<PAGE>
[LOGO]
Investing
for the
EATON VANCE 21st
- ------------- Century
Mutual Funds
Eaton Vance
Municipal Bond Fund
Eaton Vance Municipal Bond Fund (the "Fund") is a mutual fund seeking to provide
current income exempt from regular federal income tax. The Fund is a series of
Eaton Vance Mutual Funds Trust (the "Trust").
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK OR OTHER INSURED 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 FUND INVOLVE INVESTMENT RISKS,
INCLUDING FLUCTUATIONS IN VALUE AND THE POSSIBLE LOSS OF SOME OR ALL OF THE
PRINCIPAL INVESTMENT.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A Statement
of Additional Information dated January 1, 1998 for the Fund, as supplemented
from time to time, has been filed with the Securities and Exchange Commission
(the "Commission") and is incorporated herein by reference. This Statement of
Additional Information is available without charge from the Fund's principal
underwriter, Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24
Federal Street, Boston, MA 02110 (telephone (800) 225-6265). The Fund's
investment adviser is Eaton Vance Management (the "Investment Adviser"), which
is located at the same address.
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.
CONTENTS
<TABLE>
<CAPTION>
Page Page
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<S> <C> <C>
Shareholder and Fund Expenses 2 How to Redeem Shares 11
The Fund's Financial Highlights 3 Reports to Shareholders 12
The Fund's Investment Objective 4 The Lifetime Investing Account/Distribution Options 12
Investment Policies and Risks 4 The Eaton Vance Exchange Privilege 13
Organization of the Fund 7 Eaton Vance Shareholder Services 14
Management of the Fund 7 Distributions and Taxes 15
Distribution and Service Plans 8 Performance Information 15
Valuing Shares 8 Appendix 17
How to Buy Shares 9
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus dated January 1, 1998
<PAGE>
SHAREHOLDER AND FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Class A Class B Class I
Shares Shares Shares
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.75% None 4.75%
Sales Charges Imposed on Reinvested Distributions None None None
Fees to Exchange Shares None None None
Maximum Contingent Deferred Sales Charge None 5.00% None
Annual Fund Operating Expenses (as a percentage of average daily net assets)
<CAPTION>
Class A Class B Class I
Shares Shares Shares
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Adviser Fee 0.51% 0.51% 0.51%
Rule 12b-1 Distribution and/or Service Fees* 0.00 0.75 0.00
Other Expenses 0.27 0.27 0.27
--- --- ---
Total Operating Expenses 0.78 1.53 0.78
==== ==== ====
*Payment of the Class A and Class B service fees will commence in 1999. See Note below.
</TABLE>
EXAMPLE An investor would pay the following expenses and, in the case of Class A
and Class I shares, maximum initial sales charge or, in the case of Class B
shares, the applicable contingent deferred sales charge on a $1,000 investment,
assuming (a) 5% annual return and (b) redemption at the end of each period:
<TABLE>
<CAPTION>
Class A Class B Class I
Shares Shares Shares
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $ 55 $ 66 $ 55
3 Years 71 88 71
5 Years 89 103 89
10 Years 140 182 140
An investor would pay the following expenses on the same investment, assuming
(a) 5% annual return and (b) no redemptions:
<CAPTION>
Class A Class B Class I
Shares Shares Shares
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $ 55 $ 16 $ 55
3 Years 71 48 71
5 Years 89 83 89
10 Years 140 182 140
</TABLE>
NOTES: The table and Example summarize the aggregate expenses of each Class of
shares of the Fund and are designed to help investors understand the costs and
expenses they will bear, directly or indirectly, by investing in the Fund.
Information for Class I is for the most recent fiscal year. Information for
Class A and Class B is estimated for the current fiscal year.
The Fund offers three classes of shares. Class A and Class I shares are sold
subject to a sales charge imposed at the time of purchase. No sales charge is
payable at the time of purchase on investments in Class A and Class I shares of
$1 million or more. However, a contingent deferred sales charge ("CDSC") of
0.50% will be imposed on such investments in the event of certain redemptions
within 12 months of purchase. Class B shares are sold subject to a declining
CDSC (5% maximum) if redeemed within six years of purchase. The CDSC does not
apply in certain circumstances. Class I shares only are available for purchase
by certain investors. See "How to Buy Shares" and "How to Redeem Shares."
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Federal
regulations require the Example to assume a 5% annual return, but actual annual
return will vary. Long-term holders of Class B shares may pay more than the
economic equivalent of the maximum front-end sales charge permitted by a rule of
the National Association of Securities Dealers, Inc. For further information
regarding the expenses of the Fund see "The Fund's Financial Highlights,"
"Management of the Fund," "Distribution and Service Plans" and "How to Redeem
Shares."
For Class A and Class B shares sold by Authorized Firms and remaining
outstanding for at least one year, the Fund will pay service fees not exceeding
.25% per annum of its average daily net assets. The Fund expects to begin making
service fee payments during the quarter ending March 31, 1999. After such date,
Total Operating Expenses will be higher. See "Distribution and Service Plans."
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
The following information should be read in conjunction with the financial
statements that appear in the Fund's semi-annual and annual reports to
shareholders. The Fund's annual financial statements have been audited by
Deloitte & Touche LLP, independent certified public accountants, as experts in
accounting and auditing. The annual financial statements and independent
auditors' report and the unaudited semi-annual financial statements are
incorporated by reference into the Statement of Additional Information. Further
information regarding the performance of the Fund is contained in its annual and
semi-annual reports to shareholders which may be obtained without charge by
contacting the Principal Underwriter. The financial information for each of the
periods presented in the Fund's Financial Highlights are for the Fund prior to
reclassification of its shares as Class I shares on January 1, 1998. Information
for Class A and Class B shares is not presented because these classes did not
exist prior to January 1, 1998. The Financial Highlights for Class A and Class B
shares will differ from the Financial Highlights for Class I shares due to the
different fees imposed on Class A and Class B shares.
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, 1997 ----------------------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $10.070 $10.210 $ 9.260 $10.63 $ 9.950 $ 9.750 $ 9.200
------- ------- ------- ------- -------- -------- -------
Income from operations:
Net investment income $ 0.296 $ 0.605 $ 0.604 $ 0.611 $ 0.614 $ 0.639 $ 0.638
Net realized and unrealized gain
(loss) on investments 0.184 (0.143) 0.962 (1.369) 0.692 0.195 0.552
------- ------- ------- ------- -------- -------- -------
Total income (loss) from
operations $ 0.480 $ 0.462 $ 1.566 $(0.758) $ 1.306 $ 0.834 $ 1.190
------- ------- ------- ------- -------- -------- -------
Less distributions:
From net investment income $(0.296) $(0.594) $(0.604) $(0.611) $ (0.619) $ (0.634) $(0.638)
In excess of net investment
income(2) (0.004) (0.008) (0.012) (0.001) (0.007) (0.002)
------- ------- ------- ------- -------- -------- -------
Total distributions $(0.300) $(0.602) $(0.616) $(0.612) $ (0.626) $ (0.634) $(0.640)
------- ------- ------- ------- -------- -------- -------
Net asset value, end of year $10.250 $10.070 $10.210 $ 9.260 $ 10.630 $ 9.950 $ 9.750
======= ======= ======= ======= ======== ======== =======
Total Return(1) 4.89% 4.78% 17.40% (7.27)% 13.52% 8.91% 13.49%
Ratios/Supplemental Data:
Net assets, end of year
(000's omitted) $89,140 $88,184 $96,410 $90,802 $114,425 $103,208 $92,771
Ratio of expenses to
average daily net assets(3) 0.83%+ 0.78% 0.76% 0.80% 0.72% 0.74% 0.76%
Ratio of expenses to average
daily net assets after
custodian fee reduction 0.79%+ 0.74% -- -- -- -- --
Ratio of net investment income
to average daily net assets 5.97%+ 6.12% 6.16% 6.26% 5.91% 6.50% 6.75%
Portfolio Turnover 13% 30% 58% 58% 86% 60% 105%
<PAGE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1990 1989 1988 1987
----------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of year $ 9.250 $ 8.990 $ 8.590 $ 9.260
------- ------- ------- -------
Income from operations:
Net investment income $ 0.627 $ 0.632 $ 0.630 $ 0.655
Net realized and unrealized gain
(loss) on investments (0.017) 0.288 0.430 (0.665)
------- ------- ------- -------
Total income (loss) from
operations $ 0.610 $ 0.920 $ 1.060 $ 0.000
------- ------- ------- -------
Less distributions:
From net investment income $(0.627) $(0.660) $(0.660) $(0.660)
In excess of net investment
income(2) (0.033)
------- ------- ------- -------
Total distributions $(0.660) $(0.660) $(0.660) $(0.660)
------- ------- ------- -------
Net asset value, end of year $ 9.200 $ 9.250 $ 8.990 $ 8.590
======= ======= ======= =======
Total Return(1) 6.97% 10.65% 12.83% (0.03)%
Ratios/Supplemental Data:
Net assets, end of year
(000's omitted) $80,907 $77,780 $63,385 $51,771
Ratio of expenses to
average daily net assets(3) 0.85% 0.92% 0.96% 0.82%
Ratio of expenses to average
daily net assets after
custodian fee reduction -- -- -- --
Ratio of net investment income
to average daily net assets 6.94% 6.87% 7.20% 7.44%
Portfolio Turnover 187% 188% 139% 103%
- ----------------
+ Annualized.
(1) Total investment return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset
value on the last day of each period reported. Distributions, if any, are assumed to be reinvested at the net asset value on the
payable date. Total return is computed on a non-annualized basis.
(2) During the year ended September 30, 1993, the Fund adopted Statement of Position (SOP) 93-2: Determination, Disclosure and
Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies. The SOP
requires that differences in the recognition or classification of income between the financial statements and tax earnings and
profits that result in temporary over-distributions for financial statement purposes, are classified as distributions in excess
of net investment income or accumulated net realized gains.
(3) The expense ratios for the year ended December 31, 1995 and periods thereafter have been adjusted to reflect a change in
reporting requirements. The new reporting guidelines require the Fund to increase its expense ratio by the effect of any expense
offset arrangements with its service providers. The expense ratios for each of the periods ended on or before December 31, 1994
have not been adjusted to reflect this change.
</TABLE>
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK CURRENT INCOME EXEMPT FROM REGULAR
FEDERAL INCOME TAX. The Fund is a diversified series of Eaton Vance Mutual Funds
Trust (the "Trust").
INVESTMENT POLICIES AND RISKS
DURING PERIODS OF NORMAL MARKET CONDITIONS, THE FUND WILL HAVE AT LEAST 80% OF
ITS NET ASSETS INVESTED IN OBLIGATIONS, INCLUDING NOTES AND TAX-EXEMPT
COMMERCIAL PAPER, 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, THE INTEREST ON WHICH IS EXEMPT
FROM THE REGULAR FEDERAL INCOME TAX ("MUNICIPAL OBLIGATIONS"). The foregoing
policy is a fundamental policy which may not be changed unless authorized by a
vote of the shareholders of the Fund.
The Fund normally will invest at least 65% of its net assets in (1) municipal
obligations (other than tax-exempt commercial paper) which are rated at the time
of purchase within the three highest grades assigned by Moody's Investors
Service, Inc. ("Moody's") (Aaa, Aa, or A, VMIG 1, VMIG 2 or VMIG 3 or, in the
case of notes, MIG 1, MIG 2, or MIG 3), Standard & Poor's Ratings Group ("S&P")
(AAA, AA, or A) or Fitch Investors Service, Inc. ("Fitch") (AAA, AA or A), which
are guaranteed, backed or secured at the time of purchase by the U.S. Government
or any of its agencies or instrumentalities, or which are issued by issuers
having at the time of purchase an issue of outstanding municipal obligations
rated within the three highest grades assigned by Moody's, S&P, or Fitch; or (2)
tax-exempt commercial paper which is rated at the time of purchase within the
highest grade assigned by Moody's (Prime-1) or S&P (A-1), which is guaranteed,
backed or secured at the time of purchase by the U.S. Government or any of its
agencies or instrumentalities, or which is issued by an issuer having at the
time of purchase an issue of outstanding municipal obligations rated within the
highest grade assigned by any of the aforesaid rating services. For a
description of municipal obligation ratings, see the Statement of Additional
Information.
The Fund may invest up to 35% of its net assets in municipal obligations which
are rated investment grade (BBB by Moody's or Baa by S&P or Fitch) or below
investment grade or are unrated. Municipal obligations rated BBB or Baa 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 in the case of higher rated obligations. Municipal
obligations rated below investment grade are commonly known as "junk bonds." See
"Additional Risk Considerations."
The Fund from time to time may make temporary investments in obligations of the
U.S. Government, its agencies, or instrumentalities; other debt securities rated
within the three highest grades by the aforesaid rating services; commercial
paper rated in the highest grade by such rating services (Prime-1 or A-1,
respectively); certificates of deposit of domestic banks with assets of $1
billion or more; and repurchase agreements. Interest income from temporary
investments may be taxable to shareholders as ordinary income. See
"Distributions and Taxes." The Fund may also acquire rights to resell municipal
obligations or any of the foregoing temporary investments at an agreed upon
price and at or within an agreed upon time.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and commercial
paper issued by a municipality for a wide variety of both public and private
purposes, the interest on which is, in the opinion of bond counsel, exempt from
regular federal income tax. Public purpose municipal obligations include general
obligation and revenue bonds. General obligation bonds are backed by the taxing
power of the issuing municipality. Revenue bonds are backed by the revenues of a
project or facility, or from the proceeds of a specific revenue source. Some
revenue bonds are payable solely or partly from funds which are subject to
annual appropriations by a State's legislature. Municipal notes include bond
anticipation, tax anticipation 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.
Interest on certain types of municipal obligations may be subject to the
alternative minimum tax (the "AMT"). The Fund will not invest in an obligation
if the interest on that obligation is subject to the AMT.
CONCENTRATION. 25% or more of total assets may be invested in municipal
obligations of the same state or in municipal obligations of the same type,
including, without limitation, the following: lease rental obligations of state
and local authorities; obligations dependent on annual appropriations by a
state's legislature for payment; 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 result in greater susceptibility to
adverse economic, political, or regulatory occurrences affecting a particular
category of issuer. For example, health care-related issuers are susceptible to
medicaid reimbursement policies, and national and state health care legislation.
In addition, municipal obligations that rely on an annual appropriation of funds
by a state's legislature for payment are subject to the risk that the
legislature will not appropriate the necessary amounts or take other action
needed to permit the issuer of such obligations to make required payments. As
concentration increases, so does the potential for fluctuation in the value of
Fund shares.
OTHER INVESTMENT PRACTICES
The Fund may engage in the following investment practices, some of which may be
considered to involve "derivative" instruments because they derive their value
from another instrument, security or index. In addition, the Fund may
temporarily borrow up to 5% of the value of its total assets to satisfy
redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. Municipal obligations may be purchased on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities 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 the agreed upon purchase price. Instruments may also be
purchased that provide the option to purchase a municipal obligation when and if
issued.
INVERSE FLOATERS. Inverse floaters are municipal securities whose interest rates
bear an inverse relationship to the interest rate on another security or the
value of an index ("inverse floaters"). An investment in 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 holder of the inverse floater when short-term
interest rates rise, and increase the interest paid to such holder when
short-term interest rates fall. Inverse floaters have varying degrees of
liquidity, and the market for these securities is new and relatively volatile.
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,
however, alter this tendency. Although volatile, 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 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.
FUTURES TRANSACTIONS. Various kinds of financial futures contracts and options
thereon may be purchased and sold to hedge against changes in interest rates.
Futures contracts may be based on various debt securities (such as U.S.
Government securities and municipal obligations) and securities indices (such as
the Municipal Bond Index traded on the Chicago Board of Trade). Such
transactions involve a risk of loss or depreciation due to unanticipated adverse
changes in securities prices, which may exceed the initial investment in these
contracts. Futures contracts or related options may not be purchased or sold,
except for closing purchase or sale transactions, if immediately thereafter the
sum of the amount of margin deposits and premiums paid on outstanding positions
would exceed 5% of the market value of net assets. These transactions involve
transaction costs. There can be no assurance that the Investment Adviser's use
of futures will be advantageous. Distributions of any gains realized on
transactions in futures and options on futures will be taxable.
INSURED OBLIGATIONS. Some municipal obligations 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. Although the insurance feature reduces certain financial risks, the
premiums for insurance and the higher market price paid for insured obligations
may reduce current yield. Insurance generally will be obtained from insurers
with a claims-paying ability rated Aaa by Moody's or AAA by S&P or Fitch. The
insurance does not guarantee the market value of the insured obligations or the
net asset value of Fund shares.
ADDITIONAL RISK CONSIDERATIONS
Many municipal obligations offering current income are rated investment grade or
below (Baa or BBB or lower), or are unrated. As indicated above, some municipal
obligations may be rated below investment grade (but not lower than B by
Moody's, S&P or Fitch) and comparable unrated obligations. Municipal obligations
rated investment grade or below and comparable unrated municipal obligations
will have speculative characteristics in varying degrees. While such obligations
may have some quality and protective characteristics, these characteristics can
be expected to be offset or outweighed by uncertainties or major risk exposures
to adverse conditions. Lower rated and comparable unrated municipal obligations
are subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations (credit risk) and may also be subject to greater
price volatility due to such factors as interest rate sensitivity, market
perception of the creditworthiness of the issuer and general market liquidity
(market risk). Lower rated or unrated municipal obligations are also more likely
to react to real or perceived developments affecting market and credit risk than
are more highly rated obligations, which react primarily to movements in the
general level of interest rates. The Investment Adviser seeks to minimize the
risks of investing in below investment grade securities through professional
investment analysis and attention to current developments in interest rates and
economic conditions. When investing in lower rated or unrated municipal
obligations, the achievement of investment goals is more dependent on the
Investment Adviser's ability than would be the case if municipal obligations in
the higher rating categories were acquired.
Municipal obligations which are rated below investment grade but which,
subsequent to the assignment of such rating, are backed by escrow accounts
containing U.S. Government obligations may be determined by the Investment
Adviser to be of investment grade quality for purposes of meeting investment
policies. An obligation whose rating drops below B after its acquisition,
including defaulted obligations, may be retained if such retention is considered
desirable by the Investment Adviser; provided, however, that holdings of
obligations rated below Baa or BBB will be less than 35% of net assets. In the
event the rating of an obligation is downgraded, causing this limitation to be
exceeded, 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 credit quality limitations. In the case of a defaulted
obligation, additional expense may be incurred seeking recovery.
See the Appendix to this Prospectus for asset composition for the fiscal year
ended December 31, 1996.
THE NET ASSET VALUE OF SHARES WILL CHANGE IN RESPONSE TO FLUCTUATIONS IN
PREVAILING INTEREST RATES AND CHANGES IN THE VALUE OF THE SECURITIES HELD. When
interest rates decline, the value of securities can be expected to rise.
Conversely, when interest rates rise, the value of most portfolio security
holdings can be expected to decline. Changes in the credit quality of the
issuers of municipal obligations held will affect the principal value of (and
possibly the income earned on) such obligations. In addition, the values of such
securities are affected by changes in general economic conditions and business
conditions affecting the specific industries of their issuers. Changes by
recognized rating services in their ratings of a security and in the ability of
the issuer to make payments of principal and interest may also affect the value
of investments. The amount of information about the financial condition of an
issuer of municipal obligations may not be as extensive as that made available
by corporations whose securities are publicly traded. An investment in Fund
shares will not constitute a complete investment program.
At times, a substantial portion of assets may be invested in securities as to
which the Fund, by itself or together with other accounts managed by the
Investment Adviser and its affiliates, holds a major portion or all of such
securities. Under adverse market or economic conditions or in the event of
adverse changes in the financial condition of the issuer, it may be more
difficult to sell such securities when the Investment Adviser believes it
advisable to do so or such securities may be sold only at prices lower than if
such securities were more widely held. Under such circumstances, it may also be
more difficult to determine the fair value of such securities for purposes of
computing net asset value.
The secondary market for some municipal obligations (including privately placed
issues) is less liquid than that for taxable debt obligations or other more
widely traded municipal obligations. Illiquid securities will not be acquired if
more than 15% of net assets would be invested in securities that are not readily
marketable. No established resale market exists for certain municipal
obligations. The market for obligations rated below investment grade is also
likely to be less liquid than the market for higher rated obligations. As a
result, the Investment Adviser may be unable to dispose of these municipal
obligations at times when it would otherwise wish to do so at the prices at
which they are valued.
Certain securities may permit the issuer at its option to "call", or redeem, its
securities. If an issuer calls securities during a time of declining interest
rates, it may not be possible to reinvest the proceeds in securities providing
the same investment return as the securities redeemed.
Municipal obligations include so-called "zero-coupon" bonds, whose values are
subject to greater fluctuation in response to changes in market interest rates
than bonds which pay interest currently. Zero-coupon bonds are issued at a
significant discount from face value and pay interest only at maturity rather
than at intervals during the life of the security. Income from zero-coupon bonds
must be accrued currently in cash, and the income must be distributed each
taxable year. To generate the cash needed to make these income distributions,
other investments may have to be sold.
Municipal obligations also include municipal leases and participations in
municipal leases. The obligation of the issuer to meet its obligations under
such leases is often subject to the appropriation by the appropriate legislative
body, on an annual or other basis, of funds for the payment of the obligations.
Investments in municipal leases are thus subject to the risk that the
legislative body will not make the necessary appropriation and the issuer will
not otherwise be willing or able to meet its obligation.
Certain fundamental investment restrictions which are enumerated in detail in
the Statement of Additional Information may not be changed unless authorized by
a shareholder vote and an investor vote, respectively. Except for such
enumerated restrictions and as otherwise indicated in this Prospectus, the
investment objective and policies are not fundamental policies and accordingly
may be changed by the Trustees without obtaining the approval of shareholders.
ORGANIZATION OF THE FUND
THE FUND IS A DIVERSIFIED SERIES OF EATON VANCE MUTUAL FUNDS TRUST (THE
"TRUST"), A BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A
DECLARATION OF TRUST DATED MAY 7, 1984, AS AMENDED. The Trustees of the Trust
are responsible for the overall management and supervision of its affairs. The
Trust may issue an unlimited number of shares of beneficial interest (no par
value per share) in one or more series (such as the Fund). The Trustees of the
Trust have divided the shares of the Fund into multiple classes, including Class
A, Class B, and Class I shares. Each class represents an interest in the Fund,
but is subject to different expenses, rights and privileges. See "Distribution
and Service Plans" and "How to Buy Shares." The Fund commenced offering classes
of shares on January 1, 1998.
When issued and outstanding, the shares are fully paid and nonassessable by the
Trust and redeemable as described under "How to Redeem Shares." There are no
annual meetings of shareholders, but special meetings may be held as required by
law to elect Trustees and consider certain other matters. Shareholders are
entitled to one vote for each full share held. Fractional shares may be voted
proportionately. Shares of the Fund will be voted together except that only
shareholders of a particular class may vote on matters affecting only that
class. Shares have no preemptive or conversion rights and are freely
transferable. In the event of the liquidation of the Fund, shareholders are
entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders.
MANAGEMENT OF THE FUND
THE FUND ENGAGES EATON VANCE MANAGEMENT ("EATON VANCE") AS ITS INVESTMENT
ADVISER. EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN
MANAGING ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING
INVESTMENT COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of the Trust,
Eaton Vance manages the Fund's investments and affairs. Eaton Vance also
furnishes for the use of the Fund office space and all necessary office
facilities, equipment and personnel for servicing the investments of the Fund.
Under its investment advisory agreement with the Fund, Eaton Vance receives a
monthly advisory fee in an amount equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the 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 total daily gross income (which portion
shall bear the same relationship to the total gross income on such day as
that portion of the total daily net assets in the same Category bears to the
total net assets on such day) in each Category as indicated below:
Annual Daily
Category Daily Net Assets Asset Rate Income Rate
- --------------------------------------------------------------------------------
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%
As at December 31, 1996, the Fund had net assets of $88,183,659. For the fiscal
year ended December 31, 1996, the Fund paid Eaton Vance advisory fees equivalent
to 0.51% of the Fund's average daily net assets for such year.
EATON VANCE OR ITS AFFILIATES ACT AS INVESTMENT ADVISER TO INVESTMENT COMPANIES
AND VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $20 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly-held holding company which through its subsidiaries and
affiliates engages primarily in investment management, administration and
marketing activities. The Principal Underwriter is a wholly-owned subsidiary of
Eaton Vance.
Thomas J. Fetter has acted as the portfolio manager of the Fund since 1986.
Mr. Fetter is a Vice President of Eaton Vance and manages other Eaton Vance
portfolios.
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 Fund portfolio
transactions, Eaton Vance judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Fund and at reasonably competitive spreads. Subject to the
foregoing, Eaton Vance may consider sales of shares of the Fund or of other
investment companies sponsored by Eaton Vance or Boston Management and Research
("BMR") as a factor in the selection of firms to execute portfolio transactions.
The Trust, the Fund and the Investment Adviser have adopted Codes of Ethics
relating to personal securities transactions. The Codes permit Eaton Vance
personnel to invest in securities (including securities that may be purchased or
held by the Fund) for their own accounts, subject to certain pre-clearance,
reporting and other restrictions and procedures contained in such Codes.
