994 and 1994-1995
fiscal years produced positive fund balances at the end of all three fiscal
years.
The fiscal stability of New York State is related, at least in part, to the
fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State. In some cases, the State has had to
provide special assistance in recent years to enable such agencies, authorities
and localities to meet their financial obligations and, in some cases, to
prevent or cure defaults. To the extent State agencies and local governments
require State assistance to meet their financial obligations, the ability of the
State to meet its own obligations as they become due or to obtain additional
financing could be adversely affected.
C-3
<PAGE>
Like the State, New York City has experienced financial difficulties in
recent years and continues to experience such difficulties owing, in part, to
lower than anticipated revenues. Because New York City taxes comprise
approximately 40% of the State's tax base, the City's difficulties adversely
affect the State.
In June 1995, the Governor approved the 1995-1996 budget, which included
adoption of a three-year 20% reduction in the State's personal income tax. In
combination with business tax reductions enacted in 1994, State taxes will be
reduced by $5.5 billion by the 1997-1998 fiscal year. The 1995-1996 State
Financial Plan, based on the enacted 1995-1996 budget, includes gap-closing
action to offset a projected gap of $5 billion, the largest in the State's
history.
The Governor has submitted the 1997 budget early, hoping the State
legislature will approve it prior to the beginning of the fiscal year. The 1997
budget has an operating gap and measures will need to be enacted in order to
close that gap. There can be no assurances that a balanced budget will be
adopted.
Constitutional challenges to State laws have limited the amount of taxes
which political subdivisions can impose on real property, which may have an
adverse effect on the ability of issuers to pay obligations supported by such
taxes. A variety of additional court actions have been brought against the State
and certain agencies and municipalities relating to financings, amount of real
estate tax, use of tax revenues and other matters which could adversely affect
the ability of the State or such agencies or municipalities to pay their
obligations.
New York's general obligations are rated A, A- and A+ by Moody's, S&P and
Fitch, respectively. S&P currently assesses the rating outlook for New York
obligations as "positive." New York City obligations are rated Baa1, BBB+ and A-
by Moody's, S&P and Fitch, respectively. On July 10, 1995, S&P revised downward
its rating on City general obligation bonds from A- to BBB+ and removed City
bonds from CreditWatch. S&P stated that the downgrade was a reflection of the
City's inability to eliminate a structural budget imbalance due to persistent
softness in the City's economy, weak job growth, a trend of using nonrecurring
budget devices, optimistic projections of state and federal aid and high levels
of debt service.
OHIO. The State's 1994-1995 biennium ended June 30, 1995 with a General
Revenue Fund balance of $928 million, of which $535.2 million has been
transferred into the Budget Stabilization Fund (a cash and budgetary mangement
fund, which had a January 4, 1996 balance of over $828 million).
General obligations of Ohio are rated Aa and AA by S&P and Moody's,
respectively (except that highway obligations are rated Aaa by S&P). Fitch does
not currently rate the State's general obligations.
PUERTO RICO, GUAM AND THE U.S. VIRGIN ISLANDS. The economy of Puerto Rico is
dominated by the manufacturing and service sectors. Although the economy of
Puerto Rico expanded significantly from fiscal 1984 through fiscal 1990, the
rate of this expansion slowed during fiscal years 1991, 1992 and 1993. Growth in
fiscal 1994 will depend on several factors, including the state of the U.S.
economy and the relative stability in the price of oil, the exchange rate of the
U.S. dollar and the cost of borrowing. Although the Puerto Rico unemployment
rate has declined substantially since 1985, the seasonally adjusted unemployment
rate for June 1995 was approximately 13.9%. The North American Free Trade
Agreement (NAFTA), which became effective January 1, 1994, could lead to the
loss of Puerto Rico's lower salaried or labor intensive jobs to Mexico. The
federal budget proposals currently being considered
C-4
<PAGE>
by the U.S. Congress include the elimination of Section 936, a federal tax
credit program credited with encouraging economic development in Puerto Rico.
The fate of Section 936 cannot be determined at this time. There can be no
assurance that the elimination of the credit available under Section 936 will
not have a negative impact on Puerto Rico's economy and the credit quality (and
value) of Puerto Rican bonds.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it
Baa1; these ratings have been in place since 1956 and 1976, respectively. S&P
assigned a stable outlook on Puerto Rico on April 26, 1994.
C-5
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
(the Company)
CMIA NATIONAL MUNICIPALS ACCOUNT
CMIA CALIFORNIA MUNICIPALS ACCOUNT
CMIA MASSACHUSETTS MUNICIPALS ACCOUNT
CMIA NEW YORK MUNICIPALS ACCOUNT
CMIA OHIO MUNICIPALS ACCOUNT
140 Garden Street
Hartford, Connecticut 06154
1-800-322-CMIA
STATEMENT OF ADDITIONAL INFORMATION
January 28, 1996
This Statement of Additional Information (Part B of the
Registration Statement) is not a prospectus, but should be read in
conjunction with the Company's Prospectus offering the Accounts,
also dated January 28, 1996. A copy of the Prospectus can be
obtained free of charge by calling or writing the Company at the
number or address noted above.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Investment Objectives and Policies..................... 2
2. Investment Restrictions ............................... 13
3. Management............................................. 19
4. Investment Adviser..................................... 29
5. Administrator and Account Expenses..................... 34
6. Distribution Arrangements.............................. 35
7. Distribution Financing Plan............................ 35
8. Determination of Net Asset Value....................... 37
9. Purchase and Redemption of Shares...................... 39
10. Investment Performance................................. 40
11. Taxes.................................................. 46
12. Portfolio Security Transactions........................ 52
13. Custodian.............................................. 55
14. Independent Certified Public Accountants............... 56
15. Other Information...................................... 56
16. Financial Statements................................... 56
17. Appendix A............................................. A-1
18. Appendix B............................................. B-1
</TABLE>
____________________
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF
PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Connecticut Mutual Investment Accounts, Inc. (the Company) is
an open-end management investment company consisting of thirteen
separate accounts. This Statement of Additional Information
relates to the following five accounts: CMIA National Municipals
Account, CMIA California Municipals Account, CMIA Massachusetts
Municipals Account, CMIA New York Municipals Account and CMIA Ohio
Municipals Account (the Accounts). The investment objective of
each of the Accounts is set forth in the Prospectus of the
Accounts dated January 28, 1996. Each Account seeks to meet its
investment objective by investing substantially all of its assets
in a separate registered investment company (Portfolio) with
substantially the same investment objective and policies as the
Account. A further description of certain of the policies
described in the Prospectus is set forth below. Appendix A
contains additional information about the particular municipal
securities of the respective states and other investments that
comprise each Portfolio's investment portfolio. SHARES OF THE
ACCOUNTS ARE AVAILABLE FOR PURCHASE ONLY BY EXISTING SHAREHOLDERS
AND FOR DIVIDEND REINVESTMENT.
ACCOUNT/PORTFOLIO STRUCTURE. Each Account currently seeks to
achieve its investment objective by investing in its corresponding
Portfolio, which has substantially the same investment objective
and investment policies as the Account. Each corresponding
Portfolio is a registered investment company organized as a trust
under the laws of the State of New York and conducts its
investment activities under the supervision of a Board of
Trustees. The Directors of the Company may withdraw an Account's
investment from its corresponding Portfolio at any time, if they
determine that it is in the best interests of the Account to do
so. Upon any such withdrawal, the Account's assets would be
invested in another investment company with substantially the same
investment objective and policies as those of the Account or
directly in investment securities in accordance with the
investment policies described in the Prospectus and below. The
approval of an Account's shareholders would not be required to
change its corresponding Portfolio's investment objective or any
of the Portfolio's other investment policies discussed below,
including those concerning security transactions. Any change to
the investment objective of an Account or a Portfolio must be
approved by the Directors of the Company or the Trustees of the
Portfolio, as the case may be, and shareholders will be given 30
days' advance written notice of such a change.
MUNICIPAL OBLIGATIONS. Municipal obligations are debt obligations
issued by or on behalf of states, territories and possessions of
the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities to obtain funds for
-2-
<PAGE>
various public and private purposes. The interest on most
municipal obligations is exempt from both regular federal income
tax and, generally, state personal income taxes, if any, of the
state in which the issuer of the obligation is located. In
assessing the federal income tax treatment of interest on any such
obligation, each Portfolio will generally rely on an opinion of
counsel obtained by the issuer and will not undertake any
independent verification of the basis for the opinion. Such bonds
are issued to obtain funds for various public and private
purposes. See Appendix A for other information about the
associated risks of a particular state in which a Portfolio may
invest. Obligations of the respective state in which a Portfolio
may invest include 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. The two principal classifications of municipal bonds are
"general obligation" and "revenue" bonds.
Market discount on long-term tax-exempt municipal obligations
(i.e., obligations with a term of more than one year) purchased in
the secondary market after April 30, 1993 is taxable as ordinary
income. A long-term debt obligation is generally treated as
acquired at a market discount if the secondary market purchase
price is less than (i) the stated principal amount payable at
maturity, in the case of an obligation that does 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 minimus amount.
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.
The principal security for a revenue bond is generally 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
-3-
<PAGE>
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 obligations or certificates 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
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.
Each Portfolio 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 such warrants
or rights are exercised, each Portfolio anticipates that it would,
under normal circumstances, dispose of any equity securities so
acquired within a reasonable period of time.
Some municipal bonds are additionally secured by insurance,
bank credit agreements, or escrow accounts.
While most municipal bonds pay a fixed rate of interest
semi-annually in cash, there are exceptions. Variable rate
instruments provide for adjustments in the interest rate at
specified intervals (weekly, monthly, semi-annually, etc.). The
revised rates are usually set at the issuer's discretion, in which
case the investor normally enjoys the right to "put" the security
back to the issuer or his agent. Rate revisions may alternatively
be determined by formula or in some other contractual fashion.
Some bonds pay no periodic cash interest, but rather make a single
payment at maturity representing both principal and interest.
Bonds may be issued or subsequently offered with interest coupons
materially greater or less than those then prevailing, with price
adjustments reflecting such deviation.
Most municipal bonds have a fixed final maturity date.
However, it is commonplace for the issuer to reserve the right to
call the bond earlier. Also, some bonds may have "put" or
"demand" features that allow early redemption by the bondholder.
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Interest income a Portfolio receives from certain bonds having
"put" or "demand" features may not qualify as tax-exempt interest.
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. Each Portfolio 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 a Portfolio's
investment adviser) to evaluate or protect any real estate,
facilities or other assets securing any such obligation or
acquired by a Portfolio as a result of any such event, and a
Portfolio may also manage (or engage other persons to manage) or
otherwise deal with any real estate, facilities or other assets so
acquired. Each Portfolio 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 a Portfolio. Each Portfolio will incur
additional expenditures in taking protective action with respect
to portfolio obligations in default and assets securing such obli-
gations.
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 Investors Services, Inc. (Moody's), Standard &
Poor's Ratings Group (S&P) and Fitch Investors Service, Inc.
(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
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changes in interest rates, and therefore the net asset value of
the Portfolio will be affected by such changes.
Each Portfolio may, from time to time, purchase bond
insurance for uninsured bonds it currently holds in order to
enhance the value of the security, whether for purposes of selling
or holding said bond.
HIGH YIELD/HIGH RISK MUNICIPAL OBLIGATIONS. Municipal obligations
which are rated below Baa by Moody's or BBB by either S&P or by
Fitch and comparable unrated obligations are high yield/high risk
obligations commonly referred to as junk bonds. High yield
obligations may provide greater opportunities for investment
income and higher yield than investment grade obligations but are
subject to risks not generally associated with an investment in
investment grade obligations. The National, Massachusetts, New
York, California and Ohio Portfolios may invest up to 35%, 30%,
30%, 25% and 20%, respectively, of their total assets in high
yield obligations. High yield obligations are subject to risks
not generally associated with an investment in investment grade
bonds. The market for high yield obligations is relatively new
and has not been exposed for a long period of time to the effects
of cyclical and sometimes adverse changes in the economy. The
prices of high yield obligations have been less sensitive to
interest rate changes than higher rated investments, but are more
sensitive to adverse economic changes or individual corporate
developments. During an economic downturn or substantial period
of rising interest rates, issuers may experience financial stress
that adversely affects their ability to meet principal and
interest payment obligations. If an issuer of a high yield
obligation defaults, a Portfolio may incur additional expense to
seek recovery of its investment. High yield obligations may
contain redemption or call provisions that, if exercised, may
require the Portfolio to replace the security with a lower
yielding security, resulting in a decreased return for investors.
The market for high yield obligations is likely to be less liquid
than the market for higher rated obligations and a Portfolio's
investment adviser's judgment may play a greater role in the
valuation of high yield obligations. Market conditions may
restrict the availability of high yield obligations and may affect
the choice of securities to be sold when a Portfolio attempts to
meet redemption requests.
Each Portfolio is dependent on its investment adviser's
judgment, analysis and experience in evaluating the quality of
high yield obligations. In evaluating the credit quality of a
particular issue, whether rated or unrated, the investment adviser
will normally take into consideration, among other things, the
financial resources of the issuer (or, as appropriate, of the
underlying source of funds for debt service), its sensitivity to
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economic conditions and trends, any operating history of and the
community support for the facility financed by the issue, the
ability of the issuer's management and regulatory matters. The
investment adviser will attempt to reduce the risks of investing
in high yield obligations through active portfolio management,
credit analysis and attention to current developments and trends
in the economy and the financial markets.
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 taking place within a
specified number of days after the date of a Portfolio's
commitment and are subject to certain conditions such as the
issuance of satisfactory legal opinions. Each Portfolio 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 Portfolio to buy such securities on a
settlement date that could be several months or several years in
the future.
Each Portfolio 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 a Portfolio enters into
the purchase commitment. Each Portfolio's custodian will
segregate cash or high grade liquid debt securities in a separate
account of the Portfolio in an amount at least equal to the
when-issued commitments. If the value of the securities placed in
the separate account declines, additional cash or high grade
liquid debt securities will be placed in the account on a daily
basis so that the value of the account will at least equal the
amount of the Portfolio's when-issued commitments. When a
Portfolio 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 a Portfolio 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 a Portfolio remains substantially fully invested at the same
time that it has purchased securities on a when-issued basis,
there will be greater fluctuations in the Portfolio's net asset
value than if it solely set aside cash to pay for when-issued
securities.
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VARIABLE RATE OBLIGATIONS. Each Portfolio may purchase variable
rate obligations. Variable rate instruments provide for
adjustments in the interest rate at specified intervals (weekly,
monthly, semi-annually, etc.). The revised rates are usually set
at the issuer's discretion, in which case the investor normally
enjoys the right to "put" the security back to the issuer or his
agent. Rate revisions may alternatively be determined by formula
or in some other contractual fashion. Variable rate obligations
normally provide that the holder can demand payment of the
obligation on short notice at par with accrued interest and are
frequently secured by letters of credit or other credit support
arrangements provided by banks. To the extent that such letters
of credit or other arrangements constitute an unconditional
guarantee of the issuer's obligations, a bank may be treated as
the issuer of a security for the purpose of complying with the
diversification requirements set forth in Section 5(b) of the
Investment Company Act of 1940, as amended (Investment Company
Act), and Rule 5b-2 thereunder. A Portfolio would anticipate
using these obligations as cash equivalents pending longer term
investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES. Most municipal bonds have a
fixed final maturity date. However, it is commonplace for the
issuer to reserve the right to call the bond earlier. Also, some
bonds may have "put" or "demand" features that allow early
redemption or sale 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
(protecting to some degree against a rise in interest rates) while
providing greater opportunity than comparable intermediate term
bonds, since a Portfolio may retain the bond if interest rates
decline. By acquiring these kinds of obligations a Portfolio
obtains the contractual right to require the issuer of the
security or some other person (other than a broker or dealer) to
purchase the security at an agreed upon price, which right is
contained in the obligation itself rather than in a separate
agreement with the seller or some other person. Since this right
is assignable with the security, which is readily marketable and
valued in the customary manner, the Portfolio will not assign any
separate value to such right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS. Each Portfolio may also
enter into a separate agreement with the seller of the security or
some other person granting a Portfolio the right to put the
security to the seller thereof or the other person at an agreed
upon price. Each Portfolio intends to limit this type of
transaction to institutions (such as banks or securities dealers)
which a Portfolio's investment adviser believes present minimal
credit risks and would engage in this type of transaction to
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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 a Portfolio or that
selling institutions or others will be willing to permit the
Portfolio to exercise a put to hedge against rising interest
rates. Interest income generated by certain bonds held subject to
"put" features may not qualify as tax-exempt interest in the hands
of a Portfolio. A separate put option may not be marketable or
otherwise assignable, and sale of the security to a third party or
lapse of time with the put unexercised may terminate the right to
exercise the put. The Portfolios do 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 a Portfolio 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.
FUTURES CONTRACTS. A change in the level of interest rates may
affect the value of the securities held by a Portfolio (or of
securities that the Portfolio expects to purchase). To hedge
against changes in rates, each Portfolio may enter into
(i) futures contracts for the purchase or sale of debt securities,
(ii) futures contracts on securities indices and (iii) futures
contracts on other financial instruments and indices. All futures
contracts entered into by a Portfolio 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.
FUTURES ON DEBT SECURITIES. A futures contract on a debt
security is a binding contractual commitment which, if held to
maturity, will result in an obligation to make or accept delivery,
during a particular month, of securities having a standardized
face value and rate of return. By purchasing futures on debt
securities, a Portfolio will legally obligate itself to accept
delivery of the underlying security and pay the agreed price; by
selling futures on debt securities, it will legally obligate
itself to make delivery of the security against payment of the
agreed price. Open futures positions on debt securities are
valued at the most recent settlement price, unless such price does
not reflect the fair value of the contract, in which case the
positions will be valued by or under the direction of the Trustees
of the Portfolio.
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Positions taken in the futures markets for debt securities
are not normally held to maturity, but are instead liquidated
through offsetting transactions which may result in a profit or a
loss. While futures positions on debt securities taken by a
Portfolio will usually be liquidated in this manner, a Portfolio
may instead make or take delivery of the underlying securities
whenever it appears economically advantageous for the Portfolio to
do so. A clearing corporation associated with the exchange on
which futures on debt securities are traded guarantees that, if
still open, the sale or purchase will be performed on the
settlement date.
FUTURES CONTRACTS ON SECURITIES INDICES. Futures contracts
on securities or other indices do not require the physical
delivery of securities, but merely provide for profits and losses
resulting from changes in the market value of a contract to be
credited or debited at the close of each trading day to the
respective accounts of the parties to the contract. On the
contract's expiration date a final cash settlement occurs and the
futures position is simply closed out. Changes in the market
value of a particular futures contract reflect changes in the
level of the index on which the futures contract is based.
HEDGING STRATEGIES. Hedging by use of futures contracts
seeks to establish more certainly than would otherwise be possible
the effective rate of return on portfolio securities or securities
that a Portfolio proposes to acquire. A Portfolio may, for
example, take a "short" position in the futures market by selling
futures contracts in order to hedge against an anticipated rise in
interest rates that would adversely affect the value of the
securities held by the Portfolio. Such futures contracts may
include contracts for the future delivery of debt securities held
by the Portfolio or debt securities with characteristics similar
to those of the securities held by the Portfolio. If, in the
opinion of a Portfolio's investment adviser, there is a sufficient
degree of correlation between price trends for the securities held
by the Portfolio and futures contracts based on other financial
instruments, securities indices or other indices, the Portfolio
may also enter into such futures contracts as part of its hedging
strategy. Although under some circumstances prices of securities
held by a Portfolio may be more or less volatile than prices of
such futures contracts, the investment adviser will attempt to
estimate the extent of this difference in volatility based on
historical patterns and to compensate for it by having the
Portfolio enter into a greater or lesser number of futures
contracts or by attempting to achieve only a partial hedge against
price changes affecting the securities held by the Portfolio.
When hedging of this character is successful, any depreciation in
the value of portfolio securities will be substantially offset by
appreciation in the value of the futures position.
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On other occasions, a Portfolio may take a "long" position by
purchasing such futures contracts. This would be done, for
example, when the Portfolio anticipates the subsequent purchase of
particular securities when it has the necessary cash, but expects
the prices then available in the securities market to be less
favorable than the prices that are currently available.
OPTIONS ON FUTURES CONTRACTS. Each Portfolio 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. An
option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time during the
option period. Upon exercise of the option, the writer of the
option is obligated to convey the appropriate futures position to
the holder of the option. If an option is exercised on the last
trading day before the expiration date of the option, a cash
settlement will be made in an amount equal to the difference
between the closing price of the futures contract and the exercise
price of the option.
Each Portfolio may use options on futures contracts solely
for BONA FIDE hedging purposes as defined below subject to the
limitations imposed by CFTC regulations. If a Portfolio purchases
a call (put) option on a futures contract it benefits from any
increase (decrease) in the value of the futures contract, but is
subject to the risk of decrease (increase) in value of the futures
contract. The benefits received are reduced by the amount of the
premium and transaction costs paid by the Portfolio for the
option. If market conditions do not favor the exercise of the
option, the Portfolio's loss is limited to the amount of such
premium and transaction costs paid by the Portfolio for the
option.
If a Portfolio writes a call (put) option on a futures
contract, the Portfolio receives a premium but assumes the risk of
a rise (decline) in value in the underlying futures contract. If
the option is not exercised, the Portfolio gains the amount of the
premium, which may partially offset unfavorable changes in the
value of securities held or to be acquired for the Portfolio. If
the option is exercised, the Portfolio will incur a loss, which
will be reduced by the amount of the premium it receives.
However, depending on the degree of correlation between changes in
the value of its portfolio securities and changes in the value of
futures positions, the Portfolio's losses from writing options on
futures may be partially offset by favorable changes in the value
of portfolio securities or in the cost of securities to be
acquired.
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The holder or writer of an option on a futures contract may
terminate its position by selling or purchasing an offsetting
option of the same series. There is no guarantee that such
closing transactions can be effected. A Portfolio's ability to
establish and close out positions on such options will be subject
to the development and maintenance of a liquid market.
LIMITATIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS. Each Portfolio will engage in futures and related
options transactions for BONA FIDE hedging purposes as defined in
or permitted by CFTC regulations. Each Portfolio 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 a Portfolio or which it
expects to purchase. The Portfolio's futures transactions will be
entered into for traditional hedging purposes, that is, futures
contracts will be sold to protect against a decline in the price
of securities that the Portfolio owns, or futures contracts will
be purchased to protect the Portfolio against an increase in the
price of securities it intends to purchase. As evidence of this
hedging intent, the Portfolio expects that on 75% or more of the
occasions on which it takes a long futures (or option) position
(involving the purchase of futures contracts), the Portfolio will
have purchased, or will be in the process of purchasing,
equivalent amounts of related securities in the cash market at the
time when the futures (or option) position is closed out.
However, in particular cases, when it is economically advantageous
for the Portfolio to do so, a long futures position may be
terminated (or an option may expire) without the corresponding
purchase of securities. Each Portfolio will engage in
transactions in futures and related options contracts only to the
extent such transactions are consistent with the requirements of
the Internal Revenue Code for maintaining the qualification of the
corresponding Account as a regulated investment company for
federal income tax purposes.
Each Portfolio 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 a
Portfolio's custodian for the benefit of the futures commission
merchant through whom the Portfolio engages in such futures and
options transactions. Cash or liquid high grade debt securities
required to be segregated in connection with a "long" futures
position taken by a Portfolio will also be held by the custodian
in a segregated account and will be marked to market daily.
SECURITIES LENDING. Each Portfolio may lend its portfolio
securities. A Portfolio lending its securities would have the
right to call a loan and obtain the securities loaned at any time
on up to five business days' notice. During the existence of a
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loan, the Portfolio will continue to receive the equivalent of the
interest paid by the issuer on the securities loaned and will also
receive a fee, or all or a portion of the interest on investment
of the collateral, if any. However, the Portfolio may pay lending
fees to such borrowers. The Portfolio would not have the right to
vote any securities having voting rights during the existence of
the loan, but would call the loan in anticipation of an important
vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the
investment. As with other extensions of credit there are risks of
delay in recovery or even loss of rights in the securities loaned
if the borrower of the securities fails financially. However, the
loans will be made only to organizations deemed by the Portfolio's
management to be of good standing and when, in the judgment of the
Portfolio's management, the consideration which can be earned from
securities loans of this type justifies the attendant risk.
Distributions by an Account of any income realized by a Portfolio
from securities loans will be taxable. None of the Portfolios
have any present intention of engaging in securities lending.
PORTFOLIO TURNOVER. The Portfolios cannot accurately predict
their portfolio turnover rate from year to year, but it is
anticipated that each Portfolio's annual turnover rate will
generally not exceed 100% (excluding turnover of securities having
a maturity of one year or less). A 100% annual turnover rate
would occur, for example, if all the securities held by the
Portfolio were replaced once in a period of one year. A high
turnover rate (100% or more) necessarily involves greater expenses
to the Portfolio. Each Portfolio engages in portfolio trading
(including short-term trading) when the investment adviser
believes that a transaction including all costs will help in
achieving the Portfolio's investment objective.
For the fiscal year ended September 30, 1995, the portfolio
turnover rate for each of the Portfolios was as follows: National
Portfolio (54%), California Portfolio (58%), Massachusetts
Portfolio (87%), New York Portfolio (55%) and Ohio Portfolio
(51%).
INVESTMENT RESTRICTIONS
The following investment restrictions are designated as
fundamental and as such cannot be changed without the approval of
the holders of a majority of the affected Account's outstanding
voting securities which, as used in this Statement of Additional
Information, means the lesser of (a) 67% of the shares of the
affected Account present or represented by proxy at a meeting if
the holders of more than 50% of the shares are present or
represented at the meeting or (b) more than 50% of the shares of
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the affected Account. Notwithstanding the investment policies and
the fundamental and non-fundamental investment restrictions of
Accounts, each Account may invest all or part of its investable
assets in an open-end management investment company with
substantially the same investment objective and policies as such
Account.
Accordingly, the National Account will not:
(1) Purchase securities on margin (but the Account may
obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities). The deposit or
payment by the Account of initial or maintenance margin in
connection with futures contracts or related options transactions
is not considered the purchase of a security on margin;
(2) Make short sales of securities or maintain a short
position, unless at all times when a short position is open the
Account owns an equal amount of such securities or 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, and unless not more than 25%
of the Account's net assets (taken at current value) is held as
collateral for such sales at any one time. (Each Account will
make such sales only for the purpose of deferring realization of
gain or loss for federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at
the time thereof, would cause more than 10% of the total
outstanding voting securities of such issuer to be held by the
Account;
(4) Underwrite or participate in the marketing of securities
of others, except insofar as it may technically be deemed to be an
underwriter in:
(i) selling a portfolio security under circumstances
which may require the registration of the same under the
Securities Act of 1933;
(ii) investing all or part of its investable assets in an
open-end management investment company with substantially the same
investment objective, policies and restrictions as the Account and
issuing its own shares representing a pro rata interest in the
securities of such other investment company owned by it; or
(iii) participating on a joint or a joint and several
basis in any trading account in securities;
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(5) Lend any of its funds or other assets to any person,
directly or indirectly, except (i) through repurchase agreements
or (ii) through the loan of a portfolio security. (The purchase
of a portion of an issue of debt obligations, whether or not the
purchase is made on the original issuance, is not considered the
making of a loan);
(6) Borrow money or pledge its assets in excess of 1/3 of
the value of its assets (including the amount borrowed) and then
only if such borrowing is incurred as a temporary measure for
extraordinary or emergency purposes or to facilitate the orderly
sale of portfolio securities to accommodate redemption requests;
or issue securities other than its shares of common stock, except
as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Account is permitted to incur.
The Account will not purchase securities while outstanding
temporary bank borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that
the Account may increase its interest in an open-end management
investment company with substantially the same investment
objective, policies and restrictions as the Account while such
borrowings are outstanding. The deposit of cash, cash equivalents
and liquid debt securities in a segregated account with the
custodian and/or with a broker in connection with futures
contracts or related options transactions and the purchase of
securities on a "when-issued" basis is not deemed to be a pledge;
(7) Invest for the purpose of exercising control or manage-
ment of other companies;
(8) Purchase or sell real estate, although it may purchase
and sell securities which are secured by real estate and
securities of companies which invest or deal in real estate and
may hold or sell real estate acquired as a result of its ownership
of a security secured by such real estate;
(9) Purchase or sell physical commodities or contracts for
the purchase or sale of physical commodities;
(10) With respect to 75% of its respective total assets,
purchase any security (other than U.S. Government securities) if
such purchase, at the time thereof, would cause more than 5% of
the total assets of the National Account (taken at market value)
to be invested in the securities of a single issuer.
The California Account, the Massachusetts Account, the New
York Account and the Ohio Account will not:
(1) Purchase securities on margin (but an Account may obtain
such short-term credits as may be necessary for the clearance of
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purchases and sales of securities). The deposit or payment by an
Account of initial or maintenance margin in connection with
futures contracts or related options transactions is not
considered the purchase of a security on margin;
(2) Underwrite or participate in the marketing of securities
of others, except insofar as it may technically be deemed to be an
underwriter in:
(i) selling a portfolio security under circumstances
which may require the registration of the same under the
Securities Act of 1933; or
(ii) investing all or part of its investable assets in an
open-end management investment company with substantially the same
investment objective, policies and restrictions as the Account and
issuing its own shares representing a pro rata interest in the
securities of such other investment company owned by it;
(3) Make loans to any person except by (a) the acquisition
of debt instruments and making portfolio investments, (b) entering
into repurchase agreements and (c) lending portfolio securities;
(4) Borrow money or issue senior securities except as
permitted by the Investment Company Act of 1940;
(5) Purchase or sell real estate (including limited
partnership interests in real estate, but excluding readily
marketable interests in real estate investment trusts or readily
marketable securities of companies which invest or deal in real
estate or securities which are secured by real estate) (not
applicable to the Massachusetts Account); and
(6) Purchase or sell physical commodities or contracts for
the purchase or sale of physical commodities.
The Massachusetts Account will not:
(7) Purchase or sell real estate, although it may purchase
and sell securities which are secured by real estate and
securities of companies which invest or deal in real estate and
may hold or sell real estate acquired as a result of its ownership
of a security secured by such real estate.
Each Portfolio has adopted fundamental investment
restrictions which are substantially similar to the foregoing
investment restrictions adopted by its corresponding Account; such
restrictions cannot be changed without the approval of a majority
of the outstanding voting securities of the affected Portfolio.
Whenever an Account is requested to vote on a change in the
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investment restrictions of its corresponding Portfolio (or such
Portfolio's 80% investment policy with respect to municipal
obligations described under "The Company in Detail -- Investment
Objective and Policies" in the Prospectus), such Account will hold
a meeting of its own shareholders and will cast its vote as
instructed by such shareholders.
For purposes of each Portfolio's investment restrictions, the
determination of the "issuer" of a municipal obligation which is
not a general obligation bond will be made by a Portfolio's
investment 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.
Each Account has adopted the following non-fundamental
investment restrictions. Non-fundamental restrictions of each
Account may be changed by the Company's Board of Directors without
approval by that Account's shareholders. Each Portfolio has
adopted non-fundamental restrictions that are similar to the
following restrictions. Non-fundamental restrictions of each
Portfolio may be changed by the Board of Trustees of such
Portfolio without the approval of the corresponding Account or the
Portfolio's other investors.
Each Account will not:
(a) Invest more than 15% of net assets in investments which
are not readily marketable, including restricted securities and
repurchase agreements maturing in more than seven days.
Restricted securities for the purposes of this limitation do not
include securities eligible for resale pursuant to Rule 144A of
the Securities Act of 1933 that the Board of Directors of the
Company or the Board of Trustees of the Portfolio, as the case may
be, or their respective delegates, determine to be liquid, based
upon the trading markets for the specific security;
(b) Purchase call options on securities. Each Account and
its corresponding Portfolio may purchase put options on municipal
obligations only if, after such purchase, not more than 5% of
their respective net assets, as measured by the aggregate of the
premiums paid for such options held by it would be so invested;
(c) Purchase or retain in its portfolio any securities
issued by an issuer any of whose officers, directors, trustees or
security holders is an officer or Director of the Company or is a
member, officer, director or trustee of any investment adviser of
an Account if, after the purchase of the securities of such issuer
by the Account, one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at
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market value) of such issuer and such persons owning more than 1/2
of 1% of such shares or securities together own beneficially more
than 5% of such shares or securities or both (all taken at market
value);
(d) Purchase oil, gas or other mineral leases or purchase
partnership interests in oil, gas or other mineral exploration or
development programs;
(e) Make short sales of securities or maintain a short
position, unless at all times when a short position is open an
Account owns an equal amount of such securities or 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, and unless not more than 25%
of an Account's net assets (taken at current value) is held as
collateral for such sales at any one time. (Each Account will
make such sales only for the purpose of deferring realization of
gain or loss for federal income tax purposes) (this restriction as
it applies to the National Account is fundamental);
(f) Buy investment securities from or sell them to any of
the officers or Directors of the Company, its investment adviser
or its underwriter, as principal; however, any such person or
concerns may be employed as a broker upon customary terms;
The Massachusetts Account, New York Account and Ohio Account
will not:
(g) Purchase securities of unseasoned issuers, including
their predecessors, which have been in operation for less than
three years, if by reason thereof the value of its aggregate
investment in such class of securities will exceed 5% of its total
assets, provided that the issuers of securities rated by Moody's,
S&P, Fitch or any other nationally recognized rating service shall
not be considered "unseasoned";
(h) Invest in warrants, valued at the lower of cost or
market, exceeding 5% of the value of its net assets. Included
within that amount, but not to exceed 2% of the value of its net
assets, may be warrants which are not listed on the New York or
American Stock Exchange. Warrants acquired by the Account or the
Portfolio in units or attached to securities may be deemed to be
without value;
The National Account will not:
(i) Purchase any options, long futures contracts, or call
options on a futures contract if at the date of such purchase net
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realized losses from such transactions during the fiscal year to
date exceed 5% of the average net assets during such period;
(j) Invest more than 5% of its total assets (taken at
current value) in obligations, except debt obligations issued by
or on behalf of states, territories and possessions of the United
States, the District of Columbia and their political subdivisions,
agencies or instrumentalities, where the payments of principal and
interest thereon is the responsibility of a company (including
predecessors) with less than three years operating history unless
such obligations are rated at the time of purchase by a nationally
recognized rating service; and
The California Account will not:
(k) Purchase securities issued by any other open-end
investment company or investment trust.
Neither the Accounts nor the Portfolios intend to enter into
reverse repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Accounts in
certain states, an Account may make commitments more restrictive
than the restrictions described above. Should an Account
determine that any such commitment is no longer in the best
interests of that Account and its shareholders, it will revoke the
commitment by terminating sales of its shares in the state(s)
involved.
MANAGEMENT
The Company's Board of Directors and the Portfolios' Boards
of Trustees provide broad supervision over the affairs of the
Company and the Portfolios, respectively. The respective officers
of the Company and the Portfolios are responsible for the
day-to-day operations of the Company and the Portfolios. The
Directors of the Company and the Trustees of the Portfolios and
the respective officers of the Company and the Portfolios 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
Director and officer of the Company is 140 Garden Street,
Hartford, Connecticut 06154; and of each Trustee and officer of
the Portfolios is 24 Federal Street, Boston, Massachusetts 02110,
which is also the address of each Portfolio's investment adviser,
Boston Management and Research (BMR) which is a wholly-owned
subsidiary of Eaton Vance Management (Eaton Vance); Eaton Vance's
parent, Eaton Vance Corp. (EVC); and of BMR's and Eaton Vance's
trustee, Eaton Vance, Inc. (EV). Eaton Vance and EV are both
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<PAGE>
wholly-owned subsidiaries of EVC. Those Directors, Trustees and
officers who are "interested persons" of the Company, the
Portfolios, BMR, Eaton Vance, EVC or EV, as defined in the 1940
Act, by virtue of their affiliation with any one or more of the
Company, the Portfolios, BMR, Eaton Vance, EVC or EV, are
indicated by an asterisk(*).
DIRECTORS AND OFFICERS OF THE COMPANY.
RICHARD H. AYERS (52), DIRECTOR
Chairman and Chief Executive Officer, The Stanley Works.
Address: The Stanley Works, 1000 Stanley Drive, New Britain,
Connecticut 06050
DAVID E.A. CARSON (61), DIRECTOR
President and Chief Executive Officer, People's Bank.
Address: People's Bank, 899 Main Street, Bridgeport, Connecticut
06604
RICHARD W. GREENE (60), DIRECTOR
Executive Vice President and Treasurer, University of Rochester.
Address: University of Rochester, Wilson Boulevard, Rochester,
New York 14627
BEVERLY L. HAMILTON (48), DIRECTOR
President, ARCO Investment Management Company (1991-Present);
Deputy Comptroller, City of New York (1987-1991).
Address: ARCO Investment Management Company, 555 South Flower
Street, Los Angeles, California 90071
DONALD H. POND, JR. (52), DIRECTOR AND PRESIDENT*
Executive Vice President, Connecticut Mutual Life Insurance
Company (CML) (1988-present).
DAVID E. SAMS, JR. (52), DIRECTOR*
President and Chief Executive Officer, CML (1993-present);
President and Chief Executive Officer, Agency Group, Capital
Holdings Corporation (1987-1993).
LINDA M. NAPOLI (38), TREASURER AND CONTROLLER*
Assistant Vice President, CML (1987-present); Associate Director,
CML (1988-1993).
LOUIS A. LACCAVOLE (46), GENERAL AUDITOR*
Vice President and General Auditor, CML (1990-Present); Assistant
Vice President and General Auditor, CML (1981-1990).
ANN F. LOMELI (39), SECRETARY*
Secretary of the Company; Corporate Secretary, CML (1988-present).
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<PAGE>
All Board members of the Company are board members of,
Mr. Pond is a board member and President of, and Ms. Lomeli is
Secretary, Ms. Napoli is Treasurer and Mr. Laccavole is General
Auditor of, Connecticut Mutual Financial Services Series Fund I,
Inc., an investment company for which G.R. Phelps & Co., Inc.
(G.R. Phelps) acts as investment adviser. As of December 31,
1995, the Directors and officers of the Company owned, in the
aggregate, less than 1% of the outstanding securities of the
Company.
COMPENSATION OF OFFICERS AND DIRECTORS. The Accounts pay no
salaries or compensation to any of their officers. The chart
below sets forth the fees paid or expected to be paid by each
Account to the Directors and certain other information:
<TABLE>
<CAPTION>
RICHARD M. DONALD E.A. RICHARD W. BEVERLY L. DONALD H. DAVID E.
AYERS CARSON GREENE HAMILTON POND, JR. SAMS, JR.
COMPENSATION
RECEIVED FROM
ACCOUNT*
<S> <C> <C> <C> <C> <C> <C>
National $7 $7 $8 $8 $0 $0
Account
California 8 8 8 7 0 0
Account
Massachusetts 0 0 1 0 0 0
Account
New York 1 1 1 1 0 0
Account
Ohio Account 1 1 1 1 0 0
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS ACCRUED
AS ACCOUNT
EXPENSE*
<S> <C> <C> <C> <C> <C> <C>
National $0 0 0 0 0 0
Account
California 0 0 0 0 0 0
Account
Massachusetts 0 0 0 0 0 0
Account
New York 0 0 0 0 0 0
Account
Ohio Account 0 0 0 0 0 0
TOTAL
COMPENSATION
FROM COMPANY
AND COMPLEX PAID
TO DIRECTORS** $13,500 $14,500 $16,500 $14,000 $0 $0
</TABLE>
______________________
* For the period from October 3, 1994 (inception) to
September 30, 1995.
** As of December 31, 1995, there were 22 investment companies in
the Complex (including the Accounts).
OTHER INFORMATION ABOUT THE COMPANY. The Company was incorporated
in Maryland on December 9, 1981. The authorized capital stock of
the Company consists of 3 billion shares of common stock, par
value $0.10 per share (Common Stock). The shares of common stock
are divided into thirteen series accounts: Connecticut Mutual
Government Securities Account (200,000,000 shares); Connecticut
Mutual Income Account (200,000,000 shares); Connecticut Mutual
Total Return Account (200,000,000 shares); Connecticut Mutual
Growth Account (200,000,000 shares); Connecticut Mutual Liquid
Account (600,000,000 shares); CMIA LifeSpan Capital Appreciation
Account (200,000,000 shares); CMIA LifeSpan Balanced Account
(200,000,000 shares); CMIA LifeSpan Diversified Income Account
(200,000,000 shares); National Municipals Account
(200,000,000 shares); California Municipals Account
(200,000,000 shares); Massachusetts Municipals Account
(200,000,000 shares); New York Municipals Account
(200,000,000 shares); and Ohio Municipals Account
(200,000,000 shares). The Board of Directors may reclassify
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<PAGE>
authorized shares to add to one or more of the accounts described
above or to add any new accounts to the Company.
CERTAIN SHAREHOLDERS. As of December 31, 1995, the following
persons held an interest in an Account equal to 5% or more of such
Account's outstanding shares:
<TABLE>
<CAPTION>
SHAREHOLDER PERCENTAGE
OWNERSHIP
<S> <C>
NATIONAL ACCOUNT
Julius & Deanna Staat, Yoakum TX 6%
Claud J. Jacobs, Yoakum, TX 8%
James A. Jones, Bettendorf, IA 11%
CALIFORNIA ACCOUNT
Frank J. Edwards IV, Houston, TX 11%
The Bernice M. Blakely Trust, Fresno, CA 17%
Frank E. Blakely Bypass Trust, Fresno, CA 34%
Archibald & Winifred Dingwall
Family Trust, Fresno, CA 13%
The Frank M. Blakely Q-Tips Trust,
Fresno, CA 17%
MASSACHUSETTS ACCOUNT
CM Life Insurance Company, Harford, CT 7%
Eugene & Jean Walsh, Tewksbury, MA 35%
Martin J. Healey, Lynn, MA 19%
Tom & Edna Cavanaugh, Carver, MA 32%
NEW YORK ACCOUNT
Salvatore J. Bellavia, Syracuse, NY 29%
Terri & Herbert Ross, Rochester, NY 7%
Arnold & Ellen Ostrower, New York, MY 17%
Shirley M. Baker, Elma, NY 9%
Robert Lang, Gloversville, NY 5%
Michael Nicoletto, Huntington, NY 6%
OHIO ACCOUNT
Hardy & Hardy Co., Lima, OH 6%
Warren & Mary Copeland, Lima, OH 21%
The Friddle Trust, Mason, OH 16%
Judith Damschroder, Lima, OH 8%
The Walborn Living Trust, Sylvania, OH 6%
Martha Lanter, Springfield, OH 5%
Lawrence H. Stookey, Jr., Sandusky, OH 5%
</TABLE>
Any shareholder with an interest in an Account exceeding 25%
of such Account's outstanding shares is deemed to be a controlling
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<PAGE>
person of such Account. As such, the exercise by a greater than
25% shareholder of his or her voting rights may diminish the
voting power of other shareholders.
As of December 31, 1995, CML and its affiliates owned shares
of certain Accounts as follows:
Connecticut Mutual Liquid Account (30,904,449 shares (41%));
Connecticut Mutual Government Securities Account (882,517 shares
(14%)); Connecticut Mutual Growth Account (1,980,905 shares
(30%)); CMIA LifeSpan Diversified Income Fund (2,078,814 shares
(90%)); CMIA LifeSpan Balanced Account (3,485,974 (91%)); CMIA
LifeSpan Capital Appreciation Account (2,590,448 shares (84%));
California Municipals Account (1,072 shares (2%)); Massachusetts
Municipals Account (1,071 shares (8%)); New York Municipals
Account (1,067 shares (3%)); and Ohio Municipals Account (1,065
shares (3%)).
CML is incorporated under the laws of the state of
Connecticut and is a wholly owned subsidiary of DHC, a holding
company. CML and its affiliates are deemed to be controlling
persons of any Account of the Company of which they own more than
25% of the shares outstanding. As such, the exercise by CML and
its affiliates of their voting rights may diminish the voting
power of other shareholders.
All shares of each Account are entitled to participate
equally in dividends and distributions declared by the Account
and, upon liquidation, in the Account's net assets remaining after
satisfaction of outstanding liabilities. Each Account's shares
are fully paid and nonassessable when issued and have no
preference, preemptive, conversion or similar rights and are
freely transferable.
Shares of the Company vote together as a class on matters
that affect the Company in substantially the same manner.
Shareholders of the Company vote together in the election of
Directors or accountants. The shares of the Company are entitled
to vote separately to approve changes in investment restrictions,
but as to matters affecting a single Account, shares of that
Account will vote separately. Shares of the Company do not have
cumulative voting rights. The Company does not intend to hold
annual meetings of shareholders unless required to do so by the
1940 Act or the Maryland statute under which the Company is
organized. Although Directors are not elected annually by the
shareholders, shareholders have under certain circumstances the
right to remove one or more Directors.
The Company's Articles of Incorporation provide that the
Directors, officers and employees of the Company may be
indemnified by the Company to the fullest extent permitted by
Maryland law. The Company's Bylaws provide that the Company shall
indemnify each of its Directors, officers and employees against
liabilities and expenses reasonably incurred by them, in
connection with, or resulting from, any claim, action, suit or
proceeding, threatened against or otherwise involving such
Director, officer or employee, directly or indirectly, by reason
of being or having been a Director, officer or employee of the
Company. The Bylaws do not authorize the Company to indemnify any
Director or officer against any liability to which he or she would
otherwise be subject by reason of or for willful misfeasance, bad
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<PAGE>
faith, gross negligence or reckless disregard of such person's
duties.
CML is the indirect parent of G.R. Phelps, the administrator
to the Accounts, and CMFS, the Accounts' distributor. CML intends
to merge with Massachusetts Mutual Life Insurance Company during
the first quarter of 1996 (the "Merger"). Subject to the
consummation of the Merger and the approval of the Accounts'
shareholders, the Board of Directors of the Company has approved
the selection of OppenheimerFunds Distributor, Inc. ("OFD") as the
principal distributor of the Accounts' shares; the amendment of
the Accounts' Rule 12b-1 distribution plans (as described below)
to permit the payment of service fees to OFD and others, including
affiliates of OFD; and twelve new directors to serve as the
Company's Board of Directors. The changes described above are
expected to occur during or at the close of the 90 day period
after the Merger is consummated.
