<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 30, 1995
1933 ACT FILE NO. 33-572
1940 ACT FILE NO. 811-4409
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 58 [X]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 60 [X]
EATON VANCE MUNICIPALS TRUST
--------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
----------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
617-482-8260
-------------------------------------
(REGISTRANT'S TELEPHONE NUMBER)
H. DAY BRIGHAM, JR., 24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
--------------------------------------------------------
(NAME AND ADDRESS OF AGENT FOR SERVICE)
It is proposed that this filing will become effective on February 1, 1996
pursuant to paragraph (a) (1) of Rule 485.
The exhibit index required by Rule 483(a) under the Securities Act of 1933
is located on page in the sequential numbering system of the manually signed
copy of this Registration Statement.
California Tax Free Portfolio, Florida Tax Free Portfolio, Massachusetts Tax
Free Portfolio, Mississippi Tax Free Portfolio, New York Tax Free Portfolio,
Ohio Tax Free Portfolio, Rhode Island Tax Free Portfolio and West Virginia Tax
Free Portfolio have also executed this Registration Statement.
CALCULATION OF REGISTRATION FEE
================================================================================
AMOUNT OF PROPOSED MAXIMUM PROPOSED AGGREGATE AMOUNT OF
TITLE OF SECURITIES SHARES BEING OFFERING PRICE MAXIMUM REGISTRATION
BEING REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
================================================================================
Shares of Beneficial 33,613,047 $10.32(1) $346,886,653(2) $100
================================================================================
(1) Computed under Rule 457(d) on the basis of the maximum aggregate offering
price per share at the close of business on November 15, 1995.
(2) Registrant elects to calculate the maximum aggregate offering price pursuant
to Rule 24e-2 for those series with a fiscal year end of September 30, 1995.
$994,351,628 of shares were redeemed during the fiscal year ended September
30, 1995. $647,754,975 of shares were used for reductions pursuant to
Paragraph (c) of Rule 24f-2 during such fiscal year. $346,596,653 of shares
redeemed are being used for the reduction of the registration fee in this
Amendment. While no fee is required for the $346,596,653 of shares, the
Registrant has elected to register, for $100, an additional $290,000 of
shares.
The Registrant has filed a Declaration pursuant to Rule 24f-2. On
September 20, 1995, Registrant filed its "Notice" as required by that Rule for
the series of the Registrant with the fiscal year end of July 31, 1995, on
October 16, 1995 filed its "Notice" for the series of the Registrant with the
fiscal year end of August 31, 1995 and on November 13, 1995 filed its "Notice"
for the series of the Registrant with the fiscal year end of September 30, 1995.
Registrant continues its election to register an indefinite number of shares of
beneficial interest pursuant to Rule 24f-2.
================================================================================
<PAGE>
This Amendment to the registration statement on Form N-1A consists of the
following documents and papers:
Cross Reference Sheets required by Rule 481(a) under Securities Act of 1933
<TABLE>
<CAPTION>
Part A -- The Combined Prospectuses of:
<S> <C>
EV Classic California Municipals Fund EV Marathon California Municipals Fund
EV Classic Florida Tax Free Fund EV Marathon Florida Tax Free Fund
EV Classic Massachusetts Tax Free Fund EV Marathon Massachusetts Tax Free Fund
EV Classic Mississippi Tax Free Fund EV Marathon Mississippi Tax Free Fund
EV Classic New York Tax Free Fund EV Marathon New York Tax Free Fund
EV Classic Ohio Tax Free Fund EV Marathon Ohio Tax Free Fund
EV Classic Rhode Island Tax Free Fund EV Marathon Rhode Island Tax Free Fund
EV Classic West Virginia Tax Free Fund EV Marathon West Virginia Tax Free Fund
<CAPTION>
<S> <C>
EV Traditional California Municipals Fund
EV Traditional Florida Tax Free Fund
EV Traditional New York Tax Free Fund
</TABLE>
<TABLE>
<CAPTION>
The Prospectus of:
Massachusetts Municipal Bond Portfolio
Part B -- The Combined Statements of Additional Information of:
EV Classic California Municipals Fund EV Marathon California Municipals Fund
EV Classic Florida Tax Free Fund EV Marathon Florida Tax Free Fund
EV Classic Massachusetts Tax Free Fund EV Marathon Massachusetts Tax Free Fund
EV Classic Mississippi Tax Free Fund EV Marathon Mississippi Tax Free Fund
EV Classic New York Tax Free Fund EV Marathon New York Tax Free Fund
EV Classic Ohio Tax Free Fund EV Marathon Ohio Tax Free Fund
EV Classic Rhode Island Tax Free Fund EV Marathon Rhode Island Tax Free Fund
EV Classic West Virginia Tax Free Fund EV Marathon West Virginia Tax Free Fund
<CAPTION>
<S> <C>
EV Traditional California Municipals Fund
EV Traditional Florida Tax Free Fund
EV Traditional New York Tax Free Fund
</TABLE>
The Statement of Additional Information of:
Massachusetts Municipal Bond Portfolio
Part C -- Other Information
Signatures
Exhibit Index Required by Rule 483(b) under the Securities Act of 1933
Exhibits
This Amendment is not intended to amend the Prospectuses and Statements of
Additional Information of any other Series of the Registrant not identified
above.
<PAGE>
<TABLE>
EATON VANCE MUNICIPALS TRUST
<CAPTION>
CROSS REFERENCE SHEET
ITEMS REQUIRED BY FORM N-1A
---------------------------
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- ------ -------- ---------------------------------------------
<S> <C> <C>
1. ...................... Cover Page Cover Page
2. ...................... Synopsis Shareholder and Fund Expenses
3. ...................... Condensed Financial Information The Funds' Financial Highlights; Performance
Information
4. ...................... General Description of Registrant The Funds' Investment Objectives; How the
Funds and the Portfolios Invest their
Assets; Organization of the Funds and the
Portfolios
5. ...................... Management of the Fund Management of the Funds and the Portfolios
5A....................... Management's Discussion of Fund Not Applicable
Performance
6. ...................... Capital Stock and Other Securities Organization of the Funds and the Portfolios;
Reports to Shareholders; The Lifetime
Investing Account/Distribution Options;
Distributions and Taxes
7. ...................... Purchase of Securities Being Offered Valuing Fund Shares; How to Buy Fund Shares;
The Lifetime Investing Account/Distribution
Options; Distribution Plan (for Classic and
Marathon Funds) (or Service Plan for
Traditional Funds); The Eaton Vance
Exchange Privilege; Eaton Vance
Shareholder Services; Statement of
Intention and Escrow Agreement (Traditional
Funds only)
8. ...................... Redemption or Repurchase How to Redeem Fund Shares
9. ...................... Pending Legal Proceedings Not Applicable
<CAPTION>
PART B
ITEM NO. ITEM CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ------ -------- ---------------------------------------------
<S> <C> <C>
10. ...................... Cover Page Cover Page
11. ...................... Table of Contents Table of Contents
12. ...................... General Information and History Other Information
13. ...................... Investment Objectives and Policies Investment Objective and Policies; Investment
Restrictions
14. ...................... Management of the Fund Trustees and Officers; Fees and Expenses
15. ...................... Control Persons and Principal Holders of Control Persons and Principal Holders of
Securities Securities
16. ...................... Investment Advisory and Other Investment Adviser and Administrator;
Services Distribution Plan (for Classic and Marathon
Funds) (or Service Plan for Traditional
Funds); Custodian; Independent Certified
Public Accountants; Fees and Expenses
17. ...................... Brokerage Allocation and Other Portfolio Security Transactions; Fees and
Practices Expenses
18. ...................... Capital Stock and Other Securities Other Information
19. ...................... Purchase, Redemption and Pricing of Determination of Net Asset Value; Principal
Securities Being Offered Underwriter; Service for Withdrawal;
Services for Accumulation (Traditional
Funds only); Distribution Plan (for Classic
and Marathon Funds) (or Service Plan for
Traditional Funds only); Fees and Expenses
20. ...................... Tax Status Taxes; Tax Equivalent Yield Table
21. ...................... Underwriters Principal Underwriter; Fees and Expenses
22. ...................... Calculation of Performance Data Investment Performance
23. ...................... Financial Statements Financial Statements
</TABLE>
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV CLASSIC
MUNICIPAL FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<C> <C>
EV CLASSIC CALIFORNIA MUNICIPALS FUND EV CLASSIC NEW YORK MUNICIPALS FUND
EV CLASSIC FLORIDA MUNICIPALS FUND EV CLASSIC OHIO MUNICIPALS FUND
EV CLASSIC MASSACHUSETTS MUNICIPALS FUND EV CLASSIC RHODE ISLAND MUNICIPALS FUND
EV CLASSIC MISSISSIPPI MUNICIPALS FUND EV CLASSIC WEST VIRGINIA MUNICIPALS FUND
</TABLE>
THE EV CLASSIC MUNICIPAL FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX AND THE STATE
TAXES DESCRIBED UNDER "THE FUNDS' INVESTMENT OBJECTIVES" IN THIS PROSPECTUS.
EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-DIVERSIFIED OPEN-END
INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME INVESTMENT OBJECTIVE AS THE
FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO OF
SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. EACH FUND IS A SERIES
OF EATON VANCE MUNICIPALS TRUST (THE "TRUST").
Shares of the Funds 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 Funds involve
investment risks, including fluctuations in value and the possible loss of
some or all of the principal investment.
This combined Prospectus is designed to provide you with information you
should know before investing. Please retain this document for future
reference. A combined Statement of Additional Information dated February 1,
1996 for the Funds, as supplemented from time to time, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference.
This Statement of Additional Information is available without charge from the
Funds' principal underwriter, Eaton Vance Distributors, Inc. (the "Principal
Underwriter"), 24 Federal Street, Boston, MA 02110 (telephone (800) 225-6265).
The Portfolios' investment adviser is Boston Management and Research (the
"Investment Adviser"), a wholly-owned subsidiary of Eaton Vance Management,
and Eaton Vance Management is the administrator (the "Administrator") of the
Funds. The offices of the Investment Adviser and the Administrator are located
at 24 Federal Street, Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE FOR
PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR YOUR
BROKER FOR FURTHER INFORMATION.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<TABLE>
<C> <C>
PAGE PAGE
Shareholder and Fund Expenses ................... 2 How to Redeem Fund Shares ............. 16
The Funds' Financial Highlights ................. 4 Reports to Shareholders ............... 18
The Funds' Investment Objectives ................ 6 The Lifetime Investing Account/
How the Funds and the Portfolios Distribution Options ............... 18
Invest their Assets ........................... 6 The Eaton Vance Exchange Privilege .... 19
Organization of the Funds and the Portfolios .... 10 Eaton Vance Shareholder Services ...... 19
Management of the Funds and the Portfolios ...... 12 Distributions and Taxes ............... 20
Distribution Plans .............................. 13 Performance Information ............... 21
Valuing Fund Shares ............................. 15 Appendix -- State Specific Information 22
How to Buy Fund Shares .......................... 15
</TABLE>
- -------------------------------------------------------------------------------
PROSPECTUS DATED FEBRUARY 1, 1996
<PAGE>
<TABLE>
SHAREHOLDER AND FUND EXPENSES
---------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
----------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Contingent Deferred Sales Charge Imposed on Redemption During the First Year
(as a percentage of redemption proceeds exclusive of all reinvestments and
capital appreciation in the account) 1.00%
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
----------------------------------------------------------------------------------------------------------------
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee 0.50% 0.47% 0.46% 0.10%
Rule 12b-1 Distribution (and Service) Fees 1.00 0.95 0.95 0.95
Other Expenses 0.17 0.17 0.12 0.44
---- ---- ---- ----
Total Operating Expenses 1.67% 1.59% 1.53% 1.49%
==== ==== ==== ====
<CAPTION>
EXAMPLE
----------------------------------------------------------------------------------------------------------------
An investor would pay the following expenses (including a contingent deferred sales charge in the case of
redemption during the first year after purchase) on a $1,000 investment, assuming (a) 5% annual return and (b)
redemption at the end of each period:
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 27 $ 26 $ 26 $ 25
3 Years 53 50 48 47
5 Years 91 87 83 81
10 Years 198 189 182 178
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b) no
redemptions:
1 Year $ 17 $ 16 $ 16 $ 15
3 Years 53 50 48 47
5 Years 91 87 83 81
10 Years 198 189 182 178
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
----------------------------------------------------------------------------------------------------------------
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee 0.47% 0.46% 0.13% 0.16%
Rule 12b-1 Distribution (and Service) Fees 0.95 0.95 0.95 0.95
Other Expenses 0.14 0.16 0.21 0.24
---- ---- ---- ----
Total Operating Expenses 1.56% 1.57% 1.29% 1.35%
==== ==== ==== ====
<CAPTION>
EXAMPLE
----------------------------------------------------------------------------------------------------------------
An investor would pay the following expenses (including a contingent deferred sales charge in the case of
redemption during the first year after purchase) on a $1,000 investment, assuming (a) 5% annual return and (b)
redemption at the end of each period:
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 26 $ 26 $ 23 $ 24
3 Years 49 50 41 43
5 Years 85 86 71 74
10 Years 186 187 156 162
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b) no
redemptions:
1 Year $ 16 $ 16 $ 13 $ 14
3 Years 49 50 41 43
5 Years 85 86 71 74
10 Years 186 187 156 162
</TABLE>
NOTES:
The tables and Examples summarize the aggregate expenses of the Funds and the
Portfolios and are designed to help investors understand the costs and
expenses they will bear, directly or indirectly, by investing in a Fund.
Information for each Fund is based on its expenses for the most recent fiscal
year. Absent a fee reduction (in the case of the Investment Adviser Fee) and/
or an expense allocation (in the case of Other Expenses) expenses of the
following Funds would have been the following percentage of average daily net
assets: California Fund Other Expenses would have been 1.57%; Florida Fund
Other Expenses would have been 0.57%; Massachusetts Fund Other Expenses would
have been 0.61%; Mississippi Fund Investment Adviser Fee and Other Expenses
would have been 0.22% and 1.03%, respectively; New York Fund Other Expenses
would have been 0.58%; Ohio Fund Other Expenses would have been 1.17%; Rhode
Island Fund Investment Adviser Fee and Other Expenses would have been 0.25%
and 0.70%, respectively; and West Virginia Fund Investment Adviser Fee and
Other Expenses would have been 0.24% and 1.40%, respectively.
Each Fund invests exclusively in its corresponding Portfolio. The Trustees
believe the aggregate per share expenses of a Fund and its corresponding
Portfolio should approximate, and over time may be less than, the per share
expenses the Fund would incur if the Fund were instead to retain the services
of an investment adviser and its assets were invested directly in the type of
securities being held by its corresponding Portfolio.
The Examples 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 Examples to assume a 5% annual return, but
actual return may vary. For further information regarding the expenses of the
Funds and the Portfolios see "The Funds" Financial Highlights'', "Organization
of the Funds and the Portfolios", "Management of the Funds and the Portfolios"
and "How to Redeem Fund Shares". A long-term shareholder in a Fund 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. See "Distribution
Plans."
No contingent deferred sales charge is imposed on (a) shares purchased more
than one year prior to redemption, (b) shares acquired through the
reinvestment of dividends and distributions or (c) any appreciation in value
of other shares in the account (see "How to Redeem Fund Shares"), and no such
charge is imposed on exchanges of Fund shares for shares of one or more other
funds listed under "The Eaton Vance Exchange Privilege."
Each Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 12.