DISTRIBUTION AND SERVICE PLANS
The Trust has adopted a Service Plan (the "Class A Plan") for the Fund's Class A
shares that is designed to meet the service fee requirements of the sales charge
rule of the National Association of Securities Dealers, Inc. THE CLASS A PLAN
PROVIDES THAT CLASS A MAY MAKE SERVICE FEE PAYMENTS FOR PERSONAL SERVICES AND/OR
THE MAINTENANCE OF SHAREHOLDER ACCOUNTS TO THE PRINCIPAL UNDERWRITER, FINANCIAL
SERVICE FIRMS ("AUTHORIZED FIRMS") AND OTHER PERSONS IN AMOUNTS NOT EXCEEDING
.25% OF ITS AVERAGE DAILY NET ASSETS FOR ANY FISCAL YEAR. The Trustees of the
Trust have initially implemented the Class A Plan by authorizing Class A to make
quarterly service fee payments to the Principal Underwriter and Authorized Firms
in amounts not expected to exceed .25% of its average daily net assets for any
fiscal year based on the value of Class A shares sold by such persons and
remaining outstanding for at least twelve months. The Fund expects to begin
making service fee payments during the quarter ending March 31, 1999.
The Trust has also adopted a Distribution Plan ("Class B Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "1940 Act") for the Fund's
Class B shares. The Plan is designed to permit an investor to purchase shares
through an Authorized Firm without incurring an initial sales charge and at the
same time permit the Principal Underwriter to compensate Authorized Firms in
connection therewith. UNDER SUCH PLAN, CLASS B PAYS THE PRINCIPAL UNDERWRITER A
FEE, ACCRUED DAILY AND PAID MONTHLY, AT AN ANNUAL RATE NOT EXCEEDING .75% OF ITS
AVERAGE DAILY NET ASSETS TO FINANCE THE DISTRIBUTION OF ITS SHARES. Such fees
compensate the Principal Underwriter for sales commissions paid by it to
Authorized Firms on the sale of Class B shares and for interest expenses. The
Principal Underwriter uses its own funds to pay sales commissions (except on
exchange transactions and reinvestments) to Authorized Firms at the time of sale
equal to 4% of the purchase price of the Class B shares sold by such Firms.
CDSCs paid to the Principal Underwriter will be used to reduce amounts owed to
it. Because payments to the Principal Underwriter under the Class B Plan are
limited, uncovered distribution charges (sales commissions due the Principal
Underwriter plus interest, less the above fees and CDSCs received by it) may
exist indefinitely.
THE CLASS B PLAN ALSO AUTHORIZES EACH CLASS B TO MAKE PAYMENTS OF SERVICE FEES
TO THE PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF ITS AVERAGE DAILY NET ASSETS FOR PERSONAL SERVICES, AND/ OR
THE MAINTENANCE OF SHAREHOLDER ACCOUNTS. Under the Class B Plan, this fee is
paid quarterly in arrears based on the value of Class B shares sold by such
persons and remaining outstanding for at least twelve months. Class B expects to
begin accruing for its service fees during the quarter ending March 31, 1999.
The Principal Underwriter may, from time to time, at its own expense, provide
additional incentives to Authorized Firms which employ registered
representatives who sell Fund shares and/or shares of other funds distributed by
the Principal Underwriter. In some instances, such additional incentives may be
offered only to certain Authorized Firms whose representatives sell or are
expected to sell significant amounts of shares. In addition, the Principal
Underwriter may from time to time increase or decrease the sales commissions
payable to Authorized Firms. The Principal Underwriter may at times allow
discounts on sales of Class A and Class I shares of up to the full sales charge.
During periods when the discount includes the full sales charge, Authorized
Firms may be deemed to be underwriters as that term is defined in the Securities
Act of 1933.
The Trust may, in its absolute discretion, suspend, discontinue or limit the
offering of one or more of its classes of its shares at any time. In determining
whether any such action should be taken, the Trust's management intends to
consider all relevant factors, including (without limitation) the size of the
Fund or class, the investment climate and market conditions, the volume of sales
and redemptions of shares, and, in the case of Class B shares, the amount of
uncovered distribution charges of the Principal Underwriter. The Plans may
continue in effect and payments may be made under the Plans following any such
suspension, discontinuance or limitation of the offering of shares; however,
there is no contractual obligation to continue any Plan for any particular
period of time. Suspension of the offering of shares would not, of course,
affect a shareholder's ability to redeem shares.
VALUING SHARES
THE FUND VALUES ITS SHARES ONCE EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m., New York time). Each Class's net asset value per
share is determined by the Trust's custodian, Investors Bank & Trust Company
("IBT") (as agent for the Trust) in the manner authorized by the Trustees of the
Trust. The net asset value of each Class is computed by dividing the value of
that Class's pro rata share of the Fund's total assets, less its liabilities, by
the number of shares of that Class outstanding. Municipal Bonds will normally be
valued on the basis of valuations furnished by a pricing service.
Authorized Firms must communicate an investor's order to the Principal
Underwriter by a specific time each day to receive that day's public offering
price per share. It is the Authorized Firms' responsibility to transmit orders
promptly to the Principal Underwriter. The Fund has approved the acceptance of
purchase and redemption orders as of the time of their receipt by certain
Authorized Firms (or their designated intermediaries).
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY SHARES
FUND SHARES MAY BE PURCHASED AT THE NET ASSET VALUE PER FUND SHARE NEXT
DETERMINED AFTER AN ORDER IS EFFECTIVE. An initial investment must be at least
$1,000. Once an account has been established the investor may send investments
of $50 or more at any time directly to the Trust's transfer agent (the "Transfer
Agent") as follows: First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123. The minimum initial investment amount is waived for
Bank Automated Investing accounts, which may be established with an investment
of $50 or more. See "Eaton Vance Shareholder Services".
Fund shares can be purchased through an Authorized Firm or by mail. An
Authorized Firm may charge its customers a fee in connection with transactions
executed by that Firm. The Trust may suspend the offering of shares at any time
and may refuse an order for the purchase of shares.
CLASS A SHARES. Class A shares are purchased at the effective public offering
price, which price is based on the effective net asset value per share plus the
applicable sales charge. The sales charge is divided between the Authorized Firm
and the Principal Underwriter. The sales charge may vary depending on the size
of the purchase and the number of Class A shares of Eaton Vance funds the
investor may already own, any arrangement to purchase additional shares during a
13- month period or the existence of special purchase programs. Complete details
of how investors may purchase shares at reduced sales charges under a Statement
of Intention or Right of Accumulation are available from Authorized Firms or the
Principal Underwriter and are summarized in the Account Application.
The current sales charges and dealer commissions are:
Sales Charge Sales Charge Dealer Commission
as Percentage of as Percentage of as Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
- --------------------------------------------------------------------------------
Less than $25,000 4.75% 4.99% 4.50%
$25,000 but less than
$100,000 4.50 4.71 4.25
$100,000 but less
than $250,000 3,75 3.90 3.50
$250,000 but less
than $500,000 3.00 3.09 2.75
$500,000 but less
than $1,000,000 2.00 2.04 2.00
$1,000,000 or more 0.00* 0.00* 0.50
*No sales charge is payable at the time of purchase on investments of $1 million
or more or (until March 31, 1998) where the amount invested represents
redemption proceeds from a mutual fund unaffiliated with Eaton Vance, if the
redemption occurred no more than 60 days' prior to the purchase of Fund shares
and the redeemed shares were potentially subject to a sales charge. A CDSC of
0.50% will be imposed on such investments (as described below) in the event of
certain redemptions within 12 months of purchase.
Class A shares of the Fund may be sold at net asset value to current and retired
Directors and Trustees of Eaton Vance funds; to clients and current and retired
officers and employees of Eaton Vance, its affiliates and other investment
advisers of Eaton Vance sponsored funds; to registered representatives and
employees of Authorized Firms and bank employees who refer customers to
registered representatives of Authorized Firms; to officers and employees of IBT
and the Transfer Agent; and to such persons' spouses and children under the age
of 21 and their beneficial accounts. Class A shares may also be issued at net
asset value (1) in connection with the merger of an investment company or series
thereof with the Fund, (2) to investors making an investment as part of a fixed
fee program whereby an entity unaffiliated with the Investment Adviser provides
multiple investment services, such as management, brokerage and custody, and (3)
to investment advisors, financial planners or other intermediaries who place
trades for their own accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services; clients of such
investment advisors, financial planners or other intermediaries who place trades
for their own accounts if the accounts are linked to the master account of such
investment advisor, financial planner or other intermediary on the books and
records of the broker or agent; and retirement and deferred compensation plans
and trusts used to fund those plans, including, but not limited to, those
defined in Section 401(a), 403(b) or 457 of the Internal Revenue Code of 1986,
as amended (the "Code") and "rabbi trusts."
CLASS I SHARES. Class I shares are offered to (i) Fund shareholders who owned
shares on December 31, 1997; (ii) to investment advisors, financial planners or
other intermediaries who place trades for their own accounts or the accounts of
their clients and who charge a management, consulting or other fee for their
services; and clients of such investment advisors, financial planners or other
intermediaries who place trades for their own accounts if the accounts are
linked to the master account of such investment advisor, financial planner or
other intermediary on the books and records of the broker or agent; and (iii)
employees, affiliates and investment clients of Eaton Vance.
Class I shares are purchased at the effective public offering price, which price
is based on the effective net asset value per share plus the applicable sales
charge. The sales charge is divided between the Authorized Firm and the
Principal Underwriter. Class I shares are subject to the same sales charges,
dealer commissions, sales charge waivers and purchase programs set forth above
for Class A shares.
CLASS B SHARES. Class B shares are purchased at the net asset value per share
next determined after an order is effective.
STATEMENT OF INTENTION AND ESCROW AGREEMENT. If the investor, on an application,
makes a Statement of Intention to invest a specified amount over a
thirteen-month period in Class A or Class I shares, then out of the initial
purchase (or subsequent purchases if necessary) 5% of the dollar amount
specified on the application shall be held in escrow by the escrow agent in the
form of such shares (computed to the nearest full share at the public offering
price applicable to the initial purchase hereunder) registered in the investor's
name. All distributions on escrowed shares will be paid to the investor or to
the investor's order. When the minimum investment so specified is completed, the
escrowed shares will be delivered to the investor. If the investor has an
accumulation account the shares will remain on deposit under the investor's
account.
If total purchases under this Statement of Intention are less than the amount
specified, the investor will promptly remit to the Principal Underwriter any
difference between the sales charge on the amount specified and on the amount
actually purchased. If the investor does not within 20 days after written
request by the Principal Underwriter or the Authorized Firm pay such difference
in sales charge, the escrow agent will redeem an appropriate number of the
escrowed shares in order to realize such difference. Full shares remaining after
any such redemption together with any excess cash proceeds of the shares so
redeemed will be delivered to the investor or to the investor's order by the
escrow agent.
If total purchases made under this Statement are large enough to qualify for a
lower sales charge than that applicable to the amount specified, all
transactions will be computed at the expiration date of this Statement to give
effect to the lower charge. Any difference in sales charge will be refunded to
the investor in cash, or applied to the purchase of additional shares at the
lower charge if specified by the investor. This refund will be made by the
Authorized Firm and by the Principal Underwriter. If at the time of the
recomputation an Authorized Firm other than the original Authorized Firm is
placing the orders, the adjustment will be made only on those shares purchased
through the Authorized Firm then handling the investor's account.
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Investment Adviser, in exchange
for Fund shares. The minimum value of securities (or securities and cash)
accepted for deposit is $5,000. Securities accepted will be sold on the day of
their receipt or as soon thereafter as possible. The number of Fund shares to be
issued in exchange for securities will be the aggregate proceeds from the sale
of such securities, divided by the applicable net asset value of Class B shares
or public offering price of Class A and Class I shares on the day such proceeds
are received. Eaton Vance will use reasonable efforts to obtain the then current
market price for such securities, but does not guarantee the best available
price. Eaton Vance will absorb any transaction costs, such as commissions, on
the sale of the securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an Authorized Firm,
together with a completed and signed Letter of Transmittal in approved form
(available from Authorized Firms), as follows:
<TABLE>
<S> <C>
IN THE CASE OF BOOK ENTRY: IN THE CASE OF PHYSICAL DELIVERY:
Deliver through Depository Trust Co. Investors Bank & Trust Company
Broker #2212 Attention: Eaton Vance Municipal Bond Fund (and Class)
Investors Bank & Trust Company Physical Securities Processing Settlement Area
For A/C Eaton Vance Municipal Bond Fund (and Class) 200 Clarendon Street
Boston, MA 02116
</TABLE>
Investors who are contemplating an exchange of securities for shares, or their
representatives, must contact Eaton Vance to determine whether the securities
are acceptable before forwarding such securities. Eaton Vance reserves the right
to reject any securities. Exchanging securities for shares may create a taxable
gain or loss. Each investor should consult his or her tax adviser with respect
to the particular federal, state and local tax consequences of exchanging
securities.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM SHARES
A SHAREHOLDER MAY REDEEM FUND SHARES IN ONE OF FOUR WAYS -- BY MAIL, BY
TELEPHONE, THROUGH AN AUTHORIZED FIRM OR BY CHECK. The redemption price will be
based on the net asset value per Fund share next computed after a redemption
request is received in the proper form as described below. Within seven days
after receipt of a redemption request in good order by the Transfer Agent, the
Trust will make payment in cash for the net asset value of the shares as of the
date determined above, reduced by the amount of any applicable CDSC (described
below) and any federal income tax required to be withheld.
REDEMPTIONS BY MAIL. Shares may be redeemed by delivering to the Transfer Agent,
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123,
during its business hours a written request for redemption in good order, plus
any share certificates with executed stock powers. Good order means that all
relevant documents must be endorsed by the record owner(s) exactly as the shares
are registered and the signature(s) must be guaranteed by a member of either the
Securities Transfer Association's STAMP program or the New York Stock Exchange's
Medallion Signature Program, or certain banks, savings and loan institutions,
credit unions, securities dealers, securities exchanges, clearing agencies and
registered securities associations as required by a Commission regulation and
acceptable to the Transfer Agent. In addition, in some cases, good order may
require the furnishing of additional documents such as where shares are
registered in the name of a corporation, partnership or fiduciary.
REDEMPTION BY TELEPHONE. Shares may be redeemed by telephone provided the
investor has not disclaimed in writing the use of the privilege. Such
redemptions can be effected by calling the Transfer Agent at 800-262-1122,
Monday through Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). The
proceeds of a telephone redemption may be no greater than the maximum amount
established by the Principal Underwriter (currently $50,000) and may be mailed
only to the account address of record. Shares held by corporations, trusts or
certain other entities, or subject to fiduciary arrangements, may not be
redeemed by telephone. Neither the Trust, the Principal Underwriter nor the
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated by telephone are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone redemption may be difficult to
implement.
REDEMPTION THROUGH AN AUTHORIZED FIRM. To sell shares at their net asset value
through an Authorized Firm (a repurchase), a shareholder can place a repurchase
order with the Authorized Firm, which may charge a fee. The value of those
shares is based upon the net asset value calculated after the order is deemed to
be received by the Trust or the Principal Underwriter, as the Trust's agent,
receives the order. It is the Authorized Firm's responsibility to transmit
promptly repurchase orders to the Principal Underwriter. Throughout this
Prospectus, the word "redemption" is generally meant to include a repurchase.
REDEMPTIONS BY CHECK. Class A shareholders holding shares for which certificates
have not been issued may make redemptions by check by completing an Account
Instruction form (available by calling 800-225-6265 (extension 7601)) and
appointing Boston Safe Deposit and Trust Company ("Boston Safe") their agent.
Boston Safe will provide such shareholders electing this option with checks
drawn on Boston Safe. These checks may be made payable by the shareholder to the
order of any person in any amount of $500 or more. When a check is presented to
Boston Safe for payment, the number of full and fractional shares required to
cover the amount of the check will be redeemed from the shareholder's account by
Boston Safe as the shareholder's agent. Through this procedure the shareholder
will continue to be entitled to distributions paid on shares up to the time the
check is presented to Boston Safe for payment. If the amount of the check is
greater than the value of the shares for which the Fund has collected payment
held in the shareholder's account, the check will be returned and the
shareholder may be subject to extra charges. To obviate such a return of the
check, the check should not be written for close to the full value of an
account. The shareholder will be required to execute signature cards and will be
subject to Boston Safe's rules and regulations governing such checking accounts.
There is no charge to shareholders for this service. This service may be
terminated or suspended at any time by the Fund or Boston Safe. Shareholders of
the Fund on December 31, 1997 may also make redemptions by check.
While normally payments will be made in cash for redeemed shares, the Trust,
subject to compliance with applicable regulations, has reserved the right to pay
the redemption price of shares of the Fund, either totally or partially, by a
distribution in kind of readily marketable securities withdrawn from the Fund's
portfolio. The securities so distributed would be valued pursuant to the Trust's
valuation procedures. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash.
If shares were recently purchased, the proceeds of a redemption will not be sent
until the check (including a certified or cashier's check) received for the
shares purchased has cleared. Payment for shares tendered for redemption may be
delayed up to 15 days from the purchase date when the purchase check has not yet
cleared. Redemptions may result in a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Trust reserves the right
to redeem accounts with balances of less than $750. Prior to such a redemption,
shareholders will be given 60 days' written notice to make an additional
purchase. However, no such redemption would be required by the Trust if the
cause of the low account balance was a reduction in the net asset value of
shares. No CDSC will be imposed with respect to such involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Each class of shares is subject to a CDSC on
certain redemptions. The CDSC is calculated based on the lower of the net asset
value at the time of purchase or the time of redemption. Shares acquired through
the reinvestment of distributions are exempt. Redemptions are made first from
shares in the account which are not subject to a CDSC.
In calculating a CDSC upon the redemption of shares acquired in an exchange, the
shares are deemed to have been acquired at the time of the original purchase of
the exchanged shares and, in the case of Class B shares, the CDSC schedule
applicable to the exchanged shares will apply to the acquired shares. No CDSC is
imposed on shares sold to Eaton Vance or its affiliates, or to their respective
employees or clients. Shares acquired as the result of a merger or liquidation
of another Eaton Vance sponsored fund generally will be subject to the same CDSC
rate imposed by the prior fund.
CLASS A AND CLASS I SHARES. If Class A or Class I shares are purchased prior to
April 1, 1998 at net asset value because the purchase amount is $1 million or
more, or because the amount invested represents redemption proceeds from an
unaffiliated mutual fund (as described under "How to Buy Shares"), they will be
subject to a .50% CDSC if redeemed within 12 months of purchase.
CLASS B SHARES. Class B shares will be subject to the following CDSC schedule:
Year of Redemption
After Purchase CDSC
- -------------------------------------------------------------------------------
First or Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
The Class B CDSC is waived for redemptions (1) pursuant to a Withdrawal Plan
(see "Eaton Vance Shareholder Services"), (2) as part of a required minimum
distribution from a tax-sheltered retirement plan, or (3) following the death of
all beneficial owners of shares, provided the redemption is requested within one
year of death (a death certificate and other applicable documents may be
required).
REPORTS TO SHAREHOLDERS
THE FUND WILL ISSUE TO ITS SHAREHOLDERS, SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the independent accountants. Shortly after the end of each
calendar year, shareholders will be furnished with information necessary for
preparing federal and state tax returns. Consistent with applicable law,
duplicate mailings of shareholder reports and certain other Fund information to
shareholders residing at the same address may be eliminated.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF SHARES, THE TRANSFER AGENT WILL
SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE TRUST'S RECORDS.
This account is a complete record of all transactions which at all times shows
the balance of shares owned. The Trust will not issue share certificates except
upon request.
At least quarterly, the shareholder will receive a statement showing complete
details of any transaction and the current share balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS IN SHARES BY SENDING A CHECK FOR $50 OR MORE ($10,000 OR MORE FOR
CLASS I SHARES) TO the Transfer Agent.
Any questions concerning a shareholder's account or services available may be
directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to the Transfer Agent, First Data Investors Services
Group, P.O. Box 5123, Westborough, MA 01581-5123 (please provide the name of the
shareholder, the Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the Trust's
dividend disbursing agent, First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123. The currently effective option will appear on each
account statement.
SHARE OPTION -- Dividends and capital gains will be reinvested in additional
shares.
INCOME OPTION -- Dividends will be paid in cash and capital gains will be
reinvested in additional shares.
CASH OPTION -- Dividends and capital gains will be paid in cash.
The SHARE OPTION will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the federal income tax laws.
If shareholder communications are returned by the United States Postal Service
or other delivery service as not deliverable, the distribution option on the
account will be automatically changed to the SHARE OPTION until such time as the
shareholder selects a different option. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
DISTRIBUTION INVESTMENT OPTION.
In addition to the distribution options set forth above, dividends and/or
capital gains may be invested in additional shares of another Eaton Vance fund.
Before selecting this option, a shareholder should obtain a prospectus of the
other Eaton Vance fund and consider its objectives and policies carefully.
"STREET NAME" ACCOUNTS. If shares are held in a "street name" account with an
Authorized Firm, all recordkeeping, transaction processing and payments of
distributions relating to the beneficial owner's account will be performed by
the Authorized Firm, and not by the Trust and its Transfer Agent. Since the
Trust will have no record of the beneficial owner's transactions, a beneficial
owner should contact the Authorized Firm to purchase, redeem or exchange shares,
to make changes in or give instructions concerning the account, or to obtain
information about the account. The transfer of shares in a "street name" account
to an account with another Authorized Firm or to an account directly with the
Trust involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the account from the
Authorized Firm. Before establishing a "street name" account with an Authorized
Firm, or transferring the account to another Authorized Firm, an investor
wishing to reinvest distributions should determine whether the Authorized Firm
which will hold the shares allows reinvestment of distributions in "street name"
accounts.
THE EATON VANCE EXCHANGE PRIVILEGE
Shares of the Fund currently may be exchanged for shares of the same class of
one or more other funds in the Eaton Vance Group of Funds. Class A and Class I
shares may also be exchanged for shares of Eaton Vance Cash Management Fund,
Eaton Vance Income Fund of Boston, and Eaton Vance Tax Free Reserves. Class B
shares may also be exchanged for shares of Eaton Vance Prime Rate Reserves,
which are subject to an early withdrawal charge, or shares of Eaton Vance Money
Market Fund, which are subject to a CDSC, and shares of a money market fund
sponsored by an Authorized Firm and approved by the Principal Underwriter (an
"Authorized Firm fund"). Any such exchange will be made on the basis of the net
asset value per share of each fund/class at the time of the exchange (plus, in
the case of an exchange made within six months of the date of purchase of Class
A or Class I shares subject to an initial sales charge, an amount equal to the
difference, if any, between the sales charge previously paid on the shares being
exchanged and the sales charge payable on the shares being acquired). In the
event the fund to be acquired does not offer Class I shares, Class I shares of
the Fund may be exchanged for Class A shares of the fund to be acquired.
Exchange offers are available only in states where shares of the fund being
acquired may be legally sold. Exchanges are subject to any restrictions or
qualifications set forth in the current prospectus of any such fund.
Each exchange must meet the minimum investment amount required by the Fund to be
acquired. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Trust does not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
The Transfer Agent makes exchanges at the next determined net asset value after
receiving an exchange request in good order (see "How to Redeem Shares").
Consult the Transfer Agent for additional information concerning the exchange
privilege. Applications and prospectuses of other funds are available from
Authorized Firms or the Principal Underwriter. The prospectus for each fund
describes its investment objectives and policies, and shareholders should obtain
a prospectus and consider these objectives and policies carefully before
requesting an exchange.
No CDSC is imposed on exchanges. For purposes of calculating the CDSC upon
redemption of shares acquired in an exchange, the CDSC schedule applicable to
the shares at the time of purchase will apply and the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of the
original purchase of the exchanged shares, except that time during which shares
are held in an Authorized Firm fund will not be credited toward completion of
the CDSC period. For the CDSC schedule applicable to Class B shares (except
Prime Rate Reserves and Class B shares of the Limited Maturity Funds), see "How
to Redeem Shares". The CDSC or early withdrawal charge schedule applicable to
Prime Rate Reserves and Class B shares of the Limited Maturity Funds is 3%,
2.5%, 2% or 1% in the event of a redemption occurring in the first, second,
third or fourth year, respectively, after the original share purchase.
Telephone exchanges are accepted by the Transfer Agent, provided the investor
has not disclaimed in writing the use of the privilege. To effect such
exchanges, call the Transfer Agent at 800-262-1122, Monday through Friday, 9:00
a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone exchange
must be registered in the same name(s) and with the same address as the shares
being exchanged. Neither the Trust, the Principal Underwriter nor the Transfer
Agent will be responsible for the authenticity of exchange instructions received
by telephone; provided that reasonable procedures to confirm that instructions
communicated are genuine have been followed. Telephone instructions will be tape
recorded. In times of drastic economic or market changes, a telephone exchange
may be difficult to implement. An exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
THE TRUST OFFERS THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund or Class as an expense to
all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION. Once the minimum investment
has been made, checks of $50 or more ($10,000 or more for Class I) payable to
the order of the Fund and specifying the Class being purchased may be mailed
directly to the Transfer Agent, First Data Investor Services Group, P.O. Box
5123, Westborough, MA 01581-5123 at any time -- whether or not distributions are
reinvested. The name of the shareholder, the Fund and Class and the account
number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION. Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
STATEMENT OF INTENTION. Purchases of $25,000 or more of Class A shares or
purchases of $500,000 or more of Class I shares made over a 13-month period
are eligible for reduced sales charges. See "How to Buy Shares -- Statement of
Intention and Escrow Agreement."
RIGHT OF ACCUMULATION. Purchases may qualify for reduced sales charges on Class
A and Class I shares when the current market value of holdings (shares at
current offering price), plus new purchases, reaches $25,000 or more for Class A
shares or $500,000 or more for Class I shares. Class A and Class I shares of the
Eaton Vance funds listed under "The Eaton Vance Exchange Privilege" may be
combined under the Statement of Intention and Right of Accumulation.