TRUSTEES AND OFFICERS OF THE PORTFOLIOS.
DONALD R. DWIGHT (64), TRUSTEE
President of Dwight Partners, Inc. (corporate relations and
communications); Chairman of the Board, Newspapers of New England,
Inc.; Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (54), VICE PRESIDENT AND TRUSTEE*
Executive Vice President, BMR, Eaton Vance, EVC and EV, Director,
EVC and EV; Director, Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (60), TRUSTEE
Jacob H. Schiff, Professor of Investment Banking, Harvard
University Graduate School of Business Administration; Director or
Trustee of various investment companies managed by Eaton Vance or
BMR.
Address: Harvard University Graduate School of Business
Administration, Soldiers Field Road, Boston,
Massachusetts 02134
NORTON H. REAMER (60), TRUSTEE
President and Director, United Asset Management Corporation
(holding company owning institutional investment management
firms); Chairman, President and Director, The VAM Funds (mutual
funds); Director or Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
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<PAGE>
JOHN L. THORNDIKE (69), TRUSTEE
Director, Fiduciary Company Incorporated; Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), TRUSTEE
Investment Adviser and Consultant; Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
THOMAS J. FETTER (52), PRESIDENT*
Vice President, BMR, Eaton Vance and EV; President, the Portfolios
(since 1993); Officer of various investment companies managed by
Eaton Vance or BMR.
ROBERT B. MACINTOSH (38), VICE PRESIDENT*
Vice President, Eaton Vance and EV, and BMR (since 1992), Vice
President of the Portfolios (since 1993), employee of Eaton Vance
(since 1991); Portfolio Manager, Fidelity Investments (1986-1991);
Officer of various investment companies managed by Eaton Vance or
BMR.
THOMAS M. METZOLD (37), VICE PRESIDENT*
Vice President, BMR and Eaton Vance; Analyst at Eaton Vance for
high yield municipal bonds (1987-1991); Officer of various
investment companies managed by Eaton Vance or BMR.
CYNTHIA J. CLEMSON (32), VICE PRESIDENT*
Vice President, Eaton Vance and BMR (since 1993); Portfolio
Manager of the Missouri Tax Free Portfolio, Oregon Tax Free
Portfolio and Tennessee Tax Free Portfolio (each of which are
funds in the Eaton Vance fund complex) (since inception of each);
Employee of Eaton Vance since 1985.
NICOLE ANDERES (34), VICE PRESIDENT*
Vice President, BMR and Eaton Vance; Vice President and Portfolio
Manager, Lazard Freres Asset Management (1992-1994); Vice
President and manager of Municipal Research, Roosevelt & Cross
(1978-1992); Officer of various investment companies managed by
Eaton Vance or BMR.
JAMES L. O'CONNOR (50), TREASURER*
Vice President, BMR, Eaton Vance and EV; Officer of various
investment companies managed by Eaton Vance or BMR.
THOMAS OTIS (64), SECRETARY*
Vice President and Secretary, BMR; Eaton Vance, EVC and EV.
Officer of various investment companies managed by Eaton Vance or
BMR.
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<PAGE>
JANET E. SANDERS (60), ASSISTANT SECRETARY*
Vice President, BMR, Eaton Vance and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), ASSISTANT SECRETARY*
Assistant Vice President of BMR, Eaton Vance and EV (since 1994);
employee of Eaton Vance since 1993; State Regulations Supervisor,
the Boston Company (1991-1993); Registration Specialist, Fidelity
Management & Research Co. (1986-1991); Officer of various
investment companies managed by Eaton Vance or BMR.
ERIC G. WOODBURY (38) ASSISTANT SECRETARY*
Vice President of BMR, Eaton Vance and EV (since 1993); formerly
associate attorney at Dechert, Price & Rhoads and Gaston & Snow;
Officer of various investment companies managed by Eaton Vance or
BMR.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of
the Special Committee of the Board of Trustees of the Portfolios.
The Special Committee's functions include making recommendations
to the Trustees regarding the compensation of those Trustees who
are not members of the Eaton Vance organization, and making
recommendations to the Trustees regarding candidates to fill
vacancies, as and when they occur, in the ranks of those Trustees
who are not "interested persons" of the Portfolios or the Eaton
Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the
Audit Committee of the Board of Trustees of the Portfolios. The
Audit Committee's functions include making recommendations to the
Trustees regarding the selection of the independent certified
public accountants, and reviewing with such accountants and the
Treasurer of the Portfolios matters relative to accounting and
auditing practices and procedures, accounting records, internal
accounting controls, and the functions performed by the custodian
and transfer agent of the Portfolios.
The fees and expenses of those Trustees of the Portfolios who
are not members of the Eaton Vance organization are paid by the
Portfolios. The Trustees of the Portfolios also receive
additional fees in their capacities as Trustees of other
investment companies for which BMR provides investment advisory
services and for which Eaton Vance provides investment advisory,
administrative or management services.
OTHER INFORMATION ABOUT THE PORTFOLIOS. Each Portfolio's
Declaration of Trust provides that the Portfolio will terminate
120 days after the complete withdrawal of its corresponding
Account or any other investor in the Portfolio, unless either the
remaining investors, by unanimous vote at a meeting of such
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<PAGE>
investors, or a majority of the Trustees of the Portfolio, by
written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision was
adopted in order to support a Portfolio's classification as a
partnership for federal income tax purposes. Whenever the
corresponding Account as an investor in a Portfolio is requested
to vote on matters pertaining to that Portfolio (other than the
termination of the Portfolio's business, which may be determined
by the Trustees of the Portfolio without investor approval), the
corresponding Account will hold a meeting of Account shareholders
and will vote its interest in the Portfolio for or against such
matters proportionately to the instructions to vote for or against
such matters received from Account shareholders. The
corresponding Account shall vote shares for which it receives no
voting instructions in the same proportion as the shares for which
it receives voting instructions. Other investors in a Portfolio
undertake to vote their interests in the Portfolio in the same
manner. Other investors in the Portfolio may alone or
collectively acquire sufficient voting interests in the Portfolio
to control matters relating to the operation of the Portfolio,
which may require the corresponding Account to withdraw its
investment in that Portfolio or take other appropriate action.
Any such withdrawal could result in a distribution "in kind" of
portfolio securities (as opposed to a cash distribution from the
Portfolio). See "Purchase and Redemption of Shares --
Distributions in Kind." Notwithstanding the above, there are
other means for meeting shareholder redemption requests, such as
borrowing.
In accordance with each Portfolio's Declaration of Trust,
there will normally be no meetings of the investors for the
purpose of electing Trustees unless and until such time as less
than a majority of the Trustees holding office have been elected
by investors; in such an event the Trustees of the Portfolio then
in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless
removed by action of the investors in accordance with each
Portfolio's Declaration of Trust, the Trustees shall continue to
hold office and may appoint successor Trustees.
Each Portfolio's Declaration of Trust provides that no person
shall serve as a Trustee if investors holding two-thirds of the
outstanding interests have removed him from that office either by
a written declaration filed with the Portfolio's custodian or by
votes cast at a meeting called for that purpose. Each Declaration
of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the
Portfolio is required to provide assistance in communicating with
investors about such a meeting.
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<PAGE>
INVESTMENT ADVISER
Each Portfolio engages BMR as its investment adviser pursuant
to an Investment Advisory Agreement. BMR or Eaton Vance acts as
investment adviser to investment companies and various individual
and institutional clients with combined assets under management of
approximately $16 billion. Founded in 1924, Eaton Vance is one of
the nation's oldest and most experienced investment management
organizations. The Company has not retained the services of an
investment adviser on behalf of any of the Accounts because the
Company seeks to achieve the investment objective of each Account
by investing the Account's assets in its corresponding Portfolio.
Eaton Vance, its affiliates and its predecessor companies
have been managing assets of individuals and institutions since
1924 and managing 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.
BMR manages the investments and affairs of each Portfolio
subject to the supervision of the Portfolio's Board of Trustees.
BMR furnishes to each Portfolio investment research, advice and
supervision, furnishes an investment program and determines what
securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held
uninvested. The Investment Advisory Agreement requires BMR to pay
the salaries and fees of all officers and Trustees of the
Portfolio who are members of the BMR organization and all
personnel of BMR performing services relating to research and
investment activities. Each Portfolio is responsible for all
expenses not expressly stated to be payable by BMR under the
Investment Advisory Agreement, including, without implied
limitation, (i) expenses of maintaining the Portfolio and
continuing its existence, (ii) registration of the Portfolio under
the 1940 Act, (iii) commissions, fees and other expenses connected
with the acquisition, holding and disposition of securities and
other investments, (iv) auditing, accounting and legal expenses,
(v) taxes and interest, (vi) governmental fees, (vii) expenses of
issue, sale and redemption of interests in the Portfolio,
(viii) expenses of registering and qualifying the Portfolio and
interests in the Portfolio under federal and state securities laws
and of preparing and printing registration statements or other
offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of
registering and maintaining registrations of the Portfolio and of
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the Portfolio's placement agent as broker/dealer or agent under
state securities laws, (ix) expenses of reports and notices to
investors and of meetings of investors and proxy solicitations
therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership
dues, (xiii) fees, expenses and disbursements of custodians and
subcustodians for all services to the Portfolio (including without
limitation safekeeping of funds, securities and other investments,
keeping of books, accounts and records, and determination of net
asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of
transfer agents, dividend disbursing agents, investor servicing
agents and registrars for all services to the Portfolio,
(xv) expenses for servicing the accounts of investors, (xvi) any
direct charges to investors approved by the Trustees of the
Portfolio, (xvi) compensation and expenses of Trustees of the
Portfolio who are not members of BMR's organization, and
(xviii) such non-recurring items as may arise, including expenses
incurred in connection with litigation, proceedings and claims and
the obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto.
Each Portfolio pays BMR as compensation under the Investment
Advisory Agreement a monthly fee equal to the aggregate of (a) a
daily asset based fee computed by applying the annual asset rate
applicable to that portion of the Portfolio's total daily net
assets in each Category as indicated below, plus (b) a daily
income based fee computed by applying the daily income rate
applicable to that portion of the Portfolio's total daily gross
income (which portion shall bear the same relationship to the
total daily gross income on such day as that portion of the total
daily net assets in the same Category bears to the total daily net
assets on such day) in each Category as indicated below.
THE NATIONAL PORTFOLIO AND CALIFORNIA PORTFOLIO
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ---------------- ---------- -----------
<S> <C> <C> <C>
1 up to $500 million..................... 0.300% 3.00%
2 $500 million but less than $1 billion.. 0.275% 2.75%
3 $1 billion but less than $1.5 billion.. 0.250% 2.50%
4 $1.5 billion but less than $2 billion.. 0.225% 2.25%
5 $2 billion but less than $3 billion.... 0.200% 2.00%
6 $3 billion and over.................... 0.175% 1.75%
</TABLE>
At September 30, 1995, the National Portfolio had net assets
of $2,260,646,363. For the fiscal years ended September 30, 1995
and 1994 and for the period from February 1, 1993 (commencement of
operations) to September 30, 1993, the National
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<PAGE>
Portfolio paid advisory fees of $9,944,026 (.45% of the Portfolio's
average daily net assets), $9,648,375 (0.44% of the Portfolio's average
daily net assets) and $5,557,586 (0.45% annualized of the Portfolio's
average daily net assets), respectively. At September 30, 1995,
the California Portfolio had net assets of $410,670,138. For the
fiscal year ended September 30, 1995, for the six month period
ended September 30, 1994 and for the period from May 3, 1993
(commencement of operations) to March 31, 1994, the California
Portfolio paid advisory fees of $2,121,262 (.50% of the
Portfolio's average daily net assets), $1,141,073 (0.50% of the
Portfolio's average daily net assets), and $2,149,273 (0.49%
annualized of the Portfolios average daily net assets),
respectively.
THE MASSACHUSETTS PORTFOLIO, NEW YORK PORTFOLIO AND OHIO PORTFOLIO
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ---------------- ---------- -----------
<S> <C> <C> <C>
1 up to $20 million...................... 0.100% 1.00%
2 $20 million but less than $40 million.. 0.200% 2.00%
3 $40 million but less than $500 million 0.300% 3.00%
4 $500 million but less than $1 billion.. 0.275% 2.75%
5 $1 billion but less than $1.5 billion.. 0.250% 2.50%
6 $1.5 billion but less than $2 billion.. 0.225% 2.25%
7 $2 billion but less than $3 billion.... 0.200% 2.00%
8 $3 billion and over.................... 0.175% 1.75%
</TABLE>
At September 30, 1995, the Massachusetts Portfolio had net
assets of $302,170,247. For the fiscal years ended September 30,
1995 and 1994 and for the period from February 1, 1993
(commencement of operations) to September 30, 1993, the
Massachusetts Portfolio paid advisory fees of $1,383,407 (.46% of
the Portfolio's average daily net assets), $1,397,963 (0.46% of
the Portfolio's average daily net assets) and $735,829 (0.45%
annualized of the Portfolio's average daily net assets),
respectively. At September 30, 1995, the New York Portfolio had
net assets of $652,736,309. For the fiscal years ended
September 30, 1995 and 1994 and for the period from February 1,
1993 (commencement of operations) to September 30, 1993, the New
York Portfolio paid advisory fees of $3,081,508 (.47% of the
Portfolio's average daily net assets), $3,073,565 (0.46% of the
Portfolio's average daily net assets) and $1,755,148 (0.46%
annualized of the Portfolio's average daily net assets),
respectively. At September 30, 1995, the Ohio Portfolio had net
assets of $319,016,648. For the fiscal years ended September 30,
1995 and 1994 and for the period from February 1, 1993
(commencement of operations) to September 30, 1993, the Ohio
Portfolio paid advisory fees of $1,463,895 (.46% of the
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<PAGE>
Portfolio's average daily net assets), $1,454,208 (0.45% of the
Portfolio's average daily net assets) and $750,672 (0.44%
annualized of the Portfolio's average daily net assets),
respectively.
The Investment Advisory Agreement with BMR will continue
beyond its initial term so long as such continuance is approved at
least annually (i) by the vote of a majority of the Trustees of
the Portfolio who are not interested persons of the Portfolio or
of BMR 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 Portfolio or by vote of a majority of the
outstanding voting securities of the Portfolio. The Agreement may
be terminated at any time without penalty on sixty (60) days'
written notice by the Board of Trustees of either party, or by
vote of the majority of the outstanding voting securities of the
Portfolio, and the Agreement will terminate automatically in the
event of its assignment. The Agreement provides that BMR may
render services to others and engage in other business activities
and may permit other fund clients and other corporations and
organizations to use the words "Eaton Vance" or "Boston Management
and Research" in their names. The Agreement also provides that
BMR shall not be liable for any loss incurred in connection with
the performance of its duties, or action taken or omitted under
that Agreement, in the absence of willful misfeasance, bad faith,
gross negligence in the performance of its duties or by reason of
its reckless disregard of its obligations and duties thereunder,
or for any losses sustained in the acquisition, holding or
disposition of any security or other investment.
BMR is a wholly owned subsidiary of Eaton Vance. Eaton Vance
and EV are both wholly owned subsidiaries of EVC. BMR and Eaton
Vance are both Massachusetts business trusts, and EV is the
trustee of BMR and Eaton Vance. The Directors of EV are Landon
T. Clay, H. Day Brigham, Jr., M. Dozier Gardner, James B. Hawkes
and Benjamin A. Rowland, Jr. The Directors of EVC consist of the
same persons and John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay
is chairman and Mr. Gardner is president and chief executive
officer of EVC, BMR, Eaton Vance and EV. All of the issued and
outstanding shares of Eaton Vance and EV 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 which expires on December 31, 1996,
the Voting Trustees of which are Messrs. Clay, Brigham, Gardner,
Hawkes and Rowland. 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 and Directors of EVC and EV. As of October 31,
1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such
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<PAGE>
voting trust receipts, and Messrs. Rowland and Brigham owned 15%
and 13%, respectively, of such voting trust receipts.
Messrs. Hawkes and Otis are officers or Trustees of the Portfolios
and are members of the EVC, BMR, Eaton Vance and EV organizations.
Messrs. Fetter, Macintosh and O'Connor and Ms. Sanders, are
officers or Trustees of the Portfolio and are also members of the
BMR, Eaton Vance and EV organizations. BMR will receive the fees
paid under the Investment Advisory Agreement.
Eaton Vance owns all of the stock of Energex Energy
Corporation, which is engaged in oil and gas operations. In
addition, Eaton Vance owns all the stock of Northeast Properties,
Inc., which is engaged in real estate investment, consulting and
management. EVC owns all the stock of Fulcrum Management, Inc.,
and MinVen Inc., which are engaged in the development of precious
metal properties. EVC also owns 21% of the Class A shares of
Lloyd George Management (B.V.I.) Limited, a registered investment
adviser. EVC, BMR, Eaton Vance and EV may also enter into other
businesses.
EVC and its affiliates and their officers and employees from
time to time have transactions with various banks, including the
custodian of the Portfolios and the Accounts, Investors Bank &
Trust Company. 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 Portfolios and such banks.
Eaton Vance and the Company, on behalf of each Account, have
entered into agreements (each, a Subscription Agreement
collectively, the Subscription Agreements) whereby the Company has
agreed to invest the assets of each Account in its corresponding
Portfolio in exchange for a beneficial interest in the Portfolio
initially equal in value to the net value of the assets of the
Account conveyed to the Portfolio. Each Subscription Agreement
provides that the respective Portfolio will indemnify the Company
and the corresponding Account against any and all losses, claims,
damages and liabilities arising out of any untrue statement or
omission of material fact in the Portfolio's registration
statement or any untrue statement or omission of material fact in
the Account's registration statement made in reliance on written
information supplied by Eaton Vance, the Portfolio or their
affiliates for use therein. Each Subscription Agreement also
provides that Eaton Vance will indemnify the Company and each
Account against any and all losses, claims, damages, penalties and
liabilities arising out of any failure of the Portfolio to
correctly value its interests; comply with certain of the
requirements of the Internal Revenue Code or the Investment
Company Act; or certain copyright, trademark or license agreements
in connection with the Portfolio's operations. The Company, on
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<PAGE>
behalf of the respective Account, will indemnify the Portfolio
against any and all losses, claims, damages and joint or several
liabilities arising out of any untrue statement or omission of
material fact in the Company's registration statement, financial
statements or advertising or sales material unless the statement
or omission were made in reliance on written information about the
Portfolio provided by Eaton Vance, the Portfolio or their
affiliates.
ADMINISTRATOR AND ACCOUNT EXPENSES
THE ADMINISTRATOR. As set forth in the Prospectus, G.R. Phelps
serves as the administrator of each Account, but currently
receives no compensation for providing administrative services to
an Account. Under an Administrative Services Agreement with each
Account, G.R. Phelps has been engaged to administer each Account's
affairs, subject to the supervision of the Directors of the
Company. G.R. Phelps furnishes each Account with office space and
all necessary office facilities, equipment and personnel for
administering the Account's affairs. G.R. Phelps also compiles
information and materials relating to each Account, the
corresponding Portfolios, BMR and Eaton Vance and provides such
information and materials to the Company's Board of Directors.
EXPENSES OF THE ACCOUNTS. Each Account pays its own expenses
including, without limitation: (i) expenses of maintaining the
Account and continuing its existence, (ii) registration of the
Company under the 1940 Act, (iii) auditing, accounting and legal
expenses, (iv) taxes and interest, (v) governmental fees,
(vi) expenses of issue, sale, repurchase and redemption of Account
shares, (vii) expenses of registering and qualifying the Account
and its shares under federal and state securities laws and of
preparing and printing prospectuses for such purposes and for
distributing the same to shareholders and investors, and fees and
expenses of registering and maintaining registrations of the
Account and of the Account's principal underwriter, if any, as
broker-dealer or agent under state securities laws,
(viii) expenses of reports and notices to shareholders and of
meetings of shareholders and proxy solicitations therefor,
(ix) expenses of reports to governmental officers and commissions,
(x) insurance expenses, (xi) association membership dues,
(xii) fees, expenses and disbursements of custodians for all
services to the Account, (xiii) fees, expenses and disbursements
of transfer agents, dividend disbursing agents, shareholder
servicing agents and registrars for all services to the Account,
(xiv) expenses for servicing shareholder accounts, (xv) any direct
charges to shareholders approved by the Directors of the Company,
(xvi) compensation and expenses of Directors of the Company who
are not "interested persons" of the Account, and (xvii) such
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<PAGE>
non-recurring items as may arise, including expenses incurred in
connection with litigation, proceedings and claims and the
obligation of the Company to indemnify its Directors and officers
with respect thereto.
DISTRIBUTION ARRANGEMENTS
Connecticut Mutual Financial Services, L.L.C. ("CMFS") serves
as the principal underwriter for each Account pursuant to an
Underwriting Agreement initially approved by the Board of
Directors of the Company. CMFS is a registered broker/dealer and
member of the National Association of Securities Dealers, Inc.
(NASD).
SALES OF THE ACCOUNTS' SHARES TO NEW INVESTORS HAS BEEN
INDEFINITELY SUSPENDED. SHAREHOLDERS WITH EXISTING ACCOUNTS IN
SHARES OF ONE OR MORE ACCOUNTS MAY CONTINUE TO PURCHASE SHARES OF
THOSE ACCOUNTS. SHARES WILL ALSO CONTINUE TO BE OFFERED FOR
DIVIDEND REINVESTMENT. Shares of each Account will be
continuously offered and will be sold by registered
representatives of CMFS and selected broker-dealers who have
executed selling agreements with CMFS. CMFS bears all the
expenses of providing services pursuant to the Underwriting
Agreement including the payment of all sales commissions for sales
of the Company shares and the printing and distribution of
prospectuses to non-shareholders as well as of any advertising or
sales literature. The Company bears the expenses of registering
its shares with the Securities and Exchange Commission (SEC) and
qualifying them with state regulatory authorities. CMFS has also
agreed to assume certain of the Accounts' expenses as necessary to
comply with expense limitations imposed by certain states in which
shares of one or more of the Accounts may be registered and also
as otherwise described in the Accounts' Prospectus. The
Underwriting Agreement continues in effect for successive one-year
periods, provided that each such continuance is specifically
approved (i) by the vote of a majority of the Directors who are
not interested persons, as such term is defined in the Investment
Company Act, of the Company (non-interested Directors) or parties
to the Agreement and (ii) either (a) by the vote of a majority of
the outstanding voting securities of each Account or (b) by the
vote of a majority of the Board of Directors.
DISTRIBUTION FINANCING PLAN
The Company on behalf of each Account has adopted Rule 12b-1
plans (each, a Rule 12b-1 Plan and together, the Rule 12b-1 Plans)
designed to meet the requirements of Rule 12b-1 (Rule) under the
1940 Act and the requirements of the revised sales charge rule of
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<PAGE>
the NASD. Pursuant to the Rule, each Rule 12b-1 Plan has been
approved annually by the non-interested Directors of the Company
who have no direct or indirect financial interest in the Rule
12b-1 Plans (the "Qualified Directors").
Each Rule 12b-1 Plan provides that the affected Account may
reimburse CMFS for amounts expended by CMFS to finance any
activity which is primarily intended to result in the sale of
shares of the Account or the provision of services to
shareholders, provided the categories of expenses for which
Account reimbursement is made are approved by the Directors. The
Directors have approved the following categories of expenses for
the Accounts: (A) distribution expenses that include (i) initial
and ongoing sales compensation paid to registered representatives,
(ii) direct out-of-pocket expenses incurred in connection with
distribution of shares including expenses related to the printing
of prospectuses and shareholder reports as well as the printing
and distribution of sales literature and advertising materials,
and (iii) overhead and branch office expenses of G.R. Phelps
related to distribution of shares; and (B) service expenses which
include payments to registered representatives who furnish
personal and shareholder account maintenance services to
shareholders.
Distribution services and expenses for which CMFS may be
compensated pursuant to the Rule 12b-1 Plans will include, without
limitation: compensation to and expenses (including allocable
overhead, travel and telephone expenses) of (i) brokers and
dealers who are members of the NASD or their officers, sales
representatives and employees, (ii) CMFS and any of its affiliates
and any of their respective officers, sales representatives and
employees, (iii) banks and their officers, sales representatives
and employees, who engage in or support distribution of an
Account's shares; printing of reports and prospectuses for other
than existing shareholders; and preparation, printing and
distribution of sales literature and advertising materials.
Personal and account maintenance services for which CMFS or
any of its affiliates, banks or dealers may be compensated
pursuant to a Rule 12b-1 Plan include, without limitation:
payments made to or on account of CMFS or any of its affiliates,
banks, or other brokers and dealers who are members of the NASD or
their officers, sales representatives and employees, who respond
to inquiries of, and furnish assistance to, shareholders regarding
their ownership of an Account's shares or their accounts or who
provide similar services not otherwise provided by or on behalf of
the affected Account.
The amount of compensation paid for distribution-related
services and expenses shall not exceed .25% of the average daily
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<PAGE>
net assets of the affected Account attributable to such year. All
compensation paid under a Rule 12b-1 Plan will be calculated and
accrued daily and paid monthly or at such other intervals as the
Board of Directors may determine.
Each Rule 12b-1 Plan remains in effect for one year from the
date of adoption and continues in effect indefinitely thereafter
for so long as such continuance is approved at least annually by
the vote of both a majority of (i) the Directors of the Company
who are not interested persons of the Company and who have no
direct or indirect financial interest in the operation of a Rule
12b-1 Plan or any agreements related to the Rule 12b-1 Plan(s)
(Rule 12b-1 Directors) and (ii) all of the Directors then in
office cast in person at a meeting (or meetings) called for the
purpose of voting on Rule 12b-1 Plans. The Rule 12b-1 Plans may
not be amended to increase materially the payments described
herein without approval of the shareholders of the affected
Account, and all material amendments of a Rule 12b-1 Plan must
also be approved by the Directors of the Company in the manner
described above. Each Rule 12b-1 Plan may be terminated at any
time by vote of a majority of the Rule 12b-1 Directors who are not
interested persons of the Company and who have no direct or
indirect financial interest in the operation of the Rule 12b-1
Plan or by a vote of a majority of the outstanding voting
securities of the affected Account. Under the Rule 12b-1 Plans,
the officers of the Company shall provide to the officers for
their review, and the Directors shall review at least quarterly, a
written report of the amount expended under the Rule 12b-1 Plan
and the purposes for which such expenditures were made.
So long as a Rule 12b-1 Plan is in effect, the selection and
nomination of Directors who are not interested persons of the
Company shall be committed to the discretion of the Directors who
are not such interested persons. The Directors have determined
that in their judgment there is a reasonable likelihood that the
Rule 12b-1 Plans will benefit the respective Accounts and their
shareholders.
During the fiscal year ended September 30, 1995, no Account
has paid any amounts pursuant to a Rule 12b-1 Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of each Account is
determined by Investors Bank & Trust (IBT) (as agent and custodian
for the Accounts) in the manner described under "Shareholder and
Account Policies -- Transaction Details" in the Accounts' current
prospectus. The net asset value of the Portfolio is also computed
by IBT (as agent and custodian for the Portfolio) by subtracting
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<PAGE>
the liabilities of the Portfolio from the value of its total
assets. Inasmuch as the market for State 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 State obligations held by a Portfolio, 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. Other assets are valued at fair value using methods
determined in good faith by the Trustees. The Accounts and the
Portfolios will be closed for business and will not price their
respective shares or interests on the following business holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in a Portfolio, including the corresponding
Account, may add to or reduce its investment in the Portfolio on
each day the New York Stock Exchange (Exchange) is open for
trading (Portfolio Business Day) as of the close of regular
trading on the Exchange (Portfolio Valuation Time). The value of
each investor's interest in a Portfolio will be determined by
multiplying the net asset value of the Portfolio by the
percentage, determined on the prior Portfolio Business Day, which
represented that investor's share of the aggregate interests in
the Portfolio on such prior day. Any additions or withdrawals for
the current Portfolio Business Day will then be recorded. The
investor's percentage of the aggregate interest in the Portfolio
will then be recomputed as a percentage equal to the fraction
(i) the numerator of which is the value of such investor's
investment in the Portfolio as of the Portfolio Valuation Time on
the prior Portfolio Business Day plus or minus, as the case may
be, the amount of any additions to or withdrawals from the
investor's investment in the Portfolio on the current Portfolio
Business Day and (ii) the denominator of which is the aggregate
net asset value of the Portfolio as of the Portfolio Valuation
Time on the prior Portfolio Business Day plus or minus, as the
case may be, the amount of the net additions to or withdrawals
from the aggregate investment in the Portfolio on the current
Portfolio Business Day by all investors in the Portfolio. The
percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio for the current
Portfolio Business Day.
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<PAGE>
Each Account's maximum offering price per share is determined
by adding the maximum sales charge to the net asset value per
share.
PURCHASE AND REDEMPTION OF SHARES
Sales of the Accounts' shares to new investors has been
indefinitely suspended. Shareholders with existing accounts in
shares of one or more Accounts may continue to purchase shares of
those Accounts. Shares will also continue to be offered for
dividend reinvestment. For information regarding the purchase of
Account shares, see "Your Account -- How to Buy Shares" in the
Accounts' Prospectus.
For a description of how a shareholder may have an Account
redeem his/her shares, or how he/she may sell shares, see "Your
Account -- How to Sell Shares" in the Accounts' Prospectus.
RIGHT OF ACCUMULATION. Each Account and each of the other
mutual funds of the Company (collectively, the Connecticut Mutual
Accounts) offer to all qualifying investors a Right of
Accumulation under which investors are permitted to purchase
shares of the Connecticut Mutual Accounts at the offering price
applicable to the total of (a) the dollar amount then being
purchased plus (b) an amount equal to the then current net asset
value of the purchaser's holdings of the shares of the Connecticut
Mutual Accounts. Acceptance of the purchase order is subject to
confirmation of qualification. The right of accumulation may be
amended or terminated at any time as to subsequent purchases.
STATEMENT OF INTENTION. Any person may qualify for a reduced
sales charge on purchases made within a thirteen-month period
pursuant to a Statement of Intention (SOI). Shares acquired
through the reinvestment of distributions do not constitute
purchases for purposes of the SOI. A shareholder may include, as
an accumulation credit towards the completion of such SOI, the
value of shares of all Connecticut Mutual Accounts owned by the
shareholder. Such value is determined based on the public
offering price on the date of the SOI. During the term of a SOI,
NFDS, the Connecticut Mutual Accounts' transfer agent, will hold
shares in escrow to secure payment of the higher sales charge
applicable for shares actually purchased if the indicated amount
on the SOI is not purchased. Dividends and capital gains will be
paid on all escrowed shares and these shares will be released when
the amount indicated on the SOI has been purchased. An SOI does
not obligate the investor to buy or the Connecticut Mutual
Accounts to sell the indicated amount of the SOI. If a
shareholder exceeds the specified amount of the SOI and reaches an
amount which would qualify for a further quantity discount, a
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<PAGE>
retroactive price adjustment will be made at the time of the
expiration of the SOI. The resulting difference in offering price
will purchase additional shares for the shareholder's account at
the applicable offering price. If the specified amount of the SOI
is not purchased, the shareholder shall remit to NFDS an amount
equal to the difference between the sales charge paid and the
sales charge that would have been paid had the aggregate purchases
been made at a single time. If the shareholder does not within
twenty days after a written request by NFDS pay such difference in
sales charge, NFDS will redeem an appropriate number of escrowed
shares in order to realize such difference. Additional
information about the terms of Letters of Intent are available
from your registered representative or from NFDS at
1-800-322-CMIA.
DISTRIBUTIONS IN KIND. Each Portfolio has elected to be governed
by Rule 18f-1 under the Investment Company Act. Under Rule 18f-1,
each Portfolio must redeem the interest of its corresponding
Account for cash except to the extent that the redemption payments
during any 90 day period would exceed the lesser of $250,000 or 1%
of the Portfolio's net asset value at the beginning of such
period. If securities were distributed to a corresponding
Account, the Account could incur brokerage, tax or other charges
in converting the securities to cash. In addition, the
distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the corresponding
Account. Securities distributed to an Account by its
corresponding Portfolio would be valued for the purposes of making
such payment at the same value as used in determining net asset
value.
In the event that an Account's decision to redeem its
interest in the corresponding Portfolio results in a distribution
in kind of Portfolio securities to the Account, the Account may in
turn pay redemption requests by its shareholders by distributing
portfolio securities to redeeming shareholders in accordance with
the requirements of Rule 18f-1. A shareholder receiving such
portfolio securities from an Account could incur brokerage, tax
and other charges in converting such securities to cash.
INVESTMENT PERFORMANCE
Each Account's average annual total return quotations and
yield quotations as they may appear in the Prospectus, this
Statement of Additional Information or in advertising are
calculated by standard methods prescribed by the SEC.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN QUOTATIONS. Average
annual total return quotations are computed by finding the average
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<PAGE>
annual compounded rates of return that would cause a hypothetical
investment made on the first day of a designated period to equal
the ending redeemable value of such hypothetical investment on the
last day of the designated period in accordance with the following
formula:
P(1+T) n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical
$1,000 initial payment made at the beginning
of the designated period (or fractional
portion thereof)
The computation above assumes that all dividends and distributions
made by an Account are reinvested at net asset value during the
designated period. The average annual total return quotation is
determined to the nearest 1/100 of 1%.
One of the primary methods used to measure an Account's
performance is "total return." "Total return" will normally
represent the percentage change in value of an account, or of a
hypothetical investment in an Account, over any period up to the
lifetime of the Account. Unless otherwise indicated, total return
calculations will assume the deduction of the maximum sales charge
of 4.00% and usually assume the reinvestment of all dividends and
capital gains distributions and will be expressed as a percentage
increase or decrease from an initial value, for the entire period
or for one or more specified periods within the entire period.
Total return calculations that do not reflect the reduction of
sales charges will be higher than those that do reflect such
charges. All non-standardized performance will be advertised only
if the standard performance data for the same period, as well as
for the required periods, is also presented.
Total return percentages for periods longer than one year
will usually be accompanied by total return percentages for each
year within the period and/or by the average annual compounded
total return for the period. The income and capital components of
a given return may be separated and portrayed in a variety of ways
in order to illustrate their relative significance. Performance
may also be portrayed in terms of cash or investment values,
without percentages. Past performance cannot guarantee any
particular future result. In determining the average annual total
return (calculated as provided above), recurring fees, if any,
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<PAGE>
that are charged to all shareholder accounts are taken into
consideration. For any account fees that vary with the size of
the account, the account fee used for purposes of the above
computation is assumed to be the fee that would be charged to an
Account's mean account size.
The charts below set forth certain performance information
for the Accounts as of September 30, 1995. The past performance
of the Accounts is no guarantee and is not necessarily indicative
of their future performance. The Accounts' actual annual returns
may vary significantly from past and future performance.
Investment returns and the value of the shares of the Accounts
will fluctuate in response to market and economic conditions as
well as other factors and shares, when redeemed, may be worth more
or less than their original cost. Total returns are based on
capital changes plus reinvestment of all distributions for the
time periods noted in the charts below. Total returns of the
Accounts would have been lower in the absence of CMFS' agreement
to limit expenses.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT IN NATIONAL ACCOUNT:
<S> <C> <C> <C>
Total Return Total Return
Annualized Annualized
Investment Investment (excluding 4% (including 4%
Period Date sales charge) sales charge)
Life of Fund 10/3/94 13.40% 8.86%
to 9/30/95
VALUE OF A $1,000 INVESTMENT IN CALIFORNIA ACCOUNT:
Total Return Total Return
Annualized Annualized
Investment Investment (excluding 4% (including 4%
Period Date sales charge) sales charge)
Life of Fund 10/3/94 8.06% 3.74%
to 9/30/95
VALUE OF A $1,000 INVESTMENT IN MASSACHUSETTS ACCOUNT:
Total Return Total Return
Annualized Annualized
Investment Investment (excluding 4% (including 4%
Period Date sales charge) sales charge)
Life of Fund 10/3/94 9.23% 4.86%
to 9/30/95
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT IN NEW YORK ACCOUNT:
<S> <C> <C> <C>
Total Return Total Return
Annualized Annualized
Investment Investment (excluding 4% (including 4%
Period Date sales charge) sales charge)
Life of Fund 10/3/94 9.63% 5.24%
to 9/30/95
VALUE OF A $1,000 INVESTMENT IN OHIO ACCOUNT:
Total Return Total Return
Annualized Annualized
Investment Investment (excluding 4% (including 4%
Period Date sales charge) sales charge)
Life of Fund 10/3/94 10.71% 6.28%
to 9/30/95
</TABLE>
Each Account may also publish its distribution rate and/or
its effective distribution rate. An Account's distribution rate
is computed by dividing the most recent monthly distribution per
share annualized, by the current net asset value per share. An
Account's effective distribution rate is computed by dividing the
distribution rate by the ratio used to annualize the most recent
monthly distribution and reinvesting the resulting amount for a
full year on the basis of such ratio. The effective distribution
rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. An Account's
yield is calculated using a standardized formula, the income
component of which is computed from the yields to maturity of all
debt obligations held by the corresponding Portfolio based on
prescribed methods (with all purchases and sales of securities
during such period included in the income calculation on a
settlement date basis), whereas the distribution rate is based on
an Account's last monthly distribution. An Account's monthly
distribution tends to be relatively stable and may be more or less
than the amount of net investment income and short-term capital
gain actually earned by the Account during the month (see
"Distributions and Taxes" in the Accounts' Prospectus).
Other data that may be advertised or published about each
Account include the average portfolio quality, the average
portfolio maturity and the average portfolio duration.
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<PAGE>
STANDARDIZED YIELD QUOTATIONS AND TAXABLE EQUIVALENT YIELD. An
Account's yield is computed by dividing the Account's net
investment income per share during a base period of 30 days, or
one month, by the maximum offering price per share of the Account
on the last day of such base period in accordance with the
following formula:
YIELD = 2[ (a-b +1 ) 6 -1]
---
cd
Where: a = net investment income earned during the period
b = net expenses accrued for the period
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the
last day of the period
Net investment income will be determined in accordance with rules
established by the SEC. The price per share will include the
maximum sales charge (4.00%) imposed on purchases of Account
shares which decreases with the amount of shares purchased.
The Accounts may also from time to time advertise their
taxable equivalent yield which is determined by dividing that
portion of an Account's yield (calculated as described above) that
is tax exempt by one minus the combined federal, state and, if
applicable, city tax rates, adjusted to take into account the
deductibility of state and, if applicable, city income taxes on an
investor's federal tax returns and adding the product to that
portion, if any, of the Account's yield that is not tax exempt.
The SEC standardized yield for the one month period ending
September 30, 1995 for National Account, California Account,
Massachusetts Account, New York Account and Ohio Account was
5.82%, 5.28%, 5.13%, 4.95% and 5.04%, respectively, giving effect
to CMFS' agreement to limit each Account's expenses. The taxable
equivalent yield for the same period for National Account,
California Account, Massachusetts Account, New York Account and
Ohio Account was 9.64%, 9.27%, 9.11%, 8.37% and 8.51%,
respectively, giving effect to CMFS' agreement to limit each
Account's expenses. Taxable equivalent yield is based on the
respective state's top combined tax bracket. The actual yield and
tax-equivalent yield of the Accounts may vary significantly from
their past and future yields. Past yields of the Accounts are no
guarantee and are not necessarily indicative of the future yields
of the Accounts. Each Account's yield and
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tax-equivalent yield would have been lower in the absence of CMFS'
agreement to limit expenses.
For a description of how to compare yields on municipal bonds
and taxable securities and of certain other assumptions made in
computing taxable equivalent yields, see the Taxable Equivalent
Yield Tables set forth in Appendix B.
GENERAL INFORMATION. The following publications and other
newspapers and business and financial publications may be cited in
each Account's advertising and in shareholder materials which
contain articles describing investment results or other data
relative to one or more of the Accounts.
Broker World Value Line
Across the Board Financial World
American Banker Advertising Age
Best's Review Barron's
Business Month Business Insurance
Changing Times Business Week
Economist Consumer Reports
Forbes Financial Planning
Inc. Fortune
Insurance Forum Institutional Investor
Insurance Week Insurance Sales
Journal of the American Society Journal of Accountancy
of CLU & ChFC Journal of Commerce
Life Insurance Selling Life Association News
Lipper Analytical Services, Inc. Manager's Magazine
MarketFacts Money
National Underwriter Nation's Business
New Choices (formerly 50 Plus) New York Times
Pension World Pensions & Investments
Rough Notes Round the Table
U.S. Banker Wall Street Journal
Working Woman Morningstar, Inc.
Financial Services Week Wiesenberger Investment
Kiplinger's Personal Finance Service
Registered Representative Medical Economics
U.S. News & World Report Investment Advisor
CDA Tillinghast
Financial Times American Agent and Broker
Insurance Product News Insurance Times
LIMRA's Marketfacts Professional Insurance Agents
Investment Dealers Digest Insurance Review Investor's
Business Daily Insurance Advocate Independent
Agent Professional Agent
California Broker Life Times
Hartford Courant New England Business
Entrepreneur Entrepreneurial Woman
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<PAGE>
USA Today Business Marketing
Adweek Independent Business
Newsweek Time
Success The Standard
The Boston Globe Crain's
The Washington Post United Press International
Associated Press Bloomberg
Reuter's Business News Features
Business Wire Knight-Ridder
Dow Jones News Service Consumer Digest
From time to time the Company may publish the sales of shares
of one or more of the Accounts on a gross or net basis and for
various periods of time, and compare such sales with sales
similarly reported by other investment companies.
TAXES
FEDERAL INCOME TAXES
See "Dividends, Capital Gains and Taxes" in the Accounts'
current prospectus.
Each series of the Company is treated as a separate entity
for federal income tax purposes. Each Account has elected to or
intends to elect to be treated and to qualify each year as a
regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code"). Accordingly, each Account intends
to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute its net
investment income (including tax-exempt income) and net realized
capital gains in accordance with the timing requirements imposed
by the Code, so as to avoid any federal income or excise tax on
the Account. Because each Account invests substantially all of
its assets in the corresponding Portfolio, the Portfolios normally
must satisfy the applicable source of income and diversification
requirements in order for the Accounts to satisfy them. Each
Portfolio will allocate at least annually among its investors,
including the corresponding Account, each investor's distributive
share of the Portfolio's net taxable (if any) and tax-exempt
investment income, net realized capital gains, and any other items
of income, gain, loss, deduction or credit. For purposes of
applying the requirements of the Code regarding qualification as a
regulated investment company, each Account will be deemed (i) to
own its proportionate share of each of the assets of the
corresponding Portfolio and (ii) to be entitled to the gross
income of such Portfolio attributable to such share.
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<PAGE>
In order to avoid federal excise tax on an Account, the Code
requires that such Account distribute by December 31 of each
calendar year at least 98% of its ordinary income (not including
tax-exempt income) for such year, at least 98% of 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 such year, after reduction by any available capital
loss carryforwards, and 100% of any taxable income and gains from
the prior year (as previously computed) that was not paid out
during such year and on which the Account paid no federal income
tax.
A Portfolio's investment in zero coupon and certain other
securities issued with original issue discount will generally
cause it to realize income prior to the receipt of cash payments
with respect to these securities. Such income will be allocated
daily to interests in the Portfolio, and in order for the
corresponding Account to distribute its proportionate share of
this income and avoid a tax, a Portfolio may be required to
liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that such Account may
withdraw from the Portfolio for subsequent distribution to Account
shareholders.
Investments in lower-rated or unrated securities may present
special tax issues for a Portfolio and hence for the corresponding
Account to the extent actual or anticipated defaults may be more
likely with respect to such securities. Tax rules are not
entirely clear about issues such as when a Portfolio may cease to
accrue interest, original issue discount, or market discount; when
and to what extent deductions may be taken for bad debts or
worthless securities; how payments received on obligations in
default should be allocated between principal and income; and
whether exchanges of debt obligations in a workout context are
taxable.
An Account's distributions 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 an Account to be
entitled to pay the tax-exempt interest income allocated to it by
the corresponding Portfolio as exempt-interest dividends to its
shareholders, the Account must and intends to satisfy certain
requirements, including the requirement that, at the close of each
quarter of its taxable year, at least 50% of the value of its
total assets consist of obligations described in Section 103(a) of
the Code, the interest on which is exempt from regular federal
income tax. For purposes of applying this 50% requirement, each
Account will be deemed to own its proportionate share of each of
the assets of the corresponding Portfolio, and each Portfolio
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<PAGE>
currently intends to invest its assets in a manner such that the
corresponding Account can meet this 50% requirement. Interest on
certain municipal obligations (including an Account's
distributions thereof) is treated as a tax preference item for
purposes of the federal alternative minimum tax, and all
exempt-interest dividends will be taken into account in
calculating liability for alternative minimum tax, if any, for
corporate shareholders. Shareholders of the Accounts are required
to report tax-exempt interest on their federal income tax returns
and will receive appropriate information from the Accounts.
From time to time proposals have been introduced before
Congress for the purpose of restricting or eliminating the federal
income tax exemption for interest on certain types of municipal
obligations, and it can be expected that similar proposals may be
introduced in the future. Under federal tax legislation enacted
in 1986, the federal income tax exemption for interest on certain
municipal obligations was eliminated or restricted. As a result of
such legislation, the availability of municipal obligations for
investment by the Portfolios and the value of the securities held
by the Portfolios may be affected.