Other investment companies with different distribution arrangements and fees
are investing in the Portfolios and others may do so in the future. See
"Organization of the Funds and the Portfolios".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Funds' annual report to shareholders
which is incorporated by reference into the Statement of Additional
Information in reliance upon the report of Deloitte & Touche LLP, independent
certified public accountants, as experts in accounting and auditing. Further
information regarding the performance of a Fund is contained in its annual
report to shareholders which may be obtained without charge by contacting the
Principal Underwriter, Eaton Vance Distributors, Inc.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------------------------
CALIFORNIA FUND FLORIDA FUND MASSACHUSETTS FUND MISSISSIPPI FUND
---------------------------------- ---------------------- ---------------------- --------------------
MARCH 31,
1995 1994* 1994* 1995 1994* 1995 1994* 1995 1994*
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.080 $ 9.340 $10.000 $ 8.970 $10.000 $ 9.000 $10.000 $ 8.920 $10.000
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.462 $ 0.227 $ 0.140 $ 0.444 $ 0.351 $ 0.449 $ 0.350 $ 0.460 $ 0.338
Net realized and
unrealized gain (loss)
on investments 0.265 (0.224) (0.635) 0.399 (0.967) 0.283 (0.933) 0.392 (1.024)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss)
from operations $ 0.727 $ 0.003 $(0.495) $ 0.843 $(0.616) $ 0.732 $(0.583) $ 0.852 $(0.686)
------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.462) $(0.227) $(0.140) $(0.444) $(0.351) $(0.449) $(0.350) $(0.460) $(0.338)
In excess of net
investment income (0.008) (0.036) (0.025) (0.019) (0.063) (0.023) (0.067) (0.012) (0.056)
In excess of net
realized gain on
investments (0.017) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.487) $(0.263) $(0.165) $(0.463) $(0.414) $(0.472) $(0.417) $(0.472) $(0.394)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
end of year $ 9.320 $ 9.080 $ 9.340 $ 9.350 $ 8.970 $ 9.260 $ 9.000 $ 9.300 $ 8.920
======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 8.32% 0.03% (5.16)% 9.72% (6.36)% 8.45% (6.02)% 9.47% (6.96)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year
(000 omitted) $ 2,761 $ 2,893 $ 2,095 $ 5,261 $ 8,063 $ 2,764 $ 3,743 $ 2,330 $ 2,800
Ratio of net expenses
to average daily net
assets(2) 1.67% 1.73%+ 1.64%+ 1.59% 1.63%+ 1.53% 1.61%+ 1.49% 1.24%+
Ratio of net investment
income to average
daily net assets 5.11% 4.89%+ 4.17%+ 4.98% 4.51%+ 5.05% 4.55%+ 4.79% 4.42%+
**For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Investment Adviser and/or Administrator. Had such actions not been taken, net investment income per share and the ratios would
have been:
NET INVESTMENT INCOME
PER SHARE $ 0.335 $ 0.120 $ 0.123 $ 0.408 $ 0.331 $ 0.405 $ 0.260 $ 0.392 $ 0.246
======= ======= ======= ======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 3.07% 4.03%+ 2.15%+ 1.99% 1.88%+ 2.02% 2.78%+ 2.20% 2.45%+
Net investment income 3.71% 2.59%+ 3.66%+ 4.59% 4.26%+ 4.56% 3.38%+ 4.08% 3.21%+
(See footnotes on page 5.)
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- continued
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------------------
NEW YORK FUND OHIO FUND RHODE ISLAND FUND WEST VIRGINIA FUND
------------------------ ------------------------ ------------------------ ------------------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.060 $10.000 $ 8.940 $10.000 $ 8.890 $10.000 $ 8.980 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.454 $ 0.344 $ 0.428 $ 0.348 $ 0.442 $ 0.347 $ 0.427 $ 0.326
Net realized and
unrealized gain
(loss) on investments 0.372 (0.869) 0.404 (0.992) 0.331 (1.046) 0.385 (0.959)
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss)
from operations $ 0.826 $(0.525) $ 0.832 $(0.644) $ 0.773 $(0.699) $ 0.812 $(0.633)
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.454) $(0.344) $(0.428) $(0.348) $(0.442) $(0.347) $(0.427) $(0.326)
In excess of net
investment income (0.012) (0.071) (0.024) (0.068) (0.011) (0.064) (0.015) (0.061)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.466) $(0.415) $(0.452) $(0.416) $(0.453) $(0.411) $(0.442) $(0.387)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
end of year $ 9.420 $ 9.060 $ 9.320 $ 8.940 $ 9.210 $ 8.890 $ 9.350 $ 8.980
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 9.45% (5.45)% 9.64% (6.75)% 9.00% (7.29)% 9.35% (6.53)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year
(000 omitted) $ 5,449 $ 5,137 $ 2,168 $ 2,111 $ 3,034 $ 3,919 $ 1,032 $ 1,897
Ratio of net expenses
to average daily net
assets(2) 1.56% 1.64%+ 1.57% 1.60%+ 1.29% 1.23%+ 1.35% 1.28%+
Ratio of net investment
income to average
daily net assets 4.96% 4.41%+ 4.76% 4.42%+ 5.00% 4.50%+ 4.81% 4.53%+
**For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Investment Adviser and/or Administrator. Had such actions not been taken, net investment income per share and the ratios would
have been:
NET INVESTMENT INCOME
PER SHARE $ 0.414 $ 0.293 $ 0.336 $ 0.241 $ 0.388 $ 0.299 $ 0.317 $ 0.204
======= ======= ======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 2.00% 2.29%+ 2.58% 2.96%+ 1.90% 1.85%+ 2.59% 2.66%+
Net investment income 4.52% 3.76%+ 3.74% 3.06%+ 4.39% 3.88%+ 3.57% 3.15%+
Footnotes:
* For the California Fund, the Financial Highlights are for the period from the start of business, December 3, 1993 to March 31,
1994 and for the six months ended September 30, 1994 and for the Florida, Massachusetts, Mississippi, New York, Ohio, Rhode
Island and West Virginia Funds, the Financial Highlights are for the period from the start of business, December 3, 1993,
December 7, 1993, December 7, 1993, December 6, 1993, December 7, 1993, December 7, 1993 and December 13, 1993, respectively, to
September 30, 1994.
+ Annualized.
++ The per share amount is not in accord with the net realized gain (loss) for the period because of the timing of sales of Fund
shares and the amount of per share realized and unrealized gains and losses at such time.
(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 computed on a non-annualized basis.
(2)Includes the Fund's share of its corresponding Portfolio's allocated expenses.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
- ------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund seeks to
meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio") which
invests primarily in municipal obligations (as described below) which are
rated at least investment grade by a major rating agency or, if unrated,
determined to be of at least investment grade quality by the Investment
Adviser. Each Portfolio has the same investment objective as its corresponding
Fund.
EV CLASSIC CALIFORNIA MUNICIPALS FUND (the "California Fund") seeks to provide
current income exempt from regular federal income tax and California State
personal income taxes. The California Fund seeks to meet its objective by
investing its assets in the California Municipals Portfolio (the "California
Portfolio").
EV CLASSIC FLORIDA MUNICIPALS FUND (the "Florida Fund") seeks to provide
current income exempt from regular federal income tax in the form of an
investment exempt from Florida intangibles tax. The Florida Fund seeks to meet
its objective by investing its assets in the Florida Municipals Portfolio (the
"Florida Portfolio").
EV CLASSIC MASSACHUSETTS MUNICIPALS FUND (the "Massachusetts Fund") seeks to
provide current income exempt from regular federal income tax and
Massachusetts state personal income taxes. The Massachusetts Fund seeks to
meet its objective by investing its assets in the Massachusetts Municipals
Portfolio (the "Massachusetts Portfolio").
EV CLASSIC MISSISSIPPI MUNICIPALS FUND (the "Mississippi Fund") seeks to
provide current income exempt from regular federal income tax and Mississippi
State personal income taxes. The Mississippi Fund seeks to meet its objective
by investing its assets in the Mississippi Municipals Portfolio (the
"Mississippi Portfolio").