WITHDRAWAL PLAN. A shareholder may draw on shareholdings systematically with
monthly or quarterly checks. For Class B shares, any such withdrawals may not in
the aggregate exceed 12% annually of the account balance at the time the plan is
established. Such amount will not be subject to the Class B CDSC. See "How to
Redeem Shares". A minimum deposit of $5,000 in shares is required. The
maintenance of a withdrawal plan concurrently with purchases of additional Class
A or Class I shares would be disadvantageous because of the sales charge
included in such purchases.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed shares may reinvest, with
credit for any CDSCs paid on the redeemed shares, any portion or all of the
redemption proceeds (plus that amount necessary to acquire a fractional share to
round off the purchase to the nearest full share) in the same shares (or for
Class A shares in Class A shares of any other Eaton Vance fund), provided that
the reinvestment is effected within 60 days after such redemption and the
privilege has not been used more than once in the prior 12 months. Shares are
sold to a reinvesting shareholder at the next determined net asset value
following timely receipt of a written purchase order by the Principal
Underwriter or by the Trust (or by the Trust's Transfer Agent). To the extent
that any shares are sold at a loss and the proceeds are reinvested in shares (or
other shares are acquired) within the period beginning 30 days before and ending
30 days after the date of redemption, some or all of the loss generally will not
be allowed as a tax deduction. Shareholders should consult their tax advisers
concerning the tax consequences of reinvestments.
DISTRIBUTIONS AND TAXES
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES AND CLASS-SPECIFIC
EXPENSES, WILL BE DECLARED DAILY AS A DISTRIBUTION TO SHAREHOLDERS OF RECORD AT
THE TIME OF DECLARATION. Distributions on Class A and Class I shares, whether
taken in cash or reinvested in additional shares, will ordinarily be paid on the
last day of each month or the next business day thereafter. Distributions on
Class B shares will ordinarily be paid on the fifteenth day of each month or the
next business day thereafter. The Fund anticipates that for tax purposes, the
entire distribution, whether paid in cash or reinvested in additional shares,
will constitute tax-exempt income to shareholders, except for the proportionate
part of the distribution that may be considered taxable income if the Fund has
taxable income during the calendar year. Shareholders reinvesting the monthly
distribution should treat the amount of the entire distribution as the tax cost
basis of the additional shares acquired by reason of such reinvestment. Daily
distribution crediting will commence on the business day after collected funds
for the purchase of shares are available at the Transfer Agent. Shareholders
will receive timely federal income tax information as to the tax-exempt or
taxable status of all distributions made by the Fund during the calendar year.
The Fund's net realized capital gains, if any, consist of the net realized
capital gains, after taking into account any available capital loss carryovers;
the Fund's net realized capital gains, if any, will be distributed at least once
a year, usually in December.
Sales charges paid upon a purchase of Class A or Class I shares 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 a
sales charge is reduced or eliminated in a subsequent acquisition of such shares
of the Fund or of another fund pursuant to the Fund's reinvestment or exchange
privilege. Any disregarded amounts will result in an adjustment to the
shareholder's tax basis in some or all of any other shares acquired.
The Fund intends to qualify as a regulated investment company under the Code and
to satisfy all requirements necessary to avoid paying federal income taxes on
the part of its investment company taxable income (consisting generally of
taxable net investment income and net short-term capital gain) and net capital
gain that it distributes to shareholders.
As a regulated investment company under the Code, the Fund does not pay federal
income or excise taxes to the extent that it distributes to shareholders
substantially all of its ordinary income and capital gain net income in
accordance with the timing requirements imposed by the Code.
Distributions of 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 of
long-term capital gains are taxable to shareholders as such for federal income
tax purposes, regardless of the length of time shares have been owned by the
shareholder. If shares are purchased shortly before the record date of such a
distribution, the shareholder will pay the full price for the shares and then
receive some portion of the price back as a taxable distribution. Distributions
are taxed in the manner described above whether paid in cash or reinvested in
additional shares. Tax-exempt distributions received from the Fund are
includable in the tax base for determining the taxability of social security and
railroad retirement benefits.
The Code provides that interest on indebtedness incurred or continued by a
shareholder to purchase or carry shares is not deductible to the extent it is
deemed related to the Fund's distributions of tax-exempt interest dividends to
the shareholder. 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. "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 and would likely be interpreted to include private activity
bonds issued to finance similar facilities.
Shareholders should consult with their tax advisers concerning the applicability
of state, local and other taxes to an investment.
PERFORMANCE INFORMATION
FROM TIME TO TIME, YIELD AND/OR AVERAGE ANNUAL TOTAL RETURN MAY BE ADVERTISED.
Current yield is calculated separately for each Class by dividing the net
investment income per share earned during a recent 30-day period by the maximum
offering price per share or net asset value on the last day of the period and
annualizing the resulting figure. A taxable-equivalent yield is computed by
using the tax-exempt yield figure and dividing by 1 minus the tax rate. Average
annual total return is determined separately for each Class by computing the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (including maximum sales charge for Class A and Class I;
net asset value for Class B) for specified periods, assuming reinvestment of all
distributions. Total return may be quoted for the period prior to commencement
of operations, which would reflect the Class's total return (or that of its
predecessor) adjusted to reflect any applicable sales charge. The average annual
total return calculation assumes a complete redemption of the investment and the
deduction of any applicable CDSC at the end of the period. The Fund may also
publish annual and cumulative total return figures from time to time.
The Fund may also furnish total return figures for each Class which do not take
into account any sales charge. Any performance figure which does not take into
account a sales charge would be reduced to the extent such charge is imposed.
The Fund's performance may be compared in publications to the performance of
various indices and investments for which reliable data is available, and to
averages, performance rankings, or other information prepared by recognized
mutual fund statistical services.
Investors should note that the investment results will fluctuate over time, and
any presentation of yield or total return for any prior period should not be
considered as a representation of what an investment may earn or what the yield
or total return may be in any future period.
The following chart reflects the annual investment returns of Class I of the
Fund for one-year periods ending December 31 and does not take into account any
sales charge which investors may bear. The performance of Class A and Class B
would be lower.
5 YEAR AVERAGE ANNUAL TOTAL RETURN -- 7.89%
10 YEAR AVERAGE ANNUAL TOTAL RETURN -- 7.12%
1987 (0.03%)
1988 12.83%
1989 10.65%
1990 6.97%
1991 13.49%
1992 8.91%
1993 13.52%
1994 (7.27%)
1995 17.40%
1996 4.78%
<PAGE>
APPENDIX
EATON VANCE MUNICIPAL BOND FUND
ASSET COMPOSITION INFORMATION
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Percent of
Moody's/S&P Net Assets
- -------------------------------------------------------------------------------
Aaa or AAA 38.7%
Aa or AA 5.7%
A 20.3%
Baa or BBB 10.8%
Ba or BB --
Unrated 24.5%
Short-Term Obligations, Cash, Interest Receivable --
-----
Total 100.0%
The chart above indicates the weighted average composition of the Fund's
portfolio for the fiscal year ended December 31, 1996, with the debt securities
rated by Moody's or 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 Fund's portfolio will be in the
current and subsequent fiscal years.
For a detailed description of Moody's and S&P's ratings of municipal bonds, see
the Appendix to the Statement of Additional Information.
<PAGE>
[LOGO]
Investing
for the
EATON VANCE
- ------------- 21st
Mutual Funds
Century
- --------------------------------------------------------------------------------
Eaton Vance
Municipal Bond Fund
Prospectus
January 1, 1998
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 200 Clarendon Street, Boston, MA 02116
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte &Touche LLP, 125 Summer Street, Boston, MA 02110
MBP
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
January 1, 1998
EATON VANCE MUNICIPAL BOND FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information provides information about Eaton
Vance Municipal Bond Fund (the "Fund"). This Statement of Additional
Information is sometimes referred to herein as the "SAI."
TABLE OF CONTENTS
Page
Additional Information about Investment Policies ....................... 2
Investment Restrictions ................................................ 7
Trustees and Officers .................................................. 8
Investment Adviser ..................................................... 10
Custodian .............................................................. 12
Services for Accumulation -- Class A and Class I Shares ................ 12
Service for Withdrawal ................................................. 13
Determination of Net Asset Value ....................................... 13
Investment Performance ................................................. 13
Taxes .................................................................. 15
Principal Underwriter .................................................. 17
Service Plan -- Class A Shares ......................................... 18
Distribution Plan -- Class B Shares .................................... 18
Portfolio Security Transactions ........................................ 20
Other Information ...................................................... 21
Independent Certified Public Accountants ............................... 22
Financial Statements ................................................... 22
Appendix A: Class A Shares ............................................. a-1
Appendix B: Class B Shares ............................................. b-1
Appendix C: Class I Shares ............................................. c-1
Appendix D: Tax Equivalent Yield Table ................................. d-1
Appendix E: Ratings .................................................... e-1
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUND'S PROSPECTUS DATED JANUARY 1, 1998, AS SUPPLEMENTED FROM
TIME TO TIME, WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS SAI SHOULD BE READ
IN CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT
CHARGE BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL
UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
This SAI provides information about the Fund. Capitalized terms used in this
SAI and not otherwise defined have the meanings given to them in the Prospectus.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL BONDS
Municipal Bonds are issued to obtain funds for various public and private
purposes. Such obligations 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. In general, there are
three categories of municipal obligations, the interest of which is exempt from
all types of federal income taxes 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. In assessing the federal income tax treatment of interest on
any Municipal Bond, the Fund will generally rely on an opinion of counsel (when
available) obtained by the issuer and will not undertake any independent
verification of the basis for the opinion. The two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from regular federal income tax but such interest (including a
distribution by the Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the recipient's
liability for the AMT. For corporate shareholders, the Fund's distributions
derived from interest on all municipal obligations (whenever issued) is included
in "adjusted current earnings" for purposes of the AMT as applied to
corporations (to the extent not already included in alternative minimum taxable
income as income attributable to private activity bonds).
Any recognized gain or income attributable to 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 other than, in
general, at their original issue is taxable as ordinary income. A long-term debt
obligation is generally treated as acquired at a market discount if purchased at
its original issue at a price less than (i) the stated principal amount payable
at maturity, in the case of an obligation that does not have original issue
discount or (ii) in the case of an obligation that does have original issue
discount, the sum of the issue price and any original issue discount that
accrued before the obligation was purchased, subject to a de minimis exclusion.
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 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 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 by the industrial
user or users.
The Fund may on occasion acquire revenue bonds which carry warrants or
similar rights covering equity securities. Such warrants or rights may be held
indefinitely, but if exercised, the Fund anticipates that it would, under normal
circumstances, dispose of any equity securities so acquired within a reasonable
period of time.
While most Municipal Bonds pay a fixed rate of interest semi-annually in
cash, there are exceptions. 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.
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 one or more issuers to pay when due
principal of and interest on its or their Municipal Bonds may be materially
affected. There have been recent instances of defaults and bankruptcies
involving municipal obligations which were not foreseen by the financial and
investment communities. The Fund will also take whatever action as 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 and firms (including affiliates of the Investment Adviser) to
evaluate or protect any real estate, facilities or other assets securing any
such obligation or acquired by the Fund as a result of any such event and the
Fund may also manage (or engage other persons to manage) or otherwise deal with
any real estate, facilities or other assets so acquired. The Fund anticipates
that real estate consulting and management services may be required with respect
to properties securing various Municipal Bonds in its portfolio or subsequently
acquired by the Fund. The Fund will incur additional expenditures in taking
protective action with respect to portfolio obligations in default and assets
securing such obligations.
The yields on Municipal Bonds are dependent on a variety of factors,
including purpose of issue and source of funds for repayment, general money
market conditions, general conditions of the Municipal Bond market, size of a
particular offering, the maturity of the obligation and rating of the issue. The
ratings of Moody's, S&P and Fitch represent their opinions as to the quality of
the Municipal Bonds which they undertake to rate. It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, Municipal Bonds with the same maturity, coupon and rating may have
different yields while Bonds of the same maturity and coupon with different
ratings may have the same yield. In addition, the market price of Municipal
Bonds will normally fluctuate with changes in interest rates, and therefore the
net asset value of the Fund's shares will be affected by such changes.
RISKS OF CONCENTRATION
The Fund may invest 25% or more of its total assets in municipal obligations
whose issuers are located in the same state or in municipal obligations of the
same type. There could be economic, business or political developments which
might affect all municipal obligations of a similar type. In particular,
investments in the industrial revenue bonds might involve (without limitation)
the following risks.
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 increse
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, effect of energy conservation
and limitations on the capacity of the capital market to absorb utility debt.
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 and local 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.
MUNICIPAL LEASES
The Fund may invest in municipal leases and participations therein, which
arrangements frequently involve special risks. Municipal leases are obligations
in the form of a lease or installment purchase arrangement which is issued by
state or local governments to acquire equipment and facilities. Interest income
from such obligations is generally exempt from local and state taxes in the
state of issuance. "Participations" in such leases are undivided interests in a
portion of the total obligation. Participations entitle their holders to receive
a pro rata share of all payments under the lease. A trustee is usually
responsible for administering the terms of the participation and enforcing the
participants' rights in the underlying lease. Leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased
assets 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. State
debt-issuance limitations are deemed to be inapplicable to these arrangements
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 contract unless money is appropriated for
such purpose by the appropriate legislative body on a yearly or other periodic
basis. Such arrangements are, therefore, subject to the risk that the
governmental issuer will not appropriate funds for lease payments.
Certain municipal lease obligations owned by the Fund may be deemed illiquid
for the purpose of the Fund's 15% limitation on investments in illiquid
securities, unless determined by the Investment Adviser, pursuant to guidelines
adopted by the Trustees of the Fund, to be liquid securities for the purpose of
such limitation. In determining the liquidity of municipal lease obligations,
the 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 Fund. In the
event the Fund acquires an unrated municipal lease obligation, the Investment
Adviser will be responsible for determining the credit quality of such
obligation on an on-going basis, including an assessment of the likelihood that
the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon 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.
INSURANCE
Insured municipal obligations held by the Fund (if any) 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 Fund
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).
CREDIT QUALITY
The Fund is dependent on the Investment Adviser's judgment, analysis and
experience in evaluating the quality of Municipal Bonds. 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 the lowest
investment grade, below investment grade and comparable unrated obligations
through active portfolio management, credit analysis and attention to current
developments and trends in the economy and the financial markets.
SHORT-TERM TRADING
The Fund may sell (and later purchase) securities in anticipation of a
market decline (a rise in interest rates) or purchase (and later sell)
securities in anticipation of a market rise (a decline in interest rates). In
addition, a security may be sold and another purchased at approximately the same
time to take advantage of what the Fund 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 municipal obligations or changes in the
investment objectives of investors. Such trading may be expected to increase the
portfolio turnover rate, which may increase capital gains and the expenses
incurred in connection with such trading. The Fund cannot accurately predict its
portfolio turnover rate, but it is anticipated that the annual portfolio
turnover rate will generally not exceed 100% (excluding turnover of securities
having a maturity of one year or less). A 100% annual turnover rate could occur,
for example, if all the securities held by the Fund were replaced once in a
period of one year. A high turnover rate (100% or more) necessarily involves
greater expenses to the Fund. The Fund engages in portfolio trading (including
short-term trading) if it believes that a transaction including all costs will
help in achieving its investment objective. For the fiscal years ended September
30, 1996 and 1995, the portfolio turnover rates of the Fund were 30% and 58%,
respectively.
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 the Fund's commitment and
are subject to certain conditions such as the issuance of satisfactory legal
opinions. The Fund 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 Fund to buy such securities on a settlement date that could be
several months or several years in the future.
The Fund will make commitments to purchase when-issued securities only with
the intention of actually acquiring the securities, but may sell such securities
before the settlement date if it is deemed advisable as a matter of investment
strategy. The payment obligation and the interest rate that will be received on
the securities are fixed at the time the Fund enters into the purchase
commitment. When the Fund commits to purchase a security on a when-issued basis
it records the transaction and reflects the value of the security in determining
its net asset value. Securities purchased on a when-issued basis and the
securities held by the Fund are subject to changes in value, based upon the
perception of the creditworthiness of the issuer and changes in the level of
interest rates (i.e., appreciation when interest rates decline and depreciation
when interest rates rise). Therefore, to the extent that the Fund 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 Fund's net
asset value than if it solely set aside cash to pay for when-issued securities.
VARIABLE RATE OBLIGATIONS
The Fund 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 which are frequently
secured by letters of credit or other 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 purposes of complying with the diversification
requirements set forth in Section 5(b) of the 1940 Act and Rule 5b-2 thereunder.
The Fund would anticipate using these bonds 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 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, because
the Fund may retain the bond if interest rates decline. By acquiring these kinds
of obligations the Fund 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.
Because this right is assignable with the security, which is readily marketable
and valued in the customary manner, the Fund will not assign any separate value
to such right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Fund may also enter into a separate agreement with the seller of the
security or some other person granting the Fund the right to put the security to
the seller thereof or some other person at an agreed upon price. The Fund
intends to limit this type of transaction to institutions (such as banks or
securities dealers) which the Investment Adviser believes present minimum credit
risks, and would engage in this type of transaction to facilitate portfolio
liquidity or (if the seller so agrees) to hedge against rising interest rates.
There is no assurance that this kind of put option will be available to the Fund
or that selling institutions will be willing to permit the Fund to exercise a
put to hedge against rising interest rates. 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 Fund does not expect to assign any value to any separate put option
which may be acquired to facilitate portfolio liquidity, inasmuch as the value
(if any) of the put will be reflected in the value assigned to the associated
security; any put acquired for hedging purposes would be valued in good faith
under methods or procedures established by or under the direction of the
Trustees of the Trust after consideration of all relevant factors, including its
expiration date, the price volatility of the associated security, the difference
between the market price of the associated security and the exercise price of
the put, the creditworthiness of the issuer of the put and the market prices of
comparable put options. Interest income generated by certain bonds having put
features may not qualify as tax-exempt interest.
SECURITIES LENDING
The Fund may seek to increase its income by lending portfolio securities to
broker-dealers or other institutional borrowers. Under present regulatory
policies of the Commission, such loans are required to be secured continuously
by collateral in cash, cash equivalents or U.S. Government securities held by
the Fund's custodian and maintained on a current basis at an amount at least
equal to the market value of the securities loaned, which will be marked to
market daily. Cash equivalents include short-term municipal obligations as well
as taxable certificates of deposit, commercial paper and other short-term money
market instruments. The Fund 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 loan, the Fund 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 Fund may pay lending fees to such borrowers. The Fund 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 Fund's
management to be of good standing and when, in the judgment of the Fund's
management, the consideration which can be earned from securities loans of this
type justifies the attendant risk. Distributions by the Fund of any income
realized from securities loans will be taxable. If the management of the Fund
decides to make securities loans, it is intended that the value of the
securities loaned would not exceed 30% of the Fund's total assets. The Fund has
no present intention of engaging in securities lending.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Fund (or of securities that the Fund expects to
purchase). To hedge against changes in rates, the Fund may enter into (i)
futures contracts for the purchase or sale of debt securities and (ii) futures
contracts on securities indices. All futures contracts entered into by the Fund
are traded on exchanges or boards of trade that are licensed and regulated by
the Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant or brokerage firm which is a member of the relevant
exchange. The Fund may purchase and write call and put options on futures
contracts which are traded on a United States or foreign exchange or board of
trade. The Fund will be required, in connection with transactions in futures
contracts and the writing of options on futures, to make margin deposits, which
will be held by the Fund's custodian for the benefit of the futures commission
merchant through whom the Fund engages in such futures and options transactions.
Some futures contracts and options thereon may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit transactions in an exchange-traded instrument,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or futures option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.
The Fund will engage in futures and related options transactions only for
bona fide hedging purposes as defined in or permitted by CFTC regulations. The
Fund will determine that the price fluctuations in the futures contracts and
options on futures are substantially related to price fluctuations in securities
held by the Fund or which it expects to purchase. The Fund'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 Fund owns, or futures contracts will be purchased to protect
the Fund against an increase in the price of securities it intends to purchase.
The Fund will engage in transactions in futures and related options contracts
only to the extent such transactions are consistent with the requirements of the
Code for maintaining qualification of the Fund as a regulated investment company
for federal income tax purposes (see "Taxes").
ASSET COVERAGE REQUIREMENTS
Transactions involving when-issued securities or futures contracts and
options (other than options that the Fund has purchased) expose the Fund to an
obligation to another party. The Fund will not enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities or
other options or futures contracts or (2) cash or liquid securities (such as
readily marketable obligations and money market instruments) with a value
sufficient at all times to cover its potential obligations not covered as
provided in (1) above. The Fund will comply with Commission guidelines regarding
cover for these instruments and, if the guidelines so require, set aside cash or
liquid securities in a segregated account with its custodian in the prescribed
amount. The securities in the segregated account will be marked to market daily.
Assets used as cover or held in a segregated account with the Fund's
custodian cannot be sold while the position requiring coverage or segregation is
outstanding unless they are replaced with other appropriate assets. As a result,
the commitment of a large portion of the Fund's assets to segregated accounts or
to cover could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which as used
in this SAI means the lesser of (i) 67% of the shares of the Fund 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 (ii) more than 50% of the shares
of the Fund. Accordingly, the Fund may not:
(1) With respect to 75% of its total assets, invest more than 5% of its
total assets (taken at current value) in the securities of any one issuer,
or invest in more than 10% of the outstanding voting securities of any one
issuer, except obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;
(2) Borrow money or issue senior securities, except as permitted by the
1940 Act;
(3) Purchase securities on margin (but the Fund 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 Fund of initial or
maintenance margin in connection with futures contracts or related options
transactions is not considered the purchase of a security on margin;
(4) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in
selling a portfolio security under circumstances which may require the
registration of the same under the Securities Act of 1933;
(5) 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;
(6) Purchase or sell physical commodities or contracts for the purchase
or sale of physical commodities; or
(7) 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.
The Fund has adopted the following investment policies which may be changed
without shareholder approval. As a matter of nonfundamental policy, the Fund
will not: (a) make short sales of securities or maintain a short position,
unless at all times when a short sale position is open it 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 Fund's net assets (taken at current value) is held as collateral for such
sales at any one time; (b) 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 Trustee of the Trust or is a member, officer, director
or trustee of any investment adviser of the Fund, if after the purchase of the
securities of such issuer by the Fund one or more of such persons owns
beneficially more than 1/2 of 1% of the outstanding shares or securities or both
(all taken at 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); or (c) invest
more than 15% of its total 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 purpose of this
limitation do not include securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933 and commercial paper issued pursuant to Section
4(2) of said Act that the Trustees of the Trust, or their delegate, determine to
be liquid.
The purchase of Municipal Bonds and temporary investments by the Fund in
accordance with its investment objective, policies and limitations, which may
include the purchase of non-publicly issued debt securities, shall be deemed to
be permissible loan transactions.
For the purpose of the Fund's investment restrictions, the identification of
the "issuer" of a Municipal Bond which is not a general obligation bond is made
by the Fund'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
Bond.
Whenever an investment policy or investment restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset, or describes a policy regarding quality
standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's acquisition of such security or
asset. Accordingly, any later increase or decrease resulting from a change in
values, assets or other circumstances, other than a subsequent rating change
below investment grade made by a rating service, will not compel the Fund to
dispose of such security or other asset. Notwithstanding the foregoing, the Fund
must always be in compliance with the borrowing policies set forth above and may
not invest more than 15% of net assets in illiquid securities.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust are listed below. Except as
indicated, each individual has held the office shown or other offices in the
same company for the last five years. Unless otherwise noted, the business
address of each Trustee and officer is 24 Federal Street, Boston, Massachusetts
02110, which is also the address of the Investment Adviser, Eaton Vance; Eaton
Vance's wholly-owned subsidiary BMR; of Eaton Vance's parent, Eaton Vance Corp.
("EVC"); and of Eaton Vance's and BMR's trustee, Eaton Vance, Inc. ("EV"). Eaton
Vance and EV are both wholly-owned subsidiaries of EVC. Those Trustees and
officers who are "interested persons" of the Trust, as defined in the 1940 Act
by virtue of their affiliation with Eaton Vance, BMR, EVC or EV, are indicated
by an asterisk(*).
TRUSTEES OF THE TRUST
M. DOZIER GARDNER (64), President and Trustee*
Vice Chairman of BMR, Eaton Vance, EVC and EV, and a Director of EVC and EV.
Director or Trustee and officer of various investment companies managed by
Eaton Vance or BMR.
JAMES B. HAWKES (56), Vice President and Trustee*
President and Chief Executive Officer of Eaton Vance, BMR, EVC and EV, and a
Director of EVC and EV. Director or Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
DONALD R. DWIGHT (66), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company); Chairman of the Board of 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
SAMUEL L. HAYES, III (63), 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 02163
NORTON H. REAMER (62), Trustee
President and Director, United Asset Management Corporation (a holding company
owning institutional investment management firms); Chairman, President and
Director, UAM Funds (mutual funds). Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (71), Trustee
Former Director of 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 (67), 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
OFFICERS OF THE TRUST
THOMAS J. FETTER (54), Vice President
Vice President of Eaton Vance, BMR and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Fetter was elected Vice
President of the Trust on October 17, 1997.
EDWARD E. SMILEY, JR. (53), Vice President
Vice President of Eaton Vance and BMR since November 1, 1996; Senior Product
Manager, Equity Management for Trade Street Investment Associates, Inc., a
wholly-owned subsidiary of Nations Bank (1992-1996). Officer of various
investment companies managed by Eaton Vance or BMR. Mr. Smiley was elected
Vice President of the Trust on October 18, 1996.
WILLIAM H. AHERN, JR. (38), Vice President
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR. Mr. Ahern was elected Vice President of the
Trust on June 19, 1995.
MICHAEL B. TERRY (55), Vice President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (52), Treasurer
Vice President of Eaton Vance, BMR and EV. Officer of various investment
companies in the Eaton Vance group of funds.