In the course of managing its investments, each Portfolio may
realize some short-term and long-term capital gains (and/or
losses) as a result of market transactions, including sales of
portfolio securities and rights to when-issued securities and
options and futures transactions. Any distributions by an Account
of its share of such capital gains (after reduction by any capital
loss carryforwards) would be taxable to shareholders of the
Account. Distributions of other taxable income, such as income
from repurchase agreements or securities lending, would also be
taxable. However, it is expected that such taxable amounts, if
any, would normally be insubstantial in relation to the tax-exempt
interest earned by each Portfolio and allocated to the
corresponding Account. Certain distributions declared in October,
November or December and paid the following January will be
taxable to shareholders as if received on December 31 of the year
in which they are declared.
A Portfolio's transactions in options and futures contracts
will be subject to special tax rules that may affect the amount,
timing and character of Account distributions to shareholders.
For example, certain positions held by a Portfolio on the last
business day of each taxable year will be marked to market (I.E.,
treated as if closed out on such day), and any resulting gain or
loss will generally be treated as 60% long-term and 40% short-term
capital gain or loss. Certain positions held by a Portfolio that
substantially diminish the Portfolio's risk of loss with respect
to other positions in its portfolio may constitute "straddles,"
which are subject to tax rules that may cause deferral of
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Portfolio losses, adjustments in the holding period of Portfolio
securities and conversion of short-term into long-term capital
losses. Each Portfolio may have to limit its activities in
options and futures contracts in order to enable the corresponding
Account to maintain its qualification as a regulated investment
company.
Any loss realized upon the sale or exchange of shares of an
Account with a tax holding period of 6 months or less will be
disallowed to the extent the shareholder has received tax-exempt
interest (I.E., exempt-interest dividends) with respect to such
shares and, to the extent not thus allowed, will be treated as a
long-term capital loss to the extent of any distribution of net
long-term capital gains with respect to such shares.
At the time of an investor's purchase of shares of an
Account, a portion of the purchase price is often attributable to
realized or unrealized appreciation in the Account's portfolio.
Consequently, subsequent distributions from such appreciation may
be taxable to such investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced
below the investor's cost for such shares, and the distributions
in reality represent a return of a portion of the purchase price.
Amounts paid by an Account to individuals and certain other
shareholders who have not provided the Account with their correct
taxpayer identification number and certain required
certifications, as well as shareholders with respect to whom the
Account has received notification from the Internal Revenue
Service or a broker, may be subject to "backup" withholding of
federal income tax from the Account's taxable dividends and
distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. However, backup
withholding may not be required if an Account reasonably estimates
that at least 95% of its distributions will consist of
exempt-interest dividends. An individual's taxpayer
identification number is generally his or her social security
number.
Non-resident alien individuals and certain foreign
corporations and other foreign entities generally will be subject
to a U.S. withholding tax at a rate of 30% on an Account's
distributions from its ordinary (taxable) income and the excess of
its net short-term capital gain over its net long-term capital
loss, unless the tax is reduced or eliminated by an applicable tax
treaty. Distributions from the excess of an Account's net
long-term capital gain over its net short-term capital loss
received by such shareholders and any gain from the sale or other
disposition of shares of an Account generally will not be subject
to U.S. federal income taxation, provided that non-resident alien
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<PAGE>
status has been certified by the shareholder. Different U.S. tax
consequences may result if the shareholder is engaged in a trade
or business in the United States, is present in the United States
for a sufficient period of time during a taxable year to be
treated as a U.S. resident, or fails to provide any required
certification regarding status as a non-resident alien investor.
Foreign shareholders should consult their tax advisers regarding
the U.S. and foreign tax consequences of an investment in an
Account.
The foregoing discussion does not address the special tax
rules applicable to certain classes of investors, such as
tax-exempt entities, insurance companies and financial
institutions. Shareholders should consult their own tax advisers
with respect to the federal, state, local and foreign tax
consequences of investing in an Account.
CALIFORNIA STATE AND LOCAL TAX MATTERS
In any year in which the California Account qualifies as a
regulated investment company under Subchapter M of the Internal
Revenue Code and has no liability for federal income tax, the
California Account also will have no liability for the California
Bank and Corporation tax.
Individuals, estates or trusts who are shareholders of the
California Account and who otherwise are subject to the California
personal income tax will not be subject to California personal
income tax on distributions received from the California Account
to the extent such distributions are attributable to interest on
obligations the interest on which is exempt under either federal
or California law from taxation by the State of California,
provided that at least 50% of the California Account's assets at
the close of each quarter of its taxable year is invested in such
obligations.
Distributions from the California Account which are
attributable to sources other than those in the preceding sentence
will generally be taxable to such individual shareholders as
ordinary income. Distributions of the California Account's net
capital gain (the excess of net long-term capital gain over net
short-term capital loss) are taxable to shareholders as long-term
capital gains for California personal income tax purposes. In
addition, distributions other than exempt-interest dividends are
includable in income subject to the California alternative minimum
tax.
Distributions of investment income and long-term and
short-term capital gains from the California Account will not be
excluded from taxable income in determining California corporate
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<PAGE>
taxes for corporate shareholders. However, distributions of the
California Account's net capital gains are treated as long-term
capital gains for California corporate tax purposes. In addition,
distributions may be includable in income subject to the
alternative minimum tax.
Shares of the California Account will not be subject to the
California property tax.
California tax law resembles federal tax law in restricting
the deductibility of interest on indebtedness incurred by
shareholders to purchase shares and the allowance of losses
realized by a shareholder upon the sale or redemption of shares.
MASSACHUSETTS STATE AND LOCAL TAX MATTERS
See "Dividends, Capital Gains and Taxes -- State Income
Taxation" in the Accounts' Prospectus. Beginning in 1996,
long-term capital gains will generally be taxed in Massachusetts
on a sliding scale at rates ranging from 5% to 0%, with the
applicable tax rate declining as the tax holding period of the
asset (beginning on the later of January 1, 1995 or the date of
actual acquisition) increases from more than one year to more than
six years. The legislation does not specify, and it is
accordingly not clear, what Massachusetts tax rate will be
applicable to capital gain dividends for the taxable years
beginning after 1995.
NEW YORK STATE AND LOCAL TAX MATTERS
In any year in which the New York Account is subject to New
York taxation, qualifies as a regulated investment company under
Subchapter M of the Code and incurs no federal income tax, the New
York Account will not be required to pay any New York State
franchise tax or New York City general corporation tax, with the
possible exception of certain nominal minimum taxes.
Distributions from the New York Account will not be excluded
from net income and shares of the New York Account will not be
excluded from investment capital in determining New York State or
City franchise and corporation taxes for corporate shareholders.
Shares of the New York Account will not be subject to the New
York State or City property tax.
See "Dividends, Capital Gains and Taxes -- State Income
Taxation" in the Company's prospectus for a further discussion of
New York tax matters.
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OHIO STATE AND LOCAL TAX MATTERS
Under Ohio law, provided that the Ohio Account qualifies,
elects to be treated, and continues to qualify as a regulated
investment company under the Code and that at all times at least
50% of the value of the total assets of the Ohio Account consists
of obligations issued by or on behalf of the State of Ohio,
political subdivisions thereof or agencies or instrumentalities of
Ohio or its political subdivisions ("Ohio Obligations"), or
similar obligations of other states or their subdivisions (but
excluding obligations of United States territories or possessions)
(a fund satisfying such requirements being referred to herein as a
"Qualified Account"), distributions by the Ohio Account will be
exempt from the Ohio personal income tax, the net income base of
the Ohio Corporation franchise tax, and any municipal and school
district income taxes in Ohio to the extent such distributions are
properly attributable to (1) interest payments on Ohio
Obligations, and (2) profits, including "capital gain dividends,"
as defined in the Code, made on the sale, exchange, or other
disposition of Ohio Obligations. The status of the Ohio Account
as a Qualified Account will be determined by treating the Ohio
Account as owning its proportionate share of the assets owned by
the Ohio Portfolio. Shares of the Ohio Account will not be
excluded from the net worth base of the Ohio corporation franchise
tax.
Distributions by the Ohio Account that are properly
attributable to interest on obligations of the United States or
the governments of Puerto Rico, the Virgin Islands or Guam or
their authorities or municipalities that is exempt from state
income taxes under the laws of the United States are exempt from
the Ohio personal income tax, the net income base of the Ohio
corporation franchise tax, and municipal and school district
income taxes in Ohio.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security
transactions on behalf of each Portfolio, including the selection
of the market and the executing firm, are made by BMR. BMR is
also responsible for the execution of transactions for all other
accounts managed by it.
BMR places the portfolio security transactions of each
Portfolio and of all other accounts managed by it for execution
with many firms. BMR uses its best efforts to obtain execution of
portfolio security transactions at prices which are advantageous
to each Portfolio and at reasonably competitive spreads or (when a
disclosed commission is being charged) at reasonably competitive
commission rates. In seeking such execution, BMR will use its
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best judgment in evaluating the terms of a transaction, and will
give consideration to various relevant factors, including without
limitation 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 purchased and sold by each Portfolio 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." Each Portfolio
may also purchase municipal obligations from underwriters, the
cost of which may include undisclosed fees and concessions to the
underwriters. While it is anticipated that a Portfolio will not
pay significant brokerage commissions in connection with such
portfolio security transactions, 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 Portfolio will incur a
brokerage commission. Although spreads or commissions on
portfolio security transactions will, in the judgment of BMR, 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 were selected to execute
transactions on behalf of each Portfolio and BMR's other clients
for providing brokerage and research services to BMR.
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 a Portfolio 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 BMR determines in
good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided. This
determination may be made on the basis of either that particular
transaction or on the basis of overall responsibilities which BMR
and its affiliates have for accounts over which they exercise
investment discretion, in making any such determination, BMR 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
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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, 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, BMR receives
Research Services from many broker-dealer firms with which BMR
places Portfolio transactions and from third parties with which
these broker-dealers have arrangements. These Research Services
include such matters as general economic and market reviews,
industry and company reviews, evaluations of securities and
portfolio strategies and transactions and 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 BMR 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 BMR 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 a Portfolio is not
reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services
obtained through broker-dealer firms and attempts to allocate
sufficient commissions to such firms to ensure the continued
receipt of Research Services which BMR believes are useful or of
value to it in rendering investment advisory services to its
clients.
Subject to the requirement that BMR shall use its best
efforts to seek and execute portfolio security transactions at
advantageous prices and at reasonably competitive spreads or
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commission rates, BMR is authorized to consider as a factor in the
selection of any firm with whom portfolio orders may be placed the
fact that such firm has sold or is selling shares of other
investment companies sponsored by BMR or Eaton Vance. This policy
is not inconsistent with a rule of the NASD, which rule provides
that no firm which is a member of the Association 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 a
Portfolio may also be appropriate for other investment accounts
managed by BMR or its affiliates. BMR will attempt to allocate
equitably portfolio security transactions among each Portfolio and
the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or
sell securities by a Portfolio and one or more of such other
accounts simultaneously. In making such allocations, the main
factors to be considered are the respective investment objectives
of the Portfolio and such other accounts, the relative size of
portfolio holdings of the same or comparable securities, the
availability of cash for investment by the Portfolio and such
accounts, the size of investment commitments generally held by the
Portfolio and such accounts and the opinions of the persons
responsible for recommending investments to the Portfolio and such
accounts. While this procedure could have a detrimental effect on
the price or amount of the securities available to a Portfolio
from time to time, it is the opinion of the Directors of the
Company and the Trustees of the Portfolios that the benefits
available from the BMR organization outweigh any disadvantage that
may arise from exposure to simultaneous transactions.
For the fiscal year ended September 30, 1995, the Portfolios
did not pay any brokerage commissions.
CUSTODIAN
Investors Bank & Trust Company (IBT), 89 South Street,
Boston, Massachusetts 02111, acts as custodian for each Account
and its corresponding Portfolio. IBT has the custody of all cash
and securities representing each Account's interest in its
corresponding Portfolio, has custody of all the Portfolios'
assets, maintains the general ledgers of the Portfolios and the
corresponding Accounts and computes the daily net asset value of
interests in each Portfolio and the net asset value of shares of
the Portfolio's corresponding Account. In such capacity, IBT
attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolios'
investments, receives and disburses all funds and performs various
other ministerial duties upon receipt of proper instructions from
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each Account and its corresponding Portfolio. IBT charges custody
fees which are competitive within the industry. A portion of the
custody fee for each investment company served by IBT is based
upon a schedule of percentages applied to the aggregate assets of
those investment companies managed by BMR or Eaton Vance, or
affiliates thereof for which IBT serves as custodian, the fees so
determined being then allocated among such investment companies
relative to their size. These fees are then reduced by a credit
for cash balances of the particular investment company at the
custodian equal to 75% of the 91-day, U.S. Treasury Bill auction
rate applied to the particular investment company's average daily
collected balances for the week. In addition, each investment
company pays a fee based on the number of portfolio transactions
and a fee for bookkeeping and valuation services. Landon T. Clay,
a Director of EVC and an Officer, Trustee or Director of other
members of the Eaton Vance organization, owns approximately 13% of
the stock of IBT. Management believes that such ownership does
not create an affiliated person relationship between the
Portfolios and IBT under the 1940 Act.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston,
Massachusetts, are the independent certified public accountants of
the Portfolios. Arthur Andersen LLP, One Financial Plaza,
Hartford, Connecticut, are the independent public accountants of
the Accounts. Deloitte & Touche LLP and Arthur Andersen LLP
provide audit services and consultation with respect to the
preparation of filings with the SEC for the Portfolios and the
Accounts, respectively. In addition, Deloitte & Touche LLP
provides tax return preparation and assistance to the Portfolios.
OTHER INFORMATION
Connecticut Mutual Life Insurance Company (CML) has granted
the Company the right to use the name, "Connecticut Mutual," and
has reserved the right to withdraw its consent to the use of such
name by the Company at any time, or to grant the use of such name
to any other company. CML was founded in 1846 and is one of the
nation's largest mutual life insurance companies with nearly 150
years of experience and assets of [$11.5] billion and
[$105] billion of life insurance in force. CML has over
[1.2] million policyholders and offers a broad range of insurance,
retirement and investment products in all 50 states, Puerto Rico
and the District of Columbia through a network of general agents
and more than [3,000] career agents and brokers.
FINANCIAL STATEMENTS
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The audited financial statements of each Account as of
September 30, 1995, together with the notes thereto and the report
of Arthur Anderson LLP, and each Portfolio's audited financial
statements as of September 30, 1995, together with the notes
thereto and the report of Deloitte & Touche LLP are attached to
this Statement of Additional Information.
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APPENDIX A
RISKS OF CONCENTRATION. The following information is given to
investors in view of the Portfolios' policies of investing at
least 65% of their investments in issuers of their respective
states. Because such Portfolios will ordinarily invest a
significant portion of their respective assets in obligations of a
particular state, each such Portfolio is more susceptible to
factors affecting issuers in that particular state than is a
comparable municipal bond fund not investing to such an extent in
the obligations of issuers located in a single state.
This information is derived from sources that are generally
available to investors and is believed to be accurate. No
independent verification has been made of the accuracy or
completeness of any of the following information with respect to
any state. Such information constitutes only a brief summary,
does not purport to be a complete description and is based on
information from official statements relating to securities
offerings of issuers in the respective states.
CALIFORNIA OBLIGATIONS. As used in this Statement of Additional
Information (SAI), the term California obligations refers to debt
obligations issued by the State of California and its political
subdivisions (for example, counties, cities, towns, districts and
authorities) and the governments of Puerto Rico, the U.S. Virgin
islands and Guam (the "Territories"), the interest on which is
exempt from both regular Federal income tax and California
personal income tax. In assessing the Federal income tax
treatment of interest on any such obligation, the California
Portfolio will generally rely on an opinion of counsel obtained by
the issuer and will not undertake any independent verification of
the basis for the opinion. Such bonds are issued to obtain funds
for various public and private purposes.
CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS
LIMITATION ON TAXES. Certain California municipal obligations may
be obligations of issuers which rely in whole or in part, directly
or indirectly, on ad valorem property taxes as a source of
revenue. The taxing powers of California local governments and
districts are limited by Article XIII A of the California
Constitution, enacted by the voters in 1978 and commonly known as
"Proposition 13." Briefly, Article XIII A limits to 1% of full
cash value the rate of ad valorem property taxes on real property
and generally restricts the reassessment of property to 2% per
year, except upon new construction or change of ownership (subject
to a number of exemptions). Taxing entities may, however, raise
ad valorem taxes above the 1% limit to pay debt service on certain
voter-approved bonded indebtedness.
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Under Article XIII A, the basic 1% ad valorem tax levy is
applied against the assessed value of property as of the owner's
date of acquisition (or as of March 1, 1975, if acquired earlier),
subject to certain adjustments. This system has resulted in
widely varying amounts of tax on similarly situated properties.
Several lawsuits have been filed challenging the acquisition-based
assessment system of Proposition 13. The U.S. Supreme Court
recently heard one of these lawsuits, and on June 18, 1992
announced a decision upholding Proposition 13.
Article XIII A prohibits local governments from raising
revenues through ad valorem property taxes above the 1% limit; it
also requires voters of any governmental unit to give two-thirds
approval to levy any "special tax." A California Supreme Court
decision, however, allowed the levy, without voter approval, of
"general taxes" which were not dedicated to a specific use. In
response to these decisions, the voters of the State in 1986
adopted an initiative statute which imposed significant new limits
on the ability of local entities to raise or levy general taxes,
except by receiving majority local voter approval. Significant
elements of this initiative, "Proposition 62," have been
overturned in recent court cases. An initiative proposed to
reenact the provisions of Proposition 62 as a constitutional
amendment was defeated by the voters in November 1990, but such a
proposal may be renewed in the future.
APPROPRIATIONS LIMITS. The State and its local governments are
subject to an annual "appropriations limit" imposed by
Article XIII B of the California Constitution, enacted by the
voters in 1979 and significantly amended by Proposition 98 and 111
in 1988 and 1990, respectively. Article XIII B prohibits the
State or any covered local government from spending
"appropriations subject to limitation" in excess of the
appropriations limit imposed. "Appropriations subject to
limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including
proceeds from regulatory licenses, user charges or other fees, to
the extent that such proceeds exceed the cost of providing the
product or service, but "proceeds of taxes" exclude most State
subventions to local governments. No limit is imposed on
appropriations of funds which are not "proceeds of taxes," such as
reasonable user charges or fees, and certain other non-tax funds,
including bond proceeds.
Among the expenditures not included in the Article XIII B
appropriations limit are (1) the debt service cost of bonds issued
or authorized prior to January 1, 1979, or subsequently authorized
by the voters, (2) appropriations arising from certain emergencies
declared by the Governor, (3) appropriations for certain capital
outlay projects, (4) appropriations by the State of post-1989
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increases in gasoline taxes and vehicle weight fees, and
(5) appropriations made in certain cases of emergency.
The appropriations limit for each year is adjusted annually
to reflect changes in cost of living and population, and any
transfers of service responsibilities between government units.
The definitions for such adjustments were liberalized by
Proposition 111 to follow more closely growth in the State's
economy. "Excess" revenues are measured over a two-year cycle.
Local governments, must return any excess to taxpayers by rate
reductions. With more liberal annual adjustment factors since
1988, and depressed revenues since 1990 because of the recession,
few governments are currently operating near their spending
limits, but this condition may change over time. Local
governments may by voter approval exceed their spending limit for
up to four years.
Because of the complex nature of Articles XIII A and XIII B
of the California Constitution, the ambiguities and possible
inconsistencies in their terms, and the impossibility of
predicting future appropriations or changes in population and cost
of living, and the probability of continuing legal challenges, it
is not currently possible to determine fully the impact of
Article XIII A or Article XIII B on California municipal
obligations or on the ability of the State or local' governments
to pay debt service on such obligations. It is not presently
possible to predict the outcome of any pending litigation with
respect to the ultimate scope, impact or constitutionality of
either Article XIII A or Article XIII B, or the impact of any such
determinations upon State agencies or local governments, or upon
their ability to pay debt service on their obligations. Future
initiatives or legislative changes in laws or the California
Constitution may also affect the ability of the State or local
issuers to repay their obligations.
OBLIGATIONS OF THE STATE OF CALIFORNIA
As of April 1, 1995, the State had approximately $19.2
billion of general obligation bonds outstanding, and $3.3 billion
remained authorized but unissued. In addition, at June 30, 1994,
the State had lease-purchase obligations, payable from the State's
general fund, of approximately $6.0 billion with authorized but
unissued lease purchase debt of $1.3 billion. The State's
outstanding general obligation bond debt had gradually risen in
recent years: from approximately $15.9 billion in 1991-92 to
approximately $19.2 billion in 1994-95. Of the State's
outstanding general obligation debt, approximately 22% is
presently self-liquidating (for which program revenues are
anticipated to be sufficient to reimburse the general fund for
debt service payments). Three general obligation bond
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propositions, totalling $3.7 billion, were approved by voters in
1992. The State has paid the principal of and interest on its
general obligation bonds, lease-purchase debt and short-term
obligations when due.
As of the date of this SAI, general obligation bonds issued
by the State of California are rated A1, A and A by Moody's, S&P
and Fitch, respectively. Starting in 1991 and continuing through
the middle of 1994, there has been a relatively steady
deterioration in the State's general obligation bond rating. On
July 15, 1994, all three of the rating agencies rating the State's
long-term debt lowered their ratings of the State's general
obligation bonds. Moody's lowered its rating from "AA" to "A1,"
S&P lowered its rating from "A+" to "A" and termed its outlook as
"stable," and Fitch lowered its rating from "AA" to "A." An
explanation of such actions may be obtained only from the
respective rating agencies. Future deterioration in the State's
fiscal condition could result in additional downgrades by the
rating agencies.
RECENT FINANCIAL RESULTS
Since the start of the 1990-91 fiscal year, the State has
faced the worst economic, fiscal and budget conditions since the
1930s. Construction, manufacturing (especially aerospace),
exports and financial services, among others, have all been
severely affected. Job losses have been the worst of any post-war
recession and have continued through the end of 1993. Following
Department of Finance projections that non-farm employment levels
would be stable in 1994, employment grew 3% between November 1993
and November 1994. However, unemployment is expected to remain
well above the national average through 1994.
The recession has seriously affected State tax revenues,
which basically mirror economic conditions. It has also caused
increased expenditures for health and welfare programs. The State
has also been facing a structural imbalance in its budget with the
largest programs supported by the General Fund -- K-12 schools and
community colleges, health and welfare, and corrections -- growing
at rates higher than the growth rates for the principal revenue
sources of the General Fund. As a result, the State has
experienced recurring budget deficits. The State Controller
reports that expenditures exceeded revenues for four of the five
fiscal years ending with 1991-92, and were essentially equal in
1992-93. By June 30, 1993, according to the Department of
Finance, the State's Special Fund for Economic Uncertainties had a
deficit, on a budget basis, of approximately $2.8 billion. The
1993-94 Budget Act incorporated a Deficit Retirement Plan to repay
this deficit over two fiscal years. The original budget for
1993-94 reflected revenues which exceeded expenditures by
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approximately $2.0 billion. As a result of the continuing
recession, the excess of revenues over expenditures for the fiscal
year was only about $522 million. Thus the accumulated budget
deficit at June 30, 1994 was approximately $2.0 billion, and the
deficit will not be retired by June 30, 1995 as planned.
The accumulated budget deficits over the past several years,
together with expenditures for school funding which have not been
reflected in the budget, and reduction of available internal
borrowable funds, have combined to significantly deplete the
State's cash resources to pay its ongoing expenses. In order to
meet its cash needs, the State had to rely for several years on a
series of external borrowings, including borrowings past the end
of a fiscal year.
The 1994-95 Budget Act is projected to have $41.9 billion of
General Fund revenues and transfers and $40.0 billion of budget
expenditures. In addition, the 1994-95 Budget Act anticipates
deferring retirement of about $1 billion of the accumulated budget
deficit to the 1995-96 Fiscal Year when it is intended to be fully
retired by June 30, 1996.
1993-94 BUDGET. The 1993-94 budget represented the third
consecutive year of extremely difficult budget choices for the
State, in view of the continuing recession. The budget act,
signed on June 30, 1993, provided for General Fund expenditures of
$38.5 billion, a 6.3% decline from the prior year. Revenues were
projected at $40.6 billion, about $400 million below the prior
year. To bring the budget into balance, the budget act and
related legislation provided for transfer of $2.6 billion of local
property taxes to school districts, thus relieving State support
obligations; reductions in health and welfare expenditures;
reductions in support for higher education institutions; a
two-year suspension of the renters' tax credit; and miscellaneous
cuts in general government spending and certain one-time and
accounting adjustments. There were no general State tax
increases, but a 0.5% temporary State sales tax scheduled to
expire on June 30 was extended for six months, and dedicated to
support local government public safety costs.
Revenues for 1993-94 were $800 million lower than original
projections, and expenditures were $780 million higher as a result
of higher health and welfare caseloads, lower property taxes and
lower than anticipated Federal government payments for
immigration-related costs.
1994-95 BUDGET. The 1994-95 fiscal year represents the
fourth consecutive year the Governor and Legislature were faced
with a very difficult budget environment to produce a balanced
budget. Many program cuts and budgetary adjustments have already
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been made in the last three years. The Budget recognized that the
accumulated deficit could not be repaid in one year, and proposed
a two-year solution. The budget projects operating surpluses for
the budget for both 1994-1995 and 1995-1996, and lead to the
elimination of the accumulated budget deficit, estimated at about
$2.0 billion at June 30, 1994, by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8,
1994, projects revenues and transfers of $41.9 billion, $2.1
billion higher than revenues in 1993-94. This reflects the
Administration's forecast of an improving economy. The Budget Act
projects the effective receipt of about $770 million from the
Federal Government, $360 million of which is to reimburse the
State's cost for immigrant-related expenses and the balance is
attributable to federal subventions thus reducing State
expenditures. Little or none of this money is now expected to be
received. The Legislature took no action on a proposal in the
January Governor's Budget to undertake an expansion of the
transfer of certain programs to counties, which would also have
transferred to counties 0.5% of the State's current sales tax.
The Budget Act projects Special Fund revenues of $12.1 billion, a
decrease of 2.4% from 1993-94 estimated revenues. The Governor's
1995-1996 budget proposal of January, 1995 included an upward
revision of General Fund revenues to $42.4 billion for the
1994-1995 fiscal year.
The 1994-94 Budget Act projects General Fund expenditures of
$40.9 billion, an increase of $1.6 billion over 1993-94. The
Budget Act also projects Special Fund expenditures of $13.7
billion, a 5.4% increase over 1993-94 estimated expenditures. The
1994-95 Budget Act contains no tax increases. Under legislation
enacted for the 1993-94 Budget, the renters' tax credit was
suspended for two years (1993 and 1994). A ballot proposition to
permanently restore the renters' tax credit after this year failed
at the June, 1994 election. The Legislature enacted a further
one-year suspension of the renters' tax credit for 1995, saving
about $390 million in the 1995-96 Fiscal Year. The 1994-95 Budget
assumes that the State will use a cash flow borrowing program in
1994-95 which combines one-year notes and certain warrants.
Issuance of the warrants allows the State to defer repayment of
approximately $1.0 billion of its accumulated budget deficit into
the 1995-96 Fiscal Year. The Budget Adjustment Law, enacted along
with the 1994-95 Budget Act is designed to ensure that the
warrants will be repaid in the 1995-96 Fiscal Year. The State's
severe financial difficulties for the current budget year will
result in continued pressure upon almost all local governments,
particularly school districts and counties which depend on State
aid. Despite efforts in recent years to increase taxes and reduce
governmental expenditures, there can be no assurance that the
State will not face budget gaps in the future.
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PROPOSED 1995-96 BUDGET.
On January 10, 1995, the Governor presented his proposed
fiscal year 1995-96 Budget. This budget projects total General
Fund revenues and transfers of $42.5 billion, and expenditures of
$41.7 billion, to complete the elimination of the accumulated
budget deficits from earlier years. However, this proposal leaves
no cushion, as the projected budget reserve at June 30, 1996 would
be only about $92 million. While proposing increases in funding
for schools, universities and corrections, the Governor proposes
further cuts in welfare programs, and a continuation of the
"realignment" of functions with counties which would save the
State about $240 million. The Governor also expects about $800
million in new federal aid for the State's costs of incarcerating
and educating illegal immigrants. The Budget proposal also does
not account for possible additional costs if the State loses its
appeals on lawsuits which are currently pending concerning such
matters as school funding and pension payments, but these appeals
could take several years to resolve. Part of the Governor's
proposal also is a 15% cut in personal income and corporate taxes,
to be phased in over three years, starting with calendar year 1996
(which would have only a small impact on 1995-96 income).
LEGAL PROCEEDINGS
The State is involved in certain legal proceedings (described
in the State's recent financial statements) that, if decided
against the State, may require the State to make significant
future expenditures or may substantially impair revenues.
ECONOMY
California's economy is the largest among the 50 states and
one of the largest in the world. The State's population of over
31 million represents 12.3% of the total United States population
and grew by 27% in the 1980s. Total personal income in the State,
at an estimated $683 billion in 1993, accounts for about 13% of
all personal income in the nation.
Reports issued by the State Department of Finance and the
Commission on State Finance indicate that the State's economy is
recovering from its worst recession since the 1930s. The largest
job losses have been in Southern California, led by declines in
the aerospace and construction industries. Weakness statewide
occurred in manufacturing, construction, services and trade.
Additional military base closures will have further adverse
effects on the State's economy later in the decade. California's
unemployment rate was 7.9% in April, 1995, a significant
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improvement over the previous year's level of 9.3% but still above
the national rate of 5.8%.
OTHER CONSIDERATIONS
On December 7, 1994, Orange County, California (the
"County"), together with its pooled investment fund (the "Fund")
filed for protection under Chapter 9 of the Federal Bankruptcy
Code, after reports that the Fund had suffered significant market
losses in its investments caused a liquidity crisis for the Fund
and the County. More than 180 public entities, most but not all
located in the County, were also depositors in the Fund. As of
December 13, 1994, the County estimated the Fund's loss at about
$2 billion, or 27% of its initial deposits of around $7.4 billion.
These losses could increase as the County sells investments to
restructure the Fund, or if interest rates rise. Many of the
entities which kept moneys in the Fund, including the County, are
facing cash flow difficulties because of the bankruptcy filing and
may be required to reduce programs or capital projects. The
County and some of these entities have, and others may in the
future, default in payment of their obligations. Moody's and S&P
have suspended, reduced to below investment grade levels, or
placed on "Credit Watch" various securities of the County and the
entities participating in the Fund. As of December 1994, the
Portfolio did not hold any direct obligations of the County.
However, the California Portfolio did hold bonds of some of the
government units that had money invested with the County; the
impact of the loss of access to these funds, the loss of expected
investment earnings and the potential loss of some of the
principal invested is not known at this point. There can be no
assurance that these holdings will maintain their current ratings
and/or liquidity in the market.
Although the State of California has no obligation with
respect to any obligations or securities of the County or any of
the other participating entities, under existing legal precedents,
the State may be obligated to ensure that school districts have
sufficient funds to operate. Longer term, this financial crisis
could have an adverse impact on the economic recovery that has
only recently taken hold in Southern California.
In early July, 1995, Orange County filed a proposal with the
bankruptcy court that would require holders of the County's
short-term notes to wait a year before being repaid. The
existence of this proposal and its adoption could disrupt the
market for short-term debt in California and possibly drive up the
State's borrowing costs.
The repayment of industrial development securities and other
obligations secured by real property may be affected by California
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laws limiting foreclosure rights of creditors. Securities backed
by healthcare and hospital revenues may be affected by changes in
State regulations governing cost reimbursements to health care
providers under Medi-Cal (the State's Medicaid program), including
risks related to the policy of awarding exclusive contracts to
certain hospitals.
Limitations on ad valorem property taxes may particularly
affect "tax allocation" bonds issued by California redevelopment
agencies. Such bonds are secured solely by the increase in
assessed valuation of a redevelopment project area after the start
of redevelopment activity. In the event that assessed values in
the redevelopment project area decline (e.g., because of a major
natural disaster such as an earthquake), or there is a deemphasis
or reallocation of property taxes by legislation or initiative,
the tax increment revenue may be insufficient to make principal
and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the
enactment of Articles XIII A and XIII B, and only resumed such
ratings on a selective basis.
Proposition 87, approved by California voters in 1988,
required that all revenues produced by a tax rate increase go
directly to the taxing entity which increased such tax rate to
repay the entity's general obligation indebtedness. As a result,
redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax
increment when taxes on property in the project area are increased
to repay voter-approved bonded indebtedness.
The effect of these various constitutional and statutory
changes upon the ability of California municipal securities
issuers to pay interest and principal on their obligations remains
unclear. Furthermore, other measures affecting the taxing or
spending authority of California or its political subdivisions may
be approved or enacted in the future. Legislation has been or may
be introduced which would modify existing taxes or other
revenue-raising measures or which either would further limit or,
alternatively, would increase the abilities of state and local
governments to impose new taxes or increase existing taxes. It is
not presently possible to predict the extent to which any such
legislation will be enacted. Nor is it presently possible to
determine the impact of any such legislation on California
municipal obligations in which the Portfolio may invest, future
allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or
repay the principal of, such California municipal obligations.
Certain California obligations may be payable solely from the
revenues of health care institutions. Such revenues may be
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negatively affected by efforts of the State and of private health
plans and insurers to contract with such institutions for fixed,
discounted payments for services to Medicaid and insurance
beneficiaries. Such California obligations may be insured by the
state. In the event of a default by the health care institution,
the state has the option of issuing replacement debentures payable
from a reserve fund. However, this reserve fund has been found to
be under-funded in a study conducted in 1986 and is subject to
reappropriation by the California Legislature for other purposes.
Certain California obligations may be secured by real estate
mortgages or deeds of trust. California has several statutory
provisions that may limit the remedies of secured creditors, such
as issuers of California obligations. A creditor's right to
obtain a deficiency judgment is barred when a foreclosure is
accomplished through a nonjudicial trustee's sale. A secured
creditor is also required to exhaust its real property security by
foreclosure before bringing a personal action against the debtor.
Any deficiency judgment following a judicial sale of foreclosed
property is limited to the excess of the outstanding debt over the
fair value of the property at the time of sale, even if the actual
bids at such sale were lower than such value. Finally, the debtor
has the right to redeem the foreclosed property from any judicial
foreclosure sale that could result in a deficiency judgment.
Due to certain limitations on a creditor's private powers of
sale after foreclosure, the effective minimum period for
foreclosing on a mortgage could exceed seven months after the
initial default. Such delays in collections could disrupt the
flow of revenues to an issuer for the payment of debt service on
California obligations secured by real estate mortgages. In some
cases, the nonjudicial sale of property by an issuer could be
precluded as a violation of constitutional due process.
Under California's anti-deficiency law, there is no personal
recourse against a mortgagor of a single family residence
purchased with a loan secured by a mortgage. California law also
limits the charges that may be imposed with respect to voluntary
mortgage prepayments. These provisions could affect the flow of
revenues available for debt service to the issuers of California
obligations secured by single family home mortgages.
Substantially all of California is within an active geologic
region subject to major seismic activity. Any California
municipal obligation in the California Portfolio could be affected
by an interruption of revenues because of damaged facilities, or,
consequently, income tax deduction for casualty losses or property
tax assessment reductions. Compensatory financial assistance
could be constrained by the inability of (i) an issuer to have
obtained earthquake insurance coverage at reasonable rates;
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(ii) an insurer to perform on its contracts of insurance in the
event of widespread losses; or (iii) the Federal or State
government to appropriate sufficient funds within their respective
budget limitations.
On January 17, 1994, an earthquake struck Los Angeles causing
significant damage to public and private structures and
facilities. Although some individuals and businesses suffered
losses totalling in the billions of dollars, the overall effect of
the earthquake on the regional and State economy is not expected
to be serious.
The State has shifted responsibility for certain health and
welfare programs and provided the counties with increased taxing
powers to cover their costs. While the State expects that the
increased taxes will be sufficient to cover increased costs, there
can be no assurance that this will be the case. If the increased
costs are not covered by the increased taxes, the counties will be
responsible to fund the difference. Any added expenditures in
excess of increased revenues and subsequent adverse effect upon
county finances would likely have a negative impact upon
individual county and local bond prices.
OTHER OBLIGATIONS OF PARTICULAR TYPES OF ISSUERS. The California
Portfolio may invest 25% or more of its total assets in California
obligations of the same type. There could be economic, business
or political developments which might affect all California
obligations of a similar type. In particular, investments in
certain of the bonds listed above might involve without limitation
the following risks.
California municipal obligations which are assessment bonds
may be adversely affected by a general decline in real estate
values or a slowdown in real estate sales activity. In many
cases, such bonds are secured by land which is undeveloped at the
time of issuance but anticipated to be developed within a few
years after issuance. In the event of such reduction or slowdown,
such development may not occur or may be delayed, thereby
increasing the risk of a default on the bonds. Because the
special assessments or taxes securing these bonds are not the
personal liability of the owners of the property assessed, the
lien on the property is the only security for the bonds.
Moreover, in most cases the issuer of these bonds is not required
to make payments on the bonds in the event of delinquency in the
payment of assessments or taxes, except from amounts, if any, in a
reserve fund established for the bonds.
Certain California long-term lease obligations, though
typically payable from the general fund of the municipality, are
subject to "abatement" in the event the facility being leased is
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unavailable for beneficial use and occupancy by the municipality
during the term of the lease. Abatement is not a default, and
there may be no remedies available to the holders of the
certificates evidencing the lease obligation in the event
abatement occurs. The most common cases of abatement are failure
to complete construction of the facility before the end of the
period during which lease payments have been capitalized and
uninsured casualty losses to the facility (e.g., due to
earthquake). In the event abatement occurs with respect to a
lease obligation, lease payments may be interrupted (if all
available insurance proceeds and reserves are exhausted) and the
certificates may not be paid when due.
Several years ago the Richmond Unified School District (the
"District") entered into a lease transaction in which certain
existing properties of the District were sold and leased back in
order to obtain funds to cover operating deficits. Following a
fiscal crisis in which the District's finances were taken over by
a State receiver (including a brief period under bankruptcy court
protection), the District failed to make rental payments on this
lease, resulting in a lawsuit by the Trustee for the Certificate
of Participation holders, in which the State was a named defendant
(on the grounds that it controlled the District's finances). One
of the defenses raised in answer to this lawsuit was the
invalidity of the original lease transaction. In October, 1992,
the California Superior Court of Contra Costa County, in which
Richmond is situated, dismissed a motion filed by the Trustee to
force Richmond to start budgeting payments on the defaulted
certificates of participation. One of the defenses raised in
answer to this lawsuit was the invalidity of the original lease
transaction. On December 11, 1992 the judge in the case ruled
that default certificates of participation were constitutional.
After the State Legislature enacted certain "bail-out" legislation
effectively guaranteeing lease rental payments, refunding
certificates were issued and the litigation was settled.
MASSACHUSETTS OBLIGATIONS. As used in this SAI, the term
"Massachusetts obligations" refers to debt obligations issued by
the Commonwealth of Massachusetts and its political subdivisions
(for example, counties, cities, towns, districts and authorities)
and the governments of the Territories, the interest on which is
exempt from both regular Federal income tax and Massachusetts
state personal income taxes. In assessing the Federal income tax
treatment of interest on any such obligation, the Portfolio will
generally rely on an opinion of counsel obtained by the issuer and
will not undertake any independent verification of the basis for
the opinion. Such bonds are issued to obtain funds for various
public and private purposes.
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OBLIGATIONS OF COMMONWEALTH OF MASSACHUSETTS AND POLITICAL
SUBDIVISIONS THEREUNDER. Beginning in 1989, the Commonwealth's
economy slowed significantly. Most of the employment growth
during this period was experienced in the services and trade
sectors of the economy, while the manufacturing sector continues
to suffer employment losses. Like most other industrial states,
Massachusetts has seen a shift in employment from manufacturing to
more technology and service-based industries. Between 1993 and
1994, per capita personal income in Massachusetts increased 3.6%
as compared to 1.7% for the nation as a whole. The unemployment
rate for the Commonwealth fell from 6.4% in October 1994 to 5.3%
for October 1995. The national unemployment rate for October
1995 was 5.5%, changed from 5.8% in October 1994.
1995 FISCAL YEAR. The Commonwealth has closed its fiscal 1995
financial records and published its audited financial information.
Fiscal 1995 tax revenue collections were approximately $11.163
billion, approximately $12 million above the Department of Revenue's
revised fiscal year 1995 tax revenue estimate of $11.151 billion,
approximately $556 million, or 5.2%, above fiscal 1994 tax revenues
of $10.607 billion. Budgeted revenues and other sources, including
non-tax revenues, collected in fiscal 1995 were approximately
$16.387 billion, approximately $837 million, or 5.4%, above fiscal
1994 budgeted revenues of $15.550 billion. Budgeted expenditures and
other uses of funds in fiscal 1995 were approximately $16.251
billion, approximately $728 million, or 4.7%, above fiscal 1994
budgeted expenditures and uses of $15.523 billion. The Commonwealth
ended fiscal 1995 with an operating gain of $137 million and an
ending fund balance of $726 million.
Budgeted revenues and other sources to be collected in fiscal
1996 are estimated by the Executive Office for Administration and
Finance to be approximately $16.778 billion. This amount includes
estimated fiscal 1996 tax revenues of $11.653 billion, which is
approximately $490 million, or 4.3%, higher than fiscal 1995 tax
revenues.
In connection with his proposal to reorganize state government,
the Governor also announced on November 1, 1995 that he would
propose to reduce the personal income tax rate on earned income from
5.95% to 5.45%. Legislation to effectuate such tax reduction is
expected to be filed by the Governor in January, 1996 in conjunction
with the filing of his budget recommendations for fiscal 1997. The
cost to the Commonwealth of the proposed tax reduction has been
estimated to be approximately $500 million per year.
In June, 1993, the Legislature adopted and the Governor
signed into law comprehensive education reform legislation. This
legislation required an increase in expenditures for education
purposes above fiscal 1993 base spending of $1.288 billion of
approximately $175 million in fiscal 1994. The Executive Office
for Administration and Finance expects annual increases in
expenditures above the fiscal 1993 base spending of $1.288 billion
(after the expenditure of approximately $397 million in fiscal
1995) of $629 million in fiscal 1996 and approximately $872 million
in fiscal 1997. Additional annual increases are also expected in
later fiscal years.
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Major infrastructure projects are anticipated over the next
decade. It is currently anticipated that the federal government
will assume responsibility for approximately 90% of the $7.7 billion
cost of projects which consist of the depression of the central
artery which traverses the City of Boston and the construction of a
third harbor tunnel linking downtown Boston to Logan Airport.
The Massachusetts Water Resources Authority is undertaking
capital projects for the construction and rehabilitation of sewage
collection and treatment facilities in order to bring wastewater
discharges into Boston Harbor into compliance with federal and state
pollution control requirements. The harbor cleanup project is
estimated to cost $3.5 billion in 1994 dollars. Work on the project
began in 1988 and is expected to be completed in 1999, with the most
significant expenditures occurring between 1990 and 1999. The
majority of the project's expenditures will be paid for by local
communities, in the form of user fees, with federal and state
sources making up the difference.
The fiscal viability of the Commonwealth's authorities and
municipalities is inextricably linked to that of the Commonwealth.
The Commonwealth guarantees the debt of several authorities, most
notably the Massachusetts Bay Transportation Authority and the
University of Massachusetts Building Authority. Their ratings are
based on this guarantee and can be expected to move in tandem.
Several other authorities are funded in part or in whole by the
Commonwealth and their debt ratings may be adversely affected by a
negative change in those of the Commonwealth.
Massachusetts' municipal governments are constrained in their
ability to increase local revenues by an initiative passed in
1980, "Proposition 2 1/2." Proposition 2 1/2 limits the amount of
property taxes that can be levied in a fiscal year to the lower of
2.5% of fair value or 102.5% of the previous year's levy unless
overridden by a majority of local voters. Proposition 2 1/2 also
limits the amount the municipality can be charged by certain
government entities such as counties. While Proposition 2 1/2 is not
a constitutional question and can therefore be amended or
abolished by the legislature, no significant challenge has been
raised since it took effect. Any fiscal problems encountered by the
state amplify the economic and fiscal problems encountered by cities
and towns throughout the Commonwealth. Any Commonwealth fiscal
problems which result in local aid reductions could, in the
absence of overrides, result in payment defaults by local cities
and towns and/or ratings downgrades resulting in an erosion of
their market value.
NEW YORK OBLIGATIONS. As used in this SAI, the term "New York
obligations" refers to debt obligations issued by the State of New
York and its political subdivisions (for example, counties,
cities, towns, districts and authorities) and the Territories, the
interest on which is exempt from both regular Federal income tax
and New York State and New York City income taxes. In assessing
the Federal income tax treatment of interest on any such
obligation, the Portfolio will generally rely on an opinion of
counsel obtained by the issuer and will not undertake any
independent verification of the basis for the opinion. Such bonds
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are issued to obtain funds for various public and private
purposes.
The recession lasted longer in New York and the State's
economic recovery has lagged behind the nation's. Although the
State has added approximately 185,000 jobs since November 1992,
employment growth in the State has been below the national average
primarily due to significant cutbacks in the computer,
manufacturing, defense and banking industries. New York's economy
is expected to continue to expand modestly during 1995 with a
pronounced slow-down during the course of the year. The
unemployment rate for the State for 1995 is projected to be 6.4%,
compared to the national rate of 5.6%. New York City's
unemployment rate was 8.1% in June 1995, down from 8.5% a year
earlier.
For the fiscal year 1991-92, the State incurred an operating
deficit in the General Fund of $575 million, which, after a $44
million withdrawal from the Tax Stabilization Reserve Fund, was
financed through the public issuance of $531 million of 1992
Deficit Notes on March 30, 1992.
In the 1992-1993 fiscal year, the State began the process of
financial reform closing the fiscal year with fund surpluses
totalling $738 million. The 1992-1993 fiscal year marked the
first time in four years that the state did not have to issue
deficit notes to close a budget gap.
The 1993-1994 fiscal year ended with combined fund balances
of $1.539 billion due to an improving national economy, State
employment growth, better than projected tax collections and
disbursements that were below projections.