EV CLASSIC NEW YORK MUNICIPALS FUND (the "New York Fund") seeks to provide
current income exempt from regular federal income tax and New York State and
New York City personal income taxes. The New York Fund seeks to meet its
objective by investing its assets in the New York Municipals Portfolio (the
"New York Portfolio").
EV CLASSIC OHIO MUNICIPALS FUND (the "Ohio Fund") seeks to provide current
income exempt from regular federal income tax and Ohio State personal income
taxes. The Ohio Fund seeks to meet its objective by investing its assets in
the Ohio Municipals Portfolio (the "Ohio Portfolio").
EV CLASSIC RHODE ISLAND MUNICIPALS FUND (the "Rhode Island Fund") seeks to
provide current income exempt from regular federal income tax and Rhode Island
State personal income taxes. The Rhode Island Fund seeks to meet its objective
by investing in the Rhode Island Municipals Portfolio (the "Rhode Island
Portfolio").
EV CLASSIC WEST VIRGINIA MUNICIPALS FUND (the "West Virginia Fund") seeks to
provide current income exempt from regular federal income tax and West
Virginia State personal income taxes. The West Virginia Fund seeks to meet its
objective by investing its assets in the West Virginia Municipals Portfolio
(the "West Virginia Portfolio").
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
- ------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER
DIRECTLY OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY
PRIMARILY (I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL
MARKET CONDITIONS) IN MUNICIPALS OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT
FROM REGULAR FEDERAL INCOME TAX AND FROM THE STATE TAXES WHICH, IN ACCORDANCE
WITH ITS INVESTMENT OBJECTIVE, THE FUND SEEKS TO AVOID. The foregoing policy
is a fundamental policy of each Fund and its corresponding Portfolio, which
may not be changed unless authorized by a vote of the Fund's shareholders or
that Portfolio's investors, as the case may be.
At least 75% of the net assets of the California Portfolio and Florida
Portfolio, at least 70% of the net assets of the Massachusetts Portfolio and
New York Portfolio, and at least 80% of the net assets of the Mississippi
Portfolio, Ohio Portfolio, Rhode Island Portfolio and West Virginia Portfolio
will normally be invested in obligations rated at least investment grade at
the time of investment (which are those rated Baa or higher by Moody's
Investors Service, Inc. ("Moody's") or BBB or higher by either Standard &
Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc. ("Fitch")) or,
if unrated, determined by the Investment Adviser to be of at least investment
grade quality. The balance of each Portfolio's net assets may be invested in
municipal obligations rated below investment grade (but not lower than B by
Moody's, S&P or Fitch) and unrated municipal obligations considered to be of
comparable quality by the Investment Adviser. Municipal obligations rated Baa
or BBB may have speculative characteristics. Also, 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. Securities rated below BBB or Baa are commonly known as
"junk bonds". A Portfolio may retain an obligation whose rating drops below B
after its acquisition if such retention is considered desirable by the
Investment Adviser. See "Risk Considerations." For a description of municipal
obligation ratings, see the Statement of Additional Information.
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
bonds 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. 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. Under normal market conditions, a Portfolio will invest
at least 65% of its total assets in obligations issued by its respective State
or its political subdivisions.
Interest income from certain types of municipal obligations may be subject to
the federal alternative minimum tax for individual investors. As at September
30, 1995, the Portfolios had invested in such obligations as follows (as a
percentage of net assets): California Portfolio (18.0%); Florida Portfolio
(18.9%); Massachusetts Portfolio (18.1%); Mississippi Portfolio (13.5%); New
York Portfolio (4.82%); Ohio Portfolio (17.8%); Rhode Island Portfolio
(19.1%); and West Virginia Portfolio (16.6%). At September 30, 1995, the
Portfolios limited their investment in obligations subject to the federal
alternative minimum tax to not more than 20% of net assets. The Portfolios are
no longer subject to such limitation. Distributions to corporate investors of
certain interest income may also be subject to the federal alternative minimum
tax.
CONCENTRATION. Each Portfolio will concentrate its investments in municipal
obligations issued by its respective State and that State's political
subdivisions. Each Portfolio is, therefore, more susceptible to factors
adversely affecting issuers in one State than mutual funds which do not
concentrate in a specific State. Municipal obligations of issuers in a single
State may be adversely effected by economic developments and by legislation
and other governmental activities in that State. To the extent that a
Portfolio's assets are concentrated in municipal obligations of issuers of a
single State, that Portfolio may be subject to an increased risk of loss. Each
Portfolio may also invest in obligations issued by the governments of Puerto
Rico, the U.S. Virgin Islands and Guam. See the Appendix to this Prospectus
for a description of economic and other factors relating to the States and
Puerto Rico.
In addition, each Portfolio may invest 25% or more of its total assets in
municipal obligations of the same type, including, without limitation, the
following: lease rental obligations of State and local authorities;
obligations of State and local housing finance authorities, municipal
utilities systems or public housing authorities; obligations of hospitals or
life care facilities; or industrial development or pollution control bonds
issued for electric utility systems, steel companies, paper companies or other
purposes. This may make a Portfolio more susceptible 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. As a
Portfolio's concentration increases, so does the potential for fluctuation in
the value of the corresponding Fund's shares.
NON-DIVERSIFIED STATUS. Each Portfolio's classification under the Investment
Company Act of 1940 (the "1940 Act") as a "non-diversified" investment company
allows it to invest, with respect to 50% of its total assets, more than 5%
(but not more than 25%) of its total assets in the securities of any issuer. A
Portfolio is likely to invest a greater percentage of its assets in the
securities of a single issuer than would a diversified fund. Therefore, a
Portfolio would be more susceptible to any single adverse economic or
political occurrence or development affecting issuers of the relevant State's
municipal obligations.
OTHER INVESTMENT PRACTICES
Each Portfolio 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, each
Portfolio may temporarily borrow up to 5% of the value of its total assets to
satisfy redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield 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 a Portfolio agreed to pay for them. Each
Portfolio may also purchase instruments that give the Portfolio the option to
purchase a municipal obligation when and if issued.
INVERSE FLOATERS. Each Portfolio may invest in 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 a Portfolio when
short-term interest rates rise, and increase the interest paid to the
Portfolio when short-term interest rates fall. Inverse floaters have varying
degrees of liquidity, and the market for these securities is new and
relatively volatile. 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. Each Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. The futures contracts may be based on various debt securities
(such as U.S. Government securities), securities indices (such as the
Municipal Bond Index traded on the Chicago Board of Trade) and other financial
instruments and indices. Such transactions involve a risk of loss or
depreciation due to unanticipated adverse changes in securities prices, which
may exceed a Portfolio's initial investment in these contracts. A Portfolio
may not purchase or sell futures contracts or related options, except for
closing purchase or sale transactions, if immediately thereafter the sum of
the amount of margin deposits and premiums paid on the Portfolio's outstanding
positions would exceed 5% of the market value of the Portfolio's net assets.
These transactions involve transaction costs. There can be no assurance that
the Investment Adviser's use of futures will be advantageous to a Portfolio.
Distributions by a Fund of any gains realized on its corresponding Portfolio's
transactions in futures and options on futures will be taxable.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market
price paid for insured obligations may reduce a Fund's 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 a Fund's shares.
RISK CONSIDERATIONS
Many municipal obligations offering current income are in the lowest
investment grade category (Baa or BBB), lower categories or may be unrated. As
indicated above, each Portfolio may invest in municipal obligations rated
below investment grade (but not lower than B by Moody's, S&P or Fitch) and
comparable unrated obligations. The lowest investment grade, lower rated and
comparable unrated municipal obligations in which a Portfolio may invest 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 the Portfolio invests in such
municipal obligations, the achievement of the Portfolio's goals is more
dependent on the Investment Adviser's ability than would be the case if the
Portfolio were investing in municipal obligations in the higher rating
categories.