ALAN R. DYNNER (57), Secretary
Vice President and Chief Legal Officer of Eaton Vance, BMR, EVC and EV since
November 1, 1996. Previously, he was a Partner of the law firm of Kirkpatrick
& Lockhart LLP, New York and Washington, D.C., and was Executive Vice
President of Neuberger & Berman Management, Inc., a mutual fund management
company. Officer of various investment companies managed by Eaton Vance or
BMR. Mr. Dynner was elected Secretary of the Trust on June 23, 1997.
JANET E. SANDERS (62), Assistant Treasurer and Assistant Secretary
Vice President of Eaton Vance, BMR and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (35), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. State Regulations Supervisor, The
Boston Company (1991-1993). Officer of various investment companies managed by
Eaton Vance or BMR. Mr. Murphy was elected Assistant Secretary of the Trust on
March 27, 1995.
JOHN P. RYNNE (55), Assistant Secretary
Corporate Controller and Vice President of EVC. Vice President of Eaton Vance,
EVD and BMR. Mr. Rynne became an officer of the Trust on June 19, 1995.
ERIC G. WOODBURY (40), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly associate attorney
at Dechert, Price & Rhoads. Officer of various investment companies managed by
Eaton Vance or BMR. Mr. Woodbury was elected Assistant Secretary of the Trust
on June 19, 1995.
Messrs. Hayes (Chairman), Reamer and Thorndike are members of the Special
Committee of the Board of Trustees of the Trust. The purpose of the Special
Committee is to consider, evaluate and make recommendations to the full Board of
Trustees concerning (i) all contractual arrangements with service providers to
the Fund, including investment advisory, administrative, transfer agency,
custodial and fund accounting and distribution services, and (ii) all other
matters in which Eaton Vance or its affiliates has any actual or potential
conflict of interest with the Fund or investors therein.
The Nominating Committee of the Board of Trustees of the Trust is comprised
of four Trustees who are not "interested persons" as that term is defined under
the 1940 Act ("noninterested Trustees"). The Committee has four-year staggered
terms, with one member rotating off the Committee to be replaced by another
noninterested Trustee. The purpose of the Committee is to recommend to the Board
nominees for the position of noninterested Trustee and to assure that at least a
majority of the Board of Trustees are independent of Eaton Vance and its
affiliates.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust. The Audit Committee's functions include
making recommendations to the Trustees regarding the selection of the
independent certified public accountants, and reviewing matters relative to
trading and brokerage policies and practices, accounting and auditing practices
and procedures, accounting records, internal accounting controls, and the
functions performed by the custodian, transfer agent and dividend disbursing
agent of the Trust.
Trustees of the Trust who are not affiliated with the Investment Adviser may
elect to defer receipt of all or a percentage of their annual fees in accordance
with the terms of a Trustees Deferred Compensation Plan (the "Trustees" Plan").
Under the Trustees' Plan, an eligible Trustee may elect to have his deferred
fees invested by the Fund in the shares of one or more funds in the Eaton Vance
Family of Funds, and the amount paid to the Trustees under the Trustees' Plan
will be determined based upon the performance of such investments. Deferral of
Trustees' fees in accordance with the Trustees' Plan will have a negligible
effect on the Fund's assets, liabilities, and net income per share, and will not
obligate the Fund to retain the services of any Trustee or obligate the Fund to
pay any particular level of compensation to the Trustee. The Trust does not have
a retirement plan for its Trustees.
The fees and expenses of the noninterested Trustees of the Trust are paid by
the Fund (and the other series of the Trust). (The Trustees of the Trust who are
members of the Eaton Vance organization receive no compensation from the Trust.)
During the fiscal year ended December 31, 1996, the noninterested Trustees of
the Trust earned the following compensation in their capacities as Trustees from
the Trust and funds in the Eaton Vance fund complex:(1)
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM TRUST AND
NAME FROM TRUST(2) AND FUND COMPLEX
- ---- ------------- ------------------
Donald R. Dwight .......... $1,146(3) $145,000(6)
Samuel L. Hayes, III ...... 1,411(4) 157,500(7)
Norton H. Reamer .......... 1,332 145,000
John L. Thorndike ......... 1,440(5) 150,000(8)
Jack L. Treynor ........... 1,369 150,000
- ----------
(1) The Eaton Vance fund complex consists of 212 registered investment companies
or series thereof.
(2) The Trust consisted of 15 Funds as of December 31, 1996.
(3) Includes $471 of deferred compensation.
(4) Includes $253 of deferred compensation.
(5) Includes $375 of deferred compensation.
(6) Includes $45,000 of deferred compensation.
(7) Includes $20,429 of deferred compensation.
(8) Includes $28,125 of deferred compensation.
INVESTMENT ADVISER
The Fund engages Eaton Vance as its investment adviser pursuant to an
Investment Advisory Agreement. Eaton Vance or its affiliates act as investment
adviser to investment companies and various individual and institutional clients
with combined assets under management of approximately $20 billion.
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.
Eaton Vance and its affiliates act as adviser to a family of mutual funds,
and individual and various institutional accounts, including corporations,
hospitals, retirement plans, universities, foundations and trusts. Eaton Vance
mutual funds feature international equities, domestic equities, tax-free
municipal bonds, and U.S. government and corporate bonds. Lloyd George
Management has advised Eaton Vance's international equity funds since 1992.
Founded in 1991, Lloyd George is headquartered in Hong Kong with offices in
London and Mumbai, India. It has established itself as a leader in investment
management in Asian equities and other global markets. Lloyd George features an
experienced team of investment professionals that began working together in the
mid-1980s. Lloyd George analysts cover East Asia, the India subcontinent, Russia
and Eastern Europe, Latin America, Australia and New Zealand from offices in
Hong Kong, London and Mumbai. Together Eaton Vance and Lloyd George manage over
$21 billion in assets. Eaton Vance mutual funds are distributed by the Principal
Underwriter both within the United States and offshore.
The Principal Underwriter believes that an investment professional can
provide valuable services to you to help you reach your investment goals.
Meeting investment goals requires time, objectivity and investment savvy. Before
making an investment recommendation, a representative can help you carefully
consider your short- and long-term financial goals, your tolerance for
investment risk, your investment time frame, and other investments you may
already own. Your professional investment representatives are knowledgeable
about financial markets, as well as the wide range of investment opportunities
available. A representative can help you decide when to buy, sell or persevere
with your investments.
Eaton Vance offers single-state tax-free portfolios in more states than any
other sponsor of mutual funds. A staff of 28 (including 6 portfolio managers and
9 credit specialists) is responsible for the day-to-day management of over 3,500
issues in 46 mutual fund portfolios. Assets managed by the municipal investment
group are currently over $7.6 billion. The investment philosophy of the
municipal investment group is to: seek value by avoiding unnecessary credit
risk; build portfolios one security at a time; and take a long-term approach to
managing market risk. Over the long-term, the group seeks to maximize tax-free
income by keeping portfolios fully invested (rather than trying to "time the
market" for short-term results) and reduce potential capital losses due to poor
credit quality. Diligent and continuing research and analysis are a critical
component of the municipal investment group's investment philosophy and
long-term strategy.
Eaton Vance manages the investments and affairs of the Fund, subject to the
supervision of the Board of Trustees of the Trust. Eaton Vance furnishes to the
Fund, investment advice and assistance, administrative services, office space
and equipment and clerical personnel for servicing the investments of the Fund
and compensates all officers and Trustees of the Trust who are members of the
Eaton Vance organization and all personnel of Eaton Vance performing services
relating to research and investment activities. The Fund is responsible for all
expenses not expressly stated to be payable by Eaton Vance under the Investment
Advisory Agreement, including without limitation, the fees and expenses of its
custodian and transfer agent, including those incurred for determining the
Fund's net asset value and keeping its books; the cost of share certificates;
membership dues in investment company organizations; brokerage commissions and
fees; fees and expenses of registering shares; expenses of reports to
shareholders, proxy statements, and other expenses of shareholders' meetings;
insurance premiums; printing and mailing expenses; interest; taxes and corporate
fees; legal and accounting expenses; and compensation and expenses of Trustees
not affiliated with Eaton Vance. The Fund will also bear expenses incurred in
connection with litigation which the Fund is a party and any legal obligation
the Trust may have to indemnify its Trustees with respect thereto, to the extent
not covered by insurance.
For a description of the compensation Eaton Vance receives under the
Investment Advisory Agreement, see the Prospectus. As at December 31, 1996, the
Fund had net assets of $88,183,659. During the fiscal year ended December 31,
1996, the Fund paid Eaton Vance an advisory fee of $460,753, equivalent to 0.51%
of the Fund's average daily net assets for such fiscal year. For the fiscal
years ended December 31, 1995 and 1994, the Fund paid Eaton Vance advisory fees
of $480,694 and $523,944, respectively.
The Investment Advisory Agreement with Eaton Vance continues in effect from
year to year for so long as such continuance is approved at least annually (i)
by the vote of a majority of the noninterested Trustees of the Trust cast in
person at a meeting specifically called for the purpose of voting on such
approval and (ii) by the Board of Trustees of the Trust or by vote of a majority
of the outstanding voting securities of the Fund. 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 a majority of the outstanding
voting securities of the Fund, and the Agreement will terminate automatically in
the event of its assignment. The Agreement provides that Eaton Vance may render
services to others. The Agreement also provides that, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties under the Agreement on the part of Eaton Vance, Eaton Vance shall not be
liable to the Fund or to any partner of the Fund for any act or omission in the
course of or connected with rendering services or for any losses sustained in
the purchase, holding or sale of any investment, provided that Eaton Vance acted
in good faith and in a manner that it reasonably believed to be in the best
interest of the Fund.
Eaton Vance and EV are both wholly-owned subsidiaries of EVC. BMR is a
wholly-owned subsidiary of Eaton Vance. Eaton Vance and BMR are both
Massachusetts business trusts, and EV is the trustee of Eaton Vance and BMR.
The Directors of EV are 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. Hawkes is chairman and Mr. Gardner is vice
chairman. Mr. Hawkes is president and chief executive officer of EVC, Eaton
Vance, BMR 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 the Voting Trustees of which are Messrs. Gardner,
Hawkes and Rowland and Alan R. Dynner, Thomas E. Faust, Jr., William M. Steul
and Wharton P. Whitaker. The Voting Trustees have unrestricted voting rights
for the election of Directors of EVC. All of the voting trust receipts issued
under said Voting Trust are owned by certain of the officers of Eaton Vance
and BMR who are also officers or officers and Directors of EVC and EV. As of
December 31, 1997, Messrs. Gardner and Hawkes each owned 24% of such voting
trust receipts, Messrs. Rowland and Faust owned 15% and 13%, respectively, and
Messrs. Dynner, Steul and Whitaker owned 8%. Messrs. Dynner, Gardner and
Hawkes, who are officers or Trustees of the Trust, are members of the EVC,
Eaton Vance, BMR and EV organizations. Messrs. Ahern, Fetter, Murphy,
O'Connor, Rynne, Smiley, Terry and Woodbury, and Ms. Sanders are officers of
the Trust and are also members of the Eaton Vance, BMR and EV organizations.
Eaton Vance owns all the stock of Northeast Properties, Inc. which is
engaged in real estate investment. EVC owns all the stock of Fulcrum Management,
Inc. and MinVen, Inc., which are engaged in precious metal mining venture
investment and management. EVC owns approximately 21% of the Class A shares of
Lloyd George Management (B.V.I.) Limited, a registered investment adviser. EVC,
Eaton Vance, BMR 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 Fund's custodian, IBT. It is
Eaton Vance's opinion that the terms and conditions of such transactions were
not and will not be influenced by existing or potential custodial or other
relationships between the Fund and such bank.
CUSTODIAN
IBT acts as custodian for the Fund. IBT has the custody of all cash and
securities of the Fund, maintains the Fund's general ledger and computes the
daily net asset value of shares of the Fund. In such capacity it attends to
details in connection with the sale, exchange, substitution, transfer or other
dealings with the Fund's investments, receives and disburses all funds and
performs various other ministerial duties upon receipt of proper instructions
from the Trust. IBT charges fees which are competitive within the industry. A
portion of the fee relates to custody, bookkeeping and valuation services and is
based upon a percentage of Fund net assets and a portion of the fee relates to
activity charges, primarily the number of portfolio transactions. 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.
IBT also provides services in connection with the preparation of shareholder
reports and the electronic filing of such reports with the Commission, for which
it receives a separate fee.
SERVICES FOR ACCUMULATION -- CLASS A AND CLASS I SHARES
The following services are voluntary, involve no extra charge, other than
the sales charge included in the offering price, and may be changed or
discontinued without penalty at any time.
INTENDED QUANTITY INVESTMENT --STATEMENT OF INTENTION. If it is anticipated that
$25,000 or more of Class A shares or $500,000 or more of Class I shares and
shares of the other continuously offered open-end funds listed under "The Eaton
Vance Exchange Privilege" in the Prospectus will be purchased within a 13-month
period, a Statement of Intention should be signed so that shares may be obtained
at the same reduced sales charge as though the total quantity were invested in
one lump sum. Shares held under Right of Accumulation (see below) as of the date
of the Statement will be included toward the completion of the Statement. The
Statement authorizes the Transfer Agent to hold in escrow sufficient shares (5%
of the dollar amount specified in the Statement) which can be redeemed to make
up any difference in sales charge on the amount intended to be invested and the
amount actually invested. Execution of a Statement does not obligate the Partner
to purchase or the Fund to sell the full amount indicated in the Statement, and
should the amount actually purchased during the 13-month period be more or less
than that indicated on the Statement, price adjustments will be made. For sales
charges and other information on quantity purchases, see "How to Buy Shares" in
the Prospectus. Any investor considering signing a Statement of Intention should
read it carefully.
RIGHT OF ACCUMULATION -- CUMULATIVE QUANTITY DISCOUNT. The applicable sales
charge level for the purchase of Class A or Class I shares is calculated by
taking the dollar amount of the current purchase and adding it to the value
(calculated at the maximum current offering price) of the shares the
shareholders own in his or her account(s) in the Fund and shares of other funds
exchangeable for Class A and Class I shares and listed under "The Eaton Vance
Exchange Privilege" in the Prospectus. The sales charge on the shares being
purchased will then be at the rate applicable to the aggregate. For sales
charges on quantity purchases, see "How to Buy Shares" in the Prospectus. Shares
purchased (i) by an individual, his or her spouse and their children under the
age of twenty-one, and (ii) by a trustee, guardian or other fiduciary of a
single trust estate or a single fiduciary account, will be combined for the
purpose of determining whether a purchase will qualify for the Right of
Accumulation and if qualifying, the applicable sales charge levels.
For any such discount to be made available, at the time of purchase a
purchaser or an Authorized Firm must provide the Principal Underwriter (in the
case of a purchase made through an Authorized Firm) or the Transfer Agent (in
the case of an investment made by mail) with sufficient information to permit
verification that the purchase order qualifies for the accumulation privilege.
Confirmation of the order is subject to such verification. The Right of
Accumulation privilege may be amended or terminated at any time as to purchases
occurring thereafter.
SERVICE FOR WITHDRAWAL
The Transfer Agent will send to the shareholder regular monthly or quarterly
payments of any permitted amount designated by the shareholder (see "Eaton Vance
Shareholder Services -- Withdrawal Plan" in the Prospectus) based upon the value
of the shares held. The checks will be drawn from share redemptions and hence,
although they are a return of principal, may require the recognition of taxable
gain or loss. Income dividends and capital gains distributions in connection
with withdrawal plan accounts will be credited at net asset value as of the
record date for each distribution. Continued withdrawals in excess of current
income will eventually use up principal, particularly in a period of declining
market prices. A shareholder may not have a withdrawal plan in effect at the
same time he or she has authorized Bank Automated Investing or is otherwise
making regular purchases of Fund shares. The shareholder, the Transfer Agent or
the Principal Underwriter will be able to terminate the withdrawal plan at any
time without penalty.
DETERMINATION OF NET ASSET VALUE
Inasmuch as the market for municipal obligations is a dealer market with no
central trading location or continuous quotation system, it is not feasible to
obtain last transaction prices for most municipal obligations in the Fund's
portfolio and such obligations, including those issued on a when-issued basis,
will normally be valued on the basis of valuations furnished by a pricing
service. The pricing service uses information with respect to transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities, various relationships between securities, and yield to maturity in
determining value. Taxable obligations for which price quotations are readily
available normally will be valued at the mean between the latest available bid
and asked prices. Open futures positions on debt securities are valued at the
most recent settlement prices, unless such price does not reflect the fair value
of the contract, in which case the positions will be valued by or at the
direction of the Trustees of the Trust. Other assets are valued at fair market
value using methods determined in good faith by or at the direction of the
Trustees of the Trust. The Fund will be closed for business and will not price
its shares on the following business holidays: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
INVESTMENT PERFORMANCE
Average annual total return is determined separately for each Class of the
Fund by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital appreciation/
depreciation, and distributions paid and reinvested) for the stated period and
annualizing the result. The calculation assumes (i) that all distributions are
reinvested at net asset value on the reinvestment dates during the period, (ii)
the deduction of the maximum sales charge from the initial $1,000 purchase
order, (iii) a complete redemption of the investment and, (iv) the deduction of
any CDSC at the end of the period. For information concerning the total return
of the Classes of the Fund, see Appendix A, Appendix B and Appendix C.
Yield is computed separately for each Class of the Fund pursuant to a
standardized formula by dividing net investment income per share earned during a
recent thirty-day period by the maximum offering price (including the maximum
sales charge for Class A and Class I shares) per share on the last day of the
period and annualizing the resulting figure. Net investment income per share is
calculated from the yields to maturity of all debt obligations in the Fund's
portfolio based on the prescribed methods, reduced by accrued Fund and Class
expenses for the period, with the resulting number being divided by the average
daily number of Class shares outstanding and entitled to receive distributions
during the period. This yield figure does not reflect the deduction of any CDSCs
which (if applicable) are imposed on certain redemptions at the rates set forth
under "How to Redeem Shares" in the Prospectus. Yield calculations assume the
current maximum initial sales charge for Class A and Class I shares set forth
under "How to Buy Shares" in the Prospectus. (Actual yield may be affected by
variations in sales charges on investments.) A taxable-equivalent yield is
computed by dividing the tax-exempt yield by 1 minus a stated rate. For the
yield and taxable-equivalent yield of the Classes of the Fund, see Appendix A,
Appendix B and Appendix C.
The Fund's total return may be compared to relevant indices, such as the
Consumer Price Index, the Bond Buyer 25 Revenue Bond Index and the Lehman
Brothers Municipal Bond Index, which may be used in advertisements and in
information furnished to present or prospective shareholders.
Information about the Fund's portfolio allocation and holdings at a
particular date (including ratings assigned by independent ratings services such
as Moody's, S&P and Fitch) may be included in advertisements and other material
furnished to present and prospective shareholders. Such information may be
stated as a percentage of the Fund's bond holdings on such date. Information,
charts and illustrations relating to inflation and the effects of inflation on
the dollar may also be included in advertisements and other material furnished
to present or prospective shareholders.
Comparative information about the yield or distribution rate of the Fund and
about average rates of return on certificates of deposit, bank money market
deposit accounts, money market mutual funds and other short-term investments may
also be included in advertisements, supplemental sales literature or
communications of the Fund. Such information may also compare the taxable
equivalent yield (or value) of the Fund to the after-tax yield (or value) of
such other investment vehicles. A bank certificate of deposit, unlike the Fund's
shares, pays a fixed rate of interest and entitles the depositor to receive the
face amount of the certificate of deposit at maturity. A bank money market
deposit account is a form of savings account which pays a variable rate of
interest. Unlike the Fund's shares, bank certificates of deposit and bank money
market deposit accounts are insured by the Federal Deposit Insurance
Corporation. A money market mutual fund is designed to maintain a constant value
of $1.00 per share and, thus, a money market fund's shares are subject to less
price fluctuation than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghue's Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
-- cost associated with aging parents;
-- funding a college education (including its actual and estimated
cost);
-- health care expenses (including actual and projected expenses);
-- long-term disabilities (including the availability of, and coverage
provided by, disability insurance); and
-- retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets).
Such information may also address different methods for saving money and the
results of such methods, as well as the benefits of investing in municipal bond
funds. Such information may describe the following advantages of investing in a
municipal bond mutual fund versus individual municipal bonds: regular monthly
income; free reinvestment of distributions; potential for increased income; bond
diversification; liquidity; low-cost easy access; and active management and in
depth credit analysis by investment professionals. In addition, by investing in
a municipal bond fund instead of individual bonds, an investor can avoid dealing
with the complexities of the municipal bond market, while benefitting from the
market access and lower transactions costs enjoyed by municipal bond funds.
The Trust (or Principal Underwriter) may provide information about Eaton
Vance, its affiliates and other investment advisers to the funds in the Eaton
Vance Family of Funds in sales material or advertisements provided to investors
or prospective investors. Such material or advertisements may also provide
information on the use of investment professionals by such investors.
TAXES
Each series of the Trust is treated as a separate entity for federal income
tax purposes. The Fund has elected to be treated and intends to qualify each
year as a regulated investment company ("RIC") under the Code. Accordingly, the
Fund intends to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute substantially all of its
ordinary income (including tax-exempt income) and net income (after reduction by
any available capital loss carryforwards) in accordance with the timing
requirements imposed by the Code, so as to maintain its RIC status and avoid
paying any federal income or excise tax.
In order to avoid incurring a federal excise tax obligation, the Code
requires that the Fund distribute (or be deemed to have distributed) 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 its capital gain net income
(which is the excess of its realized capital gains over its realized capital
losses), generally computed on the basis of the one-year period ending on
October 31 of such year, after reduction by (i) any available capital loss
carryforwards, and (ii) 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
federal income tax. Under current law, provided that the Fund qualifies as a RIC
for federal income tax purposes, the Fund should not be liable for any income,
corporate excise or franchise tax in the Commonwealth of Massachusetts.
The Fund's investment in zero coupon and certain other securities will cause
it to realize income prior to the receipt of cash payments with respect to these
securities. Such income will be allocated daily and in order to enable the Fund
to distribute its proportionate share of this income and avoid a tax payable by
it, the Fund may be required to liquidate portfolio securities that it might
otherwise have continued to hold in order to generate cash for subsequent
distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Fund to the extent that the issuers of these securities default
on their obligations pertaining thereto. The Code is not entirely clear
regarding the federal income tax consequences of the Fund's taking certain
positions in connection with ownership of such distressed securities. For
example, the Code is unclear regarding: (i) when the Fund may cease to accrue
interest, original issue discount, or market discount; (ii) when and to what
extent deductions may be taken for bad debts or worthless securities; (iii) how
payments received on obligations in default should be allocated between
principal and income; and (iv) whether exchanges of debt obligations in a
workout context are taxable.
Distributions by the Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for the Fund to be entitled to pay tax-exempt interest income
as exempt-interest dividends to its shareholders, the Fund 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
consists of obligations, the interest on which is exempt from regular federal
income tax under Code Section 103(a). Shareholders of the Fund are required to
report tax-exempt interest on their federal income tax returns.
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
Fund and the value of the securities held by the Fund may be affected.
In the course of managing its investments, the Fund 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. The Fund may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of discount with respect to certain stripped municipal obligations or
their stripped coupons and certain realized gains or income attributable to
accrued market discount. Any distributions by the Fund of its share of such
capital gains (after reduction by any capital loss carryforwards) or taxable
income would be taxable to shareholders of the Fund. However, it is expected
that such amounts, if any, would normally be insubstantial in relation to the
tax exempt interest earned by the Fund. Certain distributions if declared in
October, November or December and paid the following January may be taxed to
shareholders as if received on December 31 of the year in which they are
declared.
The Fund's transactions in options and futures contracts will be subject to
special tax rules that may affect the amount, timing and character of Fund
distributions to shareholders. For example, certain positions held by the Fund
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 the Fund that substantially diminish the Fund'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 Fund
losses, adjustments in the holding period of portfolio securities and conversion
of short-term into long-term capital losses. The Fund may have to limit its
activities in options and futures contracts in order to enable it to maintain
its RIC status.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares and, to
the extent the loss exceeds the disallowed amount, will be treated as a
long-term capital loss to the extent of any distribution treated as net
long-term capital gains with respect to such shares. In addition, a loss
realized on a redemption or other disposition of Fund shares may be disallowed
to the extent the shareholder acquired other Fund shares (whether through the
reinvestment of distributions or otherwise) within the period beginning 30 days
before the redemption of the loss shares and ending 30 days after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number
("TIN") and certain certifications required by the Internal Revenue Service (the
"IRS"), as well as shareholders with respect to whom the Fund has received
certain information from the IRS or a broker, may be subject to "backup"
withholding of federal income tax arising from the Fund's taxable dividends and
other distributions as well as the proceeds of redemption transactions
(including repurchases and exchanges), at a rate of 31%. An individual's TIN is
generally his or her social security number.
Non-resident alien individuals, foreign corporations and certain other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary 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 convention. Distributions from
the excess of the Fund'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 the Fund generally will not be subject to U.S. federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if: (i) the
shareholder is engaged in a trade or business in the United States; (ii) the
shareholder is present in the United States for a sufficient period of time
during a taxable year to be treated as a U.S. resident, (generally 180 days or
more); or (iii) the shareholder fails to provide any required certifications
regarding its 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 the Fund.
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 special tax rules that may apply in their particular
situations, as well as the state, local, and, where applicable, foreign tax
consequences of investing in the Fund.
STATE AND LOCAL TAXES
The exemption of interest income for federal income tax purposes does not
necessarily result in exemption under the income or other tax laws of any state
or local taxing authority. Shareholders of the Fund may be exempt from state and
local taxes on distributions of tax-exempt interest income derived from
obligations of the state and/or municipalities of the state in which they are
resident, but taxable generally on income derived from obligations of other
jurisdictions. The Fund 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.
Shareholders should consult their own tax advisers with respect to the
state, local and foreign tax consequences of investing in the Fund.