The 1994-1995 fiscal year, which included tax reductions of
$476 million, closed with the General Fund in balance and positive
fund balances of $157 million and $1 million in the Tax
Stabilization reserve Fund and the Contingency Reserve Fund,
respectively. Tax revenues for the fiscal year fell short of
original projections by $1.16 billion, the shortfall being offset
by disbursements which were lower than projected and planned
spending reductions.
The 1995-1996 fiscal year budget, adopted in June 1995,
includes a planned three-year 20% reduction in the State's
personal income tax and is the first budget in over 50 years which
projects a decline in General Fund disbursements and spending on
State operations. The 1995-1996 State Financial Plan, based on
the enacted budget, includes gap-closing actions to offset a
previously projected budget gap of $5 billion, the largest in the
State's history. Such gap-closing actions include, among others,
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substantial reductions in social and medical entitlement programs,
reductions in State services and capital programs and increased
lottery revenues. There can be no assurance that additional
gap-closing measures will not be required and there is no
assurance that any such measures will enable the State to achieve
a balanced budget for its 1995-1996 fiscal year.
In 1994 and 1995, the State legislature passed a proposed
constitutional amendment on debt reform. The proposed amendment
would permit the State to issue non-voter approved revenue Bonds
secured by a pledge of certain tax receipts, up to a cap equal to
5% of State personal income. If approved by the voters in
November 1995, such amendment would become effective January 1,
1996.
During the past several years, the State has been forced to
borrow on a seasonal basis due to cash flow timing problems. In
June 1990, the LGAC was formed as a public benefit corporation for
the purpose of issuing long term obligations designed to eliminate
this need. The legislation which created the LGAC specified that
the obligations will be amortized over no more than 30 years and
put a $4.7 billion dollar cap, net of LGAC proceeds, on the
seasonal borrowing program. As of June 1995, LGAC had issued
bonds and notes to provide net proceeds of $4.7 billion completing
the program. This cap may be exceeded in cases where the Governor
and the legislature have certified the need for additional
borrowing and have devised a method for reducing it back to the
cap no later than the fourth fiscal year after the limit is
exceeded. If this cap were to be exceeded, it could result in
action by the rating agencies which could adversely affect prices
of bonds held by the New York Portfolio.
In 1975, New York City encountered severe financial
difficulties which impaired and continues to impair the borrowing
ability of the City. For each of the 1981 through 1994 fiscal
years, the City achieved balanced operating results as reported in
accordance with generally accepted accounting principles.
Pursuant to the laws of the State, the City prepares a four-year
annual financial plan, which is reviewed and revised on a
quarterly basis and which includes the City's capital, revenue and
expense projections and outlines proposed gap-closing programs for
years with projected budget gaps. The City implemented various
actions to close budget gaps of $3.3 billion, $2.1 billion and
$3.5 billion for the 1992, 1994 and 1995 fiscal years,
respectively. Such actions included, among others, tax increases,
service and personnel reductions, productivity savings, debt
refinancings, asset sales and cost savings related to employee
benefits. For the 1996 fiscal year, the City has projected a
budget gap of $3.1 billion and has proposed to implement various
gap-closing actions to balance the 1996 fiscal year budget
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including, among others, substantial reductions in entitlement
programs, service and personnel reductions, cost saving
initiatives related to labor and pension costs and increases in
certain lease and fee payments due the City. The City currently
projects budget gaps of $888 million, $1.459 billion and $1.484
billion for its 1997, 1998 and 1999 fiscal years, respectively.
The City's gap-closing plans for the 1997 through 1999 fiscal
years include reductions in City agency expenditures and cost
saving actions related to entitlement programs and procurement.
There can be no assurance that additional gap-closing measures
will not be required, the implementation of which could adversely
affect the City's economic base, and there is no assurance that
such measures will enable the City to achieve a balanced budget,
as required by State law, for any of the 1996 through 1999 fiscal
years. The fiscal health of New York City, which is the largest
issuer of municipal bonds in the country and a leading
international commercial center, exerts a significant influence
upon the fiscal health and bond values of issues throughout the
State. Bond values of the Municipal Assistance Corporation, the
State of New York, the New York Local Government Assistance
Corporation, the New York State Dormitory Authority, the New York
City Municipal Water Finance Authority and The Metropolitan
Transportation Authority would be particularly affected by serious
financial difficulties encountered by New York City. The
Portfolio could be expected to hold bonds issued by many, if not
all of these issuers, at any given time.
Moody's rates the City's general obligation bonds "Baa1" and
Fitch rates such bonds "A-". On July 10, 1995, S&P revised
downward its rating on City general obligation bonds from A- to
BBB+. S&P stated that the downgrade was a reflection of the
City's inability to eliminate a structural budget imbalance due to
persistent softness in the City's economy, weak job growth, a
trend to using nonrecurring budget devices, optimistic projections
of State and federal aid and high levels of debt service. There
is no assurance that such ratings will continue for any given
period of time or that they will not be revised downward or
withdrawn entirely. Any such downward revision or withdrawal
could have an adverse effect on obligations held by the Portfolio.
The State's economic and fiscal viability are mutually and
intricately tied to those of its authorities and localities, which
make up the major portion of State bond issuance. Any serious
financial difficulties encountered by these entities, including
their inability to access capital markets, would have a
significant, adverse effect upon the value of bonds issued
elsewhere within the State and thus upon the value of the
interests in the New York Portfolio. State plans to reduce aid to
local cities and towns may have a negative impact on municipal
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finances and ratings throughout the State. Such ratings changes
could erode the value of their bonds and for lead to defaults.
The State either guarantees or supports through
lease-purchase agreements or contractual obligations, financing
arrangements or through moral obligation provisions, a large
amount of Authority indebtedness. While debt service is normally
paid out of revenues generated by the projects of the Authorities,
the State has, from time to time, had to appropriate large amounts
in recent years to enable the Authorities to meet their financial
obligations and, in some cases, to prevent default. Certain
authorities continue to show financial weakness due to the
economy.
OHIO OBLIGATIONS. As used in this SAI, the term "Ohio
obligations" refers to debt obligations issued by the state of
Ohio and its political subdivisions (for example, counties,
cities, towns, districts and authorities) and the governments of
Puerto Rico, the U.S. Virgin Islands and Guam, the interest on
which is exempt from both regular Federal income tax and Ohio
State personal income taxes. In assessing the Federal income tax
treatment of interest on any such obligation, the Portfolio will
generally rely on an opinion of counsel obtained by the issuer and
will not undertake any independent verification of the basis for
the opinion. Such bonds are issued to obtain funds for various
public and private purposes.
CERTAIN CONSIDERATIONS. The State's 1994-95 biennium presented a
more affirmative fiscal picture. The biennium ended June 30, 1995
with a General Revenue Fund balance of $928 million, of which $535.2
million has been transferred into the Budget Stabilization Fund (a
cash and budgetary management fund, which had a January 4, 1996
balance of over $828 million).
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 their means. The State carries out
most of its operations through the General Revenue Fund ("GRF")
which receives general state revenues not otherwise dedicated.
General Fund 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,
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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.
The general appropriations act for the 1994-95 biennium was
signed by the Governor on July 1, 1993. This act appropriated
$30.7 billion for GRF purposes. Appropriations the first fiscal
year of the biennium were approximately 9.2% above those for
fiscal year 1993 while those for the second year were
approximately 6.6% higher than those for fiscal year 1994. These
additional appropriations were mainly for increased costs in most
State financed programs such as education, Medicaid, mental health
and corrections. During the 1992-1993 biennium, the national
economic downturn required a $200 million transfer from the Budget
Stabilization Fund to the GRF. (The BSF has been replenished, and
has a current balance of over $828 million). As fiscal year 1992
progressed, reduced tax collections led to a revenue shortfall.
This, in combination with additional expenditures, produced a
projected budget deficit. The State addressed this deficit through a
combination of budget cuts, tax payment accelerations and a
depletion of the Budget Stabilization Fund. A fiscal year 1993 gap
of $520 million was covered through a combination of a tax increase
and a reduction in appropriations. The 1994-95 biennial budget was
balanced, and the State's General Revenue Fund had an ending
balance of $928 million.
Local school districts in Ohio receive a major portion of
their operating monies from State subsidies, but are dependent
upon local taxes for significant portions of their budgets.
School districts may submit for voter approval income taxes on the
district income of individuals and estates. To date, this income
tax has been approved in 117 of the State's 600+ local school
districts. A small number of local school districts have in any
year required emergency loan approval from the State in order to
avoid year-end deficits. Forty-four school districts borrowed $68.6
million in fiscal year 1992 and 27 districts borrowed $94.5 million
in 1993, including Cleveland, which borrowed $75 million.
Twenty-eight districts borrowed $41.1 million in fiscal year 1994
and 29 borrowed $71 million in fiscal year 1995 (including $29.5
million for the Cleveland District).
Litigation, similar to that in other states, is pending
questioning the constitutionality of Ohio's system of school
funding. A trial court concluded that aspects of the system
(including basic operating assistance) are unconstitutional, and
ordered the State to provide for and fund a system complying with
the Ohio Constitution. The State appealed and a court of appeals
reversed the trial court's findings for plaintiff districts. The
plaintiff coalition has filed an appeal of the court of appeals
decision to the Ohio Supreme Court. At this time, it is not possible
to determine either the outcome or the financial burden which an
unfavorable decision
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would have on either the State's or the local school districts'
financial health.
The electors approved in November 1995 a constitutional
amendment that extends the local infrastructure bond program
(authorizing an additional $1.2 billion of State full faith and
credit obligations to be issued over 10 years for the purpose), and
authorizes additional highway bonds (expected to be payable
primarily from highway use receipts). The latter supersedes the
prior $500 million highway obligation authorization, and authorizes
not more than $1.2 billion to be outstanding at any time and not
more than $220 million to be issued in a fiscal year.
Common resolutions are pending in both houses of the General
Assembly that would submit a constitutional amendment relating to
certain other aspects of State debt. The proposal would authorize,
among other things, the issuance of State general obligation debt
for a variety of purposes, with debt service on all State general
obligation debt and GRF-supported obligations not to exceed 5% of
the preceding fiscal year's GRF expenditures. It cannot be predicted
whether a proposal will in fact be submitted, or, if submitted,
approved by the electors.
OBLIGATIONS OF PUERTO RICO, VIRGIN ISLANDS AND GUAM (THE
TERRITORIES). To the extent indicated in the Prospectus, each
Portfolio may invest in the obligations of the Territories.
California, Massachusetts, New York and Ohio obligations, and the
obligations in which the National Portfolio is permitted to
invest, also include obligations of the governments of the
Territories to the extent that these obligations are exempt from
the respective state's personal income taxes. Accordingly, the
Portfolios may be adversely affected by local political and
economic conditions and developments within the Territories
affecting the issuers of such obligations.
Puerto Rico has a diversified economy dominated by the
manufacturing and service sectors. Manufacturing is the largest
sector in terms of gross domestic product and is more diversified
than during earlier phases of Puerto Rico's industrial
development. The three largest sectors of the economy (as a
percentage of employment) are services (47%), government (22%) and
manufacturing (16.4%). These three sectors represent 39%, 11% and
39%, respectively, of the gross domestic product. The service
sector is the fastest growing, while the government and
manufacturing sectors have been stagnant for the past five years.
This decline was broad based among all manufacturing industries.
The North American Free Trade Agreement ("NAFTA"), which became
effective January 1, 1994, could lead to the loss of Puerto Rico's
lower salaried or labor intensive jobs to Mexico. The February,
1995 unemployment rate was 12.5%, down from 16% for 1994.
The Commonwealth of Puerto Rico exercises virtually the same
control over its internal affairs as do the fifty states; however,
it 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 to provide for two
alternative limitations to the Section 936 tax credit. The first
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option will limit the credit against such income to 40% of the
credit allowable under current law, with a five year phase-in
period starting at 60% of the allowable credit. The second option
is a wage and depreciation based credit. The reduction of the 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 these modifications 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 a Portfolio. Puerto Rico's
financial reporting was first conformed to generally accepted
accounting principles in fiscal 1990. Nonrecurring revenues have
been used frequently to balance recent years' budgets. In
November, 1993 Puerto Ricans voted on whether they wished to
retain their Commonwealth status, become a state or establish an
independent nation. The measure was defeated, with 48.5% voting
to remain a Commonwealth, 46% voting for statehood and 4% voting
for independence. Retaining Commonwealth status will leave intact
the current relationship with the Federal government. There can
be no assurance that the statehood issue will not be brought to a
vote in the future. A successful statehood vote in Puerto Rico
would then require the U.S. Congress to ratify the election.
The United States Virgin Islands (USVI) are located
approximately 1,100 miles east-southeast of Miami and are made up
of St. Croix, St. Thomas and St. John. Population, after reaching
a peak of 110,800 in 1985, declined to 101,809 in 1990. The
economy is heavily reliant on the tourism industry, with roughly
43% of non-agricultural employment in tourist-related trade and
services. As of April, 1993, unemployment stood at 2.7%. 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 experienced
budget deficits in fiscal years 1989 and 1990: in 1989 due to wage
settlements with the unionized government employees, and in 1990
as a result of Hurricane Hugo. The USVI recorded a small surplus
in fiscal year 1991. At the end of fiscal 1992, the last year for
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which results are available, the USVI had an unreserved General
Fund deficit of approximately $8.31 million, or approximately 2.1%
of expenditures. In order to close a forecasted fiscal 1994
revenue gap of $45.6 million, the Department of Finance has
proposed several tax increases and fund transfers. There is
currently no rated, unenhanced Virgin Islands debt outstanding.
Guam, an unincorporated U.S. territory, is located 1,500
miles southeast of Tokyo. Population, 133,000 in 1990, is up 26%
from the 1980 census level. 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. Guam is expected
to benefit from the closure of the Subic Bay Naval Base and the
Clark Air Force Base in the Philippines. 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.
Unemployment was 3.2% in 1991. For 1994, the financial position
of Guam has weakened further as it incurred an unaudited General
Fund operating deficit. The administration has taken steps to
improve its financial position; however there are no guarantees
than an improvement will be realized. Guam's general obligation
debt is rated Baa by Moody's.
OTHER OBLIGATIONS OF PARTICULAR TYPES OF ISSUERS. See "The
Portfolios' Investments -- Types of Municipal Obligations" in the
Funds' Prospectus for additional information. 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.
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Pollution control and other industrial development bonds are
issued by state or local agencies to finance various projects,
including those of domestic steel producers, and may be backed
solely by agreements with such companies. Domestic steel
companies are expected to suffer the consequences of such adverse
trends as high labor costs, high foreign imports encouraged by
foreign productivity increases and a strong U.S. dollar, and other
cost pressures such as those imposed by anti-pollution
legislation. Domestic steel capacity is being reduced currently
by large-scale plant closings and this period of rationalization
may not end until further legislative protection is provided
through tariff price supports or mandatory import quotas, such as
those recently enacted for certain specialty steel products.
Life care facilities are an alternative form of long-term
housing for the elderly which offer residents the independence of
a condominium life style and, if needed, the comprehensive care of
nursing home services. Bonds to finance these facilities have
been issued by various state industrial development authorities.
Since the bonds 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.
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APPENDIX B
CMIA NATIONAL MUNICIPALS ACCOUNT
TAX EQUIVALENT YIELD TABLE
The table shows the approximate taxable bond yields which are equivalent
to tax-exempt bond yields from 4% to 7% under the regular Federal income tax
laws that apply to 1996.
<TABLE>
<CAPTION>
Combined
(Taxable Income*) Federal and TAX-EXEMPT YIELD
- ----------------------------------- State Tax -------------------------------------------------------------
Single Return Joint Return Bracket 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------- ------------ ----------- -------------------------------------------------------------
Fully-Taxable Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $24,000 Up to $40,100 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 24,001 - 58,150 $ 40,101 - 96,900 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 58,151 - 121,300 $ 96,901 - 147,700 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$121,301 - 263,750 $147,701 - 263,750 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $263,750 Over $263,750 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
</TABLE>
Yields shown are for illustration purposes only and are not meant to
represent the Account's actual yield.
*Net amount subject to Federal personal income tax after deductions and
exemptions.
Note: The above-indicated Federal Income Tax Brackets do not take into
account the effect of a reduction in the deductibility of Itemized Deductions
for taxpayers with Adjusted Gross Income in excess of $117,950, nor the
effects of phaseout of personal exemptions for single and joint filers with
Adjusted Gross Incomes in excess of $117,950 and $176,950, respectively. The
effective top marginal Federal income tax brackets of taxpayers over ranges
of income subject to these reductions or phaseouts will be higher than
indicated above.
Of course, no assurance can be given that CMIA National Municipals Account
will achieve any special tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from regular Federal income tax, other income received by the
Portfolio and allocated to the Account may be taxable. This table does not
take into account state or local taxes, if any, payable on Account
distributions. It should also be noted that the interest earned on certain
"private activity bonds" issued after August 7, 1986, while exempt from the
regular Federal income tax, is treated as a tax preference item which could
subject the recipient to the Federal alternative minimum tax. The
illustrations assume that the Federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be available.
B-1
<PAGE>
The information set forth above is as of the date of this SAI. 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 advisers for additional information.
B-2
<PAGE>
CMIA CALIFORNIA MUNICIPALS ACCOUNT
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the 1996 regular Federal
income tax rates and California State income tax laws and tax rates
applicable for 1996. It 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% to 7%.
<TABLE>
<CAPTION>
Combined
Federal and A Federal and California State
Single Return Joint Return CA State tax exempt yield of
- ------------- ------------- tax ------------------------------------------------------------
(Taxable Income*) bracket+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------------------- ----------- ------------------------------------------------------------
Is equivalent to a fully taxable yield of:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $24,000 Up to $40,100 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,001 - 58,150 $ 40,101 - 96,900 34.70 6.13 6.89 7.66 8.42 9.19 9.95 10.72
$ 58,151 - 121,300 $ 96,901 - 147,700 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27
$121,301 - 263,750 $147,701 - 263,750 43.04 7.02 7.90 8.78 9.66 10.53 11.41 12.29
Over $263,750 Over $263,750 46.24 7.44 8.37 9.30 10.23 11.16 12.09 13.02
</TABLE>
Yields shown are for illustration purposes only and are not meant to
represent the Account's actual yield.
*Net amount subject to Federal and California personal income tax after
deductions and exemptions.
+The combined tax brackets are calculated using the highest California State
rate within the bracket. Taxpayers with taxable income within each bracket
may have a lower combined tax bracket and taxable equivalent yield than
indicated above. The combined tax brackets assume that California 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
combine tax bracket and taxable equivalent yield than those indicated above.
The applicable federal tax rates within the brackets set forth above are 15%,
28%, 31%, 36% and 39.6% over the same ranges of income.
Note: The Federal Income Tax portion of the above-indicated combined income
tax brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including California State income
taxes) for taxpayers with Adjusted Gross Income in excess of $117,950. The
tax brackets also do not show the effects of phaseout of personal exemptions
for single filers with Adjusted Gross Incomes in excess of
B-3
<PAGE>
$117,950 and joint filers with Adjusted Gross Income in excess of $176,950.
The effective tax brackets and equivalent taxable yields of such taxpayers
will be higher than those indicated above.
Of course, no assurance can be given that CMIA California Municipals Account
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular Federal income tax and California personal income
taxes, other income received by the Portfolio and allocated to the Account
may be taxable. The table does not take into account state or local taxes,
if any, payable on Account distributions except for California personal
income taxes. It should also be noted that the interest earned on certain
"private activity bonds" issued after August 7, 1986, while exempt from the
regular Federal income tax, is treated as a tax preference item which could
subject the recipient to the Federal alternative minimum tax. The
illustrations assume that the Federal alternative minimum tax 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 SAI. 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 advisor for additional information.
B-4
<PAGE>
CMIA MASSACHUSETTS MUNICIPALS ACCOUNT
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income
tax and Massachusetts state income tax laws and tax rates applicable for
1996. It 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% to 7%.
<TABLE>
<CAPTION>
Combined
Federal A Federal and Massachusetts State
Single Return Joint Return and MA tax exempt yield of:
- ------------- ------------- State tax ------------------------------------------------------------
(Taxable Income*) bracket+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------------------- ----------- ------------------------------------------------------------
Is equivalent to a fully taxable yield of:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 25.20% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69% 9.36%
$ 24,001 - 58,150 $ 40,101 - 96,900 36.64 6.31 7.10 7.89 8.68 9.47 10.26 11.05
$ 58,151 - 121,300 $ 96,901 - 147,700 39.28 6.59 7.41 8.23 9.06 9.88 10.70 11.53
$121,301 - 263,750 $147,701 - 263,750 43.68 7.10 7.99 8.88 9.77 10.65 11.54 12.43
Over $263,750 Over $263,750 46.85 7.53 8.47 9.41 10.35 11.29 12.23 13.17
</TABLE>
Yields shown are for illustration purposes only and are not meant to
represent the Account's actual yield.
*Net amount subject to Federal and Massachusetts personal income tax after
deductions and exemptions.
+ The combined tax rates include a Massachusetts tax rate of 12% applicable to
taxable bond interest and dividends, and assume that Massachusetts 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.
Note: The Federal income tax portion of the above-indicated combined income
tax brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Massachusetts state income
taxes) for taxpayers with Adjusted Gross Income in excess of $117,950. The
tax brackets also do not show the effects of phaseout of personal exemptions
for single filers with Adjusted Gross Incomes in excess of $117,950 and joint
filers with Adjusted Gross Income in excess of $176,950. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
B-5
<PAGE>
Of course, no assurance can be given that CMIA Massachusetts Municipals
Account will achieve any specific tax exempt yield. While it is expected
that the Portfolio will invest principally in obligations, the interest from
which is exempt from the regular Federal income tax and Massachusetts
personal income taxes, other income received by the Portfolio and allocated
to the Account may be taxable. The table does not take into account state or
local taxes, if any, payable on Account distributions except for
Massachusetts personal income taxes. It should also be noted that the
interest earned on certain "private activity bonds" issued after August 7,
1986, while exempt from the regular Federal income tax, is treated as a tax
preference item which could subject the recipient to the Federal alternative
minimum tax. The illustrations assume that the Federal alternative minimum
tax 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 SAI. 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 with their tax advisor for additional information.
B-6
<PAGE>
CMIA NEW YORK MUNICIPALS ACCOUNT
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income
tax and New York State and New York City income tax laws in effect for 1996.
It 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% to 7%.
<TABLE>
<CAPTION>
Combined
Federal NY
State A Federal, New York State and
Single Return Joint Return and NY New York City tax exempt yield of
- ------------- ------------- City tax ------------------------------------------------------------
(Taxable Income*) bracket+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------------------- ----------- ------------------------------------------------------------
Is equivalent to a fully taxable yield of:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 24.79% 5.32% 5.98% 6.65% 7.31% 7.98% 8.64% 9.31%
$ 24,001 - 58,150 $ 40,101 - 96,900 36.30 6.28 7.06 7.85 8.63 9.42 10.20 10.89
$ 58,151 - 121,300 $ 96,901 - 147,700 36.99 6.56 7.38 8.20 9.02 9.83 10.65 11.47
$121,301 - 263,750 $147,701 - 256,500 43.41 7.07 7.95 8.84 9.72 10.60 11.49 12.37
Over $263,750 Over $263,750 46.60 7.49 8.43 9.36 10.30 11.24 12.17 13.11
</TABLE>
Yields shown are for illustration purposes only and are not meant to
represent the Account's actual yield.
*Net amount subject to Federal, New York State and New York City personal
income tax (including New York City personal income tax surcharges) after
deductions and exemptions.
+ The first two combined tax brackets are calculated using the highest State
rate (7.125% effective annualized State tax rate based on a rate of 7.5% for
the first 3 months of the 1996 tax year and 7.0% for the remaining 9 months)
and the highest City rate (including surcharges) applicable at the upper
portion of such bracket. Taxpayers with taxable income below the highest
dollar amount in the two lowest brackets may have a lower combined tax
bracket and taxable equivalent yield than indicated above. The applicable
State and City rates are at their maximum (7.125% and 4.457%, respectively)
throughout all other brackets.
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income
tax and New York State income tax laws in effect for 1996. It 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% to 7%.
B-7
<PAGE>
<TABLE>
<CAPTION>
Combined A Federal and New York State
Single Return Joint Return Federal tax exempt yield of:
- ------------- ------------- and NY State ------------------------------------------------------------
(Taxable Income*) tax bracket+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------------------- ------------- ------------------------------------------------------------
Is equivalent to a fully taxable yield of:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 21.06% 5.07% 5.70% 6.33% 6.97% 7.60% 8.23% 8.87%
$ 24,001 - 58,150 $ 40,101 - 96,900 33.13 5.98 6.73 7.46 8.22 8.97 9.72 10.47
$ 58,151 - 121,300 $ 96,901 - 147,700 35.92 6.24 7.02 7.80 8.58 9.36 10.14 10.92
$121,301 - 263,750 $147,701 - 256,500 40.56 6.73 7.57 8.41 9.25 10.09 10.94 11.78
Over $263,750 Over $263,750 43.90 7.13 8.02 8.91 9.80 10.70 11.59 12.48
</TABLE>
Yields shown are for illustration purposes only and are not meant to
represent the Account's yield.
*Net amount subject to Federal and New York State and personal income tax
after deductions and exemptions.
+ The first combined tax bracket is calculated using the highest State rate
(7.125% effective annualized State tax rate based on a rate of 7.5% for the
first 3 months of the 1996 tax year and 7.0% for the remaining 9 months)
within the bracket. Taxpayers with taxable income below the highest dollar
amount in the first bracket may have a lower combined tax bracket and taxable
equivalent yield than indicated above. The applicable State rate is the
maximum rate, 7.125%, throughout all other brackets. The applicable Federal
tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and
39.6% over the same ranges of income.
Note: Of course, no assurance can be given that CMIA New York Municipals
Account will achieve any specific tax exempt yield. While it is expected
that the Portfolio will invest principally in obligations, the interest from
which is exempt from the regular Federal income tax and New York State and
New York City personal income taxes, other income received by the Portfolio
and allocated to the Account may be taxable. The table does not take into
account state or local taxes, if any, payable on Account distributions except
for New York State and New York City personal income taxes. It should also
be noted that the interest earned on certain "private activity bonds" issued
after August 7, 1986, while exempt from the regular Federal income tax, is
treated as a tax preference item which could subject the recipient to the
Federal alternative minimum tax. The illustrations assume that the Federal
alternative minimum tax is not applicable and do not take into account any
tax credit that may be available.
The above-indicated combined Federal and New York State/City income brackets
assume State and City taxes are itemized Deductions and do not take into
account the effect of a reduction in the deductibility of Itemized Deductions
(including New York State and City Income Taxes) for taxpayers with Adjusted
Gross Income in excess of
B-8
<PAGE>
$117,950, nor do they reflect phaseout of personal exemptions for single and
joint filers with Adjusted Gross Income in excess of $117,950 and $176,950,
respectively. The effective combined tax brackets and equivalent taxable
yields of taxpayers who do not itemize or who are subject to such limitations
will be higher than those indicated above.
The information set forth above is as of the date of this SAI. 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 with their tax adviser for additional information.
B-9
<PAGE>
CMIA OHIO MUNICIPALS ACCOUNT
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income
tax and Ohio State income tax laws and tax rates applicable for 1996. It
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% to 7%.
<TABLE>
<CAPTION>
Combined A Federal and Ohio State
Single Return Joint Return Federal and tax exempt yield of
- ------------- ------------- Ohio State ------------------------------------------------------------
(Taxable Income*) tax bracket+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------------------- ------------- ------------------------------------------------------------
Is equivalent to a fully taxable yield of:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 19.42% 4.96% 5.58% 6.21% 6.83% 7.45% 8.07% 8.69%
$ 24,001 - 58,150 $ 40,101 - 96,900 32.28 5.91 6.64 7.38 8.12 8.86 9.60 10.34
$ 58,151 - 121,300 $ 96,901 - 147,700 35.76 6.23 7.01 7.78 8.56 9.34 10.12 10.90
$121,301 - 263,750 $147,701 - 263,750 40.80 6.76 7.60 8.45 9.29 10.14 10.98 11.82
Over $256,500 Over $256,500 44.13 7.16 8.05 8.95 9.84 10.74 11.63 12.53
</TABLE>
Yields shown are for illustration purposes only and are not meant to
represent the Account's actual yield.
*Net amount subject to Federal and Ohio personal income tax after deductions
and exemptions.
+ The combined tax brackets are calculated using the highest Ohio State rate
within the bracket. 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 each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6% over the same ranges of income.
Note: The Federal Income Tax portion of the above-indicated combined income
tax brackets does not take into account the effect of a reduction in the
deductibility of Itemized Deductions (including Ohio State Income Taxes) for
taxpayers with Adjusted Gross Income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with Adjusted Gross Incomes in excess of $117,950 and joint filers
with Adjusted Gross Income in excess of $176,950. The effective tax brackets
and equivalent taxable yields of such taxpayers will be higher than those
indicated above.
B-10
<PAGE>
Of course, no assurance can be given that CMIA Ohio Municipals Account will
achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular Federal income tax and Ohio personal income taxes,
other income received by the Portfolio and allocated to the Account may be
taxable. The table does not take into account state or local taxes, if any,
payable on Account distributions except for Ohio personal income taxes. It
should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular Federal
income tax, is treated as a tax preference item which could subject the
recipient to the Federal alternative minimum tax. The illustrations assume
that the Federal alternative minimum tax 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 with their tax
advisor for additional information.
B-11
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
PART C - OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits.
(a) Financial Statements.
(1) Included in Part A:
Financial Highlights for CMIA National Municipals Account ("National
Account"), CMIA California Municipals Account ("California Account"), CMIA
Massachusetts Municipals Accounts ("Massachusetts Account"), CMIA New York
Municipals Account ("New York Account"), CMIA Ohio Municipals Account ("Ohio
Account") (together, the "Acounts") for the period ended September 30, 1995
(audited).
(2) Included in Part B:
Financial Statements for the Accounts:
Statement of Net Assets as of September 30, 1995
Statement of Operations for the period ended September 30, 1995
Statement of Changes in Net Assets for the period ended
September 30, 1995
Notes to Financial Statements as of September 30, 1995
Auditors' Report
Financial Statements for each of National Municipals Portfolio,
California Municipals Portfolio, Massachusetts Municipals Portfolio, New York
Municipals Portfolio and Ohio Municipals Portfolio**:
Portfolios of Investments as of September 30, 1995
Statement of Assets and Liabilities as of September 30, 1995
Statement of Operations for the period ended September 30, 1995
Statement of Changes in Net Assets for the period ended
September 30, 1995
Notes to Financial Statements
Auditors' Report
<PAGE>
(b) Exhibits
1. Articles of Incorporation*
1.1 Amendment to Articles of Incorporation****
1.2 Amended and Restated Articles of Incorporation*****
1.3 Amendment to Articles of Incorporation dated
September, 1995******
2. By-Laws*
3. Not Applicable
4. Share Certificate*
5. Amendment to Investment Advisory Agreement between the
Registrant, on behalf of each series (except the Municipal
Accounts), and G.R. Phelps & Co., Inc. to add LifeSpan
Accounts****
5.1. Subadvisory Agreement among the Registrant, on behalf of
respective LifeSpan Account, G.R. Phelps & Co., Inc. and the
respective Subadvisor and schedule of omitted substantially
similar documents****
6. Underwriting Agreement between Registrant and
G.R. Phelps & Co., Inc.*
6.1. Amendment (Municipal Accounts) to Amended Underwriting
Agreement between Registrant and G.R. Phelps & Co., Inc.***
6.2. Amendment (LifeSpan Accounts) to Amended Underwriting
Agreement between Registrant and G.R. Phelps & Co., Inc.****
6.3. Dealer Agreement with G.R. Phelps & Co., Inc.*
6.4. Underwriting Agreement between Registrant and Connecticut
Mutual Financial Services, L.L.C.*****
7. Not Applicable
8. Form of Master Custodian Agreement between Registrant and
Investors' Bank & Trust Company***
C-2
<PAGE>
8.1. Amendment (LifeSpan Accounts) to Custodian Agreement between
Registrant and State Street Bank and Trust Company****
9. Transfer Agency and Service Agreement between Registrant and
State Street Bank and Trust Co.*
9.1. Amendment (Municipal Accounts) to Transfer Agency and Service
Agreement between Registrant and State Street Bank and
Trust Co.***
9.2. Amendment (LifeSpan Accounts) to Transfer Agency and Service
Agreement between Registrant and State Street Bank and
Trust Co.****
9.3. Form of Subscription Agreement among G.R. Phelps & Co., Inc.,
the Registrant, on behalf of CMIA National Municipals Account,
National Tax Free Portfolio and Eaton Vance Management***
9.4. Form of Subscription Agreement among G.R. Phelps & Co., Inc.,
the Registrant, on behalf of CMIA California Municipals
Account, California Tax Free Portfolio and Eaton Vance
Management***
9.5. Form of Subscription Agreement among G.R. Phelps & Co., Inc.,
the Registrant, on behalf of CMIA Massachusetts Municipals
Account, Massachusetts Tax Free Portfolio and Eaton Vance
Management***
9.6. Form of Subscription Agreement among G.R. Phelps & Co., Inc.,
the Registrant, on behalf of CMIA New York Municipals Account,
New York Tax Free Portfolio and Eaton Vance Management***
9.7. Form of Subscription Agreement among G.R. Phelps & Co., Inc.,
the Registrant, on behalf of CMIA Ohio Municipals Account,
Ohio Tax Free Portfolio and Eaton Vance Management***
9.8. Form of Administrative Services Agreement between Registrant,
on behalf of CMIA National Municipals Account, and
G.R. Phelps & Co., Inc.***
9.9. Form of Administrative Services Agreement between the
Registrant, on behalf of CMIA California Municipals Account,
and G.R. Phelps & Co., Inc.***
C-3
<PAGE>
9.10. Form of Administrative Services Agreement between the
Registrant, on behalf of CMIA Massachusetts Municipals
Account, and G.R. Phelps & Co., Inc.***
9.11. Form of Administrative Services Agreement between the
Registrant, on behalf of CMIA New York Municipals Account,
and G.R. Phelps & Co., Inc.***
9.12. Form of Administrative Services Agreement between the
Registrant, on behalf of CMIA Ohio Municipals Account, and
G.R. Phelps & Co., Inc.***
10. Opinion and Consent of Counsel**
10.1. Consent of Counsel in California and New York***
10.2. Consent of Counsel in Ohio***
11.1. Consent of Independent Public Accountants+
11.2. Consent of Independent Public Accountants+
12. 1995 Annual Report to Shareholders+
13. Not Applicable
14. Not Applicable
15. Form of CMIA National Municipals Account Rule 12b-1 Plan***
15.1. Form of CMIA California Municipals Account Rule 12b-1 Plan***
15.2. Form of CMIA Massachusetts Municipals Account Rule 12b-1
Plan***
15.3. Form of CMIA New York Municipals Account Rule 12b-1 Plan***
15.4. Form of CMIA Ohio Municipals Account Rule 12b-1 Plan***
15.5. Class A Rule 12b-1 Distribution Plans for the respective
Accounts and Schedule of Substantially Similar Omitted
Documents****
15.6. Class B Rule 12b-1 Distribution Plan for the respective
Accounts and Schedule of Substantially Similar Omitted
Documents*****
C-4
<PAGE>
16. Schedule of Computation for Performance Quotations (CMIA
Municipal Accounts)***
17. Financial Data Schedule+
18. Rule 18f-3 Multiple Class Plan for the respective Accounts
and Schedule of Substantially Similar Omitted Documents*****
19. Powers of Attorney***
- ------------
+ Filed herewith.
* Previously filed as exhibit to Registrant's Registration Statement
and incorporated by reference herein.
** Filed with Registrant's Rule 24f-2 Notice.
*** Previously filed with post-effective amendment no. 19 to the
Registration Statement (File No. 2-75276) (the "Registration
Statement") on July 27, 1994 and incorporated by reference herein.
**** Previously filed with post-effective amendment No. 20 to the
Registration Statement on February 10, 1995 and incorporated by
reference herein.
***** Previously filed with post-effective amendment no. 23 to the
Registration Statement on July 27, 1995 and incorporated by
reference herein.
****** Previously filed with post-effective amendment no. 24 on
September 29, 1995 and incorporated by reference herein.
ITEM 25. Persons Controlled by or Under Common Control with Registrant.
The chart that follows indicates those entities owned directly or
indirectly by Connecticut Mutual Life Insurance Company at December 31, 1995.
CONNECTICUT MUTUAL LIFE INSURANCE COMPANY
SUBSIDIARIES
AS OF 12/31/95
CM ADVANTAGE, INC.: This is a Connecticut corporation incorporated
February 27, 1984. Its business is acting as general partner in real estate
limited partnerships. DHC, Inc. owns all the outstanding stock.
CM ASSURANCE COMPANY: This is a Connecticut corporation incorporated
July 23, 1986 (CM Insurance Company) and renamed December 15, 1987. Type of
business - life insurance, endowments, annuities, accident, disability and
health insurance. Connecticut Mutual owns all the stock.
C-5
<PAGE>
CM BENEFIT INSURANCE COMPANY: This is a Connecticut corporation incorporated
April 22, 1986 as CM Pension Insurance Company and renamed CM Benefit
Insurance Company on December 15, 1987. Type of business - life insurance,
endowments, annuities, accident, disability and health insurance. Connecticut
Mutual owns all the stock.
CM INSURANCE SERVICES, INC.: A Connecticut corporation incorporated July 20,
1981 as DIVERSIFIED INSURANCE SERVICES OF AMERICA, INC. and renamed as
CM Insurance Services, Inc. on June 23, 1992. Type of business - the sale of,
solicitation for, or procurement or making of insurance or annuity contracts
and any other type of contract sold by insurance companies. DHC, Inc. owns all
the issued and outstanding stock.
CM INSURANCE SERVICES, INC. (ARKANSAS): An Arkansas corporation incorporated
January 11, 1982 as Diversified Insurance Services Agency of America and
renamed CM Insurance Services, Inc. on October 19, 1992. Type of
business - the sale of, solicitation for, or procurement or making of insurance
or annuity contracts and any other type of contract sold by insurance
companies. CM Insurance Services, Inc. owns all of the issued and outstanding
common stock.
CM INSURANCE SERVICES, INC. (TEXAS): A Texas corporation incorporated
April 16, 1982 and renamed CM Insurance Services, Inc. Type of business - the
sale of, solicitation for, or procurement or making of insurance or annuity
contracts and any other type of contract sold by insurance companies.
CM Insurance Services, Inc. controls 100 shares (100%) of the issued and
outstanding common stock through a voting trust.
CM INTERNATIONAL, INC.: A Delaware corporation incorporated July 25, 1985.
Type of business - holding a mortgage pool and issuance of collateralized
mortgage obligations. DHC, Inc. owns all the outstanding stock.
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.: This is a Maryland corporation
incorporated December 9, 1981 as Connecticut Mutual Liquid Account, Inc. It is
a diversified open-end management investment company. As of 3/31/94,
Connecticut Mutual and its various subsidiaries owned approximately 30% of
its shares.
CONNECTICUT MUTUAL FINANCIAL SERVICES SERIES FUND I, INC.: This is a Maryland
corporation organized August 17, 1981. It is a diversified open-end
management investment company. Shares of the fund are sold only to Connecticut
Mutual and its affiliates, primarily CML's Panorama separate account.
CONNECTICUT MUTUAL FINANCIAL SERVICES, LLC: A Connecticut limited liability
corporation formed November 10, 1994. It is a registered broker-dealer.
Connecticut Mutual has a 99% ownership
C-6
<PAGE>
interest and CM Strategic Ventures, Inc. has a 1% ownership interest.
CM LIFE INSURANCE COMPANY: A Connecticut corporation incorporated April 25,
1980. Its business is the sale of life insurance, endowments, annuities,
accident, disability and accident and health insurance. Connecticut Mutual owns
all the common stock.
CM PROPERTY MANAGEMENT, INC.: A Connecticut corporation incorporated
December 27, 1976 as URBCO, Inc., and renamed CM Property Management, Inc.
on October 7, 1991. Type of business - Real estate holding company. DHC, Inc.
owns all the stock.
CM STRATEGIC VENTURES, INC.: A Connecticut corporation incorporated
October 26, 1987. It acts as general partner in limited partnerships. All
outstanding stock is held by G.R. Phelps & Co., Inc.
CM TRANSNATIONAL S.A.: A Luxembourg corporation incorporated July 8, 1987.
Type of business - life insurance endowments and annuity contracts.
Connecticut Mutual owns 99.7% and DHC, Inc. owns the remaining 0.3% of
outstanding stock.
CML INVESTMENTS I CORP.: A Delaware corporation incorporated December 26,
1991. This Company is organized to authorize, co-issue, sell and deliver
jointly with CML Investments I L.P. bonds, notes or other obligations secured
by primarily non-investment grade corporate debt obligations and other
collateral. CML Investments I L.P. owns all of the outstanding stock (State
House I Corp. is the General Partner of CML Investments I L.P.).
DHC, INC.: A Connecticut corporation incorporated December 27, 1976. Type
of business - holding company. Connecticut Mutual owns all the stock.
DIVERSIFIED INSURANCE SERVICES AGENCY OF AMERICA, INC. (DISA OHIO): An Ohio
corporation incorporated March 18, 1982. Type of business - the sale of,
solicitation for, or procurement or making of insurance or annuity contracts
and any other type of contract sold by insurance companies. CM Insurance
Services, Inc. holds 100 shares (100%) of the issued and outstanding Class B
(non-voting) common. In addition, it controls 1 share (100%) of the
issued and outstanding Class A (voting) common through a voting trust.
DIVERSIFIED INSURANCE SERVICES AGENCY OF AMERICA, INC. (DISA MASSACHUSETTS): A
Massachusetts corporation incorporated March 18, 1982. Type of business -
the sale of, solicitation for, or procurement or making of insurance or
annuity contracts and any other type of contract sold by insurance companies.
CM Insurance Services, Inc. owns all of the issued and outstanding stock.
C-7
<PAGE>
DIVERSIFIED INSURANCE SERVICES AGENCY OF AMERICA, INC. (DISA ALABAMA): An
Alabama corporation incorporated January 21, 1982. Type of business - the
sale of, solicitation for, or procurement or making of insurance or annuity
contracts and any other type of contract sold by insurance companies.
CM Insurance Services, Inc. owns all of the issued and outstanding stock.
DIVERSIFIED INSURANCE SERVICES AGENCY OF AMERICA, INC. (DISA NEW YORK): A
New York corporation incorporated January 20, 1982. Type of business - the
sale of, solicitation for, or procurement or making of insurance or annuity
contracts and any other type of contract sold by insurance companies.
CM Insurance Services, Inc. owns all of the issued and outstanding common
stock.
DIVERSIFIED INSURANCE SERVICES AGENCY OF AMERICA, INC. (DISA HAWAII): A
Hawaii corporation incorporated January 13, 1982. Type of business - the sale
of, solicitation for, or procurement or making of insurance or annuity
contracts and any other type of contract sold by insurance companies.
CM Insurance Services, Inc. owns all of the issued and outstanding common
stock.
G.R. PHELPS & CO., INC.: A Connecticut corporation incorporated December 27,
1976 as AGCO, Inc., renamed Connecticut Mutual Financial Services, Inc. on
February 10, 1981, renamed again to G.R. Phelps & Co. on May 31, 1989.
Type of business - broker/dealer and investment adviser. DHC, Inc. owns
all the outstanding stock.
STATE HOUSE I CORPORATION: A Delaware corporation incorporated December 26,
1991. This Company is organized to (a) act as a general partner of
CML Investments I L.P. which will authorize, issue, sell and deliver, both
by itself and jointly with CML Investments I Corp. bonds, notes or other
obligations secured by primarily non-investment grade corporate debt
obligations; (b) to act as general partner of State House I L.P. which will
hold a limited partnership interest in CML Investments I L.P. DHC, Inc. owns
all of the outstanding stock.
SUNRIVER PROPERTIES, INC. - SHELL CORPORATION: This is an Oregon corporation
incorporated February 8, 1965. It is not actively engaged in any business.
However, its name is a valuable asset which is associated with a development
project in which CML has a substantial interest. Connecticut Mutual owns
all the outstanding stock.
URBAN PROPERTIES INC.: A Delaware corporation incorporated March 30, 1970.
Type of business - general partner in limited partnerships, real estate holding
and development company. DHC, Inc. owns all the outstanding stock.
C-8
<PAGE>
ITEM 26. Number of Holders of Securities.
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class as of December 31, 1995
-------------- ------------------------
<S> <C>
Connecticut Mutual Liquid Account 4,887
Connecticut Mutual Government Securities Account 2,704
Connecticut Mutual Income Account 1,829
Connecticut Mutual Total Return Account 14,131
Connecticut Mutual Growth Account 7,408
CMIA National Municipals Account 130
CMIA California Municipals Account 12
CMIA Massachusetts Municipals Account 8
CMIA New York Municipals Account 25
CMIA Ohio Municipals Account 33
CMIA LifeSpan Capital Appreciation Account 529
CMIA LifeSpan Balanced Account 332
CMIA LifeSpan Diversified Income Account 104
-------
Total Holders of Securities 32,132
-------
-------
</TABLE>
ITEM 27. Indemnification.
Reference is made to Article VI of By-laws filed with Post-Effective
Amendment Number 13.
ITEM 28. Business and Other Connections of Investment Adviser.
Not applicable.
ITEM 29. Principal Underwriters.
Registrant's distributor, Connecticut Mutual Financial Services, L.L.C.
("CMFS") is a wholly owned subsidiary of DHC, Inc. which in turn is a wholly
owned subsidiary of Connecticut Mutual Life Insurance Company ("CML").
CMFS is the principal underwriter for Panaroma Separate Account, a registered
investment company which is a separate account of CML and for Panorama Plus
Separate Account, a registered investment company which is a separate account
of CML each offering individual variable annuity contracts and the investment
adviser to Connecticut Mutual Financial Services Series Fund I, Inc., a
registered open-end investment company whose shares are offered to Panorama
Separate Account and Panorama Plus Separate Account and not to the public.