Each Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, a Portfolio may incur additional expense seeking
recovery of its investment. Municipal obligations held by a Portfolio 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 the Portfolio's investment policies. A Portfolio
may retain in its portfolio an obligation whose rating drops below B after its
acquisition, if such retention is considered desirable by the Investment
Adviser; provided, however, that holdings of obligations rated below Baa or
BBB will not exceed 35% of net assets. In the event the rating of an
obligation held by a Portfolio is downgraded, causing the Portfolio to exceed
this limitation, the Investment Adviser will (in an orderly fashion within a
reasonable period of time) dispose of such obligations as it deems necessary
in order to comply with the Portfolio's credit quality limitations. For a
description of municipal obligation ratings, see the Statement of Additional
Information.
The net asset value of shares of a Fund will change in response to
fluctuations in prevailing interest rates and changes in the value of the
securities held by its corresponding Portfolio. When interest rates decline,
the value of securities held by a Portfolio 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 by a Portfolio will affect the principal
value of (and possibly the income earned on) 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 a Portfolio's 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 shares of a Fund will
not constitute a complete investment program.
At times, a substantial portion of the Portfolio's assets may be invested in
securities as to which the Portfolio, 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,
the Portfolio could find it more difficult to sell such securities when the
Investment Adviser believes it advisable to do so or may be able to sell such
securities only at prices lower than if such securities were more widely held.
Under such circumstances, it may also be more difficult to determine the fair
value of such securities for purposes of computing the Portfolio's net asset
value.
The secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15%
of its net assets would be invested in securities that are not readily
marketable. No established resale market exists for certain of the municipal
obligations in which a Portfolio may invest. The market for obligations rated
below investment grade is also likely to be less liquid than the market for
higher rated obligations. As a result, a Portfolio 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 held by the Portfolio may permit the issuer at its option
to "call", or redeem, its securities. If an issuer redeems securities held by
the Portfolio during a time of declining interest rates, the Portfolio may not
be able to reinvest the proceeds in securities providing the same investment
return as the securities redeemed.
Some of the securities in which a Portfolio invests may 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. Each Portfolio is required to accrue and distribute
income from zero-coupon bonds on a current basis, even though it does not
receive that income currently in cash. Thus, a Portfolio may have to sell
other investments to obtain cash needed to make income distributions.
Each Portfolio may invest in 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.
--------------------------------------------------------------------------
EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH 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 OF EACH FUND AND PORTFOLIO ARE NOT
FUNDAMENTAL POLICIES AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE
TRUST AND THE PORTFOLIO WITHOUT OBTAINING THE APPROVAL OF A FUND'S
SHAREHOLDERS OR THE INVESTORS IN THE CORRESPONDING PORTFOLIO, AS THE CASE
MAY BE. IF ANY CHANGES WERE MADE IN A FUND'S INVESTMENT OBJECTIVE, THE
FUND MIGHT HAVE INVESTMENT OBJECTIVES DIFFERENT FROM THE OBJECTIVE WHICH
AN INVESTOR CONSIDERED APPROPRIATE AT THE TIME THE INVESTOR BECAME A
SHAREHOLDER IN THE FUND.
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ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
- ------------------------------------------------------------------------------
EACH FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST (THE
"TRUST"), A BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A
DECLARATION OF TRUST DATED SEPTEMBER 30, 1985, AS AMENDED. THE TRUST IS A
MUTUAL FUND -- AN OPEN-END MANAGEMENT INVESTMENT COMPANY. 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 and because the Trust
can offer separate series (such as the Funds) it is known as a "series
company." Each share represents an equal proportionate beneficial interest in
a Fund. When issued and outstanding, each Fund's shares are fully paid and
nonassessable by the Trust and redeemable as described under "How to Redeem
Fund Shares." Shareholders are entitled to one vote for each full share held.
Fractional shares may be voted proportionately. Shares have no preemptive or
conversion rights and are freely transferable. In the event of the liquidation
of a Fund, shareholders of that Fund are entitled to share pro rata in the net
assets available for distribution to shareholders.
EACH PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolios, as well as the Trust, intend to comply with all applicable federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that
Portfolio (e.g., other U.S. and foreign investment companies, and common and
commingled trust funds) will each be liable for all obligations of the
Portfolio. However, the risk of a Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
exists and the Portfolio itself is unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Funds nor
their shareholders will be adversely affected by reason of the Funds investing
in the Portfolios.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
a Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in its
corresponding Portfolio, which is a separate investment company with an
identical investment objective (although the Fund may temporarily hold a de
minimus amount of cash). Therefore, a Fund's interest in the securities owned
by its corresponding Portfolio is indirect. In addition to selling an interest
to its corresponding Fund, a Portfolio may sell interests to other affiliated
and non-affiliated mutual funds or institutional investors. Such investors
will invest in a Portfolio on the same terms and conditions and will pay a
proportionate share of the Portfolio's expenses. However, the other investors
investing in a Portfolio are not required to sell their shares at the same
public offering price as the corresponding Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in a Fund
should be aware that these differences may result in differences in returns
experienced by investors in the various funds that invest in its corresponding
Portfolio. Such differences in returns are also present in other mutual fund
structures, including funds that have multiple classes of shares. For
information regarding the investment objective, policies and restrictions of
the Portfolios, see "The Funds" Investment Objectives'' and "How the Funds and
the Portfolios Invest their Assets". Further information regarding investment
practices may be found in the Statement of Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages of
investing the assets of each Fund in its corresponding Portfolio, as well as
the advantages and disadvantages of the two-tier format. The Trustees believe
that the structure offers opportunities for substantial growth in the assets
of the Portfolios, and affords the potential for economies of scale for each
Fund, at least when the assets of its corresponding Portfolio exceed $500
million.
A Fund may withdraw (completely redeem) all its assets from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of that Fund to do so. The investment objective and
the nonfundamental investment policies of each Fund and Portfolio may be
changed by the Trustees of the Trust and the Portfolio without obtaining the
approval of the shareholders of that Fund or the investors in that Portfolio,
as the case may be. Any such change of an investment objective will be
preceded by thirty days' advance written notice to the shareholders of the
Fund or the investors in the Portfolio, as the case may be. If a shareholder
redeems shares because of a change in the nonfundamental objective or policies
of a Fund, those shares may be subject to a contingent deferred sales charge,
as described in "How to Redeem Fund Shares". In the event a Fund withdraws all
of its assets from its corresponding Portfolio, or the Board of Trustees of
the Trust determines that the investment objective of such Portfolio is no
longer consistent with the investment objective of the Fund, such Trustees
would consider what action might be taken, including investing the assets of
such Fund in another pooled investment entity or retaining an investment
adviser to manage the Fund's assets in accordance with its investment
objective. A Fund's investment performance may be affected by a withdrawal of
all its assets from its corresponding Portfolio.
Information regarding other pooled investment entities or funds which invest
in a Portfolio may be obtained by contacting Eaton Vance Distributors, Inc.
(the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110,
(617) 482-8260. Smaller investors in a Portfolio may be adversely affected by
the actions of a larger investor investing in the Portfolio. For example, if a
large investor withdraws from a Portfolio, the remaining investors may
experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, a Portfolio may become less diverse, resulting in
increased portfolio risk, and experience decreasing economies of scale.
However, this possibility exists as well for historically structured mutual
funds which have large or institutional investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a
separate investment company are a relatively new development in the mutual
fund industry and, therefore, the Funds may be subject to additional
regulations than historically structured funds.
Each Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of a Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolios as partnerships for Federal income tax purposes.