PRINCIPAL UNDERWRITER
The Trust has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Trust will exceed
the amounts paid therefor. For the amount paid by the Trust to the Principal
Underwriter for acting as repurchase agent, see Appendix C.
CLASS A AND CLASS I SHARES. Class A and Class I shares of the Fund may be
continuously purchased at the public offering price through Authorized Firms
which have agreements with the Principal Underwriter. The Trust reserves the
right to suspend or limit the offering of its shares to the public at any time.
The public offering price is the net asset value next computed after receipt of
the order, plus, where applicable, a variable percentage (sales charge)
depending upon the amount of purchase as indicated by the sales charge table set
forth in the Prospectus (see "How to Buy Shares"). Such table is applicable to
purchases of the Fund alone or in combination with purchases of certain other
funds offered by the Principal Underwriter, made at a single time by (i) an
individual, or an individual, his or her spouse and their children under the age
of twenty-one, purchasing shares for his or their own account, and (ii) a
trustee or other fiduciary purchasing shares for a single trust estate or a
single fiduciary account. The table is also presently applicable to (1)
purchases of Class A and Class I shares pursuant to a written Statement of
Intention; or (2) purchases of Class A and Class I shares pursuant to the Right
of Accumulation and declared as such at the time of purchase.
Subject to the applicable provisions of the 1940 Act, the Trust may issue
Class A and Class I shares at net asset value in the event that an investment
company (whether a regulated or private investment company or a personal holding
company) is merged or consolidated with or acquired by the Class. Normally no
sales charges will be paid in connection with an exchange of Class A or Class I
shares for the assets of such investment company. Class A and Class I shares may
be sold at net asset value to any officer, director, trustee, general partner or
employee of the Trust or any investment company for which Eaton Vance or BMR
acts as investment adviser, any investment advisory, agency, custodial or trust
account managed or administered by Eaton Vance or by any parent, subsidiary or
other affiliate of Eaton Vance, or any officer, director or employee of any
parent, subsidiary or other affiliate of Eaton Vance. The terms "officer,"
"director," "trustee," "general partner" or "employee" as used in this paragraph
include any such person's spouse and minor children, and also retired officers,
directors, trustees, general partners and employees and their spouses and minor
children. Class A and Class I shares of the Fund may also be sold at net asset
value to registered representatives and employees of Authorized Firms and to the
spouses and children under the age of 21 and beneficial accounts of such
persons.
The Principal Underwriter acts as principal in selling Class A and Class I
shares under a Distribution Agreement with the Trust. The expenses of printing
copies of prospectuses used to offer shares to Authorized Firms or investors and
other selling literature and of advertising are borne by the Principal
Underwriter. The fees and expenses of qualifying and registering and maintaining
qualifications and registrations of the Fund and its shares under federal and
state securities laws are borne by the Fund. The Distribution Agreement is
renewable annually by the Board of Trustees of the Trust (including a majority
of the noninterested Trustees) may be terminated on six months' notice by either
party and is automatically terminated upon assignment. The Principal Underwriter
distributes Class A and Class I shares on a "best efforts" basis under which it
is required to take and pay for only such shares as may be sold. The Principal
Underwriter allows Authorized Firms discounts from the applicable public
offering price which are alike for all Authorized Firms. The Principal
Underwriter may allow, upon notice to all Authorized Firms with whom it has
agreements, discounts up to the full sales charge during the periods specified
in the notice. During periods when the discount includes the full sales charge,
such Authorized Firms may be deemed to be underwriters as that term is defined
in the Securities Act of 1933.
CLASS B SHARES. Under the Distribution Agreement, the Principal Underwriter
acts as principal in selling Class B shares. The expenses of printing copies of
prospectuses used to offer shares to Authorized Firms or investors and other
selling literature and of advertising is borne by the Principal Underwriter. The
fees and expenses of qualifying and registering and maintaining qualifications
and registrations of the Fund and its shares under federal and state securities
laws are borne by the Fund. In addition, Class B makes payments to the Principal
Underwriter pursuant to its Distribution Plan as described in the Prospectus;
the provisions of the plan relating to such payments are included in the
Distribution Agreement. The Distribution Agreement is renewable annually by the
Trust's Board of Trustees (including a majority of the noninterested Trustees
who have no direct or indirect financial interest in the operation of the
Distribution Plan or the Distribution Agreement), may be terminated on sixty
days' notice either by such Trustees or by vote of a majority of the outstanding
Class B shares or on six months' notice by the Principal Underwriter and is
automatically terminated upon assignment. The Principal Underwriter distributes
Class B shares on a "best efforts" basis under which it is required to take and
pay for only such shares as may be sold.
SERVICE PLAN -- CLASS A SHARES
The Trust on behalf of its Class A shares has adopted a Service Plan (the
"Plan") designed to meet the service fee requirements of the sales charge rule
of the National Association of Securities Dealers, Inc. (the "NASD").
(Management believes service fee payments are not distribution expenses governed
by Rule 12b-1 under the 1940 Act, but has chosen to have the Plan approved as if
that Rule were applicable.) The following supplements the discussion of the Plan
contained in the Prospectus.
The Plan continues in effect from year to year, for so long as such
continuance is approved by a vote of both a majority of (i) the noninterested
Trustees who have no direct or indirect financial interest in the operation of
the Plan or any agreements related to it (the "Plan Trustees") and (ii) all of
the Trustees then in office, cast in person at a meeting (or meetings) called
for the purpose of voting on this Plan. The Plan may be terminated any time by
vote of the Plan Trustees or by a vote of a majority of the outstanding Class A
shares of the Fund. The Plan has been approved by the Board of Trustees of the
Trust, including the Plan Trustees.
The Plan requires quarterly Trustee review of a written report of the amount
expended under the Plan and the purposes for which such expenditures were made.
The Plan may not be amended to increase materially the payments described herein
without approval of the affected shareholders of Class A shares and the
Trustees. So long as the Plan is in effect, the selection and nomination of the
noninterested Trustees shall be committed to the discretion of such Trustees.
The Trustees have determined that in their judgment there is a reasonable
likelihood that the Plan will benefit the Fund and its Class A shareholders. The
Fund expects to begin making service fee payments during the quarter ending
March 31, 1999.
DISTRIBUTION PLAN -- CLASS B SHARES
The Trust has adopted a Distribution Plan (the "Plan") on behalf of its
Class B shares designed to meet the requirements of Rule 12b-1 under the 1940
Act and the sales charge rule of the NASD. The purpose of the Plan is to
compensate the Principal Underwriter for its distribution services and
facilities provided with respect to Class B shares.
The Plan provides that the Fund will pay sales commissions and distribution
fees to the Principal Underwriter only after and as a result of the sale of
Class B shares of the Fund. On each sale of Fund shares (excluding reinvestment
of distributions) the Fund will pay the Principal Underwriter amounts
representing (i) sales commissions equal to 5% of the amount received by the
Fund for each share sold and (ii) distribution fees calculated by applying the
rate of 1% over the prime rate then reported in The Wall Street Journal to the
outstanding balance of uncovered distribution charges (as described below) of
the Principal Underwriter.
The amount payable to the Principal Underwriter pursuant to the Plans as
sales commissions and distribution fees with respect to each day will be accrued
on such day as a liability of the respective Class and will accordingly reduce
the net assets of the Class upon such accrual, all in accordance with generally
accepted accounting principles. The amount payable on each day is limited to
1/365 of .75% of the net assets of the Class on such day. The level of net
assets changes each day and depends upon the amount of sales and redemptions of
shares, the changes in the value of the investments held by the Fund, the
expenses of the Class and the Fund accrued and allocated to the Fund and Class
on such day, income on portfolio investments accrued and allocated to the Fund
on such day, and any dividends and distributions declared on Fund shares. The
Trust does not accrue possible future payments as a liability of a Class or
reduce current net assets in respect of unknown amounts which may become payable
under the Plan in the future because the standards for accrual of such a
liability under accounting principles have not been satisfied.
The Plan provides that the Class will receive all CDSCs and will make no
payments to the Principal Underwriter in respect of any day on which there are
no outstanding uncovered distribution charges of the Principal Underwriter.
CDSCs and accrued amounts will be paid by the Trust to the Principal Underwriter
whenever there exist uncovered distribution charges.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plans since their inception. Payments theretofore paid or
payable under the Plans by the Trust to the Principal Underwriter and CDSCs
theretofore paid or payable to the Principal Underwriter will be subtracted from
such distribution charges; if the result of such subtraction is positive, a
distribution fee (computed at 1% over the prime rate then reported in The Wall
Street Journal) will be computed on such amount and added thereto, with the
resulting sum constituting the amount of outstanding uncovered distribution
charges with respect to such day. The amount of outstanding uncovered
distribution charges of the Principal Underwriter calculated on any day does not
constitute a liability recorded on the financial statements of the Fund.
The amount of uncovered distribution charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of shares upon which a
CDSC will be imposed, the level and timing of redemptions of shares upon which
no CDSC will be imposed (including redemptions of shares pursuant to the
exchange privilege which result in a reduction of uncovered distribution
charges), changes in the level of the net assets of the Class, and changes in
the interest rate used in the calculation of the distribution fee under the
Plans. Periods with a high level of sales of Class shares accompanied by a low
level of early redemptions of Class shares resulting in the imposition of CDSCs
will tend to increase the time during which there will exist uncovered
distribution charges of the Principal Underwriter.
Currently, payments of sales commissions and distribution fees and of
service fees may equal 1% of average daily net assets per annum. The Trust
believes that the combined rate of all these payments may be higher than the
rate of payments made under distribution plans adopted by other investment
companies pursuant to Rule 12b-1. Although the Principal Underwriter will use
its own funds (which may be borrowed from banks) to pay sales commissions at the
time of sale, it is anticipated that the Eaton Vance organization will profit by
reason of the operation of the Plan through an increase in the Fund's assets
(thereby increasing the advisory fee payable to Eaton Vance by the Fund)
resulting from sale of shares and through the amounts paid to the Principal
Underwriter, including CDSCs, pursuant to the Plan. The Eaton Vance organization
may be considered to have realized a profit under the Plan if at any point in
time the aggregate amounts theretofore received by the Principal Underwriter
pursuant to the Plan and from CDSCs have exceeded the total expenses theretofore
incurred by such organization in distributing Class B shares of the Fund. Total
expenses for this purpose will include an allocable portion of the overhead
costs of such organization and its branch offices, which costs will include
without limitation leasing expense, depreciation of building and equipment,
utilities, communication and postage expense, compensation and benefits of
personnel, travel and promotional expense, stationery and supplies, literature
and sales aids, interest expense, data processing fees, consulting and temporary
help costs, insurance, taxes other than income taxes, legal and auditing expense
and other miscellaneous overhead items. Overhead is calculated and allocated for
such purpose by the Eaton Vance organization in a manner deemed equitable to the
Trust.
The Plan continues in effect from year to year for so long as such
continuance is approved at least annually by the vote of both a majority of (i)
the noninterested Trustees of the Trust who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to the Plan (the
"Rule 12b-1 Trustees") and (ii) all of the Trustees then in office, and the
Distribution Agreement contains a similar provision. The Plan and Distribution
Agreement may be terminated at any time by vote of a majority of the Rule 12b-1
Trustees or by a vote of a majority of the outstanding voting securities of the
applicable Class. The Plan requires quarterly Trustee review of a written report
of the amount expended under the Plan and the purposes for which such
expenditures were made. The Plan may not be amended to increase materially the
payments described therein without approval of the shareholders of the affected
Class and the Trustees. So long as the Plan is in effect, the selection and
nomination of the noninterested Trustees shall be committed to the discretion of
such Trustees.
The Trustees of the Trust believe that the Plan will be a significant factor
in the expected growth of the Fund's assets, and will result in increased
investment flexibility and advantages which have benefitted and will continue to
benefit the Fund and its Class B shareholders. Payments for sales commissions
and distribution fees made to the Principal Underwriter under the Plan will
compensate the Principal Underwriter for its services and expenses in
distributing Class B shares of the Fund. Service fee payments made to the
Principal Underwriter and Authorized Firms under the Plan provide incentives to
provide continuing personal services to investors and the maintenance of
shareholder accounts. By providing incentives to the Principal Underwriter and
Authorized Firms, the Plan is expected to result in the maintenance of, and
possible future growth in, the assets of the Fund. Based on the foregoing and
other relevant factors, the Trustees of the Trust have determined that in their
judgment there is a reasonable likelihood that the Plan will benefit the Fund
and its Class B shareholders.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of Fund portfolio security transactions,
including the selection of the market and the executing firm, are made by Eaton
Vance. Eaton Vance is also responsible for the execution of transactions for all
other accounts managed by it.
Eaton Vance places the portfolio security transactions of the Fund and of
all other accounts managed by it for execution with many firms. Eaton Vance uses
its best efforts to obtain execution of portfolio security transactions at
prices which are advantageous to the Fund and at reasonably competitive spreads
or (when a disclosed commission is being charged) at reasonably competitive
commission rates. In seeking such execution, Eaton Vance will use its 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 the Fund are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
broker-dealers and banks acting for their own account rather than as brokers, or
otherwise involve transactions directly with the issuer of such obligations.
Such firms attempt to profit from such transactions by buying at the bid price
and selling at the higher asked price of the market for such obligations, and
the difference between the bid and asked price is customarily referred to as the
spread. The Fund 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 the Fund 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 Fund will incur a brokerage
commission. Although spreads or commissions on portfolio security transactions
will, in the judgment of Eaton Vance, 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 the Fund and Eaton Vance's other clients for providing brokerage and
research services to Eaton Vance.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Fund 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 Eaton
Vance determines in good faith that such compensation was reasonable in relation
to the value of the brokerage and research services provided. This determination
may be made on the basis of either that particular transaction or on the basis
of overall responsibilities which Eaton Vance and its affiliates have for
accounts over which they exercise investment discretion. In making any such
determination, Eaton Vance will not attempt to place a specific dollar value on
the brokerage and research services provided or to determine what portion of the
commission should be related to such services. Brokerage and research services
may include advice as to the value of securities, the advisability of investing
in, purchasing, or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts; and 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-dealers
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, Eaton Vance receives Research Services from many broker-dealer
firms with which Eaton Vance places the Fund's 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
Eaton Vance 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 Eaton Vance in rendering investment advisory services to
all or a significant portion of its clients, or may be relevant and useful for
the management of only one client's account or of a few clients' accounts, or
may be useful for the management of merely a segment of certain clients'
accounts, regardless of whether any such account or accounts paid commissions to
the broker-dealer through which such Research Service was obtained. The advisory
fee paid by the Fund is not reduced because Eaton Vance receives such Research
Services. Eaton Vance 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 Eaton Vance believes are useful or of value to it in rendering
investment advisory services to its clients.
Subject to the requirement that Eaton Vance shall use its best efforts to
seek to execute Fund portfolio security transactions at advantageous prices and
at reasonably competitive commission rates or spreads, Eaton Vance is authorized
to consider as a factor in the selection of any broker-dealer firm with whom
Fund portfolio orders may be placed the fact that such firm has sold or is
selling Shares of the Fund or of other investment companies sponsored by Eaton
Vance. This policy is not inconsistent with a rule of the National Association
of Securities Dealers, Inc. (the "NASD"), which rule provides that no firm which
is a member of the NASD shall favor or disfavor the distribution of shares of
any particular investment company or group of investment companies on the basis
of brokerage commissions received or expected by such firm from any source.
Obligations considered as investments for the Fund may also be appropriate
for other investment accounts managed by Eaton Vance or its affiliates. Whenever
decisions are made to buy or sell securities by the Fund and one or more of such
other accounts simultaneously, Eaton Vance will allocate the security
transactions (including "hot" issues) in a manner which it believes to be
equitable under the circumstances. As a result of such allocations, there may be
instances where the Fund will not participate in a transaction that is allocated
among other accounts. If an aggregated order cannot be filled completely,
allocations will generally be made on a pro rata basis. An order may not be
allocated on a pro rata basis where, for example: (i) consideration is given to
portfolio managers who have been instrumental in developing or negotiating a
particular investment; (ii) consideration is given to an account with
specialized investment policies that coincide with the particulars of a specific
investment; (iii) pro rata allocation would result in odd-lot or de minimis
amounts being allocated to a portfolio or other client; or (iv) where Eaton
Vance reasonably determines that departure from a pro rata allocation is
advisable. While these aggregation and allocation policies could have a
detrimental effect on the price or amount of the securities available to the
Fund from time to time, it is the opinion of the Director General Partners and
the Fund that the benefits from the Eaton Vance organization outweigh any
disadvantage that may arise from exposure to simultaneous transactions.
OTHER INFORMATION
On January 1, 1998, the Fund was reorganized as a series of the Trust. Prior
thereto, the Fund was a California Limited Partnership known as Eaton Vance
Municipal Bond Fund L.P. The Fund commenced offering classes of shares on
January 1, 1998, so information herein prior to such date is for the Fund before
it became a multiple-class fund. The Trust is organized as a business trust
under the laws of the Commonwealth of Massachusetts under a Declaration of Trust
dated May 7, 1984, as amended. On July 10, 1995, the Trust changed its name from
Eaton Vance Government Obligations Trust to Eaton Vance Mutual Funds Trust.
Eaton Vance, pursuant to its agreement with the Trust, controls the use of the
words "Eaton Vance" and "EV" in the Fund's name and may use the words "Eaton
Vance" or "EV" in other connections and for other purposes.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a shareholder's meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's By-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Declaration of Trust may be amended by the Trustees when authorized by
vote of a majority of the outstanding voting securities of the Trust, the
financial interests of which are affected by the amendment. The Trustees may
also amend the Declaration of Trust without the vote or consent of shareholders
to change the name of the Trust or any series or to make such other changes
(such as reclassifying series or classes of shares or restructuring the Trust)
as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable federal or
state laws or regulations. The Trust's By-laws provide that the Trust will
indemnify its Trustees and officers against liabilities and expenses incurred in
connection with any litigation or proceeding in which they may be involved
because of their offices with the Trust. However, no indemnification will be
provided to any Trustee or officer for any liability to the Trust or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office. The
Trust or any series or class thereof may be terminated by: (1) the affirmative
vote of the holders of not less than two-thirds of the shares outstanding and
entitled to vote at any meeting of shareholders of the Trust or the appropriate
series or class thereof, or by an instrument or instruments in writing without a
meeting, consented to by the holders of two-thirds of the shares of the Trust or
a series or class thereof, provided, however, that, if such termination is
recommended by the Trustees, the vote of a majority of the outstanding voting
securities of the Trust or a series or class thereof entitled to vote thereon
shall be sufficient authorization; or (2) by means of an instrument in writing
signed by a majority of the Trustees, to be followed by a written notice to
shareholders stating that a majority of the Trustees has determined that the
continuation of the Trust or a series or a class thereof is not in the best
interest of the Trust, such series or class or of their respective shareholders.
Under Massachusetts law, if certain conditions prevail, shareholders of a
Massachusetts business trust (such as the Trust) could be deemed to have
personal liability for the obligations of the Trust. Numerous investment
companies registered under the 1940 Act have been formed as Massachusetts
business trusts, and management is not aware of an instance where such liability
has been imposed. The Trust's Declaration of Trust contains an express
disclaimer of liability on the part of the Fund shareholders and the Trust's
By-laws provide that the Trust shall assume the defense on behalf of any Fund
shareholders. (The Declaration also contains provisions limiting the liability
of a series or class to that series or class.) Moreover, the Trust's By-laws
also provide for indemnification out of the property of the Fund of any
shareholder held personally liable solely by reason of being or having been a
shareholder for all loss or expense arising from such liability. The assets of
the Fund are readily marketable and will ordinarily substantially exceed its
liabilities. In light of the nature of the Fund's business and the nature of its
assets, management believes that the possibility of the Fund's liability
exceeding its assets, and therefore the shareholder's risk of personal
liability, is extremely remote.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Fund to
dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche, LLP, 125 Summer Street, Boston, Massachusetts 02110 are
the independent certified public accountants for the Fund, providing audit
services, tax return preparation and assistance and consultation with respect to
the preparation of filings with the Commission.
FINANCIAL STATEMENTS
The audited financial statements of, and the independent auditors' report
for, the Fund appear in the Fund's most recent annual report to shareholders,
and the unaudited financial statements of the Fund appear in the Fund's most
recent semiannual report to shareholders both of which are incorporated by
reference into this SAI. A copy of the Fund's semiannual and annual report
accompanies this SAI.
<PAGE>
APPENDIX A: CLASS A SHARES
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in a predecessor fund reorganized January 1,
1998 into Class I shares of the Fund. Total return for Class A prior to January
1, 1998 reflects the total return of the predecessor, adjusted to reflect any
applicable sales charge. Predecessor total return has not been adjusted to
reflect certain expenses (such as service fees). If such adjustments were made,
the performance would be lower. The "Value of Initial Investment" reflects the
deduction of the maximum sales charge of 4.75%. Past performance is not
indicative of future results. Investment return and principal value will
fluctuate; shares, when redeemed, may be worth more or less than their original
cost.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD DATE INVESTMENT ON 6/30/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
10 Years Ended
6/30/97 6/30/87 $952.33 $2,169.40 127.80% 8.58% 116.94% 8.05%
5 Years Ended
6/30/97 6/30/92 $952.65 $1,348.89 41.59% 7.20% 34.89% 6.17%
1 Year Ended
6/30/97 6/30/97 $952.33 $1,059.04 11.21% 11.21% 5.90% 5.90%
- ----------
</TABLE>
For the thirty-day period ended June 30, 1997, the yield of Class A shares
was 5.20%. The yield required of a taxable security that would produce an
after-tax yield equivalent to 5.20% would be 7.54%, assuming a federal rate of
31%.
<PAGE>
APPENDIX B: CLASS B SHARES
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in a predecessor fund reorganized January 1,
1998 into Class I shares of the Fund. Total return for Class B prior to January
1, 1998 reflects the total return of the predecessor, adjusted to reflect any
applicable sales charge. Predecessor total return has not been adjusted to
reflect certain other expenses (such as distribution and service fees). If such
adjustments were made, the performance would be lower. Past performance is not
indicative of future results. Investment return and principal value will
fluctuate; shares, when redeemed, may be worth more or less than their original
cost.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE AFTER DEDUCTING DEDUCTING
DEDUCTING DEDUCTING THE CDSC THE CDSC
INVESTMENT INVESTMENT AMOUNT OF THE CDSC THE CDSC -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 6/30/97 ON 6/30/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10 Years
Ended
6/30/97 6/30/87 $1,000 $2,277.98 $2,277.98 127.80% 8.58% 127.80% 8.58%
5 Years
Ended
6/30/97 6/30/92 $1,000 $1,415.91 $1,395.91 41.59% 7.20% 39.59% 6.90%
1 Year
Ended
6/30/97 6/30/96 $1,000 $1,112.07 $1,062.07 11.21% 11.21% 6.21% 6.21%
- ----------
</TABLE>
For the thirty-day period ended June 30, 1997, the yield of Class B shares
was 5.41%. The yield required of a taxable security that would produce an
after-tax yield equivalent to 5.41% would be 7.84%, assuming a federal rate of
31%.
<PAGE>
APPENDIX C: CLASS I SHARES
FEES AND EXPENSES
PRINCIPAL UNDERWRITER
The total sales charges for sales of Class I shares during the fiscal years
ended December 31, 1996, 1995 and 1994 were $44,913, $83,694 and $170,491,
respectively, of which $135, $5,565 and $27,048, respectively, was received by
the Principal Underwriter. For the fiscal years ended December 31, 1996, 1995
and 1994, Authorized Firms received approximately $44,778, $78,129 and $143,443,
respectively, from the total sales charges.
For the fiscal year ended December 31, 1996, the Fund paid the Principal
Underwriter $437.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each repurchase transaction handled by the
Principal Underwriter).
BROKERAGE COMMISSIONS
During the fiscal year ended December 31, 1996, the Fund paid brokerage
commissions of $29,650 on portfolio securities transactions of $271,621,661 to
firms which provide some research services to Eaton Vance or its affiliates
(although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). During the
fiscal years ended December 31, 1995 and 1994 the Fund paid no brokerage
commissions on portfolio transactions.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in a predecessor fund reorganized January 1,
1998 into Class I shares. The "Value of Initial Investment" reflects the
deduction of the maximum sales charge of 4.75%. Past performance is not
indicative of future results. Investment return and principal value will
fluctuate; shares, when redeemed, may be worth more or less than their original
cost.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD DATE INVESTMENT ON 6/30/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
10 Years Ended
6/30/97 6/30/87 $952.33 $2,169.40 127.80% 8.58% 116.94% 8.05%
5 Years Ended
6/30/97 6/30/92 $952.65 $1,348.89 41.59% 7.20% 34.89% 6.17%
1 Year Ended
6/30/97 6/30/96 $952.33 $1,059.04 11.21% 11.21% 5.90% 5.90%
- ----------
</TABLE>
For the thirty-day period ended June 30, 1997, the yield of Class I shares
was 5.20%. The yield required of a taxable security that would produce an
after-tax yield equivalent to 5.20% would be 7.54%, assuming a federal tax rate
of 31%.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of December 1, 1997, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of Class I and of
the Fund. To the knowledge of the Trust, no person owned of record or
beneficially 5% or more of the Fund's outstanding Class I shares as of such
date.
<PAGE>
APPENDIX D: TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields to those of tax-exempt bonds
yielding from 4% to 7% under the regular federal income tax laws and tax rates
applicable to 1997.