CMFS also serves as a broker/dealer in the sales of limited partnership
interests, mutual fund shares and other investment vehicles for which it is
not the principal underwriter.
C-9
<PAGE>
The Directors and principal officers of CMFS and their principal
occupations during the last two years are as follows:
<TABLE>
<CAPTION>
Position with Principal Occupation
Name CMFS (and other positions)
---- -------------- ---------------------
<S> <C> <C>
J. Brinke Marcucilli* Director Senior Vice President and
Chief Financial Officer, CML;
Vice President and Chief
Financial Officer, Agency
Group of the Providian
Corporation (1987-1994)
Donald H. Pond, Jr.* Director and Executive Vice President, CML
President
David E. Sams, Jr.* Director President and Chief Executive
Officer, CML (1993-Present);
President and Chief Executive
Officer - Agency Group Capital
Holdings Corporation, Louisville,
KY (1987-1993)
Emilia Bruno* Treasurer Assistant Vice President, CML
Ann F. Lomeli* Secretary Counsel and Secretary, CML
</TABLE>
*Principal Business Address is 140 Garden Street, Hartford Connecticut 06154.
ITEM 30. Location of Accounts and Records.
Books or other documents required to be maintained by the Registrant by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained by the Registrant's custodians, Investors Bank & Trust
Company, 89 South Street, Boston, MA 02111 (with respect to the CMIA Municipal
Accounts Only) and State Street Bank and Trust Company, 225 Franklin Street,
Boston, MA 02110 and the Registrant's transfer agent, NFDS, 1005 Baltimore,
5th Floor, Kansas City, MO 64105, with the exception of certain portfolio
trading documents (with respect to CMIA Municipal Accounts only) which are in
the possession and custody of Eaton Vance Management, 24 Federal Street,
Boston, MA 02110. Registrant's financial ledgers and other corporate records
are maintained at its offices at 140 Garden Street, Hartford, CT 06154.
Registrant is informed that all applicable accounts, books and documents (with
respect to CMIA Municipal Accounts only) required to be maintained by
registered investment advisers are in the custody and possession of Eaton
Vance Management.
C-10
<PAGE>
ITEM 31. Management Services.
Not applicable.
ITEM 32. Undertakings.
(a) Not applicable.
(b) Not applicable.
(c) The Company will furnish each person to whom a prospectus is
delivered with a copy of the Company's latest annual report to
shareholders, upon request and without charge.
(d) The Registrant undertakes to comply with Section 16(c) of the
Investment Company Act of 1940, as amended, as it relates to the
assistance to be rendered to shareholders with respect to the call
of a meeting to replace a director.
C-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 ("1933 Act")
the Registrant certifies that this Post-Effective Amendment No. 27 to the
Registration Statement ("PEA No. 27") meets the requirements for filing pursuant
to Rule 485(b) under the 1933 Act and it has caused PEA No. 27 to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Hartford, State of Connecticut, on the 24th day of January, 1996.
CONNECTICUT MUTUAL INVESTMENT
ACCOUNTS, INC.
By: *Donald H. Pond, Jr.
-------------------------------------
Donald H. Pond, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this PEA No. 24
has been signed below by the following persons in the capacities and on the date
indicated.
Signature Title Date
--------- ----- ----
*Donald H. Pond, Jr. President and Director
- ---------------------------- (Principal Executive
Donald H. Pond, Jr. Officer)
*Richard Hixon Ayers Director
- ----------------------------
Richard Hixon Ayers
*David Ellis Adams Carson Director
- ----------------------------
David Ellis Adams Carson
*Richard Warren Greene Director
- ----------------------------
Richard Warren Greene
*Beverly Lannquist Hamilton Director
- ----------------------------
Beverly Lannquist Hamilton
*David E. Sams, Jr. Director
- ----------------------------
David E. Sams, Jr.
*Linda M. Napoli Treasurer
- ---------------------------- (Principal Financial
Linda M. Napoli and Accounting Officer)
*By:/s/ Michael A. Chong Attorney-in-fact January 24, 1996
- ----------------------------
Michael A. Chong
<PAGE>
SIGNATURES
New York Municipals Portfolio has duly caused this Amendment No. 27 to
the Registration Statement on Form N-1A of Connecticut Mutual Investment
Accounts, Inc. (File No. 2-75276) to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 24th day of January, 1996.
NEW YORK MUNICIPALS PORTFOLIO
By: /s/ Thomas J. Fetter
--------------------------------------
Thomas J. Fetter
President
This Amendment No. 27 to the Registration Statement on Form N-1A of
Connecticut Mutual Investment Accounts, Inc. (File No. 2-75276) has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Thomas J. Fetter President (Chief
- ---------------------------- Executive Officer) January 24, 1996
Thomas J. Fetter
/s/ James L. O'Connor Treasurer and Principal
- ----------------------------- Financial and January 24, 1996
James L. O'Connor Accounting Officer
/s/ Donald R. Dwight*
- ----------------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ----------------------------- Trustee
James B. Hawkes
/s/ Samuel L. Hayes, III*
- ----------------------------- Trustee
Samuel L. Hayes, III
/s/ Norton H. Reamer*
- ----------------------------- Trustee
Norton H. Reamer
/s/ John L. Thorndike*
- ----------------------------- Trustee
John L. Thorndike
/s/ Jack L. Treynor*
- ----------------------------- Trustee
Jack L. Treynor
*By:/s/ H. Day Brigham, Jr. January 24, 1996
--------------------------
H. Day Brigham, Jr.
As Attorney-in-fact
<PAGE>
SIGNATURES
National Municipals Portfolio has duly caused this Amendment No. 27 to
the Registration Statement on Form N-1A of Connecticut Mutual Investment
Accounts, Inc. (File No. 2-75276) to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 24th day of January, 1996.
NATIONAL MUNICIPALS PORTFOLIO
By: /s/ Thomas J. Fetter
--------------------------------------
Thomas J. Fetter
President
This Amendment No. 27 to the Registration Statement on Form N-1A of
Connecticut Mutual Investment Accounts, Inc. (File No. 2-75276) has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Thomas J. Fetter President (Chief
- ---------------------------- Executive Officer) January 24, 1996
Thomas J. Fetter
/s/ James L. O'Connor Treasurer and Principal
- ----------------------------- Financial and January 24, 1996
James L. O'Connor Accounting Officer
/s/ Donald R. Dwight*
- ----------------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ----------------------------- Trustee
James B. Hawkes
/s/ Samuel L. Hayes, III*
- ----------------------------- Trustee
Samuel L. Hayes, III
/s/ Norton H. Reamer*
- ----------------------------- Trustee
Norton H. Reamer
/s/ John L. Thorndike*
- ----------------------------- Trustee
John L. Thorndike
/s/ Jack L. Treynor*
- ----------------------------- Trustee
Jack L. Treynor
*By:/s/ H. Day Brigham, Jr. January 24, 1996
--------------------------
H. Day Brigham, Jr.
As Attorney-in-fact
<PAGE>
SIGNATURES
California Municipals Portfolio has duly caused this Amendment No. 27 to
the Registration Statement on Form N-1A of Connecticut Mutual Investment
Accounts, Inc. (File No. 2-75276) to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 24th day of January, 1996.
CALIFORNIA MUNICIPALS PORTFOLIO
By: /s/ Thomas J. Fetter
--------------------------------------
Thomas J. Fetter
President
This Amendment No. 27 to the Registration Statement on Form N-1A of
Connecticut Mutual Investment Accounts, Inc. (File No. 2-75276) has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Thomas J. Fetter President (Chief
- ---------------------------- Executive Officer) January 24, 1996
Thomas J. Fetter
/s/ James L. O'Connor Treasurer and Principal
- ----------------------------- Financial and January 24, 1996
James L. O'Connor Accounting Officer
/s/ Donald R. Dwight*
- ----------------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ----------------------------- Trustee
James B. Hawkes
/s/ Samuel L. Hayes, III*
- ----------------------------- Trustee
Samuel L. Hayes, III
/s/ Norton H. Reamer*
- ----------------------------- Trustee
Norton H. Reamer
/s/ John L. Thorndike*
- ----------------------------- Trustee
John L. Thorndike
/s/ Jack L. Treynor*
- ----------------------------- Trustee
Jack L. Treynor
*By:/s/ H. Day Brigham, Jr. January 24, 1996
--------------------------
H. Day Brigham, Jr.
As Attorney-in-fact
<PAGE>
SIGNATURES
Massachusetts Municipals Portfolio has duly caused this Amendment No. 27
to the Registration Statement on Form N-1A of Connecticut Mutual Investment
Accounts, Inc. (File No. 2-75276) to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 24th day of January, 1996.
MASSACHUSETTS MUNICIPALS PORTFOLIO
By: /s/ Thomas J. Fetter
--------------------------------------
Thomas J. Fetter
President
This Amendment No. 27 to the Registration Statement on Form N-1A of
Connecticut Mutual Investment Accounts, Inc. (File No. 2-75276) has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Thomas J. Fetter President (Chief
- ---------------------------- Executive Officer) January 24, 1996
Thomas J. Fetter
/s/ James L. O'Connor Treasurer and Principal
- ----------------------------- Financial and January 24, 1996
James L. O'Connor Accounting Officer
/s/ Donald R. Dwight*
- ----------------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ----------------------------- Trustee
James B. Hawkes
/s/ Samuel L. Hayes, III*
- ----------------------------- Trustee
Samuel L. Hayes, III
/s/ Norton H. Reamer*
- ----------------------------- Trustee
Norton H. Reamer
/s/ John L. Thorndike*
- ----------------------------- Trustee
John L. Thorndike
/s/ Jack L. Treynor*
- ----------------------------- Trustee
Jack L. Treynor
*By:/s/ H. Day Brigham, Jr. January 24, 1996
--------------------------
H. Day Brigham, Jr.
As Attorney-in-fact
<PAGE>
SIGNATURES
Ohio Municipals Portfolio has duly caused this Amendment No. 27 to
the Registration Statement on Form N-1A of Connecticut Mutual Investment
Accounts, Inc. (File No. 2-75276) to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 24th day of January, 1996.
OHIO MUNICIPALS PORTFOLIO
By: /s/ Thomas J. Fetter
--------------------------------------
Thomas J. Fetter
President
This Amendment No. 27 to the Registration Statement on Form N-1A of
Connecticut Mutual Investment Accounts, Inc. (File No. 2-75276) has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Thomas J. Fetter President (Chief
- ---------------------------- Executive Officer) January 24, 1996
Thomas J. Fetter
/s/ James L. O'Connor Treasurer and Principal
- ----------------------------- Financial and January 24, 1996
James L. O'Connor Accounting Officer
/s/ Donald R. Dwight*
- ----------------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ----------------------------- Trustee
James B. Hawkes
/s/ Samuel L. Hayes, III*
- ----------------------------- Trustee
Samuel L. Hayes, III
/s/ Norton H. Reamer*
- ----------------------------- Trustee
Norton H. Reamer
/s/ John L. Thorndike*
- ----------------------------- Trustee
John L. Thorndike
/s/ Jack L. Treynor*
- ----------------------------- Trustee
Jack L. Treynor
*By:/s/ H. Day Brigham, Jr. January 24, 1996
--------------------------
H. Day Brigham, Jr.
As Attorney-in-fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Page No.
------------ --------
<S> <C>
11.1 Consent of Independent Public Accountants
11.2 Consent of Independent Public Accounts
12 1995 Annual Report to Shareholders
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 11.1
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of
this Registration Statement (Registration Statement File No. 2-75276)
for Connecticut Mutual Investment Accounts, Inc.
/s/ Arthur Andersen LLP
Hartford, Connecticut
January 22, 1996
<PAGE>
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the statement of additional
information of Connecticut Mutual Investment Accounts, Inc. (1933 Act File
No. 2-75276) on behalf of CMIA National Municipals Account, CMIA California
Municipals Account, CMIA Massachusetts Municipals Account, CMIA New York
Municipals Account, and CMIA Ohio Municipals Account of our reports relating
to the National Municipals Portfolio, California Municipals Portfolio,
Massachusetts Tax Free Portfolio, New York Tax Free Portfolio, and Ohio Tax
Free Portfolio, dated October 27, 1995.
/s/ DELOITTE & TOUCHE LLP
- ----------------------------------
Deloitte & Touche LLP
Boston, Massachusetts
January 19, 1996
<PAGE>
CMIA MUNICIPAL BOND ACCOUNTS
ANNUAL REPORT
SEPTEMBER 30, 1995
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
--------------------------
1995 ANNUAL REPORT
DEAR SHAREHOLDER:
During their first year as part of the Connecticut Mutual Investments
Accounts portfolio, our municipal bond funds performed admirably. Each of the
five funds turned in double-digit returns and performed competitively in their
respective peer groups.
These tax-free municipal bond portfolios, managed by Boston Management and
Research, joined the CMIA portfolio in October, 1994 -- just as the bond market
was near the bottom of its downward slide. The market, however, began its
recovery in mid-November 1994. Since then, bond funds such as ours have
experienced strong appreciation, aided by the market's positive reaction to slow
economic growth and low inflation.
The outstanding performance of the CMIA municipal bond funds over the past
year reflects that favorable investment environment, as well as the solid
management strategy of Boston Management and Research. This strategy of longer
than average durations compared with the fund's peers, placed the CMIA funds in
very competitive positions in their respective universes for total return
performance for the nine month
period ending September 30, 1995.
But even though the municipal market has turned
in strong results for the past 12 months, it has
underperformed the taxable market. Much of this
under-
performance is due to concerns that major tax
reform legislation could eliminate the
tax-advantaged status of municipal bonds.
While some sort of reform is likely, Boston
Management and Research thinks that it is unlikely
that it will involve sweeping changes that call
for a flat tax or elimination of major tax
deductions. Any such major tax reform would
provoke strong opposition and could seriously
depress entire sectors of the U.S. economy.
Accordingly, we view this recent
underperformance as a potential buying
opportunity. Municipal bonds could represent an
attractive asset class at these current relative
trading relationships, with the potential for
future outperformance for those investors willing
to adopt a patient, long-term investment horizon.
ECONOMIC FORECAST
After a tremendous rally in the bond market
earlier this year, the outlook for bonds continues
to be
favorable. We foresee continued moderate economic growth with low inflation --
an ideal situation for investors.
We expect inflation to hover around 3 percent, dropping even lower if the
economy slows further. A slowing of the economy could prompt the Fed to cut the
fed funds rate, possibly spurring a continuation of the bond market rally into
1996.
At the same time, the municipal bond market could benefit from the federal
budget cuts currently being discussed in Washington. Reducing the federal budget
deficit by slashing expenditures would drastically reduce the federal
government's borrowing needs. As a result, interest rates would be suppressed
across the entire yield curve. All fixed-income instruments, including municipal
bonds, would benefit.
The outlook for the tax-free market continues to be favorable due to the lack
of meaningful primary market supply of tax-free bonds. This relatively low level
of primary market supply will not be large enough to offset the $190 billion of
bonds scheduled to be called or maturing
during 1995. As a result, the outstanding supply of tax-free bonds
is expected to decline for 1995 and 1996.
The declining supply, coupled with attractive taxable equivalent
yields, could make the tax-free market an attractive sector among
the many fixed income instruments available.
SUMMARY
This year's dramatic reversal in the course of the bond market
clearly illustrates the unpredictability of the financial markets
and underscores a key tenet of investing: long-term investors
willing to ride out market ups and downs have been rewarded with
strong returns.
We will continue to monitor changes in economic and political
conditions. But, regardless of what lies ahead for the economy, the
goal of your fund remains the same: to provide you with a
competitive tax-free income from a portfolio of high-quality
municipal bonds.*
If you have any questions about the municipal bond funds, or
would like information or a prospectus on CMIA LifeSpan Accounts,
our new asset allocation accounts introduced earlier this year,
call your Registered Representative, or 1-800-234-5606, press 3.
Please remember to read the prospectus carefully before investing.
David E. Sams, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CONNECTICUT MUTUAL LIFE INSURANCE COMPANY
THE CMIA MUNICIPAL BOND ACCOUNTS
THE CMIA MUNICIPAL BOND ACCOUNTS
NATIONAL MUNICIPALS
The National Account is a diversified series of the Company. The National
Account's investment objective is to provide current income exempt from
regular Federal income tax.
CALIFORNIA TAX FREE
The California Account is a diversified series of the Company. The California
Account's investment objective is to provide current income exempt from both
regular Federal income tax and California state personal income tax.
MASSACHUSETTS TAX FREE
The Massachusetts Account is a non-diversified series of the Company. The
Massachusetts Account's investment objective is to provide current income
exempt from both regular Federal income tax and Massachusetts state personal
income tax.
NEW YORK TAX FREE
The New York Account is a non-diversified series of the Company. The New York
Account's investment objective is to provide current income exempt from
regular Federal income tax and New York state and New York City personal
income taxes.
OHIO TAX FREE
The Ohio Account is a non-diversified series of the Company. The Ohio
Account's investment objective is to provide current income exempt from both
regular Federal income tax and Ohio state personal income tax.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE.
THIS MATERIAL IS INTENDED FOR USE ONLY WHEN PRECEDED OR ACCOMPANIED BY A
PROSPECTUS.
* A PORTION OF THE PORTFOLIO'S INCOME COULD BE SUBJECT TO FEDERAL, STATE OR
LOCAL ALTERNATIVE MINIMUM TAXES. BOND FUND SHARES ARE NOT GUARANTEED AND WILL
FLUCTUATE WITH MARKET CONDITIONS AND INTEREST RATES. SHARES WHEN REDEEMED MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------- ----------------------------------------
NATIONAL CALIFORNIA
MUNICIPALS MUNICIPALS
<S> <C>
Although the Fund slightly underperformed
the Lipper average for the third quarter
of 1995, it outperformed the average, on
a year to date basis, reporting a total
return of 13.2 percent. The average total
return of all funds in the Fund's peer
group during the same period was 11.6
percent.
The Fund's outperformance during the last
nine months is a direct result of a
duration longer than most of its peer
group. In addition, the Fund continues to
selectively purchase above average yield
bonds in order to preserve the Fund's
favorable distribution rate.
EDGAR REPRESENTATION OF DATA POINTS USED
IN PRINTED GRAPHIC
<CAPTION>
LEHMAN BROS.
MUNI. BOND NATIONAL
INDEX MUNICIPALS
<S> <C> <C>
9/30/94 10,000.00 10,000
10/31/94 9,408.00 9,822
11/30/94 9,378.76 9,645
12/31/94 9,618.88 9,857
1/31/95 9,967.81 10,139
2/28/95 10,299.26 10,434
3/31/95 10,369.29 10,554
4/28/95 10,387.70 10,566
5/31/95 10,783.69 10,903
6/30/95 10,670.26 10,808
7/31/95 10,695.19 10,910
8/31/95 10,829.78 11,049
9/30/95 10,886.31 11,118
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. STANDARD RETURNS ARE NET
OF FUND EXPENSES AND INCLUDE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS.
THE W/OUT SC RETURNS DO NOT REFLECT THE EFFECTS OF SALES CHARGES. THE W/SC
ASSUMES THE CURRENT MAXIMUM INITIAL SALES CHARGE OF 4.00% FOR ALL ACCOUNTS.
CALIFORNIA MUNICIPALS
Despite weak total return performance during August, the Fund turned in an
average total return of 12.7 percent year to date, compared with 12.3 percent
Lipper average for its peer group. Performance was hindered during August by the
underperformance of holdings of both County of Los Angeles and the State of
California -- two situations viewed as temporary.
Despite poor economic conditions in Orange and Los Angeles counties, the
California economy is improving slowly -- particularly in San Francisco and the
Silicon Valley.
Management has been able to take advantage of California's size, choosing
credits very selectively, avoiding problem areas and focusing on areas of
greatest economic growth.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROS
CALIFORNIA MUNICIPALS MUNI. BOND INDEX
<S> <C> <C>
9/30/94 10,000.00 10,000
10/31/94 9,398.40 9,822
11/30/94 9,160.97 9,645
12/31/94 9,231.22 9,857
1/31/95 9,570.89 10,139
2/28/95 9,894.01 10,434
3/31/95 10,024.08 10,554
4/28/95 9,991.97 10,566
5/31/95 10,334.04 10,903
6/30/95 10,133.34 10,808
7/31/95 10,194.53 10,910
8/31/95 10,285.45 11,049
9/30/95 10,374.08 11,118
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------- ----------------------------------------
MASSACHUSETTS NEW YORK
MUNICIPALS MUNICIPALS
<S> <C>
The Fund chalked up a total return of
12.6 percent for the first nine months of
1995, compared with an 11.5 percent
return for its peer group.
The Fund continues to keep exposure to
the hospital sector quite low because of
the pressures of intense competition in
the health care sector.
In general, Massachusetts has made great
strides in recent years as employment
levels have climbed significantly,
personal income growth has accelerated
and the state's financial position has
improved. As a result of this progress,
the state's debt ratings have been
upgraded to A1 and A+ -- considerably
higher than they were at their lowest
point in early 1991.
On the fiscal front, the administration
recently initiated efforts to control
social spending, which could result in
further fiscal improvements in the
future.
EDGAR REPRESENTATION OF DATA POINTS USED
IN PRINTED GRAPHIC
<CAPTION>
LEHMAN BROS.
MUNI. BOND MASSACHUSETTS
INDEX MUNICIPALS
<S> <C> <C>
9/30/94 10,000.00 10,000
10/31/94 9,360.00 9,822
11/30/94 9,061.29 9,645
12/31/94 9,342.74 9,857
1/31/95 9,690.04 10,139
2/28/95 10,016.34 10,434
3/31/95 10,112.94 10,554
4/28/95 10,099.55 10,566
5/31/95 10,378.58 10,903
6/30/95 10,194.19 10,808
7/31/95 10,257.99 10,910
8/31/95 10,397.81 11,049
9/30/95 10,486.16 11,118
</TABLE>
NEW YORK MUNICIPALS
For the first nine months of 1995, the Fund turned in a total return of 13.2
percent, compared with the category average return of 11.5 percent.
In anticipation of potential issuance reforms, the state plans to issue an
unusually heavy calendar of state-supported appropriation debt between now and
year-end. Anticipating that state-appropriated debt will underperform in the
face of a heavy new issuance calendar, management has been reducing exposure to
state-appropriation debt and swapping into high-grade debt. Once this wave of
debt has come to market, state-appropriated debt should be attractively priced
and once again represent a buying opportunity.
This past summer, discount coupon bonds returned to favor. This was an
opportunity to sell deep discounts in the New York Portfolio and trade into more
moderate discount bonds that should perform comparably to deep discounts in an
up market and much better in a down market.
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION> LEHMAN BROS.
NEW YORK MUNICIPALS MUNI. BOND INDEX
<S> <C> <C>
9/30/94 10,000.00 10,000
10/31/94 9,360.00 9,822
11/30/94 9,041.55 9,645
12/31/94 9,325.02 9,857
1/31/95 9,651.32 10,139
2/28/95 9,989.21 10,434
3/31/95 10,101.61 10,554
4/28/95 10,100.11 10,566
5/31/95 10,415.26 10,903
6/30/95 10,243.02 10,808
7/31/95 10,327.63 10,910
8/31/95 10,466.06 11,049
9/30/95 10,524.45 11,118
</TABLE>
<PAGE>
- ----------------------------------------
<TABLE>
OHIO
MUNICIPALS
<S> <C>
In this Portfolio, the levels of new bond
issuance have decreased significantly,
creating a supply-and-demand situation
that bodes well for the value of the
bonds.
In the first nine months of 1995, the
Ohio Portfolio showed a total return of
13.7 percent, compared with an 11.4
percent total return for its peer group.
The state's economy continues to be
diverse and strong and its balance sheet
remains healthy. Ohio also benefits from
relatively conservative management and a
debt burden that is low relative to that
of other industrialized states.
Portfolio management remains highly
selective in adding health care and
hospital bonds to the Portfolio, in the
face of intense competition in the health
care arena.
EDGAR REPRESENTATION OF DATA POINTS USED
IN PRINTED GRAPHIC
<CAPTION>
LEHMAN BROS.
MUNI. BOND OHIO
INDEX MUNICIPALS
<S> <C> <C>
9/30/94 10,000.00 10,000
10/31/94 9,350.40 9,822
11/30/94 9,093.93 9,645
12/31/94 9,373.50 9,857
1/31/95 9,737.15 10,139
2/28/95 10,077.04 10,434
3/31/95 10,154.29 10,554
4/28/95 10,158.60 10,566
5/31/95 10,483.39 10,903
6/30/95 10,347.55 10,808
7/31/95 10,415.67 10,910
8/31/95 10,563.62 11,049
9/30/95 10,628.46 11,118
</TABLE>
<PAGE>
- ---------------------------------------------------------------
STATEMENT OF NET ASSETS CONNECTICUT MUTUAL INVESTMENT ACCOUNTS,
INC.
September 30, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
A C C O U N T S
<S> <C> <C> <C> <C> <C>
<CAPTION>
NATIONAL CALIFORNIA MASSACHUSETTS NEW YORK
MUNICIPALS MUNICIPALS MUNICIPALS MUNICIPALS OHIO MUNICIPALS
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in Portfolio, at value
(Identified cost $2,934,589, $282,768,
$132,214,
$358,451, $358,106) (Note 1A) $3,067,155 $ 438,154 $ 138,381 $ 374,596 $ 372,582
Receivable from Fund shares sold 1,515 -- -- 31 --
--------------- --------------- --------------- --------------- ---------------
Total Assets 3,068,670 438,154 138,381 374,627 372,582
--------------- --------------- --------------- --------------- ---------------
LIABILITIES
Dividends payable 5,689 1,606 294 340 287
Accrued expenses payable 5,372 1,882 93 644 574
--------------- --------------- --------------- --------------- ---------------
Total Liabilities 11,061 3,488 387 984 861
--------------- --------------- --------------- --------------- ---------------
NET ASSETS $3,057,609 $ 434,666 $ 137,994 $ 373,643 $ 371,721
--------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- ---------------
OUTSTANDING SHARES 285,630 42,546 13,363 35,894 35,279
--------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- ---------------
NET ASSET VALUE PER SHARE $10.70 $10.22 $10.33 $10.41 $10.54
-------- --------- --------- --------- ---------
-------- --------- --------- --------- ---------
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $2,958,125 $314,871 $133,118 $360,812 $359,041
Undistributed net investment income 19 246 12 19 62
Accumulated undistributed net realized
loss (33,101) (35,837) (1,303) (3,333) (1,858)
Net unrealized appreciation 132,566 155,386 6,167 16,145 14,476
--------------- --------------- --------------- --------------- ---------------
NET ASSETS $3,057,609 $434,666 $137,994 $373,643 $371,721
--------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements. 1
<PAGE>
- ---------------------------------------------------------------
STATEMENT OF OPERATIONS CONNECTICUT MUTUAL INVESTMENT ACCOUNTS,
INC.
For the period from October 3, 1994
(Inception)
to September 30, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
A C C O U N T S
NATIONAL CALIFORNIA MASSACHUSETTS NEW YORK
MUNICIPALS MUNICIPALS MUNICIPALS MUNICIPALS
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest income allocated from Portfolio $ 114,578 $ 53,387 $ 2,899 $ 13,637
Expenses allocated from Portfolio (7,315) (4,578) (224) (1,045)
--------------- --------------- ------- -------
Total investment income 107,263 48,809 2,675 12,592
--------------- --------------- ------- -------
Operating Expenses 5,452 1,960 141 695
--------------- --------------- ------- -------
NET INVESTMENT INCOME 101,811 46,849 2,534 11,897
--------------- --------------- ------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) from Portfolio --
Investment transactions (identified cost
basis) (9,541) (28,589) (818) 457
Financial futures contracts (23,560) (7,248) (485) (3,790)
--------------- --------------- ------- -------
Net realized loss on investments (33,101) (35,837) (1,303) (3,333)
--------------- --------------- ------- -------
Change in unrealized appreciation
(depreciation) --
Investments 130,277 162,793 6,242 15,580
Financial futures contracts 2,289 (7,407) (75) 565
--------------- --------------- ------- -------
Net unrealized appreciation 132,566 155,386 6,167 16,145
--------------- --------------- ------- -------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 99,465 119,549 4,864 12,812
--------------- --------------- ------- -------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 201,276 $ 166,398 $ 7,398 $ 24,709
--------------- --------------- ------- -------
--------------- --------------- ------- -------
<CAPTION>
- ----------------------------------------------
OHIO MUNICIPALS
<S> <C>
INVESTMENT INCOME
Interest income allocated from Portfolio $ 12,968
Expenses allocated from Portfolio (1,107)
-------
Total investment income 11,861
-------
Operating Expenses 625
-------
NET INVESTMENT INCOME 11,236
-------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) from Portfolio --
Investment transactions (identified cost
basis) 554
Financial futures contracts (2,412)
-------
Net realized loss on investments (1,858)
-------
Change in unrealized appreciation
(depreciation) --
Investments 14,390
Financial futures contracts 86
-------
Net unrealized appreciation 14,476
-------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 12,618
-------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 23,854
-------
-------
</TABLE>
2 The accompanying notes are an integral part of these financial statements.
<PAGE>
- ---------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS CONNECTICUT MUTUAL INVESTMENT ACCOUNTS,
INC.
For the period from October 3, 1994
(Inception)
to September 30, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
A C C O U N T S
NATIONAL CALIFORNIA MASSACHUSETTS NEW YORK OHIO
MUNICIPALS MUNICIPALS MUNICIPALS MUNICIPALS MUNICIPALS
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 101,811 $ 46,849 $ 2,534 $ 11,897 $ 11,236
Net realized loss on investments (33,101) (35,837) (1,303) (3,333) (1,858)
Net unrealized appreciation 132,566 155,386 6,167 16,145 14,476
--------------- -------------- --------------- --------------- ---------------
Net increase in net assets resulting from
operations 201,276 166,398 7,398 24,709 23,854
--------------- -------------- --------------- --------------- ---------------
DIVIDENDS TO SHAREHOLDERS:
From net investment income (101,792) (46,603) (2,522) (11,878) (11,174)
--------------- -------------- --------------- --------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 2,949,096 1,623,483 132,175 361,732 453,014
Net asset value of shares issued to
shareholders from reinvestment of dividends 63,742 37,455 943 10,466 8,525
Cost of shares reacquired (54,713) (1,346,067) -- (11,386) (102,498)
--------------- -------------- --------------- --------------- ---------------
Increase in net assets derived from capital
share transactions 2,958,125 314,871 133,118 360,812 359,041
--------------- -------------- --------------- --------------- ---------------
NET INCREASE IN NET ASSETS 3,057,609 434,666 137,994 373,643 371,721
NET ASSETS -- BEGINNING OF PERIOD -- -- -- -- --
--------------- -------------- --------------- --------------- ---------------
NET ASSETS -- END OF PERIOD $3,057,609 $ 434,666 $ 137,994 $ 373,643 $ 371,721
--------------- -------------- --------------- --------------- ---------------
--------------- -------------- --------------- --------------- ---------------
Undistributed net investment income included
in net assets at end of period $19 $246 $12 $19 $62
------ ------ ------- ------- ------
------ ------ ------- ------- ------
</TABLE>
The accompanying notes are an integral part of these financial statements. 3
<PAGE>
- ---------------------------------------------------------------
FINANCIAL HIGHLIGHTS CONNECTICUT MUTUAL INVESTMENT ACCOUNTS,
INC.
For the period from October 3, 1994
(Inception)
to September 30, 1995
Selected data for a share of capital stock outstanding throughout the period:
<TABLE>
<CAPTION>
DISTRIBUTIONS RATIO OF
DIVIDENDS NET REALIZED FROM NET NET ASSET NET ASSET OPERATING
YEAR NET FROM NET & UNREALIZED REALIZED VALUE AT VALUE AT EXPENSES TO
ENDED INVESTMENT INVESTMENT GAIN (LOSS) GAIN ON BEGINNING END OF AVERAGE
SEPTEMBER 30 INCOME INCOME ON INVESTMENTS INVESTMENTS OF PERIOD PERIOD NET ASSETS (B)
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
NATIONAL MUNICIPALS ACCOUNT
1995 (a) $.61 $(.61) $.70 $ -- $10.00 $10.70 .80%
CALIFORNIA MUNICIPALS ACCOUNT
1995 (a) .56 (.56) .22 -- 10.00 10.22 .80
MASSACHUSETTS MUNICIPALS ACCOUNT
1995 (a) .56 (.56) .33 -- 10.00 10.33 .80
NEW YORK MUNICIPALS ACCOUNT
1995 (a) .52 (.52) .41 -- 10.00 10.41 .80
OHIO MUNICIPALS ACCOUNT
1995 (a) .50 (.50) .54 -- 10.00 10.54 .80
<CAPTION>
RATIO OF RATIO OF NET
INTEREST INVESTMENT NET ASSETS
YEAR EXPENSE TO INCOME TO AT END OF ANNUAL
ENDED AVERAGE AVERAGE PERIOD (IN TOTAL
SEPTEMBER 30 NET ASSETS (B) NET ASSETS(B) THOUSANDS) RETURN (C)
<S> <C> <C> <C> <C>
- --------------
NATIONAL MUNIC
1995 .02% 6.45% $ 3,058 13.40%
CALIFORNIA MUN
1995 -- 5.91 435 8.06
MASSACHUSETTS
1995 -- 5.53 138 9.23
NEW YORK MUNIC
1995 .01 5.48 374 9.63
OHIO MUNICIPAL
1995 .03 5.40 372 10.71
</TABLE>
(a) For the period from October 3, 1994 (Inception) to September 30, 1995
(b) Annualized
(c) Annual total returns do not include the effect of sales charges
4 The accompanying notes are an integral part of these financial statements.
<PAGE>
- ---------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS CONNECTICUT MUTUAL INVESTMENT ACCOUNTS,
INC.
September 30, 1995
- --------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Connecticut Mutual Investments Accounts, Inc. (the Fund), a Maryland
corporation, is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Fund is comprised
of thirteen separate Accounts, five of which are included in these financial
statements: National Municipals Account, California Municipals Account,
Massachusetts Municipals Account, New York Municipals Account and Ohio
Municipals Account. Each Account invests all of its investable assets in
interests in a separate corresponding open-end management investment company
(a "Portfolio"), a New York Trust, having the same investment objective as its
corresponding Account. The National Municipals Account invests its assets in
the National Municipals Portfolio, the California Municipals Account invests
its assets in the California Tax Free Portfolio, the Massachusetts Municipals
Account invests its assets in the Massachusetts Tax Free Portfolio, the New
York Municipals Account invests its assets in the New York Tax Free Portfolio,
and the Ohio Municipals Account invests its assets in the Ohio Tax Free
Portfolio. The value of each Account's investment in its corresponding
Portfolio reflects the Account's proportionate interest in the net assets of
that Portfolio (0.14%, 0.11%, 0.05%, 0.06% and 0.12%, at September 30, 1995,
for the National Municipals Account, California Municipals Account,
Massachusetts Municipals Account, New York Municipals Account and Ohio
Municipals Account, respectively). The performance of each Account is directly
affected by the performance of its corresponding Portfolio. The financial
statements of each Portfolio, including the portfolio investments, are
included elsewhere in this report and should be read in conjunction with each
Account's financial statements.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
(a)INVESTMENT VALUATION - Valuation of securities by the Portfolios is
discussed in Note 1 of the Portfolios' Notes to Financial Statements which
are included elsewhere in this report.
(b)INCOME - Each Account's net investment income consists of the Account's pro
rata share of the net investment income of its corresponding Portfolio,
less all expenses of each Account.
(c)FEDERAL INCOME TAXES - Each Account's policy is to comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and to distribute to shareholders each year all of its taxable
and tax-exempt income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is necessary.
Dividends paid by each Account from net interest on tax-exempt municipal
bonds allocated from its corresponding Portfolio are not includable by
shareholders as gross income for federal income tax purposes because each
Account and Portfolio intend to meet certain requirements of the Internal
Revenue Code applicable to regulated investment companies which will enable
the Accounts to pay tax-exempt interest dividends. The portion of such
interest, if any, earned on private activity bonds issued after August 7,
1986, may be considered a tax preference item to shareholders.
- ---------------------------------------------------------------
2. DISTRIBUTIONS TO SHAREHOLDERS
The net income of an Account is determined daily and substantially all of the
net income so determined is declared as a dividend to shareholders of record
at the time of declaration. Distributions are paid monthly. Distributions of
realized capital gains, if any, are made at least annually. Distributions are
paid in the form of additional shares of an Account at the net asset value as
of the ex-dividend date or, at the election of the shareholder, in cash. The
Fund distinguishes between distributions on a tax basis and a financial
reporting basis. Generally accepted accounting principles require that only
distributions in excess of tax basis earnings and profits be reported in the
financial statements as a return of capital. Differences in the recognition or
classification of income between the financial statements and tax earnings and
profits which result in temporary over distributions for financial statement
purposes are classified as distributions in excess of net investment income or
accumulated net realized gains.
5
<PAGE>
- ---------------------------------------------------------------
3. CAPITAL STOCK
The authorized capital stock of the Fund at September 30, 1995 consisted of
3,000,000,000 shares of common stock, par value $0.001 per share. The shares
of stock are divided among thirteen separate Accounts, five of which are
indicated below. All shares of common stock have equal voting rights, except
that only shares of a particular Account are entitled to vote on matters
pertaining to that Account.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD FROM OCTOBER 3, 1994 (INCEPTION) TO SEPTEMBER 30, 1995
NATIONAL CALIFORNIA MASSACHUSETTS NEW YORK
MUNICIPALS MUNICIPALS MUNICIPALS MUNICIPALS
<S> <C> <C> <C> <C>
Shares authorized (in millions) 200 200 200 200
--- --- --- ---
--- --- --- ---
Shares sold 284,763 169,643 13,270 35,980
Shares issued to shareholders from reinvestment
of dividends 6,005 3,744 93 1,020
------- --------------- ------ ------
Total issued 290,768 173,387 13,363 37,000
Shares reacquired (5,138) (130,841) -- (1,106)
------- --------------- ------ ------
Net increase 285,630 42,546 13,363 35,894
------- --------------- ------ ------
------- --------------- ------ ------
<CAPTION>
- --------------------------------------------------
OHIO
MUNICIPALS
<S> <C>
Shares authorized (in millions) 200
---
---
Shares sold 44,330
Shares issued to shareholders from reinvestment
of dividends 821
------
Total issued 45,151
Shares reacquired (9,872)
------
Net increase 35,279
------
------
</TABLE>
- --------------------------------------------------
4. INVESTMENT TRANSACTIONS
Increases and decreases in each Account's investment in its corresponding
Portfolio for the period from October 3, 1994 (inception) to September 30,
1995 were as follows:
<TABLE>
<CAPTION>
NATIONAL CALIFORNIA MASSACHUSETTS NEW YORK
MUNICIPALS MUNICIPALS MUNICIPALS MUNICIPALS
<S> <C> <C> <C> <C>
Increases $2,947,581 $1,623,484 $ 132,176 $ 361,701
Decreases 87,154 1,353,687 1,333 12,509
<CAPTION>
OHIO
MUNICIPALS
<S> <C>
Increases $ 453,014
Decreases 104,911
</TABLE>
- --------------------------------------------------
5. TRANSACTIONS WITH AFFILIATES
G. R. Phelps & Co., Inc., a wholly owned subsidiary of Connecticut Mutual
Life Insurance Company, Inc., serves as the administrator of each Account,
but receives no compensation. For the period from October 3, 1994 (inception)
to September 30, 1995, the Administrator, serving as principal underwriter
for sale of shares of the Accounts, earned $174,385 related to sales charges
deducted for shares sold and contingent deferred sales charges for shares
redeemed. Also, during the period from October 3, 1994 (inception) to
September 30, 1995, the Administrator subsidized operating expenses on the
Accounts in order to maintain the Accounts' annualized expense ratio limits
as set forth in the Accounts' prospectus. Subsidies were as follows: National
Municipals -- $45,680, California Municipals -- $27,997, Massachusetts
Municipals -- $27,390, New York Municipals -- $29,452 and Ohio Municipals --
$29,208. Each Portfolio has engaged the services of Boston Management and
Research, a wholly owned subsidiary of Eaton Vance Management, as its
investment adviser.
Each Account has adopted a distribution plan (Plan) in accordance with the
requirements of Rule 12b-1 of the Investment Company Act of 1940, as amended.
Under each Plan, each Account may pay G. R. Phelps & Co., Inc. (the
Distributor) a fee, not exceeding 0.25% of the Account's average daily net
assets for any fiscal year, as reimbursement for its expenditures incurred in
distributing and servicing shares of the Account. No Account has paid any
amounts pursuant to a Rule 12b-1 distribution plan during the period from
October 3, 1994 (inception) to September 30, 1995.