See "Distributions and Taxes" for further information. Whenever a Fund as an
investor in a Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may
be determined by the Trustees of the Portfolio without investor approval), the
Fund will hold a meeting of Fund shareholders and will vote its interest in
the Portfolio for or against such matters proportionately to the instructions
to vote for or against such matters received from Fund shareholders. A Fund
shall vote shares for which it receives no voting instructions in the same
proportion as the shares for which it receives voting instructions. Other
investors in a Portfolio may alone or collectively acquire sufficient voting
interests in the Portfolio to control matters relating to the operation of the
Portfolio, which may require the corresponding Fund to withdraw its investment
in the Portfolio or take other appropriate action. Any such withdrawal could
result in a distribution "in kind" of portfolio securities (as opposed to a
cash distribution from the Portfolio). If securities are distributed, a Fund
could incur brokerage, tax or other charges in converting the securities to
cash. In addition, the distribution in kind may result in a less diversified
portfolio of investments or adversely affect the liquidity of a Fund.
Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested Trustees,
have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of each Portfolio are the same. Such procedures require
each Board to take action to resolve any conflict of interest between a Fund
and its corresponding Portfolio, and it is possible that the creation of
separate Boards may be considered. For further information concerning the
Trustees and officers of each of the Trust and the Portfolios, see the
Statement of Additional Information.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in
this Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
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EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF 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 each
Portfolio, BMR manages each Portfolio's investments and affairs and furnishes
for the use of each Portfolio office space and all necessary office
facilities, equipment and personnel for servicing the investments of the
Portfolios. Under its investment advisory agreement with a Portfolio, BMR
receives a monthly advisory fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the 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 daily gross income on such
day as that portion of the total daily net assets in the same Category
bears to the total daily net assets on such day) in each Category as
indicated below. Categories (1) and (2) below do not apply to the
California Portfolio and Category (3) is for daily net assets of the
California Portfolio of up to $500 million.
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
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1 up to $20 million 0.100% 1.00%
2 $20 million but less than $40 million 0.200% 2.00%
3 $40 million but less than $500 million 0.300% 3.00%
4 $500 million but less than $1 billion 0.275% 2.75%
5 $1 billion but less than $1.5 billion 0.250% 2.50%
6 $1.5 billion but less than $2 billion 0.225% 2.25%
7 $2 billion but less than $3 billion 0.200% 2.00%
8 $3 billion and over 0.175% 1.75%
Each Portfolio paid (or, absent a fee reduction, would have paid) advisory
fees for the fiscal year ended September 30, 1995 equivalent to the annualized
percentage of average daily net assets stated below.
NET ASSETS AS OF
PORTFOLIO SEPTEMBER 30, 1995 ADVISORY FEE
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California ................................ $2,121,262 0.50%
Florida ................................... 3,433,489 0.47%
Massachusetts ............................. 1,383,407 0.46%
Mississippi ............................... 65,442 0.22%(1)
New York .................................. 3,081,508 0.47%
Ohio ...................................... 1,463,895 0.46%
Rhode Island .............................. 100,476 0.25%(2)
West Virginia ............................. 98,033 0.24%(3)
(1) To enhance the net income of the Mississippi Portfolio, BMR made a
reduction of its advisory fee in the amount of $36,759.
(2) To enhance the net income of the Rhode Island Portfolio, BMR made a
reduction of its advisory fee in the amount of $50,721.
(3) To enhance the net income of the West Virginia Portfolio, BMR made a
reduction of its advisory fee in the amount of $32,526.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $16 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real
estate investment, consulting and management, and development of precious
metals properties.
Nicole Anderes has acted as the portfolio manager of the New York and Rhode
Island Portfolios since they commenced operations. She joined Eaton Vance and
BMR as a Vice President in January 1994. Prior to joining Eaton Vance, she was
a Vice President and portfolio manager at Lazard Freres Asset Management
(1992-1994) and a Vice President and Manager -- Municipal Research at
Roosevelt & Cross (1978-1992).
Timothy T. Browse has acted as the portfolio manager of the West Virginia
Portfolio since it commenced operations. He has been a Vice President of Eaton
Vance and of BMR since 1993 and an employee of Eaton Vance since 1992. Prior
to joining Eaton Vance, he was a municipal bond trader at Fidelity Management
& Research Company (1987-1992).
Cynthia J. Clemson has acted as the portfolio manager of the Mississippi
Portfolio since it commenced operations and the California Portfolio since
February 1, 1996. She has been a Vice President of Eaton Vance and BMR since
1993 and an employee of Eaton Vance since 1985.
Thomas J. Fetter has acted as the portfolio manager of the Florida and Ohio
Portfolios since they commenced operations. He has been a Vice President of
Eaton Vance since 1987 and of BMR since inception.
Robert B. MacIntosh has acted as the portfolio manager of the Massachusetts
Portfolio since it commenced operations. He has been a Vice President of Eaton
Vance since joining the firm in 1991 and of BMR since its inception. Prior to
joining Eaton Vance, he was a portfolio manager at Fidelity Management &
Research Company (1986-1991).
Municipal obligations are normally traded on a net basis (without commission)
through broker-dealers and banks acting for their own account. Such firms
attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolios and at reasonably competitive spreads. Subject
to the foregoing, BMR may consider sales of shares of the Funds or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing its assets in the corresponding Portfolio. As Administrator, Eaton
Vance provides the Funds with general office facilities and supervises the
overall administration of the Fund. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible for
all respective costs and expenses not expressly stated to be payable by BMR
under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by EVD under the distribution agreement.
DISTRIBUTION PLANS
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EACH FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(A "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940.
Rule 12b-1 permits a mutual fund, such as a Fund, to finance distribution
activities and bear expenses associated with the distribution of its shares
provided that any payments made by the Fund are made pursuant to a written
plan adopted in accordance with the Rule. Each Plan is subject to, and
complies with, the sales charge rule of the National Association of Securities
Dealers, Inc. (the "NASD Rule"). Each Fund's Plan is described further in the
Statement of Additional Information, and the following is a description of the
salient features of the Plans. Each Fund's Plan provides that the Fund,
subject to the NASD Rule, will pay sales commissions and distribution fees to
the Principal Underwriter only after and as a result of the sale of shares of
the Fund. On each sale of Fund shares (excluding reinvestment of
distributions) a Fund will pay the Principal Underwriter amounts representing
(i) sales commissions equal to 6.25% of the amount received by a 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. On sales of shares made prior to January 30, 1995,
the Principal Underwriter currently pays monthly sales commissions to a
financial service firm (an "Authorized Firm") in amounts anticipated to be
equivalent to .75%, annualized, of the assets maintained in a Fund by the
customers of such Firm. On sales of shares made on January 30, 1995 and
thereafter, the Principal Underwriter currently expects to pay to an
Authorized Firm (a) sales commissions (except on exchange transactions and
reinvestments) at the time of sale equal to .80% (.75% in the case of the
California Fund) of the purchase price of the shares sold by such Firm, and
(b) monthly sales commissions approximately equivalent to 1/12 of .75% of the
value of shares sold by such Firm and remaining outstanding for at least one
year. The Plan is designed to permit an investor to purchase Fund 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 with the sale of Fund shares.
THE NASD RULE REQUIRES EACH FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO AN AMOUNT NOT EXCEEDING .75% OF THE
FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. Under its Plan, a Fund
accrues daily an amount at the rate of 1/365 of .75% of the Fund's net
assets, and pays such accrued amounts monthly to the Principal Underwriter.
Each Plan requires such accruals to be automatically discontinued during any
period in which there are no outstanding Uncovered Distribution Charges under
the Plan. Uncovered Distribution Charges are calculated daily and, briefly,
are equivalent to all unpaid sales commissions and distribution fees to which
the Principal Underwriter is entitled under a Plan less all contingent
deferred sales charges theretofore paid to the Principal Underwriter. The
Eaton Vance organization may be considered to have realized a profit under a
Fund's Plan if at any point in time the aggregate amounts of all payments made
to the Principal Underwriter pursuant to a Fund's Plan, including any
contingent deferred sales charges, have exceeded the total expenses
theretofore incurred by such organization in distributing 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.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid during any fiscal year, a high level of sales of Fund
shares during the initial years of a Fund's operations would cause a large
portion of the sales commissions attributable to a sale of Fund shares to be
accrued and paid by the Fund to the Principal Underwriter in fiscal years
subsequent to the year in which such shares were sold. This spreading of sales
commissions payments under each Fund's Plan over an extended period would
result in the incurrence and payment of increased distribution fees under the
Plan.