<TABLE>
<CAPTION>
MARGINAL
SINGLE RETURN JOINT RETURN INCOME TAX-EXEMPT YIELD
- --------------------- ------------------- TAX --------------------------------------------------------------------------
(TAXABLE INCOME)* BRACKET 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------------ ----------- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equivalent Taxable Yield
Up to $ 24,650 Up to $ 41,200 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 59,751-$124,650 $ 99,601-$151,750 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$124,651-$271,050 $151,751-$271,050 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $271,050 Over $271,050 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
- ------------------------------------------ ----------- --------------------------------------------------------------------------
</TABLE>
*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 $121,200. The tax brackets
also do not show the effects of phase out of personal exemptions for single
filers with adjusted gross incomes in excess of $121,200 and joint filers with
adjusted gross income in excess of $181,800. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund 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, other income received by the Portfolio and allocated
to the Fund may be taxable. The table does not take into account state or local
taxes, if any, payable on Fund 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.
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 adviser for additional information.
<PAGE>
APPENDIX E: RATINGS
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 fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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 to B. 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.
- ----------
+The ratings indicated herein are belived to be the most recent ratings
available at the date of this Statment of Additional Information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which would be given to these securities on the
date of the Trust's fiscal year end.
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.
STANDARD & POOR'S RATING GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally 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
that is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's 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 Saving & Loan Insurance Corp. or 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 public 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
Standard & Poor'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: Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus(+) designation;
SP-2: Satisfactory capacity to pay principal and interest; with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH 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
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment.
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 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 Stong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change is likely to cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: Debt which is unrated exposes the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Fund is dependent on the Investment Adviser's
judgment, analysis and experience in the evaluation of such debt.
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.
- ----------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which would be given to these securities on the
date of the Trust's fiscal year end.
<PAGE>
[LOGO]
Investing
for the
EATON VANCE
- ------------- 21st
Mutual Funds
Century
- --------------------------------------------------------------------------------
EATON VANCE
MUNICIPAL BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 1998
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 200 Clarendon Street, Boston, MA 02116
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
MBSAI
<PAGE>
INVESTMENT ADVISER
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
TRANSFER AGENT
First Data Investor Services Group
Attn: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
(800) 262-1122
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its distribution plan,
sales charges and expenses. Please read the prospectus carefully before you
invest or send money.
EATON VANCE
MUNICIPAL BOND FUND L.P.
24 FEDERAL STREET
BOSTON, MA 02110 T-MBSRC-2/97
EATON VANCE
MUNICIPAL BOND
FUND L.P.
[graphic omitted]
ANNUAL
SHAREHOLDER REPORT
DECEMBER 31, 1996
<PAGE>
To Shareholders
Eaton Vance Municipal Bond Fund L.P. had a total return of 4.8% during the year
ended December 31, 1996. That return was the result of a decline in net asset
value per share from $10.21 on December 31, 1995 to $10.07 on December 31, 1996,
and the reinvestment of $0.6015 in monthly income dividends. It does not include
the Fund's 3.75% maximum sales charge.
Based on the most recent dividend paid, and the Fund's net asset value per share
of $10.07 on December 31, 1996, the Fund's annualized distribution rate was
5.96%. To equal that rate, a couple in the 36% Federal tax bracket would have to
receive 9.31% from a taxable investment.
The municipal bond market was characterized by heightened volatility as
investors reacted to a seesaw interest rate environment and a politically-
charged debate over the possibility of a flat tax. At the outset of 1996, the
economy seemed poised for a slowdown and the Federal Reserve appeared ready to
revive growth through interest rate reductions. In January, the Fed lowered the
Federal Funds Rate - the rate banks charge each other for overnight loans and a
key short-term interest rate barometer - to 5.25%. However, it soon became
apparent that the economy was stronger than anticipated and that inflation,
while still at low levels, would bear further watching. In the ensuing months,
long-term bond yields climbed steadily higher, reaching their peak in mid-June.
- --------------------------------------------------------------------------------
Fund shares are not guaranteed by the FDIC and are not deposits or other
obligations of, or guaranteed by, any depository institution. Shares are subject
to investment risks, including possible loss of principal invested.
- --------------------------------------------------------------------------------
Investors were heartened by economic reports in the second half that showed a
scenario of slow growth, low inflation, and nearly-full employment. In addition,
the budget deficit - which had ballooned in the 1980s and had been so long the
bane of fixed-income investors - fell to just 1.5% of gross domestic product.
Against that favorable backdrop, the bond market rallied to close the year at
higher levels than at mid-year.
- ---------------------------------------------------
PORTFOLIO OVERVIEW
[graphic Percentage of total investments
omitted] as of December 31, 1996
Number of issues.....................66
Average quality.................................A
Investment grade.............................75.5%
Effective maturity (years)...................12.95
Largest sectors:
Escrowed..................................16.6%
Insured hospitals.........................12.8*
Transportation.............................8.6
Nursing homes..............................8.3
Lease revenues/COPs........................7.5
*Private insurance does not remove the market risks
associated with this investment.
- ---------------------------------------------------
We believe an investment in municipal bonds continues to represent good value.
With the equity markets having turned in two consecutive years of performances
well above historical averages, investors may look for alternatives within the
bond markets. And, with taxes still high for most investors, municipal bonds are
the last remaining vehicle for tax relief. For these reasons, we believe that
the municipal market will continue to be a favored avenue for tax-conscious
investors.
Sincerely,
[Photo of
Landon T. Clay] /s/ Landon T. Clay
Landon T. Clay
Chairman
February 21, 1997
<PAGE>
Management Discussion
An interview with Thomas J. Fetter, President and Portfolio Manager of the Eaton
Vance Municipal Bond Fund L.P.
Q. TOM, HOW WOULD YOU EVALUATE THE BOND MARKET IN 1996?
A. The broad bond market was troubled through much of the year by an economy
that surpassed most expectations. That awakened concerns among investors
that inflation - the factor most feared by bond investors - might once again
emerge as a defining force in the economy. While inflation has remained
relatively tepid, the threat of higher inflation was enough to upset the
markets. I think it's important to note that, in this volatile year, the
Fund's 4.8% total return outperformed the broad municipal market - as
represented by the Lehman Brothers Municipal Bond Index* - which rose 4.4%.
*It is not possible to invest directly in the Index.
Another factor was politics. Following the 1994 election, the bond market
had been rather comfortable with the idea of shared government - a Democrat
administration and a Republican-led Congress. As the 1996 election neared,
there were concerns that Congress might once again revert to Democrat
control and more tax-and-spend policies. In the aftermath of the November
elections and the continuance of shared government, the bond market
responded well and mounted a fairly impressive rally.
Q. TOM, IN ADDITION TO OUTPACING THE OVERALL MARKET, THE FUND EARNED AN OVERALL
FOUR-STAR RATING+ FROM MORNINGSTAR FOR THE PERIOD ENDED DECEMBER 31, 1996.
WHAT ACCOUNTED FOR THE FUND'S PERFORMANCE?
A. In a rising rate environment, we deemphasized par bonds in favor of bonds
with more defensive characteristics. That offered the Fund some insulation
from the threat of rising interest rates. In addition, with quality spreads
remaining narrow, we took advantage of some selected opportunities in
non-rated bonds.
+Morningstar's Proprietary ratings reflect historical risk-adjusted performance
through 12/31/96 and are subject to change. For the 3-year period ended
12/31/96, the Fund received 3 stars among 1129 Muni Bond funds; for the 5-year
period, 3 stars among 580 funds; and for the 10-year period, 4 stars among 257
funds. Past performance is no guarantee of future results. Funds are assigned
ratings from 1 star (lowest) to 5 stars (highest). Ratings are calculated from
the funds' 3-, 5-, and 10-year returns (with fee adjustment) in excess of
90-day Treasury bill returns. The top 10% of the funds in a category receive 5
stars. The next 22.5%, 4 stars; the next 35%, three stars; the next 22.5%, 2
stars; and the final 10%, 1 star.
[Photo of Thomas J. Fetter]
Q. SO IT WAS A RELATIVELY VOLATILE MARKET?
A. Yes. The employment reports in March and April showed relatively robust job
creation. But, no sooner had the market digested that information than we
began to see anecdotal signs of weakness in the economy. Amid all of the
uncertainty, the market reverted to Fed-watching, monitoring the central
bank for future monetary policy. While indicating a bias for higher rates,
the Fed chose to hold its ground on interest rates throughout the remainder
of the year. Actually, the threat of a Fed rate hike from chairman Greenspan
was enough to provoke an adjustment in the markets.
Q. WHERE HAVE YOU BEEN FOCUSING THE FUND'S INVESTMENTS?
A. Once again, the Fund's two largest sector weightings were escrowed bonds and
insured healthcare issues. The market has become increasingly generic in the
past year. By that, I mean that narrow yield spreads among investment grade
bonds have made it difficult to find value in that segment of the market.
Thus, as I indicated earlier, we've redoubled our efforts to find value in
non-rated bonds, a theme that we have pursued for some time.
It's important to note that non-rated bonds require an especially rigorous
analysis. We've therefore been fortunate to be able to take advantage of
Eaton Vance's enhanced research efforts in the non-rated sector.
Q. COULD YOU GIVE AN EXAMPLE OF ONE OF THE FUND'S INVESTMENTS?
A. Yes. Consistent with our efforts to add value to the Fund through non-rated
bonds, the Fund owns a nursing home facility bond issued by Tarrant County,
Texas Health Facilities Corporation. In the past, the local hospital system
has had some difficulties and was consequently downgraded by Moody's.
However, more recently, the system has improved its fundamentals and turned
in solid operating results. As a result, the bonds, with an unusually
attractive coupon, offered good value to investors. In the recent difficult
market conditions, they have held their value well.
Q. LOOKING AHEAD, TOM, WHAT IS YOUR MARKET OUTLOOK FOR 1997?
A. The economy continues to register modest growth, with few visible signs of
inflation. That's a clear positive. Moreover, with the election-year
posturing behind us, we may begin to see real progress toward a balanced
budget. Meanwhile, according to the Public Securities Association, the
supply of municipal bonds, which hit a record $290 billion as recently as
1993, fell to $183 billion in 1996 and is expected to be in the same range
in 1997. That means that supply will remain modest, another favorable sign
for the municipal market.
Finally, it's important to remember that Federal taxes still take a large
bite from the average paycheck. For many taxpayers, tax-exempt yields remain
at extremely attractive levels relative to taxable yields. While past
performance is, naturally, no guarantee of future trends, we believe that
municipal bonds should retain their value and their appeal among
tax-conscious investors.
<PAGE>
- -------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EATON VANCE
MUNICIPAL BOND FUND L.P., AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1986, through December 31, 1996
- -------------------------------------------------------------------------------
AVERAGE ANNUAL 1 5 10 Value at
RETURNS Year Years Years 12/31/96
- -------------------------------------------------------------------------------
With Max. Sales Charge 0.8% 6.3% 7.5% $20,575
- -------------------------------------------------------------------------------
Without Max. Sales Charge 4.8% 7.1% 7.9% $21,375
- -------------------------------------------------------------------------------
[line chart graphic omitted -- plot points follow]
Eaton Vance Fund, including Lehman Bros.
Municipal 3.75% maximum Municipal
Date Bond Fund L.P. sales charge Bond Index
- -------- -------------- --------------- ------------
12/31/86 $10,000 $9,626 $10,000
1/31/87 10,234 9,851 10,301
2/28/87 10,359 9,972 10,352
3/31/87 10,288 9,903 10,242
4/30/87 9,730 9,365 9,728
5/31/87 9,680 9,317 9,680
6/30/87 9,842 9,473 9,964
7/31/87 9,870 9,500 10,065
8/31/87 9,898 9,528 10,088
9/30/87 9,470 9,116 9,716
10/31/87 9,568 9,210 9,751
11/30/87 9,793 9,427 10,005
12/31/87 9,997 9,623 10,150
1/31/88 10,413 10,023 10,512
2/28/88 10,524 10,131 10,623
3/31/88 10,317 9,931 10,499
4/30/88 10,371 9,983 10,579
5/31/88 10,401 10,012 10,549
6/30/88 10,588 10,192 10,703
7/31/88 10,679 10,279 10,772
8/31/88 10,710 10,309 10,782
9/30/88 10,937 10,528 10,977
10/31/88 11,204 10,784 11,171
11/30/88 11,060 10,646 11,069
12/31/88 11,280 10,858 11,182
1/31/89 11,425 10,998 11,413
2/28/89 11,343 10,918 11,283
3/31/89 11,324 10,900 11,256
4/30/89 11,664 11,228 11,523
5/31/89 11,904 11,458 11,762
6/30/89 12,079 11,627 11,922
7/31/89 12,177 11,722 12,085
8/31/89 12,039 11,588 11,967
9/30/89 11,992 11,544 11,930
10/31/89 12,186 11,730 12,077
11/30/89 12,394 11,930 12,288
12/31/89 12,481 12,014 12,388
1/31/90 12,325 11,864 12,330
2/28/90 12,468 12,002 12,440
3/31/90 12,489 12,022 12,444
4/30/90 12,275 11,815 12,354
5/31/90 12,657 12,184 12,623
6/30/90 12,790 12,311 12,734
7/31/90 13,022 12,535 12,922
8/31/90 12,675 12,200 12,734
9/30/90 12,710 12,235 12,741
10/31/90 12,889 12,407 12,973
11/30/90 13,272 12,775 13,234
12/31/90 13,351 12,852 13,291
1/31/91 13,534 13,027 13,470
2/28/91 13,629 13,119 13,587
3/31/91 13,636 13,126 13,591
4/30/91 13,837 13,319 13,773
5/31/91 13,975 13,452 13,895
6/30/91 13,934 13,412 13,882
7/31/91 14,164 13,634 14,051
8/31/91 14,396 13,857 14,236
9/30/91 14,599 14,052 14,421
10/31/91 14,741 14,189 14,551
11/30/91 14,791 14,237 14,592
12/31/91 15,152 14,585 14,905
1/31/92 15,125 14,559 14,939
2/28/92 15,129 14,562 14,944
3/31/92 15,148 14,581 14,949
4/30/92 15,279 14,707 15,082
5/31/92 15,540 14,958 15,260
6/30/92 15,834 15,241 15,516
7/31/92 16,339 15,727 15,981
8/31/92 16,068 15,467 15,825
9/30/92 16,138 15,534 15,929
10/31/92 15,798 15,207 15,772
11/30/92 16,265 15,657 16,055
12/31/92 16,502 15,885 16,219
1/31/93 16,691 16,066 16,408
2/28/93 17,316 16,668 17,001
3/31/93 17,152 16,511 16,821
4/30/93 17,361 16,711 16,991
5/31/93 17,502 16,847 17,086
6/30/93 17,830 17,163 17,372
7/31/93 17,833 17,166 17,394
8/31/93 18,199 17,518 17,756
9/30/93 18,497 17,805 17,959
10/31/93 18,535 17,841 17,993
11/30/93 18,326 17,641 17,835
12/31/93 18,733 18,032 18,211
1/31/94 18,948 18,239 18,419
2/28/94 18,416 17,727 17,942
3/31/94 17,470 16,817 17,211
4/30/94 17,528 16,872 17,358
5/31/94 17,747 17,083 17,508
6/30/94 17,622 16,962 17,406
7/31/94 17,934 17,263 17,720
8/31/94 18,046 17,371 17,781
9/30/94 17,716 17,053 17,520
10/31/94 17,365 16,715 17,209
11/30/94 16,920 16,287 16,898
12/31/94 17,372 16,722 17,270
1/31/95 17,977 17,305 17,764
2/28/95 18,548 17,854 18,280
3/31/95 18,664 17,965 18,490
4/30/95 18,685 17,986 18,512
5/31/95 19,226 18,507 19,103
6/30/95 18,997 18,286 18,936
7/31/95 19,078 18,364 19,115
8/31/95 19,237 18,517 19,358
9/30/95 19,319 18,596 19,480
10/31/95 19,717 18,979 19,763
11/30/95 20,117 19,364 20,091
12/31/95 20,400 19,636 20,284
1/31/96 20,523 19,755 20,437
2/28/96 20,422 19,658 20,299
3/31/96 20,098 19,345 20,040
4/30/96 20,016 19,267 19,983
5/31/96 20,036 19,287 19,976
6/30/96 20,160 19,406 20,193
7/31/96 20,388 19,625 20,376
8/31/96 20,367 19,604 20,371
9/30/96 20,722 19,947 20,656
10/31/96 21,037 20,250 20,890
11/30/96 21,438 20,636 21,272
12/31/96 21,375 20,575 21,182
Past performance is not indicative of future results. Investment returns and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
- --------------------------------------------------------------------------------
FUND PERFORMANCE
In accordance with Securities and Exchange Commission guidelines, we are
including a performance chart that compares your Fund's total return with that
of a broad-based securities market index. The lines on the chart represent the
total returns of $10,000 hypothetical investments in the Fund and the unmanaged
Lehman Brothers Municipal Bond Index.
TOTAL RETURN FIGURES
The solid red line on the chart represents the Fund's performance. The Fund's
total return figure also reflects fund expenses and portfolio transaction costs,
and assumes the reinvestment of income dividends and capital gain distributions.
The dotted red line represents the performance of the Fund, including the Fund's
3.75% maximum sales charge.
The black line represents the performance of the Lehman Brothers Municipal Bond
Index, a broad based, widely recognized, unmanaged index of municipal bonds. The
Index's total return does not reflect any commissions or expenses that would be
incurred if an investor individually purchased or sold securities represented in
the Index. It is not possible to invest directly in the Index.
<PAGE>
----------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100.0%
- -----------------------------------------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED)
- --------------
PRINCIPAL
STANDARD AMOUNT
MOODY'S & POOR'S (000 OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C>
ASSISTED LIVING - 3.6%
NR NR $1,000 Bell County, TX Health Facilities -- Elder Care Project, 9.00%, 11/1/24 $ 1,088,020
NR NR 1,000 North Syracuse, NY Housing Authority, AJM SR Housing Inc. --
Janus Park Project, 8.00%, 6/1/24 1,004,840
NR NR 1,000 St. Paul, MN -- Highland Park Project, 8.75%, 11/1/24 1,077,620
-----------
$ 3,170,480
-----------
ESCROWED - 16.6%
Aaa AAA $1,000 Austin, Texas Combined Utility System, 11.125%, 11/15/09 $ 1,180,140
Aaa NR 2,500 Boston City Hospital, FHA Insured, 7.625%, 2/15/21 2,817,800
Aaa AAA 8,000 Colorado Health Facilities Authority, Liberty Heights, FSA Insured,
0%, 7/15/24 1,252,960
Aaa NR 19,000 Dawson Ridge Colorado Met. Dist. 0%, 10/1/22 3,356,920
Baa AAA 1,000 Denver, CO City and County Airport 7.50%, 11/15/12 1,162,680
Aaa NR 685 Massachusetts IFA, Cape Cod Hospital, 8.40%, 11/15/08 779,653
Aaa NR 5,000 Mississippi Housing Finance Corp, SFMR, 0%, 6/1/15 1,739,650
Aaa BBB 665 North Carolina Eastern Municipal Power, 6.50%, 1/1/18 757,994
Aaa NR 6,000 Savannah, Georgia Economic Development Authority, 0%, 12/1/21 1,145,820
NR NR 480 Vermont Education & Health Building Authority Northwestern
Medical Facility, 9.75%, 9/1/18 531,840
-----------
$14,725,457
-----------
HOSPITALS - 7.3%
Aa3 AA- $1,500 Greenville, SC Hospital System, 5.25%, 5/1/23 $ 1,389,210
A2 A 500 Illinois Health & Education Facilities, Victory Memorial, 7.875%, 12/1/18 535,500
NR BBB 2,000 Louisiana PFA General Health System Project, 6.80%, 11/1/16 2,043,740
917,648
Baa BBB 1,550 New York State, Medical Care Facility, Brookdale Medical Center,
6.85%, 2/15/17(3) 1,625,873
-----------
$ 6,511,971
-----------
HOUSING - 6.6%
NR AA $ 560 Arkansas Development Finance Authority, SFMR, 8.00%, 8/15/11(3) $ 601,720
Aa NR 810 Colorado Housing Finance Authority, 7.90%, 12/1/24 912,797
Aa AA 275 North Carolina Single Family Mortgage Revenue, 8.125%, 9/1/19 284,793
NR NR 1,290 Lake Creek Affordable Housing Corporation, Eagle County,
Colorado, 8.00%, 12/1/23 1,337,098
NR A 1,000 Maricopa County, Arizona, Industrial Development Authority,
8.625%, 1/1/27 1,006,270
NR A 1,650 Travis County Texas Housing Finance Corp., Travis Station
Apartments Project, 6.75%, 4/1/19(3) 1,716,396
-----------
$ 5,859,074
-----------
INDUSTRIAL DEVELOPMENT & POLLUTION CONTROL REVENUE - 5.1%
NR NR $ 900 Florence County, SC IDR - Stone Container Project, 7.375%, 2/1/07 $ 942,687
NR BB- 1,000 New Hampshire Business Finance Authority, Crown Paper,
7.75%, 1/1/22 1,052,860
NR BBB- 2,450 Port Camas-Washougan, Washington, James River Project,
6.70%, 4/1/23 2,488,318
-----------
$ 4,483,865
-----------
INSURED - EDUCATION - 2.0%
Aaa AAA $2,000 University of California -- Multiple Projects (AMBAC), 4.875%, 9/1/19 $ 1,800,800
-----------
INSURED - GENERAL - 2.1%
Aaa AAA $2,000 Massachusetts Turnpike Authority Revenue (FGIC), 5.125%, 1/1/23 $ 1,862,960
-----------
INSURED - HOSPITALS - 12.8%
Aaa AAA $2,750 Colorado Health Facilities, Sisters of Charity Health Care (MBIA),
5.25%, 5/15/14 $ 2,670,525
Aaa AAA 2,000 Franklin, OH Hospital for Riverside United Methodist, 5.75%, 5/15/20
(AMBAC) 2,018,300
Aaa AAA 1,000 Fredericksburg, Virginia Industrial Development Authority (FGIC),
"INFLOS", Variable, 8/15/23(1) 1,202,220
Aaa AAA 1,000 Illinois Health Facilities Authority Rush-Presbyterian -- St. Lukes
Medical Center (MBIA), "INFLOS", Variable, 10/1/24(1) 1,163,710
Aaa AAA 1,000 King County, Washington, Public Hospital District No. 1 (AMBAC),
6.00%, 9/1/20 1,014,930
Aaa AAA 1,000 Rhode Island Health & Educational Facility, Rhode Island Hospital
(FGIC),"INFLOS", Variable, 8/15/21(1) 1,169,290
Aaa AAA 1,000 Salt Lake City, Utah IHC Hospitals Inc., "INFLOS" (AMBAC), Variable,
5/15/20(1) 1,155,470
Aaa AAA 1,000 Scottsdale, AZ IDA Hospital Forward Delivery, 6.125%, 9/1/17
(AMBAC)(2) 1,011,760
-----------
$11,406,205
-----------
INSURED - HOUSING - 2.5%
Aaa AAA $1,000 SCA MFMR Springfield, Missouri (FSA), 7.10%, 1/1/30 $ 1,089,440
Aaa AAA 1,000 SCA MFMR Burnsville, Minnesota (FSA), 7.10%, 1/1/30 1,089,440
-----------
$ 2,178,880
-----------
INSURED - TAX REVENUE - 1.4%
Aaa AAA $1,500 Culver City California Redevelopment Finance Authority (AMBAC), $ 1,284,555
4.60%, 11/1/20 -----------
INSURED - TRANSPORTATION - 1.2%
Aaa AAA $1,000 Triborough Bridge and Tunnel Authority of New York, "RITES" $ 1,108,830
(AMBAC), Variable, 1/1/12(1) -----------
INSURED - UTILITY - 1.0%
Aaa AAA $ 800 Puerto Rico Electric Power Authority STRIPES (FSA), Variable, $ 886,976
7/1/03(1) -----------
LEASE REVENUE/CERTIFICATES OF PARTICIPATION - 7.5%
A A $3,000 California Public Works Board, California State University Projects,
5.50%, 12/1/18 $ 2,867,520
A A 3,565 Indiana Transportation Authority Airport Facilities, 6.25%, 11/1/16 3,810,878
-----------
$ 6,678,398
-----------
LIFE CARE - 4.5%
NR NR $1,060 Loudon County Virginia IDA, Falcons Landing Project, 8.75%, 11/1/24 $ 1,118,989
NR NR 655 New Hampshire Higher Education, River Woods at Exeter,
9.00%, 3/1/23 714,755
NR NR 1,000 New Jersey EDA, Keswick Pines Project, 8.75%, 1/1/24 1,063,620
NR NR 1,000 Vermont IDA, Wake Robin Corp. Project, 1993-A, 8.75%, 4/1/23 1,090,500
-----------
$ 3,987,864
-----------
MISCELLANEOUS - 3.0%
NR NR $1,500 New Jersey Sports & Exposition Authority, Monmouth Park Project,
8.00%, 1/1/25 $ 1,669,350
NR NR 1,000 Santa Fe, New Mexico, Crow Hobbs, 8.50%, 9/1/16 1,020,010
-----------
$ 2,689,360
-----------
NURSING HOMES - 8.3%
NR NR $1,470 Bell County, Texas Health Facilities, Normandy Terrace Project,
9.00%, 4/1/23 $ 1,621,895
NR NR 475 Covington Allegheny, VA IDA -- Beverly Enterprises, 9.375%, 9/1/01 533,045
NR NR 975 Greene County, OH -- Fairview Extended Care, 10.125%, 1/1/11 1,104,529
NR NR 1,100 Massachussetts IFA Health Care Fac-Age Institute of Mass. Proj.,
8.05%, 11/1/25 1,117,842
NR NR 1,265 Montgomery, Pennsylvania, IDA, Health Care Facility -- Geriatric
Health Care Institute, 8.375%, 7/1/23 1,337,396
NR NR 390 Okaloosa County Florida, Beverly Enterprises, 10.75%, 10/1/03 411,988
NR NR 680 Tarrant County Texas Health Facilities Development Corp.,
10.25%, 9/1/19 709,587
NR NR 500 Wisconsin Health Facilities, Villa Clement, 8.75%, 6/1/12 504,315
-----------
$ 7,340,597
-----------
SOLID WASTE - 1.0%
Aa3 AA- $ 750 Delaware County Pennsylvania Industrial Revenue, $ 784,508
8.10%, 12/1/13(3) -----------
SPECIAL TAX REVENUE - 1.9%
Baa1 A $1,750 Puerto Rico Highway & Transportation Authority, 5.50%, 7/1/36 $ 1,681,995
-----------
TRANSPORTATION - 8.6%
A1 A+ $5,500 Massachusetts Turnpike Authority, 5.00%, 1/1/20 $ 5,016,605
NR NR 2,500 San Joaquin Hills, California Transportation Agency, 0%, 1/1/14 892,000
NR NR 10,000 San Joaquin Hills, California Transportation Agency, 0%, 1/1/25 1,743,300
-----------
$ 7,651,905
-----------
UTILITIES - 3.0%
Aa AA $1,000 Colorado Springs Utility System, 6.75%, 11/15/21 $ 1,104,000
Baa BBB+ 1,500 Massachusetts Municipal Wholesale Electric Co., 6.75%, 7/1/11 1,602,644
-----------
$ 2,706,644
-----------
TOTAL INVESTMENTS (identified cost, $81,592,813) $88,801,324
===========
<FN>
(1) The above designated securities have been issued as inverse floater bonds.