6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Connecticut Mutual Investment Accounts, Inc.:
We have audited the accompanying statement of net assets of Connecticut Mutual
Investment Accounts, Inc. (a Maryland corporation) National Municipals,
California Municipals, Massachusetts Municipals, New York Municipals and Ohio
Municipals Accounts as of September 30, 1995, and the related statement of
operations and statement of changes in net assets for the period from
inception (October 3, 1994) to September 30, 1995, and the financial
highlights for the period indicated. These financial statements and financial
highlights are the responsibility of the Accounts' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights 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 and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Municipals Accounts comprising Connecticut Mutual Investment
Accounts, Inc. as of September 30, 1995, the results of their operations and
the changes in their net assets for the period from inception (October 3,
1994) to September 30, 1995, and the financial highlights for the period
indicated in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Hartford, Connecticut
November 15, 1995
7
<PAGE>
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS September 30, 1995
NATIONAL MUNICIPALS PORTFOLIO
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED) PRINCIPAL
- -------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS -- 100%
UTILITY REVENUE BONDS -- 4.0%
Baa2 BBB $ 10,000 Brazos River Authority, Texas, PCR, Texas Utilities Electric Company, 9.25%,
3/1/18 $ 11,183,800
Aa AA 22,600 Lewis County, Washington, Cowlitz Falls Hydroelectric Project, 5.5%, 10/1/22 21,415,308
Aa AA 10,000 Los Angeles, California, Department of Water & Power, 5%, 10/15/33 8,347,900
Aa AA 29,700 Washington Public Power Supply System, Project 2, 4.8%, 7/1/04 28,487,052
Aaa AAA 16,340 Washington Public Power Supply System, Project 2, 5%, 7/1/09 15,111,232
NR NR 5,000 West Feliciana, Louisiana, PCR, Gulf States Utilities Company Project, (AMT),
9%, 5/1/15 5,619,600
-------------
90,164,892
-------------
HEALTH CARE -- 2.5%
NR NR 17,070 Bell County, Texas, Health Facilities, Care Institute Inc., 9%, 11/1/24 18,102,223
NR NR 5,000 Delaware County, Pennsylvania, Glen Riddle Project, 8.625%, 9/1/25 5,007,700
NR NR 5,460 Hillsborough County, Florida, IDA, Center for Independent Living, Tampa
Projects, 11%, 3/1/19 (4) 4,368,000
NR NR 4,650 Hillsborough County, Florida, IDA, Center for Independent Living, Tampa
Projects, 10.25%, 3/1/09 (4) 3,720,000
NR NR 18,740 Illinois Development Finance Authority, Care Institute Inc., 7.8%, 6/1/25 17,846,851
NR NR 7,915 Roseville, Minnesota, Elder Care Facility, Care Institute Inc., 7.75%, 11/1/23 7,960,828
-------------
57,005,602
-------------
HOSPITALS -- 11.2%
NR BBB 7,000 Arizona Health Facilities, Phoenix Memorial, 8.2%, 6/1/21 7,473,760
NR NR 2,450 Berlin, Maryland, Atlantic General, 8.375%, 6/1/22 2,590,703
Baa1 BBB+ 12,700 Butler County, Pennsylvania, Butler Memorial, 8%, 7/1/16 13,372,719
Baa NR 10,180 Chaves County, New Mexico, Eastern New Mexico Medical Center, 7.25%, 12/1/22 10,376,270
NR BBB+ 8,405 Christian County, Kentucky, Jennie Stuart Medical Center, 7.625%, 4/1/10 8,768,012
Baa BBB 35,000 Colorado Health Facilities, Rocky Mountain Adventist Healthcare, 6.625%,
2/1/22 34,082,650
NR BBB- 3,000 Colorado Health Facilities, National Jewish Center For Immunology and
Respiratory Medicine, 6.875%, 2/15/12 2,943,420
NR BBB- 5,015 Colorado Health Facilities, National Jewish Center For Immunology and
Respiratory Medicine, 7.1%, 2/15/22 4,869,213
Baa1 NR 4,000 Crossville, Tennessee, HEFA, Cumberland Medical Center, 6.75%, 11/1/12 4,051,080
Baa1 BBB 6,000 District of Columbia, Washington Hospital Center Issue -- Medlantic Healthcare
Group, Inc., 7.125%, 8/15/19 5,982,240
NR A- 5,000 Dubuque, Iowa, Finley Hospital Project, 6.875%, 1/1/12 5,234,550
NR NR 1,325 Grant County, New Mexico, Gila Regional Medical Center, 10%, 2/1/12 1,404,898
NR BBB- 5,720 Grove City Area Hospital Authority, Pennsylvania, United Community Hospital,
8.125%, 7/01/12 5,920,886
NR BBB- 4,000 Hawaii Department of Budget and Finance, Special Purpose Mortgage Revenue,
Wahiawa General Hospital, 7.5%, 7/1/12 4,118,080
NR NR 4,760 Health Services Authority of Hazelton, Luzerne County, Pennsylvania, Hazelton
-- Saint Joseph Medical Center, 8.375%, 7/1/12 4,921,078
NR BBB+ 4,650 Illinois, Chicago Osteopathic Health Systems, 7.125%, 5/15/11 4,795,778
NR BBB+ 4,500 Illinois, Chicago Osteopathic Health Systems, 7.25%, 5/15/22 4,615,245
Baa1 NR 1,000 Illinois HFA, Holy Cross Hospital, 6.7%, 3/1/14 1,000,660
Baa1 NR 2,650 Illinois HFA, Holy Cross Hospital, 6.75%, 3/1/24 2,623,341
Baa NR 4,500 Indiana Health Facility Financing Authority, Memorial Hospital and Health Care
Center, 7.4%, 3/1/22 4,618,440
Baa1 BBB+ 3,750 Louisiana Public Facilities Authority, Woman's Hospital Foundation, 7.25%,
10/1/22 3,824,325
Baa BB+ 10,000 Maricopa County, Arizona, Sun Health Corporation, 8.125%, 4/1/12 10,701,300
Baa NR 2,000 Marshall County, Alabama, Guntersville -- Arab Medical Center, 7%, 10/1/09 2,048,160
</TABLE>
8
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED) PRINCIPAL
- -------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
HOSPITALS (CONTINUED)
Baa NR $ 2,000 Marshall County, Alabama, Guntersville -- Arab Medical Center, 7%, 10/1/13 $ 2,029,360
NR BBB 6,000 Midland County Hospital District, Memorial Hospital and Medical Center, 0%,
6/1/07 2,972,040
NR BBB 6,500 Midland County Hospital District, Memorial Hospital and Medical Center, 0%,
6/1/11 2,360,020
Ba NR 5,000 Mississippi Hospital Equipment and Facilities Authority, Magnolia Hospital,
7.375%, 10/1/21 4,962,800
NR BBB 5,340 Montgomery County, Ohio, Dayton Osteopathic Hospital, 6%, 12/1/12 4,956,268
Ba1 NR 3,090 Montgomery County, Pennsylvania, United Hospitals, Inc., 7.5%, 11/1/13 3,112,279
Ba1 NR 2,000 Montgomery County, Pennsylvania, United Hospitals, Inc., 7.5%, 11/1/14 2,011,620
Ba1 NR 3,465 Montgomery County, Pennsylvania, United Hospitals, Inc., 7.5%, 11/1/15 3,482,706
Baa NR 8,405 New Hampshire HEFA, Frisbie Memorial Hospital, 6.125%, 10/1/13 7,928,857
A BBB+ 10,000 Philadelphia, Pennsylvania, Albert Einstein Medical Center, 7%, 10/1/21 10,402,900
Baa1 BBB+ 9,000 Philadelphia, Pennsylvania, Graduate Health System Obligated Group, 6.625%,
7/1/21 8,829,900
Baa1 A- 9,250 Philadelphia, Pennsylvania, Temple University Hospital, 6.625%, 11/15/23 9,173,318
Baa NR 6,000 Prince George's County, Maryland, Greater Southeast Healthcare System, 6.375%,
1/1/23 5,444,700
Baa1 BBB+ 10,000 Randolph County Building Commission, West Virginia, Davis Memorial Hospital,
7.65%, 11/1/21 10,495,900
NR BB+ 8,000 Scranton -- Lackawanna Health and Welfare Authority, Pennsylvania, Moses
Taylor Hospital, 8.25%, 7/1/09 8,384,720
Baa BBB 8,000 South Dakota HEFA, Prairie Lakes Health Care System Issue, 7.25%, 4/1/22 8,148,160
NR NR 5,220 Vermont Educational and Health Buildings Financing Agency, Northwestern
Medical Center Project, 9.75%, 9/1/18 5,682,440
NR NR 4,950 Winslow, Arizona, IDA, Winslow Memorial Hospital, 9.5%, 6/1/22 5,444,406
-------------
256,159,202
-------------
LIFE CARE -- 8.4%
NR NR 8,616 Albuquerque, New Mexico, First Mortgage IDR, La Vida Llena Retirement Center
8.625%, 2/1/20 9,075,061
NR NR 7,000 Albuquerque, New Mexico, First Mortgage IDR, La Vida Llena Retirement Center
8.85%, 2/1/23 7,451,150
NR NR 5,744 Albuquerque, New Mexico, First Mortgage IDR, La Vida Llena Retirement Center
2.25%, 2/1/23 1,872,659
NR NR 10,000 Atlantic Beach, Florida, Fixed Rate Improvement, Fleet Landing Project, 8%,
10/1/24 10,455,200
NR NR 3,060 Chester County, Pennsylvania, Kimberton Project, (AMT), 8.5%, 9/1/25 3,066,946
NR NR 5,185 Collier County, IDA, Florida, Retirement Rental, Beverly Enterprises --
Florida, Inc., 10.75%, 3/1/03 6,088,590
NR NR 12,555 Dekalb Private Hospital, Georgia GF/Atlanta, 8.5%, 3/1/25 12,327,378
NR NR 4,320 Florence, Kentucky, Housing Facilities, Bluegrass RHF Housing, Inc., 9.5%,
7/1/17 4,582,440
NR NR 6,690 Fulton County Residential Care Facilities for the Elderly Authority, Georgia,
Lenbrook Square Foundation, Inc., 9.75%, 1/1/17 7,066,112
Baa1 NR 10,000 Indianapolis, Indiana, National Benevolent Association -- Robin Run Village,
7.625%, 10/1/22 10,466,600
NR NR 4,500 Kansas City, Missouri, IDA, Kingswood United Methodist Manor, 9%, 11/15/13 4,843,755
NR NR 2,100 Loudon County, Virginia, IDA, Residential Care, Falcons Landing, 9.25%, 7/1/04 2,252,964
NR NR 20,400 Loudon County, Virginia, IDA, Residential Care, Falcons Landing, 8.75%,
11/1/24 20,793,312
NR NR 18,545 Louisiana HFA -- HCC Assisted Living Group 1, 9%, 3/1/25 18,912,747
NR NR 1,950 New Hampshire Higher Educational & Health Facilities, Riverwoods at Exeter,
8%, 3/1/01 2,000,427
</TABLE>
9
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED) PRINCIPAL
- -------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
LIFE CARE (CONTINUED)
NR NR $ 10,000 New Hampshire Higher Educational & Health Facilities, Riverwoods at Exeter,
9%, 3/1/23 $ 10,696,100
NR NR 3,500 New Jersey EDA, Cadbury Corporation -- 1991 Project, 7.5%, 7/1/21 3,432,975
NR NR 20,000 New Jersey EDA, Keswick Pines Project, 8.75%, 1/1/24 20,137,200
NR NR 10,000 New Jersey EDA, Forsgate Project, 8.625%, 6/1/25 9,763,200
NR NR 13,955 St Tammany Public Finance, Christwood Project, 9%, 11/15/25 13,739,116
NR NR 7,500 Vermont IDA, Wake Robin Corporation, 8.75%, 4/1/23 7,842,825
NR NR 4,500 Vermont IDA, Wake Robin Corporation, 8.75%, 3/1/23 4,840,605
-------------
191,707,362
-------------
NURSING HOME -- 6.7%
NR NR 13,680 Bell County, Texas, Riverside Healthcare, Inc. -- Normandy Terrace, 9%, 4/1/23 14,700,391
NR NR 5,500 Dauphin County IDA, Pennsylvania, Susquehanna Center Nursing Facility, 10%,
6/1/21 (4) 3,575,000
NR NR 5,000 Delaware County, Pennsylvania, Mainline -- Haverford Nursing and
Rehabilitation Centers, 9%, 8/1/22 5,442,150
NR NR 930 Jefferson County IDA, Missouri, Cedar Hills Retirement Village, 12%, 12/1/15 968,716
NR NR 3,750 Lackawanna County, Pennsylvania IDA, Edella Street Associates, 8.875%, 9/1/14 4,084,012
NR NR 3,445 Luzerne County, Pennsylvania, IDA, River Street Associates, 8.75%, 6/15/07 3,708,301
NR NR 6,455 Massachusetts HEFA, Fairview Extended Care Services, Inc., 10.125%, 1/1/11 7,041,437
NR NR 11,790 Mississippi Finance Corp., Magnolia Healthcare, 7.99%, 7/1/25 11,139,546
NR NR 6,750 Missouri HEFA, Bethesda Health Group of St. Louis, Inc., 6.625%, 8/15/05 6,761,340
NR NR 14,000 Missouri HEFA, Bethesda Health Group of St. Louis, Inc., 7.5%, 8/15/12 14,417,200
NR NR 12,500 Montgomery County, Pennsylvania, IDA, Advancement of Geriatric Health Care
Institute, 8.375%, 7/1/23 12,967,875
NR NR 5,000 New Jersey EDA, Claremont Health System, Inc., 9.10%, 9/1/22 5,280,600
NR NR 5,915 New Jersey EDA, Victoria Health Corporation, 7.75%, 1/1/24 5,927,067
NR NR 3,305 Okaloosa County, Florida, Beverly Enterprises -- Florida, Inc., 10.75%,
10/1/03 3,612,927
NR NR 3,500 Philadelphia, Pennsylvania, The Philadelphia Protestant Home Project, 8.625%,
7/1/21 3,559,255
Baa1 BBB 4,630 Racine County, Wisconsin, Health Center, 8.125%, 8/1/21 4,836,915
NR NR 5,000 Rhode Island Health and Education Building, Steere House, 8.25%, 7/1/15 5,276,050
NR NR 12,430 St. Paul, Minnesota, Housing and Redevelopment, Care Institute, Inc. --
Highland, 8.75%, 11/1/24 12,528,570
NR NR 5,000 Sussex County, Delaware, Delaware Health Corporation, 7.6%, 1/1/24 5,002,600
NR NR 5,000 Sussex County, Delaware, Delaware Health Corporation, 7.5%, 1/1/14 5,088,500
NR NR 4,500 Tarrant County Health Facilities, Texas, 3927 Foundation, Inc., 10.25%, 9/1/19 4,747,950
NR NR 1,805 Upshur County, West Virginia County Commission, Holbrook Nursing Home, Inc.,
10.25%, 4/1/12 1,878,120
NR NR 6,000 Westmoreland County, Pennsylvania, IDA, Highland Health System, Inc., 9.25%,
6/1/22 6,291,180
NR NR 3,605 Wood County, West Virginia, West Virginia Rehabilitation Services, Inc.,
(AMT), 9.5%, 12/1/15 3,857,206
-------------
152,692,908
-------------
SINGLE & MULTI-FAMILY HOUSING -- 3.1%
Aa AA- 9,850 California Housing Finance Agency, (AMT), "RIBS", Variable Rate, 8/1/23 (1) 9,997,750
NR NR 7,000 Chester County, Pennsylvania, IDB, Senior Life Choice of Paoli, L.P., 8.05%,
1/1/24 7,094,570
NR NR 9,500 Lake Creek Affordable Housing Corporation, Multifamily Housing, 8%, 12/1/23 9,624,165
NR NR 8,000 Los Angeles County Housing Authority, California, Multifamily Housing,
Corporate Fund for Housing Projects, 10.5%, 12/1/29 8,246,800
NR BBB+ 2,000 Massachusetts Housing Finance Authority, Multifamily, Harbor Point Revenue,
(AMT), 8%, 12/1/15 2,075,680
NR NR 3,345 Minneapolis Community Development, Multifamily, Lindsay Brothers, 9.5%,
12/1/07 3,466,892
NR NR 2,185 Minneapolis Community Development, Multifamily, Lindsay Brothers, 1.5%,
12/1/07 823,985
</TABLE>
10
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED) PRINCIPAL
- -------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
SINGLE & MULTI-FAMILY HOUSING (CONTINUED)
NR NR $ 4,770 North Little Rock Residential Housing Facilities, Arkansas, Parkstone Place,
9.75%, 8/1/21 $ 4,994,238
NR NR 4,000 North Miami, Florida, Health Care Facilities, The Imperial Club, 8%, 1/1/13 3,651,160
NR NR 8,925 North Miami, Florida, Health Care Facilities, The Imperial Club, 9.25%, 1/1/13 9,533,863
NR NR 5,000 Village of North Syracuse Housing Authority, AJM Senior Housing, Inc., Janus
Park, 8%, 6/1/24 4,878,600
NR NR 5,800 Ridgeland, Mississippi, Urban Renewal, The Orchard Limited Project, 7.75%,
12/1/15 5,740,782
-------------
70,128,485
-------------
HOTELS -- 0.6%
NR NR 3,885 Chandler, Arizona, IDA, SMP II Limited Partner, Resort/Convention Center,
7.5%, 12/1/15 3,864,409
NR NR 1,929 Illinois Development Finance Authority, Comfort Inn -- O'Hare, 10%, 5/1/16 2,107,681
NR NR 1,068 Illinois Development Finance Authority, Comfort Inn -- O'Hare, 2.5%, 5/1/16 373,194
NR NR 1,025 Kirksville, Missouri, IDA, Holiday Inn, 10.5%, 7/1/03 (4) 563,750
NR NR 3,615 Kirksville, Missouri, IDA, Holiday Inn, 11%, 7/1/16 (4) 1,988,250
NR NR 4,205 Niagara County, New York, IDA, Wintergarden Inn Associate, 9.75%, 6/1/11 (4) 2,312,750
NR NR 1,795 Orange Beach, Alabama, Romar Hotels, Inc., 10.5%, 4/1/16 1,901,156
-------------
13,111,190
-------------
GENERAL OBLIGATIONS -- 0.5%
A1 A 14,500 California, 4.75%, 9/1/23 11,848,095
-------------
LEASE/CERTIFICATES OF PARTICIPATION -- 1.0%
A A 16,500 Indiana Transportation Finance, Airport Facilities, 6.25%, 11/1/16 16,422,450
NR A- 3,500 Plymouth County, Massachusetts, COP, Plymouth County Correctional Facility,
7%, 4/1/22 3,753,015
NR NR 2,500 St. Louis, Missouri, Convention and Sports Facility, 7.9%, 8/15/21 2,741,875
-------------
22,917,340
-------------
TRANSPORTATION -- 14.4%
Baa2 BB+ 28,000 Chicago, Illinois, O'Hare International, American Airlines, (AMT), 7.875%,
11/1/25 30,009,560
Baa2 BB+ 20,275 Chicago, Illinois, O'Hare International, American Airlines, 8.2%, 12/1/24 23,277,322
Baa2 BB+ 41,000 Dallas-Fort Worth, Texas, International Airport Facility, American Airlines,
(AMT), 7.25%, 11/1/30 42,995,880
Baa BB 8,000 Denver, Colorado, Airport System Revenue, (AMT), 7%, 11/15/25 8,086,160
Baa BB 7,800 Denver, Colorado, Airport System Revenue, (AMT), 8%, 11/15/17 8,391,708
Baa BB 5,725 Denver, Colorado, Airport System Revenue, (AMT), 7.5%, 11/15/23 6,111,724
Baa3 BB 95,500 Denver, Colorado, United Airlines, (AMT), 6.875%, 10/1/32 96,293,605
A A- 5,000 Hawaii Airports, (AMT), 7%, 7/1/18 5,255,200
NR NR 2,200 Los Angeles International Airport, Continental Airlines, (AMT), 9%, 8/1/08 2,420,154
NR NR 4,425 Los Angeles International Airport, Continental Airlines, (AMT), 9%, 8/1/17 4,740,237
NR BBB 900 New York State Thruway Authority, Cross -- Westchester Expressway, 0%, 1/1/02 633,987
NR BBB 4,000 New York State Thruway Authority, Cross -- Westchester Expressway, 0%, 1/1/03 2,702,240
NR BBB 2,940 New York State Thruway Authority, Cross -- Westchester Expressway, 0%, 1/1/04 1,838,235
NR BBB 2,905 New York State Thruway Authority, Cross -- Westchester Expressway, 0%, 1/1/06 1,596,965
A1 AA- 15,000 Port Authority of New York and New Jersey, (AMT), Variable Rate, 1/15/27 (1) 15,537,300
B2 NR 11,000 Port Authority of New York and New Jersey, La Guardia Airport, Continental and
Eastern Airlines, (AMT), 9.125%, 12/1/15 12,412,620
A1 AA- 5,000 Port of Seattle, Washington, (AMT), 6%, 12/1/14 5,001,650
NR NR 35,100 San Joaquin Hills, California, Toll Roads, 0%, 1/1/17 8,098,272
NR NR 25,000 San Joaquin Hills, California, Toll Roads, 0%, 1/1/18 5,383,250
NR NR 46,210 San Joaquin Hills, California, Toll Roads, 0%, 1/1/20 8,668,072
NR NR 72,685 San Joaquin Hills, California, Toll Roads, 0%, 1/1/21 12,724,963
</TABLE>
11
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED) PRINCIPAL
- -------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
TRANSPORTATION (CONTINUED)
NR NR $ 29,225 San Joaquin Hills, California, Toll Roads, 0%, 1/1/22 $ 4,775,365
NR NR 45,045 San Joaquin Hills, California, Toll Roads, 0%, 1/1/23 6,869,363
NR NR 108,260 San Joaquin Hills, California, Toll Roads, 0%, 1/1/24 15,409,728
-------------
329,233,560
-------------
WATER & SEWER -- 0.6%
A A- 10,000 New York City Municipal Water Finance Authority, 6.25%, 6/15/21 10,065,500
Baa BBB 4,000 Philadelphia, Pennsylvania, Municipal Water Finance Authority, 7%, 8/1/18 4,473,320
-------------
14,538,820
-------------
SOLID WASTE -- 2.7%
Baa2 BBB+ 6,050 Carbon County, Utah, Laidlaw, (AMT), 7.5%, 2/1/10 6,466,603
NR A- 2,625 Eastern Connecticut, Resource Recovery, Wheelabrator, 5.5%, 1/1/14 2,382,923
NR A- 11,495 Eastern Connecticut, Resource Recovery, Wheelabrator, 5.5%, 1/1/20 10,306,187
Ba NR 2,000 Mercer County, New Jersey, Improvement Authority, (AMT), 0%, 4/1/14 533,040
Ba NR 5,000 Mercer County, New Jersey, Improvement Authority, (AMT), 0%, 4/1/15 1,240,650
Ba NR 10,000 Mercer County, New Jersey, Improvement Authority, (AMT), 0%, 4/1/16 2,310,100
NR NR 35,000 Village of Robbins, Cook County, Illinois, Robbins Resource Recovery Partners,
L.P., 9.25%, 10/15/16 38,525,200
-------------
61,764,703
-------------
COGENERATION FACILITIES -- 3.3%
NR NR 14,000 Maryland Energy, AES Warrior Run Project, (AMT), 7.4%, 9/1/19 14,411,740
NR NR 21,150 New Jersey EDA, Vineland Cogeneration Limited Partnership Project, (AMT),
7.875%, 6/1/19 23,738,155
NR NR 2,300 Palm Beach County, Florida, Solid Waste IDR, Osceola Power Limited Partnership
Project, (AMT), 6.95%, 1/1/22 2,294,135
NR NR 7,000 Pennsylvania EDA, Northampton Generating Project, Junior Leins, (AMT), 6.875%,
1/1/11 6,777,750
NR NR 13,450 Pennsylvania EDA, Northampton Generating Project, (AMT), 6.6%, 1/1/19 12,760,822
NR NR 5,100 Pennsylvania EDA, Northampton Generating Project, (AMT), 6.5%, 1/1/13 4,955,364
NR NR 10,000 Pennsylvania EDA, Colver Project, (AMT), 8.05%, 12/1/15 10,371,200
-------------
75,309,166
-------------
INDUSTRIALS -- 10.4%
Baa2 NR 3,000 Camden, Alabama, IDB, MacMillan Bloedel Project, 7.75%, 5/1/09 3,191,250
NR NR 4,325 College Park, Georgia, Airport Parking Venture, 10%, 5/15/16 3,892,500
Baa1 BBB 24,000 Courtland, Alabama, IDB, Champion International Corporation, (AMT), 7%, 6/1/22 24,943,920
Baa1 BBB 20,245 Courtland, Alabama, IDB, Champion International Corporation, (AMT), 6.375%,
3/1/29 19,792,119
NR NR 8,040 East Chicago, Indiana, PCR, Inland Steel Company Project #9, (AMT), 10%,
11/1/11 8,679,743
Baa1 BBB 19,000 Gulf Coast Waste Disposal, Texas, Champion International Corporation, (AMT),
6.875%, 12/1/28 19,621,680
NR NR 6,000 Gwinnett County, Georgia, IDR, Plastics/Packaging, Inc., (AMT), 9.00%, 5/1/13 6,000,000
Baa1 BBB- 10,000 Maine Finance Authority, Great Northern Paper, Inc., Project -- Bowater
Incorporated, (AMT), 7.75%, 10/1/22 10,687,400
NR BB+ 5,000 Maine Solid Waste Disposal, Boise Cascade Corporation, (AMT), 7.9%, 6/1/15 5,295,600
NR NR 1,765 Massachusetts Industrial Finance Agency, IDR, Boston Beer Company, (AMT),
11.5%, 7/15/07 2,015,348
Baa1 BBB- 5,000 McMinn County, Tennessee, IDB, Calhoun Newsprint Company Project -- Bowater
Incorporated, (AMT), 7.4%, 12/1/22 5,302,750
NR NR 10,000 Michigan Strategic, S.D. Warren Co., Series 87A, (AMT), 7.375%, 1/15/22 10,235,500
NR NR 15,000 Michigan Strategic, S.D. Warren Co., Series 87B, (AMT), 7.375%, 1/15/22 15,353,250
NR NR 2,500 Michigan Strategic, S.D. Warren Co., Series 87C, (AMT), 7.375%, 1/15/22 2,559,425
</TABLE>
12
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED) PRINCIPAL
- -------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
INDUSTRIALS (CONTINUED)
Baa1 BBB $ 4,370 Middleboro, Massachusetts, IDR, Read Corporation, 9.5%, 10/1/10 $ 3,714,500
Baa2 BBB- 7,500 Pennsylvania, EDA, MacMillan Bloedel Project, (AMT), 7.6%, 12/1/20 8,177,925
Baa1 BBB+ 10,000 Pennsylvania, EDA, Sun Company, Inc. (R&M), (AMT), 7.6%, 12/1/24 10,911,100
Baa3 BBB- 12,000 Port of Corpus Christi, Texas, Valero Refining & Marketing Company, 10.25%,
6/1/17 13,492,920
NR NR 2,695 Savannah, Georgia, IDR, Intercat -- Savannah, Inc., (AMT), 9.75%, 7/1/10 2,896,936
NR NR 4,000 Savannah, Georgia, IDR, Intercat -- Savannah, Inc., (AMT), 9%, 1/1/15 4,278,600
A1 AA- 61,120 Valdez, Alaska, Marine Terminal, BP Pipelines, Inc., 5.5%, 10/1/28 (3) 55,694,378
-------------
236,736,844
-------------
INSURED UTILITY REVENUE BONDS -- 5.2%
Aaa AAA 20,000 Intermountain Power Agency, (MBIA) Utah, 6%, 7/1/16 (2) 19,224,000
Aaa AAA 10,000 Puerto Rico Telephone Authority, (MBIA), Variable Rate, 1/25/07 (1) 9,962,500
Aaa AAA 16,500 Sacramento, California, Municipal Utility District, (MBIA), Variable Rate
11/15/15 (1) 14,870,625
Aaa AAA 21,000 Sacramento, California, Municipal Utility District, (MBIA), 4.75%, 9/1/21 (3) 17,617,320
Aaa AAA 49,245 South Carolina Public Services, Forwards, Series 96A, (MBIA), 5.75%, 1/1/22
(2) 46,506,486
Aaa AAA 15,350 South Carolina Public Services, "RIBS", (FGIC), Variable Rate, 1/1/25 (1) 10,572,312
-------------
118,753,243
-------------
INSURED TRANSPORTATION -- 1.8%
Aaa AAA 14,400 Metropolitan Washington Airports Authority, (MBIA), Variable Rate, 4/1/21 (1) 12,510,000
Aaa AAA 18,200 Mobile, Alabama, Airport Authority, (MBIA), 6.375%, 10/1/14 (3) 19,056,128
Aaa AAA 10,000 Triborough Bridge and Tunnel Authority, "Rites", (MBIA), Variable Rate, 1/1/19
(1) 10,110,100
-------------
41,676,228
-------------
INSURED HOSPITAL -- 0.8%
Aaa AAA 10,000 Louisville, Kentucky, Alliant Health System, Inc., (MBIA), Variable Rate,
10/1/14 (1) 11,000,000
Aaa AAA 7,000 Montgomery County, Pennsylvania, Abington Memorial Hospital, (AMBAC), Variable
Rate, 6/1/11 (1) 7,931,980
-------------
18,931,980
-------------
INSURED SPECIAL TAX REVENUE -- 5.6%
Aaa AAA 20,000 Los Angeles County (California), Metropolitan Transportation, (AMBAC), 4.75%,
7/1/18 16,960,600
Aaa AAA 92,995 Metropolitan Pier and Exposition Authority, Illinois, McCormick Place
Expansion Project, (MBIA), 0%, 6/15/28 12,225,123
Aaa AAA 92,995 Metropolitan Pier and Exposition Authority, Illinois, McCormick Place
Expansion Project, (FGIC), 0%, 6/15/29 11,489,532
Aaa AAA 9,800 Metropolitan Pier and Exposition Authority, Illinois, McCormick Place
Expansion Project, (MBIA), "RIBS", Variable Rate, 6/15/27 (1) 9,114,000
Aaa AAA 3,415 New Orleans Regional Transit Authority, Louisiana, Sales Tax, (FGIC), 0%,
12/1/12 1,227,078
Aaa AAA 10,935 New Orleans Regional Transit Authority, Louisiana, Sales Tax, (FGIC), 0%,
12/1/15 3,190,833
Aaa AAA 10,000 New Orleans Regional Transit Authority, Louisiana, Sales Tax, (FGIC), 0%,
12/1/21 1,982,200
Aaa AAA 21,655 Rancho Mirage, California, Water District Financing, (AMBAC), 4.75%, 8/15/21 18,168,978
Aaa AAA 13,350 Rancho Mirage, California, Whitewater Redevelopment Project, (MBIA), 5%,
4/1/24 11,635,459
Aaa AAA 40,000 South Orange, California, Public Financing, Foothill Area, (FGIC), 5.5%,
8/15/15 (3) 36,909,200
Aaa AAA 7,000 Utah Municipal Finance Corporation, Local Government Revenue, (FSA), 0%,
3/1/10 2,975,700
Aaa AAA 6,000 Utah Municipal Finance Corporation, Local Government Revenue, (FSA), 0%,
3/1/11 2,385,840
-------------
128,264,543
-------------
INSURED INDUSTRIALS -- 0.4%
Aaa AAA 11,950 Chicago, Illinois, The Peoples Gas Light and Coke Company, (AMBAC), "RIBS",
(AMT), Variable Rate, 12/1/23 (1) 10,217,250
-------------
</TABLE>
13
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED) PRINCIPAL
- -------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
INSURED HOUSING -- 0.4%
Aaa AAA $ 7,525 SCA Multifamily Mortgage, IDB, Hamilton County, Tennessee, (FSA) (AMT), 7.35%
1/1/30 $ 8,057,845
-------------
INSURED GENERAL OBLIGATIONS STATE & SCHOOL DISTRICT -- 0.9%
Aaa AAA 10,000 California General Obligation, (FSA), 4.75%, 9/1/18 8,475,500
Aaa AAA 15,000 California General Obligation, (FGIC), 4.75%, 9/1/23 12,509,250
-------------
20,984,750
-------------
INSURED WATER & SEWER -- 0.9%
Aaa AAA 10,300 Harrisburg, Pennsylvania, Water Revenue Bonds, (FGIC), Variable, 8/11/16 9,447,572
Aaa AAA 10,000 New York City Municipal Water Finance Authority, (FSA), Variable Rate, 6/15/21
(1) 10,075,000
-------------
19,522,572
-------------
REFUNDED & ESCROWED -- 9.7%
NR AAA 65,000 Bakersfield, California, Bakersfield Assisted Living Center, 0%, 4/15/21 11,924,250
NR NR 2,200 Bexar County, Texas, Health Facilities, St. Luke's Lutheran, 7%, 5/1/21 2,501,422
NR AAA 177,055 Colorado HFA, Retirement Housing, Liberty Heights Project, 0%, 7/15/24 24,484,936
NR AAA 27,870 Colorado HFA, Retirement Housing, Liberty Heights Project, 0%, 7/15/20 5,159,016
Aaa NR 29,600 Colorado HFA, Retirement Housing, Liberty Heights Project, 0%, 7/15/22 4,745,176
Ba1 BBB 10,000 Detroit, Michigan, Unlimited Tax, 8.7%, 4/1/10 11,823,200
Ba1 BBB 3,500 Detroit, Michigan, Unlimited Tax, Series 1991, 8%, 4/1/11 4,111,275
NR NR 7,000 Florida, Mid-Bay Bridge Authority Revenue Bonds, 6.875%, 10/1/22 7,864,570
NR NR 1,820 Hyland Hills Park and Recreation District, Adams County, Colorado, 9.75%,
7/1/01 1,856,400
NR NR 2,430 Hyland Hills Park and Recreation District, Adams County, Colorado, 9.9%,
7/1/04 2,573,297
NR NR 1,615 Hyland Hills Park and Recreation District, Adams County, Colorado, 10%, 7/1/06 1,711,690
NR AAA 30,360 Illinois Development Finance Authority, Regency Park at Lincolnwood, 0%,
7/15/25 3,897,313
NR AAA 186,555 Illinois Development Finance Authority, Regency Park at Lincolnwood, 0%,
7/15/23 27,781,770
NR AAA 4,000 Jackson County, Oklahoma, Jackson County Memorial Hospital, 9%, 8/1/15 4,420,640
NR AAA 12,750 Louisiana Public Facilities Authority, Southern Baptist Hospitals, Inc., 8%,
5/15/12 15,393,075
Aaa NR 138,000 Mississippi Housing Finance Corporation, Single Family Mortgage, 0%, 6/1/15 41,157,120
Aaa NR 6,130 North Salt Lake Municipal Building Authority, Davis County, Utah, 8.625%,
12/1/17 7,617,690
NR NR 8,885 Scottsdale IDA, Arizona, Westminster Village, Inc., 10%, 6/1/07 9,982,831
Aaa AAA 19,165 Texas Turnpike Authority, Houston Ship Channel Bridge, 0%, 1/1/20 26,769,672
Aaa AAA 2,675 Washington Public Power Supply System, Nuclear Project No. 1, 14.375%, 7/1/01 3,927,167
NR BBB- 1,000 West Virginia HFA, Logan General Hospital, 8.625%, 4/1/01 1,042,720
NR BBB- 1,750 West Virginia HFA, Logan General Hospital, 8.75%, 4/1/13 1,825,845
-------------
222,571,075
-------------
COLLEGES & UNIVERSITIES -- 0.4%
NR BBB- 3,300 Massachusetts Health and Educational Facilities, Nichols College, 7%, 10/1/20 3,381,048
NR NR 4,415 New Hampshire Higher Educational and Health, Franklin Pierce Law Center, 7.5%,
7/1/22 4,690,452
-------------
8,071,500
-------------
TAX ALLOCATION -- 0.2%
Baa BBB 3,870 Inglewood, California Public Financing Authority, In-Town, Manchester-Prairie
and North Inglewood Industrial Park Redevelopment Projects -- Redevelopment
Loans, 7%, 5/1/22 3,959,745
-------------
SPECIAL ASSESSMENT -- 0.8%
A BBB 8,000 Hoffman Estates, Illinois, Economic Development Project Area, 0%, 5/15/05 4,630,720
A BBB 11,000 Hoffman Estates, Illinois, Economic Development Project Area, 0%, 5/15/06 5,929,330
A BBB 17,460 Hoffman Estates, Illinois, Economic Development Project Area, 0%, 5/15/07 8,740,651
-------------
19,300,701
-------------
</TABLE>
14
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED) PRINCIPAL
- -------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
MISCELLANEOUS -- 3.5%
NR NR $ 6,805 American Samoa Economic Development, Executive Office Building, 10.125%,
9/1/08 $ 7,677,129
NR NR 11,500 Harris County, Texas, Space Center Houston Project, 9.25%, 8/15/15 (5) 3,450,000
NR A- 16,500 Los Angeles Regional Airports Improvement Corporation, LAXFuel, (AMT), 6.5%,
1/1/32 16,204,650
NR NR 4,710 Mille Lacs Capital Improvements, Mille Lacs Band of Chippewa Indians, 9.25%,
11/1/12 5,198,898
NR NR 22,500 New Jersey, Sports & Exhibition Authority, Monmouth Park Project, 8%, 1/1/25 24,552,675
NR NR 10,200 Orange County Community Activity Center Revenue Bonds, 8%, 3/1/24 10,374,420
NR NR 19,500 Retama, Texas, Special Facilities Revenue, Retama Race Track, 8.75%, 12/15/18
(5) 11,700,000
-------------
79,157,772
-------------
TOTAL TAX-EXEMPT INVESTMENTS
(IDENTIFIED COST, $2,147,410,455) 2,282,787,373
TAXABLE INVESTMENT -- 0.04%
NR NR 935 Ridgeland, Mississippi, Urban Renewal, The Orchard Limited Project, 9%,
12/1/00 (identified cost, $935,000) 932,663
-------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $2,148,345,455) $2,283,720,036
-------------
-------------
</TABLE>
(1)The above designated securities have been issued as inverse floater bonds.
(2)When-issued security.
(3)Security has been segregated to cover when-issued securities.
(4)Non-income producing security.
(5)The Portfolio is accruing only partial interest on this security.
(6) At September 30, 1995, the concentration of the Portfolio's investments in
the various states, determined as a percentage of total investments is as
follows:
California -- 12.1%
The Portfolio invests primarily in debt securities issued by municipalities. The
ability of the issuers of the debt securities to meet their obligations may be
affected by economic developments in a specific industry or municipality. In
order to reduce the risk associated with such economic developments, at
September 30, 1995, 16.0% of the securities in the portfolio of investments are
backed by bond insurance of various financial guaranty assurance agencies. The
aggregate percentage by financial institution ranges from 1.4% to 9.1% of total
investments.
Note: The classification of securities by industry sector set forth above is
unaudited.
See notes to financial statements
15
<PAGE>
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS September 30, 1995
CALIFORNIA TAX FREE PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS -- 100%
COGENERATION -- 3.4%
NR BBB- $ 2,985 Central Valley Financing Authority, Carson Ice-Gen Project, 6.20%, 7/1/20 $ 2,914,584
NR BBB- 10,900 Sacramento Cogeneration Authority, Procter & Gamble Project, 6.50%, 7/1/21 10,987,636
-----------
13,902,220
-----------
ESCROWED TO MATURITY -- 16.2%
NR NR 130 City of Commerce Joint Powers Financing Authority, 8.00%, 3/1/22 153,456
NR BBB 2,000 City of Rancho Mirage Joint Powers Financing Authority, Civic Center, 7.50%,
4/1/17 2,320,380
Aaa AAA 8,000 County of Sacramento, SFMRB (GNMA), (AMT), 8.125%, 7/1/16 (2) 9,771,840
Aaa AAA 6,000 County of Sacramento, SFMRB (GNMA), (AMT), 8.25%, 1/1/21 (2) 7,790,400
Aaa AAA 14,285 County of Sacramento, SFMRB (GNMA), (AMT), 8.50%, 11/1/16 (2) 18,319,941
Aaa AAA 3,000 City and County of San Francisco Sewer System Secondary "RITES", (AMBAC),
Variable, 10/1/21 (1) 3,604,680
Baa1 A- 2,375 City of San Luis Obispo, Capital Improvement Board, 8.25%, 6/1/06 2,489,523
NR BBB 1,575 Fontana Public Financing Authority, North Fontana Redevelopment Project, 7.75%,
12/1/20 1,871,462
Aaa AAA 6,400 Port of Oakland, (BIGI), 0%, 11/1/05 3,784,960
NR NR 3,200 Oceanside California Community Development Commission, 8.40%, 6/1/18 3,357,408
NR NR 3,000 Poway Redevelopment Agency, Paguay Redevelopment Project, 7.75%, 12/15/21 3,567,420
NR BBB+ 1,000 City of Upland Police Building Construction, 8.20%, 8/1/16 1,054,870
NR NR 4,000 Huntington Beach Public Financing Authority, Huntington Beach Redevelopment
Projects, 8.375%, 5/1/18 4,472,080
NR NR 2,975 Sacramento -- Yolo Port District Port Facilities, 8.30%, 12/1/03 3,286,125
-----------
65,844,545
-----------
GENERAL OBLIGATIONS -- 1.9%
Baa1 A 3,000 Puerto Rico, 6.50%, 7/1/23 3,131,640
AA Aa 5,000 East Bay Municipal Utilities District, Wastewater System, 5.00%, 4/1/15 4,435,100
-----------
7,566,740
-----------
HOSPITALS -- 1.1%
NR BBB+ 2,700 City of Stockton, Dameron Hospital Association, 8.30%, 12/1/14 2,854,818
NR A 1,500 Woodland, Memorial Hospital, 8.20%, 8/1/15 1,610,175
-----------
4,464,993
-----------
HOUSING -- 8.6%
Aa AA- 3,770 California Housing Finance Agency (HFA), (AMT), 7.375%, 8/1/11 3,923,288
Aa AA- 800 California HFA, 7.375%, 8/1/17 855,792
Aa AA- 5,000 California HFA, (AMT), 7.40%, 8/1/26 5,381,050
Aa AA- 3,875 California HFA, (AMT), (FHA), 7.50%, 8/1/25 4,150,513
Aa AA- 8,185 California HFA, (AMT), (FHA), 7.65%, 8/1/23 8,549,724
Aa AA- 2,500 California HFA, 8.10%, 8/1/16 2,571,800
Aa AA- 2,500 California HFA, 8.20%, 8/1/17 2,596,875
Aa AA- 1,325 California HFA, (AMT), 8.60%, 8/1/19 1,394,165
Aa3 NR 60 California HFA, 9.875%, 8/1/10 61,343
A NR 845 The Housing Authority of the County of Los Angeles, 7.875%, 8/1/16 874,541
NR NR 2,000 The Housing Authority of the County of Los Angeles, 10.50%, 12/1/29 2,061,700
NR A+ 2,050 City of Oakland, California HFA, 7.10%, 1/1/10 2,086,716
NR AAA 495 County of Riverside, California HFA, (GNMA), (AMT), 6.85%, 10/1/16 526,452
-----------
35,033,959
-----------
</TABLE>
16
<PAGE>
CALIFORNIA TAX FREE PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
INSURED EDUCATION -- 1.0%
Aaa AAA $ 3,330 Regents of the University of California, (MBIA), 4.75%, 9/1/21 $ 2,770,826
Aaa AAA 1,500 Regents of the University of California, (AMBAC), 4.875%, 9/1/19 1,280,340
-----------
4,051,166
-----------
INSURED GENERAL OBLIGATION -- 0.3%
Aaa AAA 4,700 Roseville Unified High School District, (FGIC), 0%, 6/1/20 1,032,919
-----------
INSURED HOUSING -- 0.2%
Aaa AAA 720 California HFA, (MBIA), (AMT), 7.00%, 8/1/23 752,177
-----------
INSURED HOSPITALS -- 1.1%
Aaa AAA 5,250 Anaheim Memorial Hospital, (AMBAC), 5.125%, 5/15/20 4,547,813
-----------
INSURED LEASE REVENUE/CERTIFICATE OF PARTICIPATION -- 4.3%
Aaa AAA 3,300 California Statewide Communities Development Authority, Motion Picture and
Television Fund, (AMBAC), 5.68%, 1/1/24 3,052,401
Aaa AAA 7,700 Moulton Niguel Water District, (AMBAC), 4.80%, 9/1/17 6,548,003
Aaa AAA 4,350 Stockton, California Wastewater Treatment Plant, (FGIC), 6.80%, 9/1/24 4,701,350
Aaa AAA 13,985 Visalia Unified School District, (MBIA), 0%, 12/1/17 3,206,201
-----------
17,507,955
-----------
INSURED TAX ALLOCATION -- 1.0%
Aaa AAA 4,850 City of San Jose Redevelopment Agency, (MBIA), 4.75%, 8/1/24 4,000,086
-----------
INSURED TRANSPORTATION -- 3.1%
Aaa AAA 10,000 Port of Oakland, (AMT), (BIGI), 0%, 11/1/19 1,734,500
Aaa AAA 10,000 Airports Commission City and County of San Francisco, San Francisco
International Airport, (MBIA), 6.75%, 5/1/13 10,807,200
-----------
12,541,700
-----------
INSURED UTILITIES -- 8.8%
Aaa AAA 5,700 Anaheim Public Financing Authority, Anaheim Electric Utility, (FGIC), 5.75%,
10/1/22 5,444,754
Aaa AAA 8,000 Northern California Power Agency "RIBS," (MBIA), Variable, 9/2/25 (1) 8,640,960
Aaa AAA 3,500 Sacramento Municipal Utilities District, (MBIA), 6.375%, 8/15/22 3,627,820
Aaa AAA 4,000 Southern California Public Power Authority, (FGIC), Variable, 7/1/12 4,000,000
Aaa AAA 6,915 Southern California Public Power Authority, (MBIA), 5.00%, 1/1/20 6,044,747
Aaa AAA 2,750 Southern California Public Power Authority, (MBIA), 5.50%, 7/1/20 2,576,970
Aaa AAA 5,750 Southern California Public Power Authority, (MBIA), 5.75%, 7/1/21 5,569,393
-----------
35,904,644
-----------
INSURED WATER & SEWER -- 2.7%
Aaa AAA 5,000 East Bay Municipal Utility District "Yield Curve Notes," (MBIA), Variable,
6/1/08 (1) 4,799,800
Aaa AAA 3,430 San Buenaventura Water District, (AMBAC), 4.75%, 10/1/13 2,965,441
Aaa AAA 3,000 San Diego County Water Authority, "RITES," (FGIC), Variable, 4/22/09 (1) 3,074,790
-----------
10,840,031
-----------
LEASE REVENUE/CERTIFICATES OF PARTICIPATION -- 22.6%
A1 AA- 2,945 City of Beverly Hills, 6.75%, 6/1/19 3,026,606
A1 A- 3,140 California State Public Works Board, Various Community College Projects,
5.625%, 12/1/18 2,879,694
A1 A- 7,485 California State Public Works Board, Various University of California Projects,
5.00%, 6/1/23 6,209,107
A1 A- 3,000 California State Public Works Board, Various University of California Projects,
5.50%, 6/1/10 2,866,080
A1 A- 8,000 California State Public Works Board, Various University of California Projects,
5.50%, 6/1/14 7,376,800
A A- 2,800 California State Public Works Board, California State Prison -- Susanville,
5.375%, 6/1/12 2,586,500
</TABLE>
17
<PAGE>
CALIFORNIA TAX FREE PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
LEASE REVENUE/CERTIFICATES OF PARTICIPATION (CONTINUED)
A A- $ 3,500 California State Public Works Board, California State Prison -- Susanville,
5.375%, 6/1/18 $ 3,107,965
A1 A- 5,000 California State Public Works Board, Various University of California Projects,
5.25%, 6/1/20 4,369,250
A1 A- 14,025 California State Public Works Board, Various University of California Projects,
5.50%, 6/1/19 12,717,029
NR A 4,150 California Statewide Community Development Authority, Eskaton Health
Facilities, 5.875%, 5/1/20 3,862,322
A BBB 2,750 City of Inglewood, California, Civic Center Improvement Project, 7.00%, 8/1/19 2,841,438
A A- 5,115 County of Los Angeles, Disney Parking Project, 0%, 3/1/16 1,217,114
A A- 1,925 County of Los Angeles, Disney Parking Project, 0%, 3/1/17 426,927
A A- 5,370 County of Los Angeles, Disney Parking Project, 0%, 3/1/18 1,110,086
A A- 3,100 County of Los Angeles, Disney Parking Project, 0%, 3/1/20 550,188
A A- 5,000 County of Los Angeles, Disney Parking Project, 0%, 9/1/17 1,070,600
A A- 1,000 County of Los Angeles, Disney Parking Project, 6.50%, 3/1/23 992,330
NR NR 14,000 County of Los Angeles, Capital Asset Leasing Corporation, Marina del Rey,
6.50%, 7/1/08 13,725,460
Aa AA 4,305 County of Orange Water District, 5.00%, 8/15/18 3,668,376
A1 A+ 4,000 Pasadena Parking Facility Project, 6.25%, 1/1/18 4,111,480
NR A- 2,360 Richmond Joint Powers Financing Authority, 7.00%, 5/15/07 2,532,091
Aa A+ 4,000 City of Sacramento Financing Authority, 5.40%, 11/1/20 3,666,440
Aa NR 6,000 University of California at Los Angeles Chiller/Cogeneration Project, 5.60%,
11/1/20 5,537,460
NR BBB 1,000 Watsonville Mammoth Lakes, 7.875%, 6/1/11 1,072,130
-----------
91,523,473
-----------
NURSING HOMES -- 0.8%
NR NR 3,250 Banning, San Georgonio Pass Convalescent Hospital, (AMT), 9.50%, 12/1/11 3,381,365
-----------
SOLID WASTE -- 0.6%
Baa1 NR 2,350 Mojave Desert and Mountain Solid Waste Joint Powers Authority, (AMT), 7.875%,
6/1/20 2,569,396
-----------
SPECIAL TAX -- 4.9%
NR NR 2,100 City of Fairfield, Green Valley Road -- Mangels Boulevard Extension Assessment
District, 7.375%, 9/2/18 2,147,880
NR NR 970 City of Fairfield, Green Valley Road -- Mangels Boulevard Extension Assessment
District, 8.00%, 9/2/11 999,876
NR NR 3,000 Lincoln Unified School District, 7.625%, 9/1/21 3,128,730
Baa NR 10,800 Pleasanton Joint Powers Financing Authority, 6.15%, 9/2/12 10,654,200
NR NR 3,000 County of Riverside Community Facilities District, 7.55%, 9/1/17 3,053,790
-----------
19,984,476
-----------
TAX ALLOCATION -- 9.0%
NR NR 2,945 City of Commerce Joint Powers Financing Authority, 8.00%, 3/1/22 3,110,951
NR BBB 5,000 County of Contra Costa Public Financing Authority, 7.10%, 8/1/22 5,134,300
NR BBB 3,910 Fontana Public Financing Authority, Downtown Redevelopment Project, 7.00%,
9/1/21 3,952,111
NR BBB 8,220 Fontana Redevelopment Agency, Jurupa Hills Redevelopment Project Area, 7.00%,
10/1/14 8,351,191
NR BBB 2,500 City of Pittsburg Redevelopment Agency, 7.40%, 8/15/20 2,614,900
NR BBB 600 City of Rancho Mirage Joint Powers Financing Authority, 7.50%, 4/1/17 632,592
NR BBB 2,500 County of Riverside Redevelopment Agency, 7.50%, 10/1/26 2,619,025
NR BBB 5,605 San Carlos Redevelopment Agency, 7.10%, 9/1/17 5,777,185
</TABLE>
18
<PAGE>
CALIFORNIA TAX FREE PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
TAX ALLOCATION (CONTINUED)
NR NR $ 1,400 City of Simi Valley Community Development Agency, 8.20%, 9/1/12 $ 1,419,852
Baa1 BBB+ 3,000 Westminster Redevelopment Agency, 7.30%, 8/1/21 3,107,820
-----------
36,719,927
-----------
TRANSPORTATION -- 5.8%
NR BBB 3,050 Guam Airport Authority, (AMT), 6.70%, 10/1/23 3,056,558
Aa AA- 2,000 City of Long Beach Harbor Revenue Bonds, (AMT), 7.25%, 5/15/19 2,154,720
A1 A- 1,400 County of Orange, California Airport Revenue Bonds, 8.125%, 7/1/16 1,449,294
NR NR 12,000 San Joaquin Hills Transportation Corridor Agency, Toll Road Revenue Bonds,
(Fitch: rated BBB), 0%, 1/1/14 3,481,440
NR NR 5,765 San Joaquin Hills Transportation Corridor Agency, Toll Road Revenue Bonds,
(Fitch: rated BBB), 0%, 1/1/26 721,778
NR NR 35,975 San Joaquin Hills Transportation Corridor Agency, Toll Road Revenue Bonds,
(Fitch: rated BBB), 0%, 1/1/27 4,205,117
NR NR 4,940 San Joaquin Hills Transportation Corridor Agency, Toll Road Revenue Bonds,
(Fitch: rated BBB), 7.00%, 1/1/30 5,074,368
Baa1 BBB 1,500 Stockton Port District, 7.95%, 1/1/05 1,598,940
Baa1 BBB 1,500 Stockton Port District, 8.10%, 1/1/14 1,611,510
-----------
23,353,725
-----------
UTILITIES -- 1.7%
Aa AA- 7,070 Southern California Public Power Authority, 0%, 7/1/15 2,109,829
Aa AA- 3,425 Southern California Public Power Authority, 5.50%, 7/1/20 3,176,277
Aa AA 1,490 Southern California Public Power Authority, 6.875%, 7/1/15 1,530,170
-----------
6,816,276
-----------
WATER & SEWER -- 0.9%
NR BBB 3,190 Orange Cove Irrigation District, 6.625%, 2/1/17 3,232,905
Aa AA- 515 City of Pasadena, Water Revenue Bonds, 5.00%, 7/1/18 449,760
-----------
3,682,665
-----------
TOTAL TAX-EXEMPT INVESTMENTS
(IDENTIFIED COST $381,719,158) $406,022,257
-----------
-----------
</TABLE>
(1)The above designated securities have been issued as inverse floater bonds.