During the fiscal year ended September 30, 1995, each Fund paid or accrued
sales commissions under its Plan equivalent to .75% (annualized) of such
Fund's average daily net assets. As at September 30, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter on such day
calculated under the Plan amounted to approximately $330,967 (equivalent to
12.0% of net assets on such day) in the case of the California Fund, $712,781
(equivalent to 14.0% of net assets on such day) in the case of the Florida
Fund, $309,676 (equivalent to 11.0% of net assets on such day) in the case of
the Massachusetts Fund, $281,347 (equivalent to 12.0% of net assets on such
day) in the case of the Mississippi Fund, $467,121 (equivalent to 9.0% of net
assets on such day) in the case of the New York Fund, $240,348 (equivalent to
11.0% of net assets on such day) in the case of the Ohio Fund, $339,701
(equivalent to 11.0% of net assets on such day) in the case of the Rhode
Island Fund, and $165,816 (equivalent to 16.0% of net assets on such day) in
the case of the West Virginia Fund.
EACH PLAN ALSO AUTHORIZES A FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The Trustees
of the Trust have initially implemented this provision of each Fund's Plan by
authorizing the Fund to make monthly service fee payments to the Principal
Underwriter in amounts not expected to exceed .20% (.25% for the California
Fund) of the Fund's average daily net assets for each fiscal year. The Fund
accrues the service fee daily at the rate of 1/365 of .20% (.25% for the
California Fund) of the Fund's net assets. On sales of shares made prior to
January 30, 1995, the Principal Underwriter currently makes monthly service
fee payments to an Authorized Firm in amounts anticipated to be equivalent to
.20% (.25% for the California Fund), annualized, of the assets maintained in a
Fund by the customers of such Firm. On sales of shares made on January 30,
1995 and thereafter, the Principal Underwriter currently expects to pay to an
Authorized Firm (a) a service fee (except on exchange transactions and
reinvestments) at the time of sale equal to .20% (.25% for the California
Fund) of the purchase price of the shares sold by such Firm, and (b) monthly
service fees approximately equivalent to 1/12 of .20% (.25% for the
California Fund) of the value of shares sold by such Firm and remaining
outstanding for at least one year. Each Fund's Plan authorizes the Trustees of
the Trust on behalf of the Fund to increase payments to the Principal
Underwriter, Authorized Firms and other persons from time to time without
further action by shareholders of the Fund, provided that the aggregate amount
of payments made to such persons under the Plan in any fiscal year of the Fund
does not exceed .25% of the Fund's average daily net assets. During the first
year after a purchase of Fund shares, the Principal Underwriter will retain
the service fee as reimbursement for the service fee payment made to the
Authorized Firm at the time of sale. As permitted by the NASD Rule, all
service fee payments are made for personal services and/or the maintenance of
shareholder accounts. Service fees are separate and distinct from the sales
commissions and distribution fees payable by a Fund to the Principal
Underwriter, and as such are not subject to automatic discontinuance when
there are no outstanding Uncovered Distribution Charges of the Principal
Underwriter. During the first year after a purchase of Fund shares, the
Principal Underwriter will retain the service fee as reimbursement for the
service fee payment made to the Authorized Firm at the time of sale. For the
fiscal year ended September 30, 1995, each Fund paid or accrued service fees
under its Plan equivalent to 0.20% (0.25% for the California Fund) of such
Fund's average daily net assets for such periods.
The Principal Underwriter may, from time to time, at its own expense, provide
additional incentives to Authorized Firms which employ registered
representatives who sell a Fund's 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.
Each Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Funds' management intends to consider all relevant
factors, including without limitation the size of a Fund, the investment
climate and market conditions, the volume of sales and redemptions of Fund
shares and the amount of Uncovered Distribution Charges of the Principal
Underwriter. Each Plan may continue in effect and payments may be made under
the Plan following any such suspension, discontinuance or limitation of the
offering of Fund shares; however, no Fund is contractually obligated to
continue its Plan for any particular period of time. Suspension of the
offering of Fund shares would not, of course, affect a shareholder's ability
to redeem shares.
VALUING FUND SHARES
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EACH FUND VALUES ITS SHARES ONCE ON 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 Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the
Trust. Net asset value is computed by dividing the value of a Fund's total
assets, less its liabilities, by the number of shares outstanding. Because
each Fund invests its assets in an interest in its corresponding Portfolio,
the Fund's net asset value will reflect the value of its interest in the
Portfolio (which, in turn, reflects the underlying value of the Portfolio's
assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio)
based on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of a
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolios' assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
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SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING
THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
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HOW TO BUY FUND SHARES
- ------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms
at the net asset value per share of the Fund next determined after an order is
effective. A Fund may suspend the offering of shares at any time and may
refuse an order for the purchase of shares. Shares of each Fund are offered
for sale only in States where such shares may be legally sold. An Authorized
Firm may charge its customers a fee in connnection with transactions executed
by that Firm.
An initial investment in a Fund 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 Funds' transfer agent (the "Transfer Agent") as follows: First
Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See
"Eaton Vance Shareholder Services."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange
for Fund shares at their net asset value as determined above. The minimum
value of securities (or securities and cash) accepted for deposit is $5,000.
Securities accepted will be sold by IBT as agent for the account of their
owner on the day of their receipt by IBT 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 per Fund share 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:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Classic [State name] Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Classic [State name] Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities to IBT. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
Fund 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 for Fund shares.
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IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
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HOW TO REDEEM FUND SHARES
- ------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO FIRST DATA INVESTOR
SERVICES GROUP, BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per share of the applicable Fund next computed after such
delivery. 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 regulation of the Securities and Exchange
Commission and acceptable to First Data Investor Services Group. 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.
Within seven days after receipt of a redemption request in good order by First
Data Investor Services Group, a Fund 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 contingent deferred sales charges (described below)
and federal income tax required to be withheld. Although each Fund normally
expects to make payment 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 a Fund, either totally or partially, by a
distribution in kind of readily marketable securities withdrawn by that Fund
from its corresponding Portfolio. The securities so distributed would be
valued pursuant to the Portfolio'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.
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 such shares is based upon the net
asset value calculated after EVD, as the Funds' agent, receives the order. It
is the Authorized Firm's responsibility to transmit promptly repurchase orders
to EVD. Throughout this Prospectus, the word "redemption" is generally meant
to include a repurchase.
If shares were recently purchased, the proceeds of redemption (or repurchase)
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 or repurchases may result in a
taxable gain or loss.
Due to the high cost of maintaining small accounts, each Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required by a Fund if the cause of the
low account balance was a reduction in the net asset value of Fund shares. No
contingent deferred sales charge will be imposed with respect to such
involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares purchased on or after January 30,
1995 and redeemed within the first year of their purchase (except shares
acquired through the reinvestment of distributions) generally will be subject
to a contingent deferred sales charge equal to 1% of the net asset value of
redeemed shares. This contingent deferred sales charge is imposed on any
redemption the amount of which exceeds the aggregate value at the time of
redemption of (a) all shares in the account purchased more than one year prior
to the redemption, (b) all shares in the account acquired through reinvestment
of distributions, and (c) the increase, if any, of value in the other shares
in the account (namely those purchased within the year preceding the
redemption) over the purchase price of such shares. Redemptions are processed
in a manner to maximize the amount of redemption proceeds which will not be
subject to a contingent deferred sales charge. That is, each redemption will
be assumed to have been made first from the exempt amounts referred to in
clauses (a), (b) and (c) above, and second through liquidation of those shares
in the account referred to in clause (c) on a first-in-first-out basis.