(2) The above designated securities have been issued as when-issued securities.
(3) The above designated securities have been designated as collateral for when-issued securities.
</FN>
At December 31, 1996, the concentration of the Fund's investments in the various states, determined as a percentage of total
investments, is as follows:
Massachusetts 15%
Colorado 13%
California 10%
Others, representing less
than 10% individually 62%
</TABLE>
The Fund 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
December 31, 1996, 24.5% 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
range from 3.2% to 10.6% of total investments.
<PAGE>
----------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A)
(identified cost, $81,592,813) $88,801,324
Cash 21
Receivable for investments sold 1,110,829
Receivable for shares of partnership interest sold 5,677
Interest receivable 1,451,586
-----------
Total assets $91,369,437
LIABILITIES:
Demand note payable (Note 5) $ 328,000
Payable for investments purchased 1,855,666
Payable for when-issued securities (Note 1I) 965,950
Payable for shares of partnership interest
purchased 22,403
Payable to affiliate --
Director General Partners' fees (Note 4) 1,737
Accrued expenses 12,022
---------
Total liabilities 3,185,778
-----------
NET ASSETS for 8,754,500 shares of partnership
interest outstanding $88,183,659
===========
NET ASSETS APPLICABLE TO SHARES OF PARTNERSHIP
INTEREST OWNED BY:
Limited Partners (8,618,178 shares) $86,810,493
General Partners --
Director partners (2,564 shares) $ 25,828
Adviser partners (133,758 shares) 1,347,338 1,373,166
---------- -----------
NET ASSETS (8,754,500 shares) $88,183,659
===========
SOURCES OF NET ASSETS:
Proceeds from sales of shares of partnership interest
(including shares issued to partners electing to
receive payment of distributions in shares), less
cost of shares of partnership interest redeemed $73,271,779
Accumulated net realized gain on investment and
financial futures transactions (computed on the
basis of identified cost) 7,781,522
Unrealized appreciation of investments and
financial futures contracts (computed on the
basis of identified cost) 7,208,511
Accumulated distributions in excess of net
investment income (78,153)
-----------
Total $88,183,659
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE OF
PARTNERSHIP INTEREST $10.07
======
COMPUTATION OF OFFERING PRICE: Offering price per
share ($100/96.25 of $10.07) $10.46
======
On sales of $50,000 or more the offering price is reduced.
See notes to financial statements
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income (Note 1B) $ 6,253,348
Expenses --
Investment management fee earned by Adviser
General Partner (Note 4) $ 460,753
Compensation of Director General Partners
not members of the Adviser General
Partner's organization (Note 4) 6,816
Custodian fee 51,688
Transfer and dividend disbursing agent fees 21,974
Printing and postage 37,459
Legal and accounting services 48,616
Registration fees 29,077
Miscellaneous 52,940
-----------
Total expenses $ 709,323
Deduct reduction of custodian fee (Note 1F) 31,832
-----------
Net expenses 677,491
-----------
Net investment income $ 5,575,857
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions
computed on the basis of identified cost $ 659,005
Net realized loss on financial futures contracts (750,632)
-----------
Net realized loss on investment and
financial futures transactions $ (91,627)
Change in unrealized appreciation of investments
and financial futures contracts (1,303,829)
-----------
Net realized and unrealized loss on investments (1,395,456)
-----------
Net increase in net assets resulting from operations $ 4,180,401
===========
See notes to financial statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995
---- ----
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 5,575,857 $ 5,846,830
Net realized loss on investments (91,627) (2,249,975)
Change in unrealized appreciation
(depreciation) of investments (1,303,829) 11,515,682
----------- -----------
Increase in net assets from operations $ 4,180,401 $15,112,537
----------- -----------
Distributions to partners --
From net investment income $(5,457,518) $(5,846,830)
In excess of net investment income (78,153) (118,339)
----------- -----------
Total distributions $(5,535,671) $(5,965,169)
----------- -----------
Net decrease from transactions in shares of
partnership interest (Note 2) $(6,871,077) $(3,539,812)
----------- -----------
Net decrease in net assets $(8,226,347) $(5,607,556)
NET ASSETS:
At beginning of year 96,410,006 90,802,450
----------- -----------
At end of year (including distributions in
excess of net investment income of
$78,153 and $118,339, respectively) $88,183,659 $96,410,006
=========== ===========
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $10.210 $ 9.260 $ 10.630 $ 9.950 $ 9.750
------- ------- -------- -------- --------
INCOME FROM OPERATIONS:
Net investment income $ 0.605 $ 0.604 $ 0.611 $ 0.614 $ 0.639
Net realized and unrealized gain
(loss) on investments (0.143) 0.962 (1.369) 0.692 0.195
------- ------- -------- -------- --------
Total income (loss) from operations $ 0.462 $ 1.566 $ (0.758) $ 1.306 $ 0.834
------- ------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $(0.594) $(0.604) $ (0.611) $ (0.619) $ (0.634)
In excess of net investment income (0.008) (0.012) (0.001) (0.007) --
------- ------- -------- -------- --------
Total distributions $(0.602) $(0.616) $ (0.612) $ (0.626) $ (0.634)
------- ------- -------- -------- --------
NET ASSET VALUE, end of year $10.070 $10.210 $ 9.260 $ 10.630 $ 9.950
======= ======= ======== ======== ========
TOTAL RETURN(1) 4.78% 17.40% (7.27%) 13.52% 8.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted) $88,184 $96,410 $ 90,802 $114,425 $103,208
Ratio of expenses to average daily net
assets(2) 0.78% 0.76% 0.80% 0.72% 0.74%
Ratio of expenses to average daily net
assets after custodian fee reduction 0.74% -- -- -- --
Ratio of net investment income to
average daily net assets 6.12% 6.16% 6.26% 5.91% 6.50%
PORTFOLIO TURNOVER 30% 58% 58% 86% 60%
<FN>
(1) Total investment return is calculated assuming a purchase at the net asset value on the first day and a sale
at the net asset value on the last day of each period reported. Dividends and distributions, if any, are
assumed to be reinvested at the net asset value on the payable date. Total investment return is not computed
on an annualized basis.
(2) The expense ratios for the year ended December 31, 1995 and 1996 have been adjusted to reflect a change in
reporting requirements. The new reporting guidelines require the Fund to increase its expense ratio by the
effect of any expense offset arrangements with its service providers. The expense ratios for each of the
periods ended on or before December 31, 1994 have not been adjusted to reflect this change.
</FN>
</TABLE>
See notes to financial statements
<PAGE>
---------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
The Fund is a limited partnership formed under the laws of the State of
California, and is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. Under the
Partnership Agreement, all partnership interests, whether of a limited partner
or a general partner, are represented by shares of the same class. The following
is a summary of significant accounting policies consistently followed by the
Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS -- 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 available bid and asked prices. Futures contracts and options
on financial futures contracts listed on commodity exchanges are valued at
closing settlement prices. Over-the-counter options on financial futures are
normally valued at the mean between the latest bid and asked prices.
Investments, if any for which there are no such valuations are valued at fair
value using methods determined in good faith by or at the direction of the
Director General Partners. Short-term obligations, maturing in sixty days or
less, are valued at amortized cost, which approximates value.
B. INCOME -- Interest income is determined on the basis of interest accrued and
discount earned, adjusted for amortization of premium or discount on long-term
debt securities when required for federal income tax purposes.
C. INCOME TAXES -- Interest income received by the Fund 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 the Fund's partners. 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 shareholders. No provision is made by the Fund for
federal or state taxes on any taxable income of the partnership because each
partner is individually responsible for the payment of any taxes on his share of
such taxable income.
D. FINANCIAL FUTURES CONTRACTS -- Upon the entering of a financial futures
contract, the Fund 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 the Fund ("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 the Fund. The Fund's investment in
financial futures contracts is designed only to hedge against anticipated future
changes in interest rates. Should interest rates move unexpectedly, the Fund may
not achieve the anticipated benefits of the financial futures contracts and may
realize a loss.
E. OTHER -- Investment transactions are accounted for on a trade date basis.
Distributions to partners and shares of partnership interest issued in payment
thereof are recorded on the record date.
F. EXPENSE REDUCTION -- Investors Bank & Trust Company (IBT) serves as custodian
of the Fund. Pursuant to the custodian agreement, IBT receives a fee reduced by
credits which are determined based on the average daily cash balances the Fund
maintains with IBT. All significant credit balances used to reduce the Fund's
custodian fees are reported as a reduction of expenses in the Statement of
Operations.
G. USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expense during the reporting period. Actual results could differ
from those amounts.
H. PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS -- Upon the purchase of a put
option on a financial futures contract by the Fund, the premium paid is recorded
as an investment, the value of which is marked-to-market daily. When a purchased
option expires, the Fund will realize a loss in the amount of the cost of the
option. When the Fund enters into a closing sale transaction, the Fund will
realize a gain or loss depending on whether the sales proceeds from the closing
sale transaction are greater or less than the cost of the option. When the Fund
exercises a put option, settlement is made in cash. The risk associated with
purchasing options is limited to the premium originally paid.
I. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on trade date and maintains 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 accruing interest on settlement date.
- -------------------------------------------------------------------------------
(2) SHARES OF PARTNERSHIP INTEREST
Transactions in shares of partnership interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------
1996 1995
----------------------------------------------- ------------------------------------------------
GENERAL LIMITED GENERAL LIMITED
PARTNERS PARTNERS AMOUNT PARTNERS PARTNERS AMOUNT
-------- ---------- ------------ -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sales -- 310,886 $ 3,090,691 -- 570,259 $ 5,610,100
Issued to partners electing to
receive payment of distributions
in shares 8,002 290,439 2,960,279 7,843 325,998 3,252,067
Redemptions -- (1,301,059) (12,922,047) -- (1,264,782) (12,401,979)
----- --------- ------------ ----- --------- -------------
Net increase (decrease) 8,002 (699,734) $ (6,871,077) 7,843 (368,525) $ (3,539,812)
===== ========= ============ ===== ========= =============
</TABLE>
- -------------------------------------------------------------------------------
(3) PURCHASES AND SALES OF INVESTMENTS
The Fund invests primarily in debt securities. The ability of the issuers of the
debt securities held by the Fund to meet their obligations may be affected by
economic developments in a specific industry or municipality. Purchases and
sales of investments, other than short-term obligations and put option
transactions, aggregated $27,036,311 and $34,729,956, respectively.
- -------------------------------------------------------------------------------
(4) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment management fee, computed at the monthly rate of 0.025% (0.300%
per annum) of average daily net assets and 3.00% of gross income (excluding net
realized gains on sales of securities) up to $500 million and at reduced rates
as daily net assets exceed that level, was earned by Eaton Vance Management
(EVM), the Adviser General Partner, as compensation for management and
investment advisory services rendered to the Fund. For the year ended December
31, 1996, the fee was equivalent to 0.51% (annualized) of the Fund's average net
assets for such period and amounted to $460,753. Except as to Director General
Partners who are not members of EVM's organization, officers and Director
General Partners receive remuneration for their services to the Fund out of such
investment management fee. Eaton Vance Distributors, Inc., a subsidiary of EVM
and the Fund's principal underwriter, received $135 as its portion of the sales
charge on sales of partnership interest in the Fund. Certain of the Director
General Partners of the Fund are directors/trustees and/or officers of the above
organizations. Director General Partners of the Fund that are not affiliated
with the Investment Advisor may elect to defer receipt of all or a percentage of
their annual fees in accordance with the terms of the Trustees Deferred
Compensation Plan. For the year ended December 31, 1996, no significant amounts
have been deferred.
- -------------------------------------------------------------------------------
(5) LINE OF CREDIT
The Fund participates with other portfolios and funds managed by EVM and
affiliates in a $120 million unsecured line of credit with a bank. Borrowings
will be made by the Portfolio or Fund solely to facilitate the handling of
unusual and/or unanticipated short-term cash requirements. Interest is charged
to each participating portfolio or fund based on its borrowings at the bank's
base rate or at an amount above either the bank's adjusted certificate of
deposit rate, a Eurodollar rate, or a federal funds effective rate. In addition,
a fee computed at an annual rate of 0.15% on the daily unused portion facility
is allocated among the participating funds and portfolios at the end of each
quarter. At December 31, 1996 the Fund had an outstanding balance pursuant to
the line of credit in the amount of $328,000. The Fund did not have any
significant borrowings or allocated fees during the year ended December 31,
1996.
- -------------------------------------------------------------------------------
(6) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of the investments
owned at December 31, 1996, as computed on a federal income tax basis, were as
follows:
Aggregate cost $81,592,813
===========
Gross unrealized appreciation
$ 7,274,627
Gross unrealized depreciation (66,116)
-----------
Net unrealized appreciation $ 7,208,511
===========
- ------------------------------------------------------------------------------
(7) DISTRIBUTIONS
On January 2, 1997, the Director General Partners declared a distribution of
$0.050 per share payable January 15, 1997, to partners of record on January 2,
1997.
- ------------------------------------------------------------------------------
(8) FINANCIAL INSTRUMENTS
The Fund regularly trades 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 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 the Fund 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. The Fund did not
have any open obligations under these financial instruments at December 31,
1996.
<PAGE>
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
TO THE PARTNERS OF
EATON VANCE MUNICIPAL BOND FUND L.P.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Eaton Vance Municipal Bond Fund L.P. as of
December 31, 1996, the related statement of operations for the year then ended,
the statement of changes in net assets for the years ended December 31, 1996 and
1995, and the financial highlights for each of the years in the five-year period
ended December 31, 1996. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
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 financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 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 financial highlights present
fairly, in all material respects, the financial position of Eaton Vance
Municipal Bond Fund L.P. as of December 31, 1996, the results of its operations,
the changes in its net assets and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
JANUARY 31, 1997
<PAGE>
-------------------------------
INVESTMENT MANAGEMENT
EATON VANCE DIRECTOR GENERAL PARTNERS OFFICERS
MUNICIPAL
BOND FUND L.P. LANDON T. CLAY LANDON T. CLAY
24 Federal Street Chairman, Eaton Vance Chairman
Boston, MA 02110 Management
JOHN L. THORNDIKE
DONALD R. DWIGHT Alternate Chairman
President, Dwight
Partners, Inc. THOMAS J. FETTER
Chairman, Newspapers of President and Portfolio
New England, Inc. Manager
SAMUEL L. HAYES, III JAMES L. O'CONNOR
Jacob H. Schiff Professor Treasurer
of Investment Banking,
Harvard University THOMAS OTIS
Graduate School of Secretary
Business Administration
NORTON H. REAMER
President and Director,
United Asset Management
Corporation
JOHN L. THORNDIKE
Director, Fiduciary
Company Incorporated
JACK L. TREYNOR
Investment Adviser and
Consultant
<PAGE>
[EATON VANCE LOGO APPEARS HERE]
[PHOTO OF WALL WITH THE WORD
"EDUCATION" ON IT APPEARS HERE]
EATON VANCE
MUNICIPAL BOND
FUND, L.P.
[PHOTO OF HIGHWAY APPEARS HERE]
Eaton Vance
Global Management-Global Distribution
[PHOTO OF BRIDGE APPEARS HERE]
<PAGE>
Eaton Vance Municipal Bond Fund, L.P. as of June 30, 1997
INVESTMENT UPDATE
[PHOTO OF THOMAS FETTER, PORTFOLIO
MANAGER APPEARS HERE]
Thomas Fetter,
Portfolio Manager
Investment Environment
- --------------------------------------------------------------------------------
The Economy
. The U.S. economy posted solid growth in the first half of the year. Gross
domestic product advanced a robust 4.9% in the first quarter, while
unemployment fell to a 24-year low of 4.8%. Despite the strong economic
climate, inflation remained in the 2-to-3% range.
. While inflation seemed generally in check, the Federal Reserve maintained a
vigilant policy. In March, the Fed raised its Federal funds target rate -
a key short-term rate barometer - to 5.5%.
. The municipal market modestly outperformed the Treasury market in the first
half of 1997. While Treasuries struggled to compete with stocks, lower supply
gave a boost to municipals.
The Fund
- --------------------------------------------------------------------------------
Management Discussion
. Our largest sector weighting was in escrowed bonds. Escrowed bonds have been
pre-refunded by their issuers to take advantage of lower interest rates.
Because they are backed by Treasury bond payments, they are of the very
highest quality.
. With yield spreads still narrow, we sought value in non-rated bonds. Assisted
living and life care facilities, in particular, offered attractive investment
opportunities.
. Finally, we've reduced the Portfolio's holdings in bonds with relatively low
yields in favor of higher-yielding issues. That has significantly improved
the "book yield" of the Portfolio and will enable the Fund to maintain its
attractive dividend stream.
- --------------------------------------------------------------------------------
Mutual fund shares are not insured by the FDIC and are not deposits or other
obligations of, or guaranteed by, any depository institution. Shares are subject
to investment risks, including possible loss of principal invested.
- --------------------------------------------------------------------------------
Performance for the Past Six Months
. The Fund's total return was 4.9% for the six months ended June 30, 1997,/1/
the result of a rise in net asset value per share from $10.07 on December 31,
1996 to $10.25 on June 30, 1997, and the reinvestment of $0.30 in dividends.
The Fund was ranked #1 of 226 General Municipal Debt funds for the year ended
June 30, according to Lipper Analytical Services, a mutual fund ranking
service./2/
. Based on the most recent dividend and the net asset value of $10.25 per share
on June 30, the Fund had a distribution rate of 5.85%. To equal that, an
investor paying a 36% tax rate would need to receive 9.14% in a taxable
investment.
. The Fund's risk-adjusted performance earned it a Four-Star overall Rating
among municipal bond funds covered by Morningstar, Inc. - a nationally
recognized monitor of fund performance - for the period ended June 30./3/
Your Investment at Work
- --------------------------------------------------------------------------------
[MEDICAL SYMBOL APPEARS HERE]
New Jersey Economic Development
Authority - Keswick Pines Project
. These non-rated bonds provided funding for the construction of a continuing
care retirement community in Whiting, New Jersey.
. Keswick Pines provides a wide range of living options to meet the physical,
social and spiritual needs of its residents.
. With an attractive 8.75% coupon, these bonds provide excellent income for the
Portfolio.
- --------------------------------------------------------------------------------
/1/This return does not include the Fund's 3.75% maximum sales charge.
/2/Source: Lipper Analytical Services. Lipper rankings are based on total return
and do not take sales charges into consideration. It is not possible to
invest directly in the Lipper average of General Municipal Debt funds.
/3/Morningstar ratings reflect historical risk-adjusted performance though
6/30/97 and are subject to change. Past performance is no guarantee of future
results. Funds are assigned ratings from 1 star (lowest) to 5 stars
(highest). Ratings are calculated from the funds' 3-,5-, and 10-year returns
(with fee adjustment) in excess of 90-day Treasury bill returns. The top 10%
of the funds in a category receive 5 stars, the next 22.5%, 4 stars, and the
following 35%, 3 stars. For the 3-year period, the Fund was rated 5 stars
(1315 funds); for the 5-year period, 4 stars (640 funds); and for the 10-year
period, 4 stars (297 funds).
/4/Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested. SEC average annual returns reflect
maximum 3.75% sales charge.
/5/Because the Fund is actively managed, sector weightings and Portfolio
overview are subject to change. Past performance is no guarantee of future
results. The value of an investment in the Fund will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost.
- --------------------------------------------------------------------------------
Fund Information
as of June 30, 1997
Performance/4/
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Annual Total Returns (at net asset value)
- --------------------------------------------------------------------------------
<S> <C>
One Year 11.2%
Five Years 7.2
Ten years 8.6
<CAPTION>
SEC Average Annual Total Returns (including maximum sales charge)
- --------------------------------------------------------------------------------
<S> <C>
One Year 7.1%
Five Years 6.4
Ten years 8.2
</TABLE>
5 Largest Sectors/5/
- --------------------------------------------------------------------------------
By total investments
<TABLE>
<S> <C>
Escrowed/Prerefunded 15.4%
Transportation 13.7%
Nursing Homes 8.5%
Industrial Development Bonds 8.4%
Lease Revenue 7.7%
</TABLE>
Portfolio Overview/5/
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Number of Issues 63
Average Maturity 23.6 Yrs.
Effective Maturity 13.4 Yrs.
Average Rating A
Average Call 9.3 Yrs.