(2)Security has been segregated to cover margin requirements on open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by California
municipalities. The ability of the issuers of the debt securities to meet
their obligations may be affected by economic developments in a specific
industry or municipality. In order to reduce the risk associated with such
economic developments, at September 30, 1995, 35.2% of the securities in the
portfolio of investments are backed by bond insurance of various financial
institutions and financial guaranty assurance agencies. The aggregate
percentage by financial institution ranged from 0.1% to 13.0% of total
investments.
See notes to financial statements
19
<PAGE>
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS September 30, 1995
MASSACHUSETTS TAX FREE PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS -- 100%
EDUCATION -- 9.8%
Aa1 AA+ $ 1,625 Massachusetts Health and Educational Facilities Authority (HEFA), Amherst
College, 6.80%, 11/1/21 $ 1,740,440
A1 A+ 250 Massachusetts HEFA, Tufts University, 7.75%, 8/1/13 271,052
NR BBB- 3,700 Massachusetts HEFA, Merrimack College, 7.125%, 7/1/12 3,882,003
NR AAA 2,900 Massachusetts HEFA, Wentworth Institute, (Connie Lee), 5.50%, 10/1/23 2,675,047
NR BBB- 6,855 Massachusetts HEFA, Smithe College, 5.75%, 7/1/24 6,694,182
Aaa AAA 5,180 Massachusetts HEFA, Harvard University, 5.625%, 11/1/28 5,114,577
Aa1 AA 4,690 Massachusetts Industrial Finance Agency, Phillips Academy, 5.375%, 9/1/23 4,385,056
A1 NR 2,000 The New England Education Loan Marketing Corporation, (AMT), 6.90%, 11/1/09 2,157,440
NR BBB- 1,300 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control
Authority, Polytechnic University, 5.50%, 8/1/24 1,128,491
NR BBB- 1,000 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control
Authority, Polytechnic University, 6.50%, 8/1/24 990,870
-----------
29,039,158
-----------
GENERAL OBLIGATIONS -- 13.7%
Baa1 NR 1,000 City of Lowell, 6.375%, 8/15/01 1,067,490
A1 A+ 3,900 Commonwealth of Massachusetts, 5.00%, 1/1/12 3,609,060
A1 A+ 875 Commonwealth of Massachusetts, 5.00%, 1/1/14 795,839
A1 A+ 2,500 Massachusetts Bay Transportation Authority (MBTA), 5.75%, 3/1/18 2,465,775
A1 A+ 4,750 MBTA, 5.50%, 3/1/21 4,525,135
A1 A+ 14,000 MBTA, 5.75%, 3/1/25 13,593,440
A1 A+ 1,000 MBTA, 5.90%, 3/1/12 1,014,690
NR BBB 1,175 Government of Guam, 5.40%, 11/15/18 1,022,650
A NR 3,375 Town of Nantucket, 6.80%, 12/1/11 3,634,875
Baa1 A 100 Puerto Rico Public Buildings Authority, 5.50%, 7/1/21 92,369
Baa1 A 1,900 Puerto Rico Aqueduct and Sewer Authority, 7.00%, 7/1/19 2,037,313
A A 2,500 University of Massachusetts Building Authority, 6.875%, 5/1/14 2,839,950
A A 250 University of Massachusetts Building Authority, 7.20%, 5/1/04 287,396
NR NR 3,350 Virgin Islands Public Finance Authority, 7.25%, 10/1/18 3,528,321
-----------
40,514,303
-----------
HOSPITALS -- 8.4%
A A- 3,000 Massachusetts HEFA, Charlton Memorial Hospital, 7.25%, 7/1/13 3,147,750
A1 A 530 Massachusetts HEFA, Spaulding Rehabilitation Hospital, 7.625%, 7/1/21 568,632
Baa1 BBB+ 2,000 Massachusetts HEFA, New England Baptist Hospital, 7.35%, 7/1/17 2,067,480
Aa NR 3,100 Massachusetts HEFA, Daughters of Charity Health System, 6.10%, 7/1/14 3,143,524
A1 A+ 1,000 Massachusetts HEFA, Dana-Farber Cancer Institute, 6.65%, 12/1/15 1,020,340
A A 4,250 Massachusetts HEFA, The Medical Center of Central Massachusetts, 7.10%, 7/1/21 4,394,755
Baa BBB 1,825 Massachusetts HEFA, Sisters of Providence Health System, 6.50%, 11/15/08 1,887,870
NR A- 1,470 Massachusetts HEFA, Jordan Hospital, 6.875%, 10/1/15 1,052,722
NR A- 1,470 Massachusetts HEFA, Jordan Hospital, 6.875%, 10/1/22 1,507,073
NR AAA 2,625 Massachusetts HEFA, Winchester Hospital, (Connie Lee), 5.75%, 7/1/14 2,557,223
NR AAA 3,650 Massachusetts HEFA, Winchester Hospital, (Connie Lee), 5.75%, 7/1/24 3,486,917
-----------
24,824,286
-----------
</TABLE>
20
<PAGE>
MASSACHUSETTS TAX FREE PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
HOUSING -- 11.4%
NR AAA $ 2,750 Framingham Housing Authority, (GNMA), 6.65%, 2/20/32 $ 2,783,275
A1 A+ 6,000 Massachusetts Housing Finance Agency (HFA), 6.375%, 4/1/21 5,973,720
Aa A+ 7,250 Massachusetts HFA, (AMT), 6.60%, 12/1/26 7,328,952
Aa A+ 6,400 Massachusetts HFA, (AMT), 6.60%, 12/1/26 6,469,696
Aaa AAA 1,000 Massachusetts HFA, (FNMA), 6.875%, 11/15/11 1,063,630
Aaa AAA 2,750 Massachusetts HFA, (FNMA), 6.90%, 11/15/21 2,882,330
Aa A+ 2,795 Massachusetts HFA, (AMT), 7.125%, 6/1/25 2,908,924
Aa A+ 400 Massachusetts HFA, 7.35%, 12/1/16 425,408
Aa A+ 2,265 Massachusetts HFA, (AMT), 8.10%, 6/1/20 2,369,734
Aa A+ 1,500 Massachusetts HFA, (AMT), 8.10%, 12/1/21 1,576,035
-----------
33,781,704
-----------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL -- 7.0%
Baa1 BBB 14,185 City of Boston Harbor Electric Energy Company Project, (AMT), 7.30%, 5/15/15 15,178,942
NR NR 9,000 Massachusetts Industrial Finance Agency, Massachusetts Biomedical Research
Corporation, 0%, 8/1/19 3,817,800
Aa3 AA 1,550 Puerto Rico Industrial, Medical and Environmental Pollution Control Authority,
The Upjohn Company, 7.50%, 12/1/23 1,697,235
-----------
20,693,977
-----------
INSURED EDUCATION -- 2.1%
Aaa AAA 335 Massachusetts Educational Finance Authority, (MBIA), (AMT), 7.25%, 1/1/09 350,460
Aaa AAA 2,000 Massachusetts Educational Finance Authority, (AMBAC), (AMT), 7.30%, 1/1/12 2,096,840
Aaa AAA 250 Massachusetts HEFA, Northeastern University, (AMBAC), 7.50%, 10/1/08 273,820
Aaa AAA 400 Massachusetts HEFA, Boston University "RIBS", (MBIA), Variable, 10/1/31 (1) 439,464
Aaa AAA 3,000 Massachusetts HEFA, Tufts University, (FGIC), 5.95%, 8/15/18 3,032,640
-----------
6,193,224
-----------
INSURED GENERAL OBLIGATION -- 1.7%
Aaa AAA 1,795 City of Boston, (FSA), 4.875%, 9/1/09 1,686,833
Aaa AAA 1,000 Commonwealth of Puerto Rico "RIBS", (AMBAC), Variable, 7/1/15 (1) 1,009,940
Aaa AAA 600 Town of Tyngsborough, (AMBAC), 6.90%, 5/15/08 663,798
Aaa AAA 1,770 MBTA, (MBIA), 5.50%, 3/1/21 1,663,995
-----------
5,024,566
-----------
INSURED HOSPITALS -- 11.8%
Aaa AAA 300 Massachusetts HEFA, Berkshire Health Systems, (MBIA), 7.60%, 10/1/14 332,346
Aaa AAA 1,250 Massachusetts HEFA, Beth Israel Hospital, Inverse Floaters, (AMBAC), Variable,
7/1/25 (1) 1,253,675
Aaa AAA 1,500 Massachusetts HEFA, Capital Asset Program, (MBIA), 7.20%, 7/1/09 1,649,085
AAA AAA 2,050 Massachusetts HEFA, Fallon Healthcare System (CGIC), 6.75%, 6/1/20 (2) 2,171,442
AAA AAA 4,500 Massachusetts HEFA, Fallon Healthcare System (CGIC), 6.875%, 6/1/11 4,881,465
Aaa AAA 2,040 Massachusetts HEFA, Beverly Hospital, (MBIA), 7.30%, 7/1/13 2,219,581
Aaa AAA 1,000 Massachusetts HEFA, Baystate Medical Center, (FGIC), 5.00%, 7/1/20 883,550
Aaa AAA 3,000 Massachusetts HEFA, The Medical Center of Central Massachusetts, (AMBAC),
"CARS", Variable, 6/23/22 (1) 3,330,090
</TABLE>
21
<PAGE>
MASSACHUSETTS TAX FREE PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
INSURED HOSPITALS (CONTINUED)
Aaa AAA $ 2,000 Massachusetts HEFA, St. Elizabeth Hospital Issue, "LEVRRS", (FSA), Variable,
8/15/21 (1) $ 2,196,960
Aaa AAA 2,600 Massachusetts HEFA, Saint Luke's Hospital, "Yield Curve Notes", (MBIA),
Variable, 8/15/13 (1) 2,556,970
Aaa AAA 1,200 Massachusetts HEFA, University Hospital, (MBIA), 7.25%, 7/1/19 1,323,552
Aaa AAA 6,950 Massachusetts HEFA, Lahey Clinic, (MBIA), 5.375%, 7/1/23 6,454,118
Aaa AAA 5,000 Massachusetts HEFA, New England Medical Center, (MBIA), 5.375%, 7/1/24 4,664,350
Aaa AAA 1,000 Massachusetts HEFA, New England Medical Center, (FGIC), 6.50%, 7/1/12 1,052,960
-----------
34,970,144
-----------
INSURED HOUSING -- 0.7%
Aaa AAA 2,000 Massachusetts Housing Finance Agency, (AMBAC), 6.45%, 1/1/36 2,027,680
-----------
INSURED TRANSPORTATION -- 2.2%
Aaa AAA 5,860 Massachusetts Port Authority, (AMT), (FGIC), 7.50%, 7/1/20 6,490,243
-----------
LEASE/CERTIFICATE OF PARTICIPATION -- 2.9%
NR A 7,800 Plymouth County, Massachusetts Correctional Facility Project, 7.00%, 4/1/22 8,363,862
-----------
NURSING HOMES -- 0.5%
NR AA 1,495 Massachusetts HEFA, Deutches Altenheim, Incorporated, (FHA), 7.70%, 11/1/31 (2) 1,613,195
-----------
SOLID WASTE -- 2.6%
Baa1 BBB 5,970 Massachusetts Industrial Finance Agency, Massachusetts Refusetech, Inc.
Project, 6.30%, 7/1/05 6,242,531
NR NR 1,340 City of Pittsfield, Vicon Recovery Associates Project, 7.95%, 11/1/04 1,409,425
-----------
7,651,956
-----------
SPECIAL TAX -- 4.2%
A1 A+ 5,695 Commonwealth of Massachusetts, Special Obligation Revenue Bonds, 6.00%, 6/1/13 5,747,223
A1 A+ 4,560 Commonwealth of Massachusetts, Special Obligation Revenue Bonds, 5.80%, 6/1/14 4,518,550
Baa1 A 2,000 Puerto Rico Highway and Transportation Authority, 6.625%, 7/1/18 2,099,080
-----------
12,364,853
-----------
TRANSPORTATION -- 5.2%
NR BBB 7,950 Guam Airport Authority, (AMT), 6.70%, 10/1/23 7,967,093
Aa AA- 7,300 Massachusetts Port Authority, 6.00%, 7/1/23 7,260,069
-----------
15,227,162
-----------
UTILITY -- 6.0%
NR BBB 2,765 Guam Power Authority, 5.25%, 10/1/23 2,382,103
A BBB+ 2,610 Massachusetts Municipal Wholesale Electric Company, 6.00%, 7/1/18 2,555,843
A BBB+ 5,560 Massachusetts Municipal Wholesale Electric Company, 6.625%, 7/1/18 5,747,205
A BBB+ 3,500 Massachusetts Municipal Wholesale Electric Company, 6.75%, 7/1/11 3,664,010
Baa1 A- 1,850 Puerto Rico Electric Power Authority, 5.50%, 7/1/13 1,755,447
Baa1 A- 150 Puerto Rico Electric Power Authority, 5.50%, 7/1/20 138,746
NR NR 1,500 Virgin Islands Water and Power Authority, 7.40%, 7/1/11 1,575,314
-----------
17,818,668
-----------
</TABLE>
22
<PAGE>
MASSACHUSETTS TAX FREE PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
WATER & SEWER -- 9.8%
NR NR $ 2,075 Massachusetts Industrial Finance Authority, American Hingham Water, 6.60%,
12/1/15 $ 2,095,480
A A 18,620 Massachusetts Water Resources Authority (MWRA), 4.75%, 12/1/23 15,364,479
A A 5,000 MWRA, 5.00%, 3/1/22 4,323,500
A A 1,500 MWRA, 5.25%, 3/1/13 1,390,095
A A 3,915 MWRA, 5.25%, 12/1/15 3,608,260
NR NR 2,000 Virgin Islands Water and Power Authority, 7.60%, 1/1/12 2,122,760
-----------
28,904,574
-----------
TOTAL TAX-EXEMPT INVESTMENTS
(IDENTIFIED COST $277,979,560) $295,503,555
-----------
-----------
</TABLE>
(1)The above designated securities have been issued as inverse floater bonds.
(2)Security has been segregated to cover margin requirements on open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by Massachusetts
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at September 30, 1995, 21.2% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 0.5% to 7.3% of total investments.
See notes to financial statements.
23
<PAGE>
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS September 30, 1995
NEW YORK TAX FREE PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS -- 100.0%
ASSISTED LIVING -- 0.3%
NR NR $ 1,970 Village of North Syracuse Housing Authority, (AJM Senior Housing, Inc. Janus
Park Project), 8.00%, 6/1/24 $ 1,922,168
-----------
EDUCATION -- 12.7%
A NR 1,000 Dutchess County IDA, Bard College, 7.00%, 11/1/17 1,084,310
A1 NR 6,295 Monroe County IDA, University of Rochester, 7.25%, 12/1/16 6,646,324
NR BBB- 1,660 City of New Rochelle IDA Civic Facilities, College of New Rochelle, 6.75%,
7/1/22 1,704,920
Baa1 BBB+ 6,895 Dormitory Authority, State University Educational Facilities, 4.75%, 7/1/14 6,124,208
Baa1 BBB+ 2,500 Dormitory Authority, State University Educational Facilities, 5.00%, 5/15/18 2,118,800
Baa1 BBB+ 11,500 Dormitory Authority, State University Educational Facilities, 5.25%, 5/15/13 10,464,310
Baa1 BBB+ 7,600 Dormitory Authority, State University Educational Facilities, 5.25%, 5/15/15 6,850,260
Baa1 BBB+ 7,605 Dormitory Authority, State University Educational Facilities, 5.25%, 5/15/19 6,714,759
Baa1 BBB+ 6,805 Dormitory Authority, State University Educational Facilities, 5.25%, 5/15/21 6,043,657
Baa1 BBB+ 3,130 Dormitory Authority, State University Educational Facilities, 5.50%, 5/15/08 3,041,139
Baa1 BBB+ 28,250 Dormitory Authority, State University Educational Facilities, 5.50%, 5/15/13 26,375,613
Baa1 BBB+ 415 Dormitory Authority, State University Educational Facilities, 7.375%, 5/15/14 450,279
Baa1 BBB+ 1,300 Dormitory Authority, State University Educational Facilities, 7.50%, 5/15/11 1,497,184
NR AA 1,300 Dormitory Authority, New York Medical College, (Asset Guaranty), 6.875%, 7/1/21 1,391,845
A1 A+ 950 Dormitory Authority, University of Rochester, 5.625%, 7/1/12 927,276
-----------
81,434,884
-----------
ELECTRIC UTILITIES -- 4.9%
A1 A 2,500 New York State Energy Resource & Development Authority, Brooklyn Union Gas
(RIBS) (AMT), Variable, 7/1/26 (1) 2,918,350
Aa3 A+ 500 New York State Energy Resource & Development Authority, Consolidated Edison
(AMT), 7.75%, 1/1/24 538,345
Aa3 A+ 2,365 New York State Energy Resource & Development Authority, Consolidated Edison
(AMT), 7.50%, 7/1/25 2,563,684
Aa3 A+ 1,000 New York State Energy Resource & Development Authority, Consolidated Edison
(AMT), 7.50%, 1/1/26 1,098,470
Aa AA- 18,000 Power Authority of the State of New York, 5.25%, 1/1/18 16,447,500
Baa1 A- 11,500 Puerto Rico Electric Power Authority, 0%, 7/1/17 3,023,350
Baa1 A- 2,250 Puerto Rico Electric Power Authority, 5.50% 7/1/20 2,081,183
NR NR 3,000 Virgin Islands Water and Power Authority, 7.40%, 7/1/11 3,150,630
-----------
31,821,512
-----------
ESCROWED -- 7.6%
Aaa AAA 725 Albany Municipal Water (MBIA), 7.50%, 12/1/17 806,592
Aaa BBB 1,000 Dormitory Authority, City University, 7.625%, 7/1/20 1,152,840
Aaa BBB+ 1,530 Dormitory Authority, State University Educational Facilities, 7.70%, 5/15/12 1,763,677
NR BBB 1,000 Dormitory Authority, City University, 8.125%, 7/1/08 1,116,170
Baa1 BBB- 2,250 Dormitory Authority, Upstate Community College, 7.20%, 7/1/21 2,582,842
Baa1 NR 2,000 Dormitory Authority, Upstate Community College, 7.30%, 7/1/21 2,305,860
Aaa AAA 500 Erie County Water Authority, Water Works System, 6.00%, 12/1/08 528,920
Aaa AAA 500 Metropolitan Transportation Authority Commuter Facilities Bonds, 7.50%, 7/1/19 571,735
Aaa AAA 1,000 New York Local Government Assistance Corporation (LGAC), 7.00%, 4/1/16 1,136,100
Aaa AAA 5,500 New York LGAC, 6.75%, 4/1/21 6,238,980
Aaa BBB 1,000 New York State Housing Finance Agency Service Contracts, 7.80%, 9/15/11 1,173,510
Aaa AAA 1,775 New York State Housing Finance Agency Service Contracts, 7.375%, 9/15/21 2,073,520
</TABLE>
24
<PAGE>
NEW YORK TAX FREE PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
ESCROWED (CONTINUED)
Aaa BBB+ $ 90 New York State Medical Care Facilities Finance Agency, Mental Health Services
Facilities, 7.75%, 8/15/10 $ 103,334
Aaa AAA 450 New York State Medical Care Facilities Finance Agency, Mental Health Services
Facilities, 7.875%, 8/15/08 525,047
Aaa AAA 3,320 New York State Medical Care Facilities Finance Agency, Mental Health Services
Facilities, 7.50%, 2/15/21 3,842,004
Aaa NR 8,100 New York State Urban Development Corporation Correctional Facilities, 6.50%,
1/1/21 8,848,197
Baa1 BBB 4,750 New York State Thruway Authority, Local Highway and Bridge Service Contract
Bonds, 7.25%, 1/1/10 (2) 5,404,740
Baa1 BBB 5,350 New York State UDC, Onondaga Co. Convention Center, 7.875%, 1/1/10 6,241,577
NR AA- 500 Power Authority of the State of New York, 8.00% 1/1/17 548,960
NR A 1,760 Puerto Rico Highway & Transportation Authority, 6.625%, 7/1/18 1,989,310
-----------
48,953,915
-----------
GENERAL OBLIGATIONS -- 1.6%
Baa1 A- 120 New York City, 8.25%, 11/15/16 136,942
Baa1 A- 4,000 New York City, 7.50%, 2/1/18 4,399,280
Aa AA 1,700 Onondaga County, 5.875%, 2/15/11 1,758,259
Aa AA 1,600 Onondaga County, 5.875%, 2/15/12 1,641,424
Baa1 A 2,175 Puerto Rico Public Building Authority, Public Education and Health Facilities,
5.75%, 7/1/15 2,102,594
-----------
10,038,499
-----------
HEALTH CARE -- 19.1%
NR AAA 6,705 Dormitory Authority, United Health Services (FHA), 7.35%, 8/1/29 7,225,509
Aa AAA 4,785 New York State Medical Care Facilities Finance Agency (MCFFA), Hospital Insured
Mortgage (FHA), 5.25%, 8/15/14 4,443,782
NR AA 2,670 New York State MCFFA, Hospital and Nursing Insured Mortgage (FHA), 6.10%,
8/15/15 2,663,645
NR AAA 3,710 New York State MCFFA, Hospital and Nursing Insured Mortgage (FHA), 6.125%,
2/15/14 3,902,994
Aa AA 1,000 New York State MCFFA, Hospital and Nursing Insured Mortgage (FHA), 6.55%,
8/15/12 1,043,570
Aa AA 3,800 New York State MCFFA, Hospital and Nursing Insured Mortgage (FHA), 6.65%,
8/15/32 3,946,338
NR AA 9,000 New York State MCFFA, Hospital and Nursing Insured Mortgage (FHA), 6.70%,
8/15/23 9,446,220
Aa AA 1,050 New York State MCFFA, Hospital and Nursing Insured Mortgage (FHA), 6.75%,
2/15/12 1,107,446
Aa AA 1,500 New York State MCFFA, Hospital and Nursing Insured Mortgage (FHA), 6.95%,
2/15/32 1,586,430
Aa AA 2,190 New York State MCFFA, Hospital and Nursing Insured Mortgage (FHA), 7.00%,
8/15/32 2,326,262
Aa AA 6,600 New York State MCFFA, Hospital and Nursing Insured Mortgage (FHA), 7.25%,
2/15/31 7,124,634
Aa AA 750 New York State MCFFA, Hospital and Nursing Insured Mortgage (FHA), 7.35%,
2/15/29 819,128
Aa AA 2,425 New York State MCFFA, Insured Mortgage Project (FHA), 6.20%, 2/15/10 2,484,607
Aa AA 3,500 New York State MCFFA, Insured Mortgage Project (FHA), 6.20%, 8/15/14 3,591,490
Aa AA 5,625 New York State MCFFA, Insured Mortgage Project (FHA), 6.20%, 8/15/15 5,723,775
Aa AA 6,550 New York State MCFFA, Insured Mortgage Project (FHA), 6.25%, 8/15/15 6,661,285
Aa AA 2,500 New York State MCFFA, Insured Mortgage Project (FHA), 6.50%, 2/15/35 2,552,300
Aa AA 950 New York State MCFFA, Insured Mortgage Project (FHA), 7.45%, 8/15/31 1,030,095
Baa1 BBB+ 10,205 New York State MCFFA, Mental Health Services Facilities, 5.25%, 2/15/19 9,320,737
Baa1 BBB+ 11,500 New York State MCFFA, Mental Health Services Facilities, 5.25%, 8/15/23 9,895,865
Baa1 BBB+ 6,625 New York State MCFFA, Mental Health Services Facilities, Series 1994A, 5.25%,
8/15/23 5,700,879
Baa1 BBB+ 1,230 New York State MCFFA, Mental Health Services Facilities, 7.50%, 2/15/21 1,372,754
Baa1 BBB+ 1,610 New York State MCFFA, Mental Health Services Facilities, 7.625%, 8/15/17 1,777,150
Baa1 BBB+ 145 New York State MCFFA, Mental Health Services Facilities, 7.75%, 8/15/10 161,153
Baa1 BBB+ 495 New York State MCFFA, Mental Health Services Facilities, 7.875%, 8/15/08 558,469
</TABLE>
25
<PAGE>
NEW YORK TAX FREE PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
HEALTH CARE (CONTINUED)
Baa BBB $ 19,700 New York State MCFFA, Secured Hospital (Brookdale), 6.80%, 8/15/12 $20,263,223
Baa BBB 5,540 New York State MCFFA, Secured Hospital, 7.35%, 8/15/11 5,881,652
-----------
122,611,392
-----------
HOSPITALS -- 0.7%
Aa AAA 1,500 Dormitory Authority, Long Island Jewish Medical Center (FHA), 7.75%, 8/15/27 1,629,735
NR AAA 1,000 Dormitory Authority, St. Francis Hospital (FHA), 7.65%, 8/1/30 1,119,780
Baa1 BBB+ 1,800 Syracuse Industrial Development Agency (IDA), St. Joseph's Hospital Health
Center, 7.50%, 6/1/18 1,914,804
-----------
4,664,319
-----------
HOUSING -- 5.5%
NR NR 4,744 New York City Housing Development Corporation (HDC), Allerville Project,
6.50%, 11/15/18 4,772,297
Baa A 4,750 New York City HDC, General Housing, 6.50%, 5/1/22 4,797,690
NR NR 2,080 New York City HDC, Dayton Project, 6.50%, 11/15/18 2,092,643
NR AAA 2,550 New York City HDC, Multi-Unit Management, 7.35%, 6/1/19 2,702,439
Aa A+ 235 New York State Housing Finance Agency, Baytown, 7.10%, 8/15/35 248,280
Aa NR 250 New York State Mortgage Agency, 6.90%, 4/1/03 263,523
Aa NR 8,750 New York State Mortgage Agency, 6.90%, 4/1/15 9,220,313
Aa NR 1,000 New York State Mortgage Agency, 7.50%, 4/1/15 1,082,280
Aa NR 295 New York State Mortgage Agency, 7.65%, 4/1/19 311,963
Aa NR 625 New York State Mortgage Agency, 7.70%, 10/1/12 676,644
Aa NR 270 New York State Mortgage Agency, 8.00%, 10/1/17 287,312
Aa NR 6,350 New York State Mortgage Agency (AMT), 6.40%, 10/1/20 6,318,568
Aa NR 1,600 New York State Mortgage Agency (AMT), 7.95%, 10/1/21 1,727,808
Baa BBB 350 Puerto Rico Commonwealth Urban Renewal & Housing Corporation, 7.875%, 10/1/04 395,693
Aaa AAA 410 Puerto Rico Housing Financial Corporation Single-Family (GNMA), 7.65%, 10/15/22 434,124
-----------
35,331,577
-----------
INSURED COLLEGE & UNIVERSITY -- 1.8%
Aaa AAA 6,950 Dormitory Authority, Marist College (MBIA), 6.00%, 7/1/22 6,958,549
Aaa AAA 5,000 Dormitory Authority, New York University (MBIA), 5.00%, 7/1/11 4,698,350
-----------
11,656,899
-----------
INSURED GENERAL OBLIGATIONS -- 1.0%
Aaa AAA 1,035 Erie County Water Authority (AMBAC), 0%, 12/1/17 211,295
Aaa AAA 3,900 New York City Trust for Cultural Resources, Museum of Modern Art (AMBAC),
5.40%, 1/1/12 3,764,748
Aaa AAA 2,480 New York State Environmental Facilities Corporation (EFC), Jamaica Water Supply
Company (AMT) (AMBAC), 7.625%, 4/1/29 2,677,334
-----------
6,653,377
-----------
INSURED GENERAL OBLIGATIONS (LOCAL) -- 1.8%
Aaa AAA 520 Chautauqua County Unlimited Tax (FGIC), 6.40%, 9/15/08 574,621
Aaa AAA 770 Chautauqua County Unlimited Tax (FGIC), 6.40%, 9/15/09 847,123
Aaa AAA 465 Chautauqua County Unlimited Tax (FGIC), 7.30%, 4/1/07 547,793
Aaa AAA 725 Jamestown, (Secondary AMBAC), 7.00%, 3/15/07 838,521
Aaa AAA 600 Jamestown, (Secondary AMBAC), 7.00%, 3/15/08 693,852
Aaa AAA 675 Jamestown, (Secondary AMBAC), 7.00%, 3/15/13 789,278
Aaa AAA 700 Jamestown, (Secondary AMBAC), 7.10%, 3/15/09 814,891
</TABLE>
26
<PAGE>
NEW YORK TAX FREE PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
INSURED GENERAL OBLIGATIONS (LOCAL) (CONTINUED)
Aaa AAA $ 700 Jamestown, (Secondary AMBAC), 7.10%, 3/15/10 $ 816,739
Aaa AAA 700 Jamestown, (Secondary AMBAC), 7.10%, 3/15/11 817,929
Aaa AAA 675 Jamestown, (Secondary AMBAC), 7.10%, 3/15/12 789,271
Aaa AAA 515 Jamestown, (Secondary AMBAC), 7.10%, 3/15/14 601,808
Aaa AAA 2,000 New York City (AMBAC), 7.00%, 8/1/17 2,201,300
Aaa AAA 500 Oyster Bay (FGIC), 6.60%, 2/15/12 533,400
Aaa AAA 450 Oyster Bay (FGIC), 6.60%, 2/15/13 480,060
-----------
11,346,586
-----------
INSURED GENERAL OBLIGATIONS (SCHOOL DISTRICT) -- 0.2%
Aaa AAA 700 Bethlehem Central School District (AMBAC), 7.10%, 11/1/08 819,903
Aaa AAA 700 Bethlehem Central School District (AMBAC), 7.10%, 11/1/09 814,716
-----------
1,634,619
-----------
INSURED GENERAL OBLIGATIONS (TERRITORY) -- 0.7%
Aaa AAA 4,500 Commonwealth of Puerto Rico Public Improvement Residual Interest Tax Exempt
Securities (FSA), Variable, 7/1/22 (1) 4,616,865
-----------
INSURED HEALTH CARE -- 4.4%
Aaa AAA 1,500 New York State MCFFA, Long Term Health Care (CGIC), 6.80%, 11/1/14 1,588,695
Aaa AAA 1,300 New York State MCFFA, New York Hospital (FHA) (AMBAC), 6.60%, 2/15/11 1,409,226
Aaa AAA 5,400 New York State MCFFA, New York Hospital (FHA) (AMBAC), 6.75%, 8/15/14 5,794,146
Aaa AAA 20,525 New York State MCFFA, Mental Health Services Facilities (MBIA), 5.375%, 2/15/14 19,280,980
-----------
28,073,047
-----------
INSURED HOUSING -- 0.1%
Aaa AAA 500 New York City HDC, Charter Oaks (MBIA), 7.375%, 4/1/17 524,525
-----------
INSURED MISCELLANEOUS -- 0.1%
Aaa AAA 500 New York City IDA, (USTA National Tennis Center Incorporated Project) (FSA),
6.375%, 11/15/14 522,020
-----------
INSURED SOLID WASTE -- 1.6%
Aaa AAA 1,650 Dutchess County Resource Recovery Solid Waste (FGIC), 7.50%, 1/1/09 1,814,505
Aaa AAA 6,795 Islip Resource Recovery Agency (MBIA), 6.50%, 7/1/09 7,272,960
Aaa AAA 1,000 Montgomery, Otesgo, Schoharie Solid Waste Management Authority (MBIA), 5.25%,
1/1/14 936,350
-----------
10,023,815
-----------
INSURED TOLL & TURNPIKE -- 1.0%
Aaa AAA 3,000 Triborough Bridge & Tunnel Authority Residual Interest Securities (MBIA),
Variable, 1/1/19 (1) 3,033,030
Aaa AAA 3,000 Triborough Bridge & Tunnel Authority Residual Interest Securities (MBIA),
Variable, 1/1/12 (1) 3,229,230
-----------
6,262,260
-----------
INSURED WATER & SEWER -- 0.1%
Aaa AAA 275 Albany Municipal Water Financial Authority (MBIA), 7.50%, 12/1/17 298,944
-----------
LEASE/CERTIFICATE OF PARTICIPATION -- 8.7%
Baa1 BBB 1,955 Dormitory Authority, City University, 5.75%, 7/1/13 1,869,000
Baa1 BBB 17,815 Dormitory Authority, City University, 5.75%, 7/1/13 17,031,318
Baa1 BBB 250 Dormitory Authority, City University, 6.375%, 7/1/08 256,618
Baa1 BBB 5,100 Dormitory Authority, City University, 7.00%, 7/1/09 5,653,044
Baa1 BBB 4,325 Dormitory Authority, City University, 7.50%, 7/1/10 4,967,133
Baa1 BBB 6,125 New York State HFA Service Contract, 5.375%, 9/15/11 5,635,000
</TABLE>
27
<PAGE>
NEW YORK TAX FREE PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
LEASE/CERTIFICATE OF PARTICIPATION (CONTINUED)
NR BBB $ 5,865 New York State Thruway Authority, 0%, 1/1/01 $ 4,438,046
Baa1 BBB 5,775 New York State Urban Development Corporation (UDC) Correctional Facilities,
5.50%, 1/1/14 5,342,337
Baa1 BBB 7,670 New York State UDC Correctional Facilities, 5.25%, 1/1/13 6,896,557
Baa1 BBB 500 New York State UDC, Alfred Technology, 7.875%, 1/1/20 549,070
Baa1 BBB 750 New York State UDC, Clarkson Center for Advanced Materials, 7.80%, 1/1/20 821,512
Baa1 BBB 750 New York State UDC, Clarkson Center for Advanced Materials, 8.00%, 1/1/20 839,737
A1 A 1,825 Syracuse -- Hancock International Airport Certificates of Participation,
6.625%, 1/1/12 1,921,105
-----------
56,220,477
-----------
MISCELLANEOUS -- 1.6%
Aa AA- 200 City of New York Municipal Assistance Corporation, 7.50%, 7/1/08 218,888
Aa AA- 485 City of New York Municipal Assistance Corporation, 7.625%, 7/1/08 530,896
Aa AA- 635 City of New York Municipal Assistance Corporation, 7.625%, 7/1/08 714,724
NR NR 1,300 New York City IDA, (YMCA of Greater New York), 8.00%, 8/1/16 1,394,536
Aaa AAA 7,000 VRDC -- IVRC Trust, Variable Rate, 6/26/02 (1) 7,214,340
-----------
10,073,384
-----------
SOLID WASTE -- 2.0%
Baa1 A- 2,665 Hempstead IDA Resource Recovery, American Refunding Fuel Co., 7.40%, 12/1/10 2,782,473
Baa NR 9,530 New York State EFC Resource Recovery, Huntington Project, 7.50%, 10/1/12 10,056,056
-----------
12,838,529
-----------
SPECIAL TAX REVENUE -- 12.5%
A A 12,160 New York State LGAC, 5.00%, 4/1/21 10,582,240
A A 5,000 New York State LGAC, 5.00%, 4/1/21 4,368,900
A A 8,750 New York State LGAC, 5.00%, 4/1/23 7,526,313
A A 4,750 New York State LGAC, 5.25%, 4/1/16 4,406,908
A A 2,500 New York State LGAC, 5.25%, 4/1/19 2,265,400
A A 4,500 New York State LGAC, 5.375%, 4/1/16 4,221,180
A A 5,225 New York State LGAC, 5.50%, 4/1/17 4,960,040
A A 12,420 New York State LGAC, 5.50%, 4/1/18 11,731,808
A A 13,000 New York State LGAC, 5.50%, 4/1/21 12,140,570
NR BBB+ 2,630 New York State Municipal Bond Bank Agency, 6.875%, 3/15/06 2,866,095
Baa1 BBB 3,100 New York State Thruway Authority Contract, Local & Highway Building,
5.25%, 4/1/13 2,800,478
Baa1 A 2,000 Puerto Rico Highway and Transportation Authority, 5.50%, 7/1/15 1,902,740
Baa1 A 2,500 Puerto Rico Highway and Transportation Authority, 5.50%, 7/1/15 2,378,425
Baa1 A 4,840 Puerto Rico Highway and Transportation Authority, 6.625%, 7/1/18 5,079,774
Baa1 BBB 3,335 Triborough Bridge & Tunnel Authority, Convention Center, 6.00%, 1/1/11 3,318,158
-----------
80,549,029
-----------
TRANSPORTATION -- 6.2%
Baa1 BBB 4,025 MTA Transit Facilities Service Contract, 4.75%, 7/1/19 3,261,417
Baa1 BBB 3,670 MTA Transit Facilities Service Contract, 4.75%, 7/1/19 2,973,764
Baa1 BBB 2,000 MTA Transit Facilities Service Contract, 5.75%, 7/1/13 1,928,740
Baa1 BBB 725 MTA Transit Facilities Service Contract, 5.75%, 7/1/13 699,168
NR BBB 2,350 New York State Thruway Authority, Cross Westchester Expressway Project, 0%,
1/1/03 1,587,566
Ba1 BB 6,500 Port Authority of New York and New Jersey, 5.75%, 6/15/30 6,254,170
Ba1 BB 2,800 Port Authority of New York and New Jersey, Delta Airlines LaGuardia Airport,
6.95%, 6/1/08 2,969,512
A1 AA- 1,500 Port Authority of New York and New Jersey (AMT), Variable, 1/15/27 (1) 1,553,730
Aa A+ 5,330 Triborough Bridge and Tunnel Authority (TBTA) General Purpose, 5.00%, 1/1/12 4,869,062
</TABLE>
28
<PAGE>
NEW YORK TAX FREE PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
TRANSPORTATION (CONTINUED)
Aa A+ $ 11,580 TBTA General Purpose, 5.50%, 1/1/17 $11,048,941
Aa A+ 2,500 TBTA General Purpose, 6.125%, 1/1/21 2,583,100
-----------
39,729,170
-----------
WATER & SEWER REVENUE -- 3.8%
Aa A 11,050 New York State EFC, State Water Pollution Control, 6.875%, 6/15/10 12,110,568
Aa A+ 4,545 New York State EFC, State Water Pollution Control, 7.20%, 3/15/11 5,052,540
Aa A 2,750 New York State EFC, State Water Pollution Control, 7.00%, 6/15/12 3,053,738
Aa A 150 New York State EFC, State Water Pollution Control, 7.50%, 6/15/12 169,304
Baa1 A 3,750 Puerto Rico Aqueduct & Sewer Authority, 7.875%, 7/1/17 4,160,625
-----------
24,546,775
-----------
TOTAL TAX-EXEMPT INVESTMENTS
(IDENTIFIED COST $610,645,613) $642,348,587
-----------
-----------
</TABLE>
(1)The above designated securities have been issued as inverse floater bonds.
(2)Security has been segregated to cover margin requirements on open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by New York
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at September 30, 1995, 23.7% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 0.1% to 11.0% of total investments.
See notes to financial statements
29
<PAGE>
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS September 30, 1995
OHIO TAX FREE PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS -- 100%
EDUCATION -- 7.9%
A A+ $ 1,000 University of Cincinnati, 6.50%, 12/1/11 $ 1,035,190
A1 AA- 650 University of Cincinnati, 6.50%, 6/1/11 684,314
Aa AA- 550 Ohio State Higher Educational Facilities, Case Western University, 6.50%,
10/1/20 604,335
NR AA 1,000 Ohio State Higher Educational Facilities, Oberlin College, 5.375%, 10/1/15 942,190
NR AAA 2,100 Ohio Higher Educational Facilities, Ohio Northern University, (CLEE), 5.60%,
5/1/13 2,069,886
NR AAA 2,750 Ohio Higher Educational Facilities, Ohio Northern University, (CLEE), 5.65%,
5/1/18 2,688,153
A1 A+ 1,300 Ohio State Higher Educational Facilities, Public Facilities, 5.50%, 12/1/07 1,319,513
A1 NR 7,000 Ohio State Student Loan Funding Corp., (AMT), 6.10%, 8/1/07 7,165,200
A1 NR 7,000 Ohio State Student Loan Funding Corp., (AMT), 6.10%, 8/1/08 7,121,100
A1 AA- 1,500 Ohio State University Revenue, 5.75%, 12/1/09 1,523,325
-----------
25,153,206
-----------
ESCROWED -- 0.2%
A1 NR 500 Gahanna, Ohio General Obligation, 7.00%, 6/1/12 566,875
-----------
GENERAL OBLIGATIONS -- 9.1%
NR NR 3,035 Belmont County, 7.30%, 12/1/17 3,190,392
A NR 600 City of Brunswick, Various Purpose, 6.30%, 12/1/12 617,586
NR NR 2,450 Cleveland City School District, 7.25%, 6/15/98 2,498,069
Aaa AAA 1,035 City of Columbus, 5.50%, 11/1/12 1,025,902
A1 NR 1,360 Copley-Fairlawn City School District, 6.25%, 12/1/15 1,403,180
NR BBB 3,500 Guam Government, 5.375%, 11/15/13 3,104,535
A1 NR 3,340 Hilliard City School District, 6.30%, 12/1/14 3,462,344
A1 NR 500 Huber Heights, Ohio, 6.75%, 12/1/11 534,185
A NR 1,200 Mansfield Ohio Waterworks Improvement, 5.60%, 12/1/13 1,162,692
A1 NR 725 City of Medina, Ohio Fire Station Improvement, 3.00%, 12/1/10 527,445
Aa AA 1,500 Ohio State Infrastructure Improvement, 0%, 8/1/11 632,685
Baa1 NR 1,000 Scioto County, Ohio Human Services Building, 7.15%, 8/1/11 1,136,590
NR NR 1,000 Tuscarawas Public Library Improvement, 6.90%, 12/1/11 1,055,300
Baa NR 1,000 Youngstown, Ohio, 7.55%, 12/1/11 1,080,240
NR NR 6,855 Youngstown, Ohio 7.35%, 6/15/05 7,413,614
-----------
28,844,759
-----------
HEALTH CARE -- 2.4%
NR AAA 1,000 Allen County Ohio, LIMA Convalescent Home Foundation (GNMA), 6.40%, 1/1/21 1,022,330
Aa2 NR 1,600 Hamilton County, Episcopal Retirement Homes, 6.80%, 1/1/08 1,745,504
NR BBB- 1,800 Marion County, United Church Homes, 6.30%, 11/15/15 1,734,354
Baa BBB 2,925 Puerto Rico Urban Renewal & Housing Corporation, 0%, 10/1/99 2,364,570
Aa2 NR 600 Warren County, Otterbein Home Project, 7.20%, 7/1/11 662,418
-----------
7,529,176
-----------
HOSPITALS -- 19.3%
Baa BBB- 1,000 Butler County, Hamilton-Hughe Hospital, 7.50%, 1/1/10 1,032,270
NR BBB 1,000 Cambridge Ohio, Guernsey Memorial Hospital, 8.00%, 12/1/11 1,068,500
A1 A 2,100 Cuyahoga County, Fairview General Hospital, 6.25%, 8/15/10 2,152,101
A1 A 2,370 Cuyahoga County, Meridia Health System, 7.00%, 8/15/23 2,505,967
A1 A 2,000 Cuyahoga County, Meridia Health System, 6.50%, 8/15/12 2,052,600
Aa AA 750 Cuyahoga County, University Hospitals Health System, 6.50%, 1/15/19 778,560
Aa AA 4,450 Cuyahoga County, University Hospitals Health System, 6.00%, 1/15/22 4,487,024
NR BBB 4,500 Defiance Hospital, Inc., 7.625%, 11/1/03 4,641,075
Baa BBB- 665 East Liverpool City Hospital -- Series A, 8.00%, 10/1/21 696,893
</TABLE>
30
<PAGE>
OHIO TAX FREE PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
HOSPITALS (CONTINUED)
Baa BBB- $ 1,000 East Liverpool City Hospital -- Series B, 8.00%, 10/1/21 $ 1,044,880
A A- 4,000 Erie County, Firelands Community Hospital, 6.75%, 1/1/08 4,237,640
Aa NR 3,000 Franklin County, Children's Hospital, 6.60%, 5/1/13 3,167,310
Aa NR 1,900 Franklin County, Riverside United Methodist Hospital, 5.75%, 5/15/20 1,804,088
A A 1,015 City of Garfield Heights, Marymount Hospital, 6.65%, 11/15/11 1,052,058
A A 1,000 City of Garfield Heights, Marymount Hospital, 6.70%, 11/15/15 1,040,670
Aa2 NR 1,000 Hamilton County, Wesley Hall Project, 6.50%, 3/1/15 1,022,560
A1 A 4,000 Hamilton County, Bethesda Hospital, Inc., 6.25%, 1/1/12 4,027,400
A1 A+ 1,095 Lorain County, Humility of Mary Health Care Corp., 7.125%, 12/15/06 1,199,266
A1 A+ 5,900 Lorain County, Humility of Mary Health Care Corp., 5.90%, 12/15/08 6,048,208
A1 A+ 1,000 Lorain County, Humility of Mary Health Care Corp., 7.20%, 12/15/11 1,081,030
NR A+ 1,750 Lorain County, Lakeland Community Hospital, Inc., 6.50%, 11/15/12 1,794,538
NR BBB+ 1,000 Lucas County, Flowers Hospital, 6.125%, 12/1/13 939,000
A A 2,760 City of Middleburg Heights, Southwest General Hospital Project, 6.75%, 8/15/21 2,880,971
NR NR 10,000 Mt Vernon, Knox Community Hospital, 7.875%, 6/1/12 10,358,900
-----------
61,113,509
-----------
HOUSING -- 7.1%
Aa NR 1,300 City of Clermont, Laurels Project, (FHA), 6.00%, 9/1/20 1,285,011
Aa NR 1,000 Franklin County, Hamilton Creek Apartments (FHA), (AMT), 5.80%, 7/1/14 942,190
Aa NR 3,660 Franklin County, Hamilton Creek Apartments (FHA), (AMT), 5.55%, 7/1/24 3,239,905
NR AAA 3,490 Ohio HFA, (GNMA), (AMT), 6.375%, 3/1/25 3,523,853
NR AAA 4,735 Ohio HFA, (GNMA), (AMT), 6.70%, 3/1/25 4,844,899
NR AAA 835 Ohio HFA, SFMR, (GNMA), 7.60%, 9/1/16 871,723
NR AAA 1,250 Ohio HFA, MFMR -- Asbury Woods, (FHA), 7.00%, 10/1/24 1,279,350
Aa NR 2,850 Ohio HFA, Oakleaf Village Project, (FHA), 5.70%, 9/1/26 2,643,746
Aa NR 1,000 Ohio HFA, Aristocrat South Board & Care Project (FHA), (AMT), 7.30%, 8/1/31 1,037,330
Aaa AAA 1,085 Ohio HFA SFMR, (GNMA) (AMT), Variable, 3/31/31 (1) 1,162,317
NR BBB+ 1,020 Ohio Economic Development, KMART Corp., 6.75%, 5/15/07 1,034,810
A1 A+ 500 Ohio Building Authority Juvenile Correctional Building, 5.80%, 10/1/07 515,125
-----------
22,380,259
-----------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE -- 8.8%
NR BBB 510 Madison County, IDR, KMART Corp., 6.75%, 9/15/06 523,734
Baa1 NR 3,750 Ohio Air Quality Development Authority, Ashland Oil Inc, 6.85%, 4/1/10 3,991,163
NR A- 595 Ohio IDR, Enterprise Bond Fund, Burrows Paper Corp. (AMT), 7.625%, 6/1/11 659,546
NR A- 310 Ohio IDR, Enterprise Bond Fund, Cheryl & Co., (AMT), 5.50%, 12/1/04 307,774
NR A- 530 Ohio IDR, Enterprise Bond Fund, Cheryl & Co., (AMT), 5.90%, 12/1/09 530,806
NR A- 1,815 Ohio IDR, Enterprise Bond Fund, Consolidated Biscuit, (AMT), 7.00%, 12/1/09 2,014,051
NR A- 3,425 Ohio IDR, Enterprise Bond Fund, J J & W LP Project, (AMT), 6.70%, 12/1/14 3,536,826
NR A- 750 Ohio IDR, Enterprise Bond Fund, Luigino's Inc. (AMT), 6.85%, 6/1/01 772,388
NR A- 1,000 Ohio IDR, Enterprise Bond Fund, Progress Plastic Products, (AMT), 6.80%,
12/1/01 1,086,040
NR A- 1,525 Ohio IDR, Enterprise Bond Fund, Progress Plastic Products, (AMT), 7.80%,
12/1/09 1,772,660
NR A- 680 Ohio IDR, Enterprise Bond Fund, Royal Appliance Manufacturing Co., Series 1991
#9 (AMT), 7.625%, 12/1/11 758,234
NR A- 1,000 Ohio IDR, Enterprise Bond Fund, Royal Appliance Manufacturing Co., Series 1991
#5, (AMT), 7.625%, 12/1/11 1,115,050
NR A- 1,800 Ohio IDR, Enterprise Bond Fund, Speco Corp. (AMT), 6.60%, 6/1/04 1,857,186
NR A- 170 Ohio IDR, Enterprise Bond Fund, Speco Corp. (AMT), 6.25%, 6/1/00 173,553
NR A- 880 Ohio IDR, Enterprise Bond Fund, VSM Corp., (AMT), 7.375%, 12/1/11 969,936
NR AA- 1,000 Ohio Pollution Control, Standard Oil Company, 6.75%, 12/1/15 1,167,220
Baa2 BBB 4,065 Ohio Water Development Authority, Union Carbide Corp. Project, 5.50%, 1/15/07 3,935,245
</TABLE>
31
<PAGE>
OHIO TAX FREE PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (CONTINUED)
Ba2 NR $ 1,500 Portage County, Kroger Corporation, 7.25%, 7/1/99 $ 1,592,175
Ba2 NR 1,000 Summit County, Kroger Corporation, 6.85%, 7/1/99 1,050,140
-----------
27,813,727
-----------
INSURED EDUCATION -- 1.1%
Aaa AAA 1,000 Adams & Highland County Local School District, (MBIA), 5.25%, 12/1/21 923,810
Aaa AAA 1,500 Delaware County, Buckeye Valley Local School District, (MBIA), 5.25%, 12/1/20 1,402,665
Aaa AAA 1,000 Ohio Higher Education, University of Dayton Project (FGIC), 5.80%, 12/1/14 1,000,720
-----------
3,327,195
-----------
INSURED GENERAL OBLIGATIONS -- 1.5%
Aaa AAA 1,700 Puerto Rico (AMBAC), Variable, 7/1/15 (1) 1,716,898
Aaa AAA 3,000 Puerto Rico (FSA), Variable, 7/1/22 (1) 3,077,910
-----------
4,794,808
-----------
INSURED HEALTHCARE -- 2.4%
Aaa AAA 1,945 Hamilton County, Sisters of Charity Health Care System (MBIA), 5.25%, 5/15/13 1,819,645
Aa AA- 5,925 Montgomery County, Sisters of Charity Health Care System (MBIA), 5.25%, 5/15/11 5,563,871
-----------
7,383,516
-----------
INSURED HOSPITALS -- 11.7%
Aaa AAA 2,500 Akron, Bath and Copley Townships Children's Hospital Medical Center of Akron,
(AMBAC), 5.25%, 11/15/20 2,276,175
Aaa AAA 1,000 Clermont County, Mercy Health System (AMBAC), Variable, 10/5/21 (1) 1,128,810
Aaa AAA 1,500 Cuyahoga County, Fairview Hospital, (MBIA), 5.50%, 8/15/19 1,389,270
Aaa AAA 5,885 Franklin County, Riverside United Methodist (AMBAC), 5.75%, 5/15/12 5,797,961
Aaa AAA 10,500 Franklin County, Riverside United Methodist (AMBAC), 5.75%, 5/15/20 10,085,565
Aaa AAA 1,455 Hamilton County, The Christ Hospital (FGIC), 5.50%, 1/1/08 1,472,169
Aaa AAA 1,500 Hamilton County, Children's Hospital Medical Center, (FGIC), 5.00%, 5/15/13 1,370,130
Aaa AAA 2,750 Mansfield General Hospital (AMBAC), 6.70%, 12/1/09 2,970,028
Aaa AAA 1,000 Montgomery County, Ohio Miami Valley Hospital, (AMBAC), 6.25%, 11/15/16 1,030,000
Aaa AAA 6,565 Portage County, Robinson Memorial Hospital, (MBIA), 5.80%, 11/15/15 6,272,201
Aaa AAA 3,500 Stark County, Timkon Mercy Medical, (MBIA), 5.00%, 12/1/19 3,113,320
-----------
36,905,629
-----------
INSURED HOUSING -- 0.6%
Aaa AAA 990 Ohio Capital Corporation FHA Insured Mortgage Loans, (MBIA), 7.25%, 7/1/24 1,032,649
Aaa AAA 750 Ohio Capital Corporation FHA Insured Mortgage Loans, (MBIA), 6.50%, 1/1/25 763,965
-----------
1,796,614
-----------
INSURED INDUSTRIAL DEVELOPMENT REVENUE -- 2.3%
Aaa AAA 7,000 Ohio Air Quality Development Authority, JMG Funding, L.P. Project, (AMBAC),
(AMT), 6.375%, 1/1/29 7,180,670
-----------
INSURED LEASE -- 2.6%
Aaa AAA 1,000 Ohio Higher Education, University of Dayton, (FGIC), 0%, 12/1/06 560,870
Aaa AAA 8,000 Ohio State Public Building Authority -- Workers Comp Facilities (MBIA), 4.50%,
4/1/04 7,785,200
-----------
8,346,070
-----------
INSURED SPECIAL TAX REVENUE -- 4.9%
Aaa AAA 2,110 Hudson Local School District, (FGIC), 0%, 12/15/09 976,656
Aaa AAA 2,115 Hudson Local School District, (FGIC), 0%, 12/15/10 920,427
Aaa AAA 2,000 North Canton City School District, (AMBAC), 5.90%, 12/1/14 2,024,260
Aaa AAA 1,400 Pickerington Local School District, (AMBAC), 0%, 12/1/11 562,800
Aaa AAA 2,000 Puerto Rico Highway & Transportation Authority (FSA), 5.50%, 7/1/17 1,911,920
</TABLE>
32
<PAGE>
OHIO TAX FREE PORTFOLIO (cont'd)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- -------------------- PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
<S> <C> <C> <C> <C>
TAX-EXEMPT INVESTMENTS (CONTINUED)
INSURED SPECIAL TAX REVENUE (CONTINUED)
Aaa AAA $ 7,000 Puerto Rico Highway & Transportation Authority (FSA), 5.25%, 7/1/21 $ 6,435,380
Aaa AAA 3,000 Puerto Rico Highway & Transportation Authority (FSA), 5.25%, 7/1/20 2,762,220
-----------
15,593,663
-----------
INSURED UTILITIES -- 2.4%
Aaa AAA 1,650 Cleveland Public Power System, (MBIA), 7.00%, 11/15/17 1,809,605
Aaa AAA 2,000 Cuyahoga County Medical Center Utility System (AMT) (MBIA), 6.10%, 8/15/15 2,001,480
Aaa AAA 1,380 OH Municipal Electric Generation Agency (AMBAC), 5.375%, 2/15/24 1,289,665
Aaa AAA 2,300 Puerto Rico Electric Power Authority, (FSA), Variable, 7/1/02 (1) 2,548,814
-----------
7,649,564
-----------
LEASE/CERTIFICATES OF PARTICIPATION -- 1.1%
A NR 1,000 University of Akron COP, West Campus Parking Deck, 5.50%, 1/1/14 974,080
Baa1 A 2,500 Puerto Rico Public Building Authority, 6.00%, 7/1/12 2,504,675
-----------
3,478,755
-----------
LIFE CARE -- 0.6%
Aa NR 2,000 Franklin County, Kensington Place Project, 6.75%, 1/1/34 2,046,600
-----------
SPECIAL TAX REVENUE -- 4.2%
Baa1 A 3,000 Puerto Rico Highway & Transportation Authority, 6.625%, 7/1/12 3,168,450
Baa1 A 1,500 Puerto Rico Highway & Transportation Authority, 5.50%, 7/1/15 1,427,055
Baa1 A 5,000 Puerto Rico Highway & Transportation Authority, 5.25%, 7/1/20 4,466,150
Baa1 A 4,995 Puerto Rico Highway & Transportation Authority, 5.00%, 7/1/22 4,280,216
-----------
13,341,871
-----------
TRANSPORTATION -- 1.7%
NR BBB 2,750 Guam Airport Authority, (AMT), 6.70%, 10/1/23 2,755,913
A1 AA- 2,830 Ohio Turnpike Commission, 5.75%, 2/15/24 2,771,617
-----------
5,527,530
-----------
UTILITIES -- 7.2%
NR BBB 5,500 Guam Power Authority, 5.25%, 10/1/13 4,960,170
NR BBB 5,000 Guam Power Authority, 5.25%, 10/1/23 4,307,600
Baa1 A- 3,000 Puerto Rico Electric Power Authority, 5.00%, 7/1/12 2,709,060
Baa1 A- 360 Puerto Rico Electric Power Authority, 7.125%, 7/1/14 392,580
Baa1 A- 4,000 Puerto Rico Electric Power Authority, 6.00%, 7/1/14 3,968,440
Baa1 A- 20,165 Puerto Rico Electric Power Authority, 0%, 7/1/17 5,301,379
NR NR 1,000 Virgin Islands Water and Power Authority, 7.40%, 7/1/11 1,050,210
-----------
22,689,439
-----------
WATER & SEWER REVENUE -- 0.9%
NR NR 800 The Mahoning Valley Sanitary District, 7.80%, 12/15/08 855,392
NR NR 950 The Mahoning Valley Sanitary District, 7.80%, 12/15/09 1,013,099
NR NR 1,000 City of Vermilion, Ohio Water System, 7.25%, 8/15/15 1,066,720
-----------
2,935,211
-----------
TOTAL TAX-EXEMPT INVESTMENTS
(IDENTIFIED COST, $304,406,955) $316,398,646
-----------
-----------
</TABLE>
(1)The above designated securities have been issued as inverse floater bonds.
The Portfolio invests primarily in debt securities issued by Ohio
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at September 30, 1995, 36.3% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 2.0% to 11.4% of total investments.
See notes to financial statements.
33
<PAGE>
- ---------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES September 30, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
P O R T F O L I O S
<CAPTION>
NATIONAL CALIFORNIA MASSACHUSETTS NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO OHIO PORTFOLIO
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $2,148,345,455 $381,719,158 $277,979,560 $610,645,613 $304,406,955
Unrealized appreciation 135,374,581 24,303,093 17,523,995 31,702,974 11,991,691
-------------- -------------- -------------- -------------- --------------
Total investments, at value (Note 1A) 2,283,720,036 406,022,251 295,503,555 642,348,587 316,398,646
Cash 3,616,689 589 6,632 696 522
Receivable for investments sold 32,684,771 50,000 13,030,253 17,612,917 998,095
Interest receivable 43,138,659 6,743,380 5,219,546 10,635,275 5,490,518
Deferred organization expenses (Note 1D) 46,641 14,563 12,432 14,921 9,316
-------------- -------------- -------------- -------------- --------------
Total assets 2,363,206,796 412,830,783 313,772,418 670,612,396 322,897,097
-------------- -------------- -------------- -------------- --------------
LIABILITIES:
Demand note payable (Note 5) -- 2,032,000 2,018,000 476,000 3,860,000
Payable for investments purchased 5,033,541 -- 9,507,914 16,908,493 --
Payable for when-issued securities (Note
1G) 97,457,676 -- -- -- --
Payable for daily variation margin on open
financial futures contracts (Note 1E) -- 103,125 61,875 477,125 --
Payable to affiliates --
Trustees' fees 7,368 4,638 4,126 5,150 4,126
Custodian fees -- 8,667 4,381 1,500 6,183
Accrued expenses 61,848 12,215 5,875 7,819 10,140
-------------- -------------- -------------- -------------- --------------
Total liabilities 102,560,433 2,160,645 11,602,171 17,876,087 3,880,449
-------------- -------------- -------------- -------------- --------------
NET ASSETS applicable to investors'
interest in
Portfolio $2,260,646,363 $410,670,138 $302,170,247 $652,736,309 $319,016,648
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
SOURCES OF NET ASSETS:
Net proceeds from capital contributions
and withdrawals $2,125,271,782 $386,540,544 $284,750,352 $621,396,197 $307,024,957
Unrealized appreciation of investments and
financial futures contracts (computed on
the basis of identified cost) 135,374,581 24,129,594 17,419,895 31,340,112 11,991,691
-------------- -------------- -------------- -------------- --------------
Total $2,260,646,363 $410,670,138 $302,170,247 $652,736,309 $319,016,648
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
See notes to financial statements
34
<PAGE>
- ---------------------------------------------------------------
STATEMENTS OF OPERATIONS For the Year Ended September 30, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
P O R T F O L I O S
<CAPTION>
NATIONAL CALIFORNIA MASSACHUSETTS NEW YORK OHIO
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest Income (Note 1B) $166,061,913 $28,624,042 $19,516,946 $41,798,094 $20,219,008
-------------- -------------- -------------- -------------- --------------
Expenses --
Investment adviser fee (Note 2) 9,944,026 2,121,262 1,383,407 3,031,508 1,463,895
Compensation of Trustees not members of
the Investment Adviser's organization
(Note 2) 29,082 18,570 16,111 20,640 19,598
Custodian fee (Note 2) 374,289 187,581 135,884 221,548 157,716
Interest expense (Note 5) -- -- -- -- 114,074
Legal and accounting fees 117,108 42,258 30,407 37,661 30,478
Amortization of organization expenses
(Note 1D) 19,459 5,625 5,209 6,278 3,960
Miscellaneous 609,017 120,219 91,575 193,968 31,370
-------------- -------------- -------------- -------------- --------------
Total expenses 11,092,981 2,495,515 1,662,593 3,511,603 1,821,091
Deduct reduction of custodian fee (Note
2) 317,043 47,611 61,501 220,048 67,412
-------------- -------------- -------------- -------------- --------------
Net expenses 10,775,938 2,447,904 1,601,092 3,291,555 1,753,679
-------------- -------------- -------------- -------------- --------------
NET INVESTMENT INCOME 155,285,975 26,176,138 17,915,854 38,506,539 18,465,329
-------------- -------------- -------------- -------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized loss --
Investment transactions (identified cost
basis) (60,263,375) (19,076,355) (12,310,806) (12,293,704) (4,554,010)
Financial futures contracts (26,703,060) (3,974,440) (3,356,628) (6,983,956) (2,677,416)
-------------- -------------- -------------- -------------- --------------
Net realized loss on investments (86,966,435) (23,050,795) (15,667,434) (19,277,660) (7,231,426)
-------------- -------------- -------------- -------------- --------------
Change in unrealized appreciation
(depreciation) --
Investments 177,320,778 34,125,832 24,470,289 43,541,560 20,963,434
Financial futures contracts -- (650,309) (482,875) (498,006) --
-------------- -------------- -------------- -------------- --------------
Net unrealized appreciation 177,320,778 33,475,523 23,987,414 43,043,554 20,963,434
-------------- -------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 90,354,343 10,424,728 8,319,980 23,765,894 13,732,008
-------------- -------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $245,640,318 $36,600,866 $26,235,834 $62,272,433 $32,197,337
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
See notes to financial statements
35
<PAGE>
- ---------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS For the Year Ended September 30, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
P O R T F O L I O S
NATIONAL CALIFORNIA MASSACHUSETTS NEW YORK OHIO
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS --
Net investment income $155,285,975 $26,176,138 $17,915,854 $38,506,539 $18,465,329
Net realized loss on investments (86,966,435) (23,050,795) (15,667,434) (19,277,660) (7,231,426)
Change in unrealized appreciation of
investments 177,320,778 33,475,523 23,987,414 43,043,554 20,963,434
-------------- -------------- -------------- -------------- --------------
Net increase in net assets from operations 245,640,318 36,600,866 26,235,834 62,272,433 32,197,337
-------------- -------------- -------------- -------------- --------------
CAPITAL TRANSACTIONS --
Contributions 443,671,368 39,676,667 27,917,577 61,423,633 24,237,228
Withdrawals (639,601,609) (110,738,796) (60,522,944) (126,606,533) (61,829,470)
-------------- -------------- -------------- -------------- --------------
Decrease in net assets resulting from
capital transactions (195,930,241) (71,062,129) (32,605,367) (65,182,900) (37,592,242)
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS 49,710,077 (34,461,263) (6,369,533) (2,910,467) (5,394,905)
NET ASSETS:
At beginning of year 2,210,936,286 445,131,401 308,539,780 655,646,776 324,411,553
-------------- -------------- -------------- -------------- --------------
At end of year $2,260,646,363 $410,670,138 $302,170,247 $652,736,309 $319,016,648
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
See notes to financial statements
36
<PAGE>
- ---------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS For the Year Ended September 30, 1994
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
P O R T F O L I O S
<CAPTION>
NATIONAL CALIFORNIA MASSACHUSETTS NEW YORK OHIO
PORTFOLIO PORTFOLIO+ PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS --
Net investment income $144,467,768 $13,943,369 $17,598,654 $38,006,256 $18,012,641
Net realized loss on investment
transactions (8,642,077) (10,624,666) (5,575,616) (2,555,481) (413,084)
Change in unrealized depreciation of
investments (224,012,810) (942,071) (26,955,377) (67,884,728) (32,855,282)
-------------- -------------- -------------- -------------- --------------
Net increase (decrease) in net assets from
operations (88,187,119) 2,376,632 (14,932,339) (32,433,953) (15,255,725)
-------------- -------------- -------------- -------------- --------------
CAPITAL TRANSACTIONS --
Contributions 760,864,297 24,605,354 73,999,994 135,102,754 78,699,031
Withdrawals (545,063,348) (49,109,598) (41,140,572) (95,828,619) (37,123,714)
-------------- -------------- -------------- -------------- --------------
Increase (decrease) in net assets
resulting from
capital transactions 215,800,949 (24,504,244) 32,859,422 39,274,135 41,575,317
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS 127,613,830 (22,127,612) 17,927,083 6,840,182 26,319,592
NET ASSETS:
At beginning of year 2,083,322,456 467,259,013 290,612,697 648,806,594 298,091,961
-------------- -------------- -------------- -------------- --------------
At end of year $2,210,936,286 $445,131,401 $308,539,780 $655,646,776 $324,411,553
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
+ For the California Portfolio, the Statement of Changes in Net Assets is for
the six months ended September 30, 1994 (Note 7).
See notes to financial statements
37
<PAGE>
- ---------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS For the period from the start of
business, May 3, 1993, to March 31,
1994
-------------
<TABLE>
<CAPTION>
CALIFORNIA
PORTFOLIO
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS --
Net investment income $ 25,183,098
Net realized gain on investment
transactions 10,976,521
Change in unrealized depreciation of
investments (34,132,327)
--------------
Net increase in net assets from operations $ 2,027,292
--------------
CAPITAL TRANSACTIONS --
Contributions 553,867,973
Withdrawals (88,736,272)
--------------
Increase in net assets resulting from
capital transactions 465,131,701
--------------
NET INCREASE IN NET ASSETS 467,158,993
NET ASSETS:
At beginning of period 100,020
--------------
At end of period $467,259,013
--------------
--------------
</TABLE>
See notes to financial statements
38
<PAGE>
- ---------------------------------------------------------------
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
P O R T F O L I O S
------------------------------------------------------------------------
<CAPTION>
NATIONAL CALIFORNIA
<CAPTION>
1995 1994 1993** 1995 1994*
<S> <C> <C> <C> <C> <C>
RATIOS (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS):
Expenses 0.50% 0.50% 0.47%+ 0.59% 0.57%+
Net investment income 7.00% 6.55% 6.58%+ 6.22% 6.09%+
Portfolio turnover 54% 40% 13% 58% 40%
Net assets, at end of period (000 omitted) $2,260,646 $2,210,936 $2,083,322 $410,763 $445,131
------------------------------------------------------------------------
<CAPTION>
MASSACHUSETTS NEW YORK
<S> <C> <C> <C> <C> <C>
1995 1994 1993** 1995 1994
RATIOS (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS):
Expenses 0.56% 0.51% 0.49%+ 0.54% 0.48%
Net investment income 6.00% 5.74% 5.72%+ 5.97% 5.70%
Portfolio turnover 87% 53% 38% 55% 47%
Net assets, at end of period (000 omitted) $302,170 $308,540 $290,613 $652,736 $655,647
---------------------------
<CAPTION>
OHIO
<S> <C> <C> <C> <C> <C>
1995 1994
RATIOS (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS):
Expenses 0.57% 0.51%
Net investment income 5.80% 5.61%
Portfolio turnover 51% 31%
Net assets, at end of period (000 omitted) $319,017 $324,412
- ------------------------------------------------
-------------
1993***
<S> <C>
RATIOS (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS):
Expenses 0.55%+
Net investment income 5.72%+
Portfolio turnover 91%
Net assets, at end of period (000 omitted) $467,259
---------------------------
1993**
<S> <C>
RATIOS (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS):
Expenses 0.48%+
Net investment income 5.64%+
Portfolio turnover 37%
Net assets, at end of period (000 omitted) $648,807
<S> <C>
1993**
RATIOS (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS):
Expenses 0.49%+
Net investment income 5.61%+
Portfolio turnover 24%
Net assets, at end of period (000 omitted) $298,092
</TABLE>
+ Annualized.
* For the six months ended September 30, 1994 (Note 7).
** For the period from the start of business, February 1, 1993, to September
30, 1993.
*** For the period from the start of business, May 3, 1993 to March 31, 1994.
See notes to financial statements
39
<PAGE>
- ---------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
National Municipals Portfolio (National Portfolio) and California Tax Free
Portfolio (California Portfolio) are registered under the Investment Company
Act of 1940 as diversified open-end management investment companies which were
organized as trusts under the laws of the State of New York on May 1, 1992.
Massachusetts Tax Free Portfolio (Massachusetts Portfolio), New York Tax Free
Portfolio (New York Portfolio), and Ohio Tax Free Portfolio (Ohio Portfolio),
collectively the Portfolios, are registered under the Investment Company Act
of 1940 as non-diversified open-end management investment companies which were
organized as trusts under the laws of the State of New York on May 1, 1992.
The Declarations of Trust permit the Trustees to issue interests in the
Portfolios. The following is a summary of significant accounting policies of
the Portfolios. The policies are in conformity with generally accepted
accounting principles.
A. INVESTMENT VALUATION - Municipal bonds are normally valued on the basis of
valuations furnished by a pricing service. Taxable obligations, if any, for
which price quotations are readily available are normally valued at the
mean between the latest bid and asked prices. Futures contracts listed on
commodity exchanges are valued at closing settlement prices. Short-term
obligations, maturing in sixty days or less, are valued at amortized cost,
which approximates value. Investments for which valuations or market
quotations are unavailable are valued at fair value using methods
determined in good faith by or at the direction of the Trustees.
B. INCOME - Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C. INCOME TAXES - The Portfolios are treated as partnerships for Federal tax
purposes. No provision is made by the Portfolios for federal or state taxes
on any taxable income of the Portfolios because each investor in the
Portfolios are ultimately responsible for the payment of any taxes. Since
some of the Portfolios' investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolios, the
Portfolios normally must satisfy the applicable source of income and
diversification requirements (under the Internal Revenue Code) in order for
their respective investors to satisfy them. The Portfolios will allocate at
least annually among their respective investors each investor's
distributive share of the Portfolios' net taxable (if any) and tax-exempt
investment income, net realized capital gains, and any other items of
income, gain, loss, deductions or credit. Interest income received by the
Portfolios on investments in municipal bonds, which is excludable from
gross income under the Internal Revenue Code, will retain its status as
income exempt from federal income tax when allocated to each Portfolio's
investors. The portion of such interest, if any, earned on private activity
bonds issued after August 7, 1986, may be considered a tax preference item
for investors.
D. DEFERRED ORGANIZATION EXPENSES - Costs incurred by a Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
E. FINANCIAL FUTURES CONTRACTS - Upon the entering of a financial futures
contract, a Portfolio is required to deposit ("initial margin") either in
cash or securities an amount equal to a certain percentage of the purchase
price indicated in the financial futures contract. Subsequent payments are
made or received by a Portfolio ("margin maintenance") each day, dependent
on the daily fluctuations in the value of the underlying security, and are
recorded for book purposes as unrealized gains or losses by a Portfolio. A
Portfolio's investment in financial futures contracts is designed only to
hedge against anticipated future changes in interest rates. Should interest
rates move unexpectedly, a Portfolio may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss.
F. LEGAL FEES - Legal fees and other related expenses incurred as part of
negotiations of the terms and requirements of capital infusions, or that
are expected to result in the restructuring of or a plan of reorganization
for an investment are recorded as realized losses. Ongoing expenditures to
protect or enhance an investment are treated as operating expenses.
G. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS - The Portfolios may engage
in when-issued and delayed delivery transactions. The Portfolios record
when-issued securities on trade date and maintain security positions such
that sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on
settlement date.
H. OTHER - Investment transactions are accounted for on a trade date basis.
40
<PAGE>
- ---------------------------------------------------------------
(2) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS
WITH AFFILIATES
The investment adviser fee is earned by Boston Management and Research (BMR),
as compensation for management and investment advisory services rendered to
each Portfolio. The fee is based upon a percentage of average daily net assets
plus a percentage of gross income (i.e., income other than gains from the sale
of securities). For the year ended September 30, 1995, each Portfolio paid
advisory fees as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PORTFOLIO AMOUNT
<S> <C>
National $9,944,026
California 2,121,262
Massachusetts 1,383,407
New York 3,031,508
Ohio 1,463,895
<CAPTION>
PORTFOLIO EFFECTIVE RATE
<S> <C>
National 0.45%
California 0.50%
Massachusetts 0.46%
New York 0.47%
Ohio 0.46%
</TABLE>
Except as to Trustees of the Portfolios who are not members of BMR's
organization, officers and Trustees receive remuneration for their services to
the Portfolios out of such investment adviser fee. Investors Bank & Trust
Company (IBT), an affiliate of BMR, serves as custodian of the Portfolios.
Pursuant to the custodian agreements, IBT receives a fee reduced by credits
which are determined based on the average daily cash balances each Portfolio
maintains with IBT. All significant credit balances are reported as a
reduction of expenses in the statement of operations. Certain of the officers
and Trustees of the Portfolios are officers and directors/trustees of the
above organizations. Trustees of the Portfolios that are not affiliated with
the Investment Adviser may elect to defer receipt of all or a portion of their
annual fees in accordance with the terms of the Trustees Deferred Compensation
Plan. For the year ended September 30, 1995, no significant amounts have been
deferred.
- ---------------------------------------------------------------
(3) INVESTMENTS
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, for the year ended September 30, 1995 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NATIONAL CALIFORNIA MASSACHUSETTS NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
Purchases $1,192,305,188 $240,733,525 $256,567,304 $355,016,997
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Sales $1,201,905,002 $289,176,459 $272,646,745 $397,804,899
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
OHIO
PORTFOLIO
<S> <C>
Purchases $159,675,006
---------------
---------------
Sales $188,427,313
---------------
---------------
</TABLE>
- --------------------------------------------------
(4) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of the investments
owned by each Portfolio at September 30, 1995, as computed on a federal income
tax basis, are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
NATIONAL CALIFORNIA MASSACHUSETTS
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
Aggregate Cost $2,148,345,455 $381,719,158 $277,979,560
--------------- --------------- ---------------
--------------- --------------- ---------------
Gross unrealized appreciation $ 165,148,448 $24,714,474 $17,673,126
Gross unrealized depreciation 29,773,867 411,381 149,131
--------------- --------------- ---------------
Net unrealized appreciation $ 135,374,581 $24,303,093 $17,523,995
--------------- --------------- ---------------
--------------- --------------- ---------------
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NEW YORK OHIO
PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
Aggregate Cost $610,645,613 $304,406,955
--------------- ---------------
--------------- ---------------
Gross unrealized appreciation $34,539,991 $13,447,996
Gross unrealized depreciation 2,837,017 1,456,305
--------------- ---------------
Net unrealized appreciation $31,702,974 $11,991,691
--------------- ---------------
--------------- ---------------
</TABLE>
41
<PAGE>
- ---------------------------------------------------------------
(5) LINE OF CREDIT
The Portfolios participate with other portfolios and funds managed by BMR in a
$120 million unsecured line of credit agreement with a bank. The line of
credit consists of a $20 million committed facility and a $100 million
discretionary facility. Each Portfolio may temporarily borrow up to 5% of its
total assets to satisfy redemption requests and settle securities
transactions. Interest is charged to each portfolio or fund based on its
borrowings at an amount above either the bank's adjusted certificate of
deposit rate, a variable adjusted certificate of deposit rate, or a federal
funds effective rate. In addition, a fee computed at an annual rate of 1/4 of
1% on the $20 million committed facility and on the daily unused portion of
the $100 million discretionary facility is allocated among the participating
funds and portfolios at the end of each quarter. At September 30, 1995, the
California Portfolio, Massachusetts Portfolio, New York Portfolio and Ohio
Portfolio had balances outstanding pursuant to this line of credit of
$2,032,000, $2,018,000, $476,000 and $3,860,000, respectively.
For the year ended September 30, 1995, the Ohio Portfolio had an average daily
balance outstanding pursuant to this line of credit of $2,928,000 at an
average interest rate of 7.27%. The Ohio Portfolio's maximum outstanding month
end balance during the year was $9,776,000. The National Portfolio, California
Portfolio, Massachusetts Portfolio and New York Portfolio did not have any
significant borrowings or allocated fees during the year ended September 30,
1995.
- ---------------------------------------------------------------
(6) FINANCIAL INSTRUMENTS
The Portfolios regularly trade in financial instruments with off-balance sheet
risk in the normal course of their investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options and futures contracts and may involve, to a varying degree, elements
of risk in excess of the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment a Portfolio has in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. A summary of
obligations under these financial instruments at September 30, 1995 is as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
FUTURES
CONTRACTS
PORTFOLIO EXPIRATION DATE CONTRACTS POSITION
<S> <C> <C> <C>
California 12/95 75 U.S. Treasury Bonds Short
Massachusetts 12/95 45 U.S. Treasury Bonds Short
New York 12/95 347 U.S. Treasury Bonds Short
<CAPTION>
- ----------------------------------------------------
NET UNREALIZED
PORTFOLIO DEPRECIATION
<S> <C>
California $ 173,499
Massachusetts 104,100
New York 362,862
</TABLE>
At September 30, 1995, each Portfolio had sufficient cash and/or securities to
cover margin requirements on open futures contracts. The National Portfolio
and Ohio Portfolio did not have any open obligations under these financial
instruments at September 30, 1995.
- ---------------------------------------------------------------
(7) CHANGE OF FISCAL YEAR
The California Portfolio changed its fiscal year end from March 31, to
September 30, effective September 30, 1994.
42
<PAGE>
- ---------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND INVESTORS OF:
NATIONAL MUNICIPALS PORTFOLIO
CALIFORNIA TAX FREE PORTFOLIO
MASSACHUSETTS TAX FREE PORTFOLIO
NEW YORK TAX FREE PORTFOLIO
OHIO TAX FREE PORTFOLIO
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of National Municipals Portfolio,
California Tax Free Portfolio, Massachusetts Tax Free Portfolio, New York Tax
Free Portfolio, and Ohio Tax Free Portfolio as of September 30, 1995, the
related statements of operations for the year then ended, the statements of
changes in net assets for the years ended September 30, 1995 and 1994, and for
the California Tax Free Portfolio the year ended March 31, 1994, and the
supplementary data for each of the years in the three-year period ended
September 30, 1995. These financial statements and supplementary data are the
responsibility of each Trusts' management. Our responsibility is to express an
opinion on the financial statements and supplementary data based on our
audits.
We conducted our audits 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 and
supplementary data are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at September 30, 1995, by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other audit
procedures. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and supplementary data present
fairly, in all material respects, the financial position of National
Municipals Portfolio, California Tax Free Portfolio, Massachusetts Tax Free
Portfolio, New York Tax Free Portfolio, and Ohio Tax Free Portfolio at
September 30, 1995, the results of their operations, the changes in their net
assets and their supplementary data for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 27, 1995
43
<PAGE>
INVESTMENT MANAGEMENT PORTFOLIOS
------------------------------------------
OFFICERS AND BOARD OF TRUSTEES
OFFICERS
THOMAS J. FETTER
President and Portfolio Manager
of the Ohio Tax Free Portfolio
JAMES B. HAWKES
Vice President, Trustee
ROBERT B. MACINTOSH
Vice President and Portfolio
Manager of the California and
Massachusetts Tax Free Portfolios
JAMES L. O'CONNOR
Treasurer
BARBARA E. CAMPBELL
Assistant Treasurer
DOUGLAS C. MILLER
Assistant Treasurer
THOMAS OTIS
Secretary
JANET E. SANDERS
Assistant Treasurer and
Assistant Secretary
INDEPENDENT TRUSTEES
DONALD R. DWIGHT
President, Dwight Partners, Inc.
Chairman, Newspaper of New England, Inc.
SAMUEL L. HAYES, III
Jacob H. Schiff Professor of
Investment Banking,
Harvard Graduate School of Business
Administration
NORTON H. REAMER
President and Director,
United Asset Management Corporation
JOHN L. THORNDIKE
Director, Fiduciary Trust Company
JACK L. TREYNOR
Investment Adviser and Consultant
PORTFOLIO MANAGERS
NICOLE ANDERES,
New York Tax Free Portfolio
TOM METZOLD,
National Municipals Portfolio
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
--------------------------------------
BOARD OF DIRECTORS AND OFFICERS
DIRECTORS
RICHARD H. AYERS
Chairman and Chief Executive Officer
The Stanley Works
DAVID E. A. CARSON
President, Chairman and
Chief Executive Officer
People's Bank
DONALD H. POND, JR., FSA, CLU
Retired Executive Vice President
Connecticut Mutual Life Insurance Company
RICHARD W. GREENE
Executive Vice President and Treasurer
University of Rochester
BEVERLY L. HAMILTON
President
ARCO Investment Management Company
DAVID E. SAMS, JR.
President and Chief Executive Officer
Connecticut Mutual Life Insurance Company
OFFICERS
DONALD H. POND, JR., FSA, CLU, President
Retired Executive Vice President
Connecticut Mutual Life Insurance Company
LINDA M. NAPOLI, Treasurer and Controller
Treasurer, Mutual Funds
Connecticut Mutual Life Insurance Company
LOUIS A. LACCAVOLE, CPA, General Auditor
Vice President and General Auditor
Connecticut Mutual Life Insurance Company
ANN F. LOMELI, Secretary
Corporate Secretary and Counsel
Connecticut Mutual Life Insurance Company
AUDITORS
ARTHUR ANDERSEN LLP
Hartford, CT
This report has been prepared for shareholders of the Account and may be
distributed to prospective investors in the Account when preceded or accompanied
by a current prospectus.
<PAGE>
CMIA SHAREHOLDER SERVICES AGENT
National Financial Data Services
P.O. Box 419694
Kansas City, MO 64179-0948
1-800-322-CMIA
YOUR CMIA REPRESENTATIVE IS:
National Distributor
Connecticut Mutual
Financial Services, LLC
an affiliate of
[LOGO] CONNECTICUT MUTUAL
THE BLUE CHIP COMPANY
CONNECTICUT MUTUAL LIFE
INSURANCE COMPANY
140 Garden Street
Hartford, CT 06154
1-800-234-5606
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> NEW YORK MUNICIPALS ACCOUNT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 358,451
<INVESTMENTS-AT-VALUE> 374,596
<RECEIVABLES> 31
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 374,627
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 984
<TOTAL-LIABILITIES> 984
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 35,894
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 19
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 373,643
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,637
<OTHER-INCOME> 0
<EXPENSES-NET> 1,740
<NET-INVESTMENT-INCOME> 11,897
<REALIZED-GAINS-CURRENT> (3,333)
<APPREC-INCREASE-CURRENT> 16,145
<NET-CHANGE-FROM-OPS> 24,709
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,878)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35,980
<NUMBER-OF-SHARES-REDEEMED> 1,106
<SHARES-REINVESTED> 1,020
<NET-CHANGE-IN-ASSETS> 373,643
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 1,740
<GROSS-EXPENSE> 1,740
<AVERAGE-NET-ASSETS> 218,711
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> .52
<PER-SHARE-GAIN-APPREC> (.41)
<PER-SHARE-DIVIDEND> (.52)
<PER-SHARE-DISTRIBUTIONS> (.52)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.41
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> NATIONAL MUNICIPALS ACCOUNT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 2,934,589
<INVESTMENTS-AT-VALUE> 3,067,155
<RECEIVABLES> 1,515
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,068,670
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,061
<TOTAL-LIABILITIES> 11,061
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 285,630
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 19
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,057,609
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 114,578
<OTHER-INCOME> 0
<EXPENSES-NET> 12,767
<NET-INVESTMENT-INCOME> 101,811
<REALIZED-GAINS-CURRENT> (33,101)
<APPREC-INCREASE-CURRENT> 132,566
<NET-CHANGE-FROM-OPS> 201,276
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (101,792)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 284,763
<NUMBER-OF-SHARES-REDEEMED> 5,138
<SHARES-REINVESTED> 6,005
<NET-CHANGE-IN-ASSETS> 3,057,609
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 12,767
<GROSS-EXPENSE> 12,767
<AVERAGE-NET-ASSETS> 1,591,215
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> .61
<PER-SHARE-GAIN-APPREC> (.70)
<PER-SHARE-DIVIDEND> (.61)
<PER-SHARE-DISTRIBUTIONS> (.61)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.70
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> CALIFORNIA MUNICIPALS ACCOUNT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 282,768
<INVESTMENTS-AT-VALUE> 438,154
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 438,154
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,488
<TOTAL-LIABILITIES> 3,488
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 42,546
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 246
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 434,666
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 53,387
<OTHER-INCOME> 0
<EXPENSES-NET> 6,538
<NET-INVESTMENT-INCOME> 46,849
<REALIZED-GAINS-CURRENT> (35,837)
<APPREC-INCREASE-CURRENT> 155,386
<NET-CHANGE-FROM-OPS> 166,398
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (46,603)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 169,643
<NUMBER-OF-SHARES-REDEEMED> 130,841
<SHARES-REINVESTED> 3,744
<NET-CHANGE-IN-ASSETS> 434,666
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 6,538
<GROSS-EXPENSE> 6,538
<AVERAGE-NET-ASSETS> 799,842
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> (.22)
<PER-SHARE-DIVIDEND> (.56)
<PER-SHARE-DISTRIBUTIONS> (.56)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.22
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> MASSACHUSETTS MUNICIPALS ACCOUNT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 132,214
<INVESTMENTS-AT-VALUE> 138,381
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 138,381
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 387
<TOTAL-LIABILITIES> 387
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 13,363
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 12
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 137,994
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,899
<OTHER-INCOME> 0
<EXPENSES-NET> 365
<NET-INVESTMENT-INCOME> 2,534
<REALIZED-GAINS-CURRENT> (1,303)
<APPREC-INCREASE-CURRENT> 6,167
<NET-CHANGE-FROM-OPS> 7,398
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,522)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,270
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 93
<NET-CHANGE-IN-ASSETS> 137,994
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 365
<GROSS-EXPENSE> 365
<AVERAGE-NET-ASSETS> 46,178
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> (.33)
<PER-SHARE-DIVIDEND> (.56)
<PER-SHARE-DISTRIBUTIONS> (.56)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.33
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> OHIO MUNICIPALS ACCOUNT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 358,106
<INVESTMENTS-AT-VALUE> 372,582
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 372,582
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 861
<TOTAL-LIABILITIES> 861
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 35,279
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 62
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 371,721
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,968
<OTHER-INCOME> 0
<EXPENSES-NET> 1,732
<NET-INVESTMENT-INCOME> 11,236
<REALIZED-GAINS-CURRENT> (1,858)
<APPREC-INCREASE-CURRENT> 14,476
<NET-CHANGE-FROM-OPS> 23,854
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,174)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 44,330
<NUMBER-OF-SHARES-REDEEMED> 9,872
<SHARES-REINVESTED> 821
<NET-CHANGE-IN-ASSETS> 371,721
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 1,732
<GROSS-EXPENSE> 1,732
<AVERAGE-NET-ASSETS> 209,930
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> .50
<PER-SHARE-GAIN-APPREC> (.54)
<PER-SHARE-DIVIDEND> (.50)
<PER-SHARE-DISTRIBUTIONS> (.50)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.54
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