Average Dollar Price $93.96
</TABLE>
2
<PAGE>
Eaton Vance Municipal Bond Fund, L.P. as of June 30, 1997
PORTFOLIO OF INVESTMENTS (Unaudited)
<TABLE>
<CAPTION>
Tax-Exempt Investments -- 100.0%
Ratings (Unaudited) Principal
- ------------------- Amount
Standard (000
Moody's & Poor's omitted) Security Value
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assisted Living -- 3.7%
- -------------------------------------------------------------------------
NR NR $1,000 Bell County, TX, Health
Facilities, (Care
Institute, Inc.), $1,097,720
9.00%, 11/1/24
NR NR 1,000 St. Paul, MN, Housing
and Redevelopment (Care
Institute, Inc.), 1,095,140
Highland Park, 8.75%,
11/1/24
NR NR 1,000 Village of North
Syracuse, NY, Housing
Authority (AJM Senior
Housing, Inc., Janus 1,012,430
Park), 8.00%, 6/1/24
- -------------------------------------------------------------------------
$3,205,290
- -------------------------------------------------------------------------
Electric Utilities -- 3.1%
- -------------------------------------------------------------------------
Aa AA $1,000 Colorado Springs
Utility System, 6.75%, $1,094,600
11/15/21
Baa2 BBB+ 1,500 Massachusetts Municipal
Wholesale Electric Co., 1,608,330
6.75%, 7/1/11
- -------------------------------------------------------------------------
$2,702,930
- -------------------------------------------------------------------------
Escrowed / Prerefunded -- 15.4%
- -------------------------------------------------------------------------
Aaa NR $2,500 Boston City Hospital,
FHA Insured, 7.625%, $2,783,850
2/15/21
NR AAA 8,000 Colorado Health
Facilities Authority,
(Liberty Heights), FSA 1,583,760
Insured, 0%, 7/15/24
Aaa NR 19,000 Dawson Ridge
Metropolitan District
Number 1, Douglas 4,238,520
County, CO, 0%, 10/1/22
Aaa NR 685 Massachusetts IFA,
(Cape Cod Hospital), 772,769
8.40%, 11/15/08
Aaa NR 5,000 Mississippi Housing
Finance Corp., Single 1,820,000
Family (AMT), 0%, 6/1/15
Aaa BBB 665 North Carolina Eastern
Municipal Power, 6.50%, 758,167
1/1/18
Aaa NR 6,000 Savannah, GA, Economic
Development Authority,
0%, 12/1/21 1,399,740
- -------------------------------------------------------------------------
$13,356,806
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Hospitals -- 7.7%
- -------------------------------------------------------------------------
Aa3 AA- $1,500 Greenville, SC,
Hospital System, 5.25%, $1,431,585
5/1/23
A2 A 500 Illinois Health and
Education Facilities,
(Victory Memorial), 542,595
7.875%, 12/1/18
NR BBB 2,000 Louisiana PFA, General
Health Systems Project, 2,109,620
6.80%, 11/1/16
Aaa AAA 225 New York State Medical
Care, 7.875%, 8/15/20 252,457
Baa1 BBB+ 600 New York State,
Medical Care Facility
Finance Agency Mental
Health Services, 665,748
7.875%, 8/15/20(1)
Baa BBB 1,550 New York State, Medical
Care Facility,
(Brookdale Medical 1,666,250
Center), 6.85%,
2/15/17(1)
- -------------------------------------------------------------------------
$6,668,255
- -------------------------------------------------------------------------
Housing -- 6.5%
- -------------------------------------------------------------------------
NR AA $ 485 Arkansas Development
Finance Authority,
SFMR, 8.00%, 8/15/11(1) $ 521,341
Aa2 NR 750 Colorado Housing and
Finance Authority,
Single Family Access 835,447
Program, 7.90%, 12/1/24
NR NR 1,000 Florence, KY, Housing
Facilities, 7.625%, 1,001,000
5/1/27
NR NR 1,290 Lake Creek Affordable
Housing Corp., Eagle
County, CO, 8.00%, 1,346,153
12/1/23
Aa2 AA 220 North Carolina Single
Family Mortgage
Revenue, 8.125%, 9/1/19 227,273
NR A 1,650 Travis County, TX HFC
Multifamily (Travis
Station Apartments), 1,716,033
6.75%, 4/1/19(1)
- -------------------------------------------------------------------------
$5,647,247
- -------------------------------------------------------------------------
Industrial Development Revenue / Pollution Control
Revenue -- 8.4%
- -------------------------------------------------------------------------
NR NR $ 850 Florence County, SC,
(Stone Container
Company), 7.375%, 2/1/07 $ 874,633
NR NR 1,000 Maricopa County, AZ,
IDA, 8.625%, 1/1/27 1,006,650
</TABLE>
See notes to financial statements
3
<PAGE>
Eaton Vance Municipal Bond Fund, L.P. as of June 30, 1997
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- ------------------- Amount
Standard (000
Moody's & Poor's omitted) Security Value
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial Development Revenue / Pollution Control
Revenue (continued)
- ---------------------------------------------------------------------
NR NR $1,750 New Jersey Economic
Development Authority
(Holt Hauling and
Warehouse), 7.75%,
3/1/27 $1,788,990
NR BBB- 2,450 Port Camas-Washougan,
WA, James River, 6.70%,
4/1/23 2,527,690
NR NR 1,000 Santa Fe, NM, IDA,
8.50%, 9/1/16 1,082,220
- ---------------------------------------------------------------------
$7,280,183
- ---------------------------------------------------------------------
Insured-Education -- 2.1%
- ---------------------------------------------------------------------
Aaa AAA $2,000 University of
California - Multiple
Projects (AMBAC),
4.875%, 9/1/19 $1,801,780
- ---------------------------------------------------------------------
$1,801,780
- ---------------------------------------------------------------------
Insured-Electric Utilities -- 1.0%
- ---------------------------------------------------------------------
Aaa AAA $ 800 Puerto Rico Electric
Power Authority (FSA),
Variable, 7/1/03(2) $ 887,000
- ---------------------------------------------------------------------
$ 887,000
- ---------------------------------------------------------------------
Insured-Hospitals -- 6.6%
- ---------------------------------------------------------------------
Aaa AAA $1,000 Fredericksburg, VA,
Industrial Development
Authority (FGIC)
"INFLOS", Variable,
8/15/23(2) $1,197,500
Aaa AAA 1,000 Illinois Health
Facilities Authority,
(Rush-Presbyterian -
St. Lukes Medical
Center) (MBIA),
"INFLOS", Variable,
10/1/24(2) 1,155,000
Aaa AAA 1,000 King County, WA, Public
Hospital District No. 1
(AMBAC), 6.00%, 9/1/20 1,006,910
Aaa AAA 1,000 Rhode Island Health and
Educational Facility,
(Rhode Island Hospital)
(FGIC),"INFLOS",
Variable, 8/15/21(3)(2) 1,216,250
Aaa AAA 1,000 Salt Lake City, UT,
(IHC Hospitals Inc.),
"INFLOS" (AMBAC),
Variable, 5/15/20(3)(2) 1,166,250
- ---------------------------------------------------------------------
$5,741,910
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Insured-Housing -- 2.5%
Aaa AAA $1,000 SCA MFMR Receipts,
Burnsville, MN (FSA),
7.10%, 1/1/30 $1,084,280
Aaa AAA 1,000 SCA MFMR Receipts,
Springfield, MO (FSA),
7.10%, 1/1/30 1,084,280
- ---------------------------------------------------------------------
$2,168,560
- ---------------------------------------------------------------------
Insured-Special Tax Revenue -- 1.5%
- ---------------------------------------------------------------------
Aaa AAA $1,500 Culver City, CA,
Redevelopment Finance
Authority (AMBAC),
4.60%, 11/1/20 $1,294,470
- ---------------------------------------------------------------------
$1,294,470
- ---------------------------------------------------------------------
Insured-Transportation -- 1.3%
- ---------------------------------------------------------------------
Aaa AAA $1,000 Triborough Bridge and
Tunnel Authority of New
York, RITES (AMBAC),
Variable, 1/1/12(2) $1,120,000
- ---------------------------------------------------------------------
$1,120,000
- ---------------------------------------------------------------------
Lease Revenue/
Certificates of Participation -- 4.6%
- ---------------------------------------------------------------------
A A $3,000 California Public Works
Board, (California
State University),
5.50%, 12/1/18 $2,895,600
NR NR 1,000 Hardeman County, TN,
(Correctional
Facilities Corp.),
7.75%, 8/1/17 1,072,230
- ---------------------------------------------------------------------
$3,967,830
- ---------------------------------------------------------------------
Life Care -- 4.6%
- ---------------------------------------------------------------------
NR NR $1,060 Loudoun County, VA,
Industrial Development
Authority (Falcons
Landing), 8.75%, 11/1/24 $1,129,048
NR NR 655 New Hampshire Higher
Educational and Health
Facilities (Riverwoods
at Exeter), 9.00%,
3/1/23 715,522
NR NR 1,000 New Jersey Economic
Development Authority,
Keswick Pines Project,
8.75%, 1/1/24 1,065,260
NR NR 1,000 Vermont Industrial
Development Authority
(Wake Robin Corp.),
8.75%, 4/1/23(3) 1,085,220
- ---------------------------------------------------------------------
$3,995,050
- ---------------------------------------------------------------------
</TABLE>
See notes to financial statements
4
<PAGE>
Eaton Vance Municipal Bond Fund, L.P. as of June 30, 1997
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- ------------------- Amount
Standard (000
Moody's & Poor's omitted) Security Value
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Miscellaneous -- 4.8%
- -------------------------------------------------------------------------
NR BB- $1,000 New Hampshire State
Business Finance $ 1,059,400
Authority, 7.75%, 1/1/22
NR NR 1,500 New Jersey Sports and
Exposition Authority,
Monmouth Park Project, 1,664,595
8.00%, 1/1/25
Aaa AAA 1,500 Tampa, FL, Sports
Authority, 5.25%, 1,451,130
1/1/17(4)
- -------------------------------------------------------------------------
$ 4,175,125
- -------------------------------------------------------------------------
Nursing Homes -- 8.5%
- -------------------------------------------------------------------------
NR NR $1,455 Bell County, TX,
(Riverside Healthcare,
Inc. - Normandy $ 1,621,088
Terrace), 9.00%, 4/1/23
NR NR 475 Covington-Allegheny
County, VA, IDA,
(Beverly Enterprises), 518,500
9.375%, 9/1/01
NR NR 975 Greene County, OH,
First Mortgage,
(Fairview Extended 1,099,127
Care), 10.125%, 1/1/11
NR NR 1,100 Massachusetts IFA
Health Care Facility ,
(Institute of 1,128,600
Massachusetts Project),
8.05%, 11/1/25
NR NR 1,265 Montgomery County, PA,
IDA (Advancement of
Geriatric Health Care 1,346,213
Institute), 8.375%,
7/1/23
NR NR 390 Okaloosa County, FL,
Beverly Enterprises, 405,386
10.75%, 10/1/03
NR NR 680 Tarrant County Health
Facilities, TX, 10.25%, 718,740
9/1/19
NR NR 485 Wisconsin Health
Facility Authority, 486,116
Villa Clement, 8.75%,
6/1/12
- -------------------------------------------------------------------------
$ 7,323,770
- -------------------------------------------------------------------------
Special Tax Revenue -- 4.0%
- -------------------------------------------------------------------------
Baa1 A $3,525 Puerto Rico Highway and
Transportation
Authority, 5.50%, 7/1/36 $ 3,439,343
- -------------------------------------------------------------------------
$ 3,439,343
- -------------------------------------------------------------------------
Transportation -- 13.7%
- -------------------------------------------------------------------------
Aaa NR $2,807 Indiana Transportation
Finance Authority, $ 3,081,103
6.25%, 11/1/16
A2 NR 758 Indiana Transportation
Finance Authority, 790,708
6.25%, 11/1/16
A1 A+ 5,500 Massachusetts State
Turnpike Authority, 5,137,385
5.00%, 1/1/20
NR NR 10,000 San Joaquin Hills, CA,
Toll Roads, 0%, 1/1/25 1,885,100
NR NR 2,500 San Joaquin Hills, CA,
Transportation Corridor 934,900
Agency, 0%, 1/1/14
- -------------------------------------------------------------------------
$11,829,196
- -------------------------------------------------------------------------
Total Tax-Exempt Investments -- 100%
(identified cost $78,224,283) $86,604,745
- -------------------------------------------------------------------------
</TABLE>
At June 30,1997, the concentration of the Fund's investments
in the various states, determined as a percentage of total
investments, is as follows:
<TABLE>
<S> <C>
Massachusetts 14%
Colorado 11%
California 10%
Others, representing less 65%
than 10% individually
</TABLE>
The Fund 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 June 30,
1997, 15.0% of the securities in the portfolio of investments are backed by bond
insurance of various financial institutions and financial guaranty insurance
agencies. The aggregate percentage by financial institution range from 2.8% to
7.4% of total investments.
(1) Security has been segregated to cover when-issued securities.
(2) Security has been issued as an inverse floater bond. Interest rate is shown
as of June 30, 1997.
(3) Security has been segregated to cover margin requirements on open financial
futures contracts.
(4) When-issued security.
See notes to financial statements
5
<PAGE>
Eaton Vance Municipal Bond Fund, L.P. as of June 30, 1997
FINANCIAL STATEMENTS (Unaudited)
Statement of Assets and Liabilities
As of June 30, 1997
<TABLE>
<CAPTION>
Assets
- -------------------------------------------------------------------------
<S> <C>
Investments, at value (Note 1A)
(identified cost, $78,224,283) $86,604,745
Cash 2,431,268
Receivable for investments sold 20,132
Receivable for shares of partnership interest sold 8,535
Interest receivable 1,543,487
Receivable for variation margin on open financial
futures contracts (Note 1D) 53,876
- -------------------------------------------------------------------------
Total assets $90,662,043
- -------------------------------------------------------------------------
Liabilities
- -------------------------------------------------------------------------
Payable for when-issued security (Note 1I) $ 1,468,391
Payable for shares of partnership interest purchased 38,239
Payable to affiliate for Director General Partners'
fees (Note 4) 1,694
Accrued expenses 14,175
- -------------------------------------------------------------------------
Total liabilities $ 1,522,499
- -------------------------------------------------------------------------
Net Assets for 8,696,433 shares of partnership interest
outstanding $89,139,544
- -------------------------------------------------------------------------
Net Assets Applicable to Shares of Partnership
Interest Owned by:
- -------------------------------------------------------------------------
Limited Partners (8,555,959 shares) $87,699,669
General Partners --
Director partners (2,642 shares) 27,080
Adviser partners (137,832 shares) 1,412,795
- -------------------------------------------------------------------------
Net Assets (8,696,433 shares) $89,139,544
- -------------------------------------------------------------------------
Sources of Net Assets
- -------------------------------------------------------------------------
Proceeds from sales of shares of partnership interest
(including shares issued to partners electing to
receive payment of distributions in shares), less
cost of shares of partnership interest redeemed $72,706,301
Accumulated net realized gain on investments (computed
on the basis of identified cost) 8,217,583
Net unrealized appreciation of investments (computed on
the basis of identified cost) 8,325,462
Accumulated distributions in excess of net
investment income (109,802)
- -------------------------------------------------------------------------
Total $89,139,544
- -------------------------------------------------------------------------
Net Asset Value and Redemption
Price Per Share of Partnership Interest
- -------------------------------------------------------------------------
($89,139,544/8,696,433 shares of $ 10.25
partnership interest outstanding)
- -------------------------------------------------------------------------
Computation of Offering Price
- -------------------------------------------------------------------------
Offering price per share (100/96.25 of $10.25) $ 10.65
- -------------------------------------------------------------------------
On sales of $50,000 or more, the offering price is reduced.
<CAPTION>
Statement of Operations
For the Six Months Ended
June 30, 1997
Investment Income (Note 1B)
- -------------------------------------------------------------------------
<S> <C>
Interest income $ 2,934,844
- -------------------------------------------------------------------------
Total investment income $ 2,934,844
- -------------------------------------------------------------------------
Expenses
- -------------------------------------------------------------------------
Investment management fee earned by Adviser General
Partner (Note 4) $ 217,940
Compensation of Director General Partners not members
of the Adviser General Partner's organization (Note 4) 3,485
Legal and accounting services 41,079
Printing and postage 23,331
Custodian fee (Note 1F) 22,464
Transfer and dividend disbursing agent fees 15,528
Registration fees 14,029
Miscellaneous 18,837
- -------------------------------------------------------------------------
Total expenses $ 356,693
- -------------------------------------------------------------------------
Deduct --
Reduction of custodian fee (Note 1F) $ 15,556
- -------------------------------------------------------------------------
Total expense reductions $ 15,556
- -------------------------------------------------------------------------
Net expenses $ 341,137
- -------------------------------------------------------------------------
Net investment income $ 2,593,707
- -------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) on Investments
- -------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 760,050
Financial futures contracts (323,989)
- -------------------------------------------------------------------------
Net realized gain on investment transactions $ 436,061
- -------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 1,171,951
Financial futures contracts (55,000)
- -------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of
investments $ 1,116,951
- -------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 1,553,012
- -------------------------------------------------------------------------
Net increase in net assets from operations $ 4,146,719
- -------------------------------------------------------------------------
</TABLE>
See notes to financial statements
6
<PAGE>
Eaton Vance Municipal Bond Fund, L.P. as of June 30, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended
Increase (Decrease) June 30, 1997 Year Ended
in Net Assets (Unaudited) December 31, 1996
- -------------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment income $ 2,593,707 $ 5,575,857
Net realized gain (loss) on
investment transactions 436,061 (91,627)
Net change in unrealized
appreciation (depreciation)
of investments 1,116,951 (1,303,829)
- -------------------------------------------------------------------------
Net increase in net assets
from operations $ 4,146,719 $ 4,180,401
- -------------------------------------------------------------------------
Distributions to partners --
From net investment income $ (2,593,707) $ (5,457,518)
In excess of net investment
income (31,649) (78,153)
- -------------------------------------------------------------------------
Total distributions to partners $ (2,625,356) $ (5,535,671)
- -------------------------------------------------------------------------
Transactions in shares of
partnership interest (Note2) --
Proceeds from sales of shares $ 4,509,866 $ 3,090,691
Net asset value of shares
issued to shareholders
in payment of distributions
declared 1,378,695 2,960,279
Cost of shares redeemed (6,454,039) (12,922,047)
- -------------------------------------------------------------------------
Net decrease in net assets from
transactions in shares of
partnership interest (Note 2) $ (565,478) $ (6,871,077)
- -------------------------------------------------------------------------
Net increase (decrease) in net
assets $ 955,885 $ (8,226,347)
- -------------------------------------------------------------------------
Net Assets
- -------------------------------------------------------------------------
At beginning of period $ 88,183,659 $ 96,410,006
- -------------------------------------------------------------------------
At end of period $ 89,139,544 $ 88,183,659
- -------------------------------------------------------------------------
Accumulated
distributions in excess of
net investment income
included in net assets
- -------------------------------------------------------------------------
At end of period $ (109,802) $ (78,153)
- -------------------------------------------------------------------------
</TABLE>
See notes to financial statements
7
<PAGE>
Eaton Vance Municipal Bond Fund, L.P. as of June 30, 1997
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 1997 -------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period $10.070 $10.210 $ 9.260 $10.630 $ 9.950 $ 9.750
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.296 $0.605 $ 0.604 $ 0.611 $ 0.614 $ 0.639
Net realized and unrealized gain (loss) on investments 0.184 (0.143) 0.962 (1.369) 0.692 0.195
- ----------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations $ 0.480 $0.462 $ 1.566 $(0.758) $ 1.306 $ 0.834
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.296) $(0.594) $(0.604) $(0.611) $ (0.619) $ (0.634)
In excess of net investment income (0.004) (0.008) (0.012) (0.001) (0.007) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions $(0.300) $(0.602) $(0.616) $(0.612) $ (0.626) $ (0.634)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value - end of period $10.250 $10.070 $10.210 $ 9.260 $ 10.630 $ 9.950
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return/(1)/ 4.89% 4.78% 17.40% (7.27)% 13.52% 8.91%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $89,140 $88,184 $96,410 $90,802 $114,425 $103,208
Ratio of net expenses to average daily net assets /(2)/ 0.83%+ 0.78% 0.76% 0.80% 0.72% 0.74%
Ratio of net expenses to average daily net assets after
custodian fee reduction 0.79%+ 0.74% -- -- -- --
Ratio of net investment income to average daily 5.97%+ 6.12% 6.16% 6.26% 5.91% 6.50%
net assets
Portfolio Turnover 13% 30% 58% 58% 86% 60%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
/(1)/ Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Dividends and distributions, if any, are assumed to be
reinvested at the net asset value on the payable date. Total return is not
computed on an annualized basis.
/(2)/ The expense ratios for the year ended December 31, 1995 and periods
thereafter have been adjusted to reflect a change in reporting
requirements. The new reporting guidelines require the Fund to increase
its expense ratio by the effect of any expense offset arrangements with
its service providers. The expense ratios for the periods ended on or
before December 31, 1994 have not been adjusted to reflect this change.
See notes to financial statements
8
<PAGE>
Eaton Vance Municipal Bond Fund, L.P. as of June 30, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1 Significant Accounting Policies
-----------------------------------------------------------------------------
The Fund is a limited partnership formed under the laws of the State of
California, and is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. Under the
Partnership Agreement, all partnership interests, whether of a limited
partner or a general partner, are represented by shares of the same class.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A Investment Valuations -- 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 available bid and asked prices. Futures contracts and
options on financial futures contracts listed on commodity exchanges are
valued at closing settlement prices. Over-the-counter options on financial
futures are normally valued at the mean between the latest bid and asked
prices. Investments, if any for which there are no such valuations are valued
at fair value using methods determined in good faith by or at the direction
of the Director General Partners. Short-term obligations, maturing in sixty
days or less, are valued at amortized cost, which approximates value.
B Income -- Interest income is determined on the basis of interest accrued
and discount earned, adjusted for amortization of premium or discount on
long-term debt securities when required for federal income tax purposes.
C Income Taxes -- Interest income received by the Fund 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 the Fund's partners. 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 shareholders. No provision is made by
the Fund for federal or state taxes on any taxable income of the partnership
because each partner is individually responsible for the payment of any taxes
on his share of such taxable income.
D Financial Futures Contracts -- Upon the entering of a financial futures
contract, the Fund 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 the Fund ("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 the Fund. The Fund's
investment in financial futures contracts is designed only to hedge against
anticipated future changes in interest rates. Should interest rates move
unexpectedly, the Fund may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss.
E Other -- Investment transactions are accounted for on a trade date basis.
Distributions to partners and shares of partnership interest issued in
payment thereof are recorded on the ex-date.
F Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian of the Fund. Pursuant to the custodian agreement, IBT receives a
fee reduced by credits which are determined based on the average daily cash
balances the Fund maintains with IBT. All significant credit balances used to
reduce the Fund's custodian fees are reported as a reduction of expenses in
the Statement of Operations.
G Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expense during the reporting period. Actual results could
differ from those amounts.
H Put Options on Financial Futures Contracts -- Upon the purchase of a put
option on a financial futures contract by the Fund, the premium paid is
recorded as an investment, the value of which is marked-to-market daily. When
a purchased option expires, the Fund will realize a loss in the amount of the
cost of the option. When the Fund enters into a closing sale transaction, the
Fund will
9
<PAGE>
Eaton Vance Municipal Bond Fund, L.P. as of June 30, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
realize a gain or loss depending on whether the sales proceeds from the
closing sale transaction are greater or less than the cost of the option.
When the Fund exercises a put option, settlement is made in cash. The risk
associated with purchasing options is limited to the premium originally paid.
I When-issued and Delayed Delivery
Transactions -- The Fund may engage in when-issued or delayed delivery
transactions. The Fund records when-issued securities on trade date and
maintains 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 accruing interest on settlement date.
J Interim Financial Information -- The interim financial statements relating
to June 30, 1997 and for the six month period then ended have not been
audited by independent certified public accountants, but in the opinion of
the Fund's management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
statements.
2 Shares of Partnership Interest
----------------------------------------------------------------------------
Transactions in shares of partnership interest were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
(Unaudited)
-------------------------------------------------------------------------
General Partners Limited Partners
<S> <C> <C>
Sales -- 451,332
Issued to partners electing
to receive payment of
distributions in shares 4,152 134,069
Redemptions -- (647,620)
-------------------------------------------------------------------------
Net increase (decrease) 4,152 (62,219)
-------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-------------------------------------------------------------------------
General Partners Limited Partners
<S> <C> <C>
Sales -- 310,886
Issued to partners electing
to receive payment of
distributions in shares 8,002 290,439
Redemptions -- (1,301,059)
-------------------------------------------------------------------------
Net increase (decrease) 8,002 (699,734)
-------------------------------------------------------------------------
</TABLE>
3 Purchases and Sales of Investments
-----------------------------------------------------------------------------
The Fund invests primarily in debt securities. The ability of the issuers of
the debt securities held by the Fund to meet their obligations may be
affected by economic developments in a specific industry or municipality.
Purchases and sales of investments, other than short-term obligations and put
option transactions, aggregated $11,179,379 and $15,627,702, respectively.
4 Investment Adviser Fee and Other Transactions
with Affiliates
-----------------------------------------------------------------------------
The investment management fee, computed at the monthly rate of 0.025% (0.300%
per annum) of average daily net assets and 3.00% of gross income (excluding
net realized gains on sales of securities) up to $500 million and at reduced
rates as daily net assets exceed that level, was earned by Eaton Vance
Management (EVM), the Adviser General Partner, as compensation for management
and investment advisory services rendered to the Fund. For the six-months
ended June 30, 1997, the fee was equivalent to 0.50% (annualized) of the
Fund's average net assets for such period and amounted to $217,940. Except as
to Director General Partners who are not members of EVM's organization,
officers and Director General Partners receive remuneration for their
services to the Fund out of such investment management fee. Eaton Vance
Distributors, Inc., a subsidiary of EVM and the Fund's principal underwriter,
received $36 as its portion of the sales charge on sales of partnership
interest in the Fund. Certain of the Director General Partners of the Fund
are directors/trustees and/or officers of the above organizations. Director
General Partners of the Fund that are not affiliated with the Investment
Advisor may elect to defer receipt of all or a
10
<PAGE>
Eaton Vance Municipal Bond Fund, L.P. as of June 30, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
percentage of their annual fees in accordance with the terms of the Trustees
Deferred Compensation Plan. For the six months ended June 30, 1997, no
significant amounts have been deferred.
5 Line of Credit
-----------------------------------------------------------------------------
The Fund participates with other portfolios and funds managed by EVM and
affiliates in a committed $120 million unsecured line of credit with a group
of banks. Borrowings will be made by the Fund solely to facilitate the
handling of unusual and/or unanticipated short-term cash requirements.
Interest is charged to each participating portfolio or fund based on its
borrowings at the bank's base rate or at an amount above either the bank's
adjusted certificate of deposit rate, a Eurodollar rate, or a federal funds
rate. In addition, a fee computed at an annual rate of 0.15% on the daily
unused portion of the line of credit is allocated among the participating
funds and portfolios at the end of each quarter. The Fund did not have any
significant borrowing or allocated fees during the six months ended June 30,
1997.
6 Federal Income Tax Basis of Investments
-----------------------------------------------------------------------------
The cost and unrealized appreciation/depreciation in value of the investments
owned at June 30, 1997, as computed on a federal income tax basis, were as
follows:
<TABLE>
<S> <C>
Aggregate cost $ 78,328,476
---------------------------------------------------
Gross unrealized appreciation $ 8,284,999
Gross unrealized depreciation 8,730
---------------------------------------------------
Net unrealized appreciation $ 8,276,269
---------------------------------------------------
</TABLE>
7 Distributions
-----------------------------------------------------------------------------
On July 1, 1997, the Director General Partner declared a distribution of
$0.050 per share payable July 15, 1997, to partners of record on July 1,
1997.
8 Financial Instruments
-----------------------------------------------------------------------------
The Fund regularly trades in financial instruments with off-balance sheet
risk in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include 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 the Fund
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 June 30, 1997 is as follows:
<TABLE>
<CAPTION>
Futures Net Unrealized
Contracts Appreciation
Expiration Date Contracts Position (Depreciation)
-----------------------------------------------------------------------
<S> <C> <C> <C>
9/97 53 U.S. Treasury Bonds Short $ (55,000)
-----------------------------------------------------------------------
</TABLE>
11
<PAGE>
Eaton Vance Municipal Bond Fund, L.P. as of June 30, 1997
INVESTMENT MANAGEMENT
Eaton Vance Municipal Bond Fund, L.P.
Director General Partners
Landon T. Clay
Chairman, Eaton Vance
Management
Donald R. Dwight
President, Dwight
Partners, Inc.
Chairman, Newspapers of
New England, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor
of Investment Banking,
Harvard University
Graduate School of
Business Administration
Norton H. Reamer
President and Director,
United Asset Management
Corporation
John L. Thorndike
Formerly Director, Fiduciary
Company Incorporated
Jack L. Treynor
Investment Adviser and
Consultant
Officers
Landon T. Clay
Chairman, Eaton Vance Management
John L. Thorndike
Formerly Director, Fiduciary
Company Incorporated
Thomas J. Fetter
President and Portfolio Manager
James L. O'Conner
Treasurer
Alan R. Dynner
Secretary
12
<PAGE>
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<PAGE>
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<PAGE>
This Page Intentionally Left Blank
<PAGE>
Investment Advisor
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Principal Underwriter
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
Custodian
Investors Bank & Trust Company
200 Clarendon Street, 16th Floor
Boston, MA 02116
Transfer Agent
First Data Investor Services Group
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
Eaton Vance
Municipal Bond Fund L.P.
24 Federal Street
Boston, MA 02110
- --------------------------------------------------------------------------------
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its sales charges and
expenses. Please read the prospectus carefully before you invest or send money.
- --------------------------------------------------------------------------------
T-MBSRC-8/97