In calculating the contingent deferred sales charge upon the redemption of
Fund shares acquired in an exchange for shares of a fund currently listed
under "The Eaton Vance Exchange Privilege," the purchase of Fund shares
acquired in the exchange is deemed to have occurred at the time of the
original purchase of exchanged shares.
No contingent deferred sales charge will be imposed on Fund shares which have
been sold to Eaton Vance or its affiliates, or to their respective employees
or clients. The contingent deferred sales charge will also be waived for
shares redeemed (1) pursuant to a Withdrawal Plan (see "Eaton Vance
Shareholder Services"), (2) as part of a distribution from a retirement plan
qualified under Section 401, 403(b) or 457 of the Internal Revenue Code of
1986, as amended (the "Code"), or (3) as part of a minimum required
distribution from other tax-sheltered retirement plans. The contingent
deferred sales charge will be paid to the Principal Underwriter or the Fund.
When paid to the Principal Underwriter it will reduce the amount of Uncovered
Distribution Charges calculated under the Fund's Distribution Plan. See
"Distribution Plans."
REPORTS TO SHAREHOLDERS
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EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual
reports are audited by the Funds' independent certified public accountants.
Shortly after the end of each calendar year, each Fund will furnish its
shareholders with information necessary for preparing federal and State tax
returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
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AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUNDS'
TRANSFER AGENT, FIRST DATA INVESTOR SERVICES GROUP, WILL SET UP A LIFETIME
INVESTING ACCOUNT FOR THE INVESTOR ON THE APPLICABLE FUND'S RECORDS. This
account is a complete record of all transactions between the investor and the
Fund which at all times shows the balance of shares owned. A Fund will not
issue share certificates except upon request.
At least quarterly, shareholders 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 to First Data
Investor Services Group.
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 First Data Investor Services Group, BOS725, P.O.
Box 1559, Boston, MA, 02104 (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
Funds' dividend disbursing agent, First Data Investor Services Group, BOS725,
P.O. Box 1559, Boston, MA 02104. 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 the Income Option or Cash Option has been selected, dividend and/or capital
gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more
will be reinvested in the account in shares at the then current net asset
value. Furthermore, the distribution option on the account will be
automatically changed to the Share Option until such time as the shareholder
selects a different option.
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 of a Fund 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 Fund and its Transfer Agent.
Since the Fund 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 dealer or to an account
directly with a Fund 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 investment firm, or transferring the account to another
investment firm, an investor wishing to reinvest distributions should
determine whether the firm which will hold the shares allows reinvestment of
distributions in "street name" accounts.
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UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS IN SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE.
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THE EATON VANCE EXCHANGE PRIVILEGE
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Shares of each Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance Classic Group of Funds or Eaton Vance Money Market
Fund, which are distributed with a contingent deferred sales charge, on the
basis of the net asset value per share of each fund at the time of the
exchange, provided that such exchange offers are available only in States
where shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. 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 Funds do 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.
First Data Investor Services Group makes exchanges at the next determined net
asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult First Data Investor Services Group 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 contingent deferred sales charge is imposed on exchanges. For purposes of
calculating the contingent deferred sales charge upon redemption of shares
acquired in an exchange, 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.
Shares of the other funds in the Eaton Vance Classic Group of Funds (and
shares of Eaton Vance Money Market Fund acquired as a result of an exchange
from an EV Classic fund) may be exchanged for Fund shares on the basis of the
net asset value per share of each fund at the time of the exchange, but
subject to any restrictions or qualifications set forth in the current
prospectus of any such fund.
Telephone exchanges are accepted by First Data Investor Services Group
provided the investor has not disclaimed in writing the use of the privilege.
To effect such exchanges, call First Data Investor Services Group at 800-262-
1122 or, within Massachusetts, 617-573-9403, 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 Funds, the Principal Underwriter nor First Data
Investor Services Group 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
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THE FUNDS OFFER 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 as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the
Fund being purchased may be mailed directly to First Data Investor Services
Group, BOS725, P.O. Box 1559, Boston, MA 02104 at any time -- whether or not
dividends are reinvested. The name of the shareholder, the Fund 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.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed
annually 12% of the account balance at the time the plan is established. Such
amount will not be subject to a contingent deferred sales charge. See "How to
Redeem Fund Shares". A minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES
MAY REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES PAID ON
THE REDEEMED OR REPURCHASED SHARES, ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE
TO ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF A FUND,
provided that the reinvestment is effected within 60 days after such
repurchase or 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 a Fund (or by the Fund's Transfer
Agent). To the extent that any shares of a Fund are sold at a loss and the
proceeds are reinvested in shares of a Fund (or other shares of the Fund are
acquired within the period beginning 30 days before and ending 30 days after
the date of the 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 A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL
BE DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME
OF DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the twenty-second day of each
month or the next business day thereafter. Each Fund anticipates that for tax
purposes the entire distribution, whether paid in cash or reinvested in
additional shares of the Fund, 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 day that collected funds for the purchase of Fund shares
are available at the Transfer Agent. Shareholders of a Fund 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. A Fund's net
realized capital gains, if any, consist of the net realized capital gains
allocated to the Fund by its corresponding Portfolio for tax purposes, after
taking into account any available capital loss carryovers; a Fund's net
realized capital gains, if any, will be distributed at least once a year,
usually in December.
Each Fund intends to qualify as a regulated investment company under the Code,
and to satisfy all requirements necessary to be relieved of federal taxes on
income and gains it distributes to shareholders. In satisfying these
requirements, each Fund will treat itself as owning its proportionate share of
each of its corresponding Portfolio's assets and as entitled to the income of
the Portfolio properly attributable to such share.
------------------------------------------------------------------------
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, EACH FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO
SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN
ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE. AS
PARTNERSHIPS UNDER THE CODE, THE PORTFOLIOS DO NOT PAY FEDERAL INCOME OR
EXCISE TAXES.
------------------------------------------------------------------------
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations. 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 Fund shares have been owned by the shareholder. Distributions are
taxed in the manner described above whether paid in cash or reinvested in
additional shares of a Fund.
Tax-exempt distributions received from a Fund are includable in the tax base
for determining the taxability of social security and railroad retirement
benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of a Fund is not deductible to the extent it is deemed related to
the Fund's distribution of tax-exempt interest. Further, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of a Fund. "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.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE TAXES.
Shareholders should consult their own tax advisers with respect to the State,
local and foreign tax consequences of investing in a Fund.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------------------
FROM TIME TO TIME, EACH FUND MAY ADVERTISE THE YIELD AND/OR AVERAGE ANNUAL
TOTAL RETURN. Each Fund's current yield is calculated by dividing the net
investment income per share earned during a recent 30-day period by the
maximum offering price per share (net asset value) of the Fund 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 one minus the
tax rate. Each Fund's average annual total return is determined by computing
the average annual percentage change in value of $1,000 invested at the
maximum public offering price (net asset value) for specified periods ending
with the most recent calendar quarter, assuming reinvestment of all
distributions. The average annual total return calculation assumes a complete
redemption of the investment and the deduction of any applicable contingent
deferred sales charge at the end of the period. Each Fund may publish annual
and cumulative total return figures from time to time. Each Fund may also
quote total return for the period prior to commencement of operations which
would reflect the Portfolio's total return (or that of its predecessor)
adjusted to reflect any applicable Fund sales charge.
Each Fund may publish its distribution rate and/or each effective distribution
rate. Each Fund's distribution rate is computed by dividing the most recent
monthly distribution per share annualized by the current maximum offering
price per share (net asset value). Each Fund's effective distribution rate is
computed by dividing the distribution rate by the ratio used to annualize the
most recent monthly distribution and reinvesting the resulting amount for a
full year on the basis of such ratio. The effective distribution rate will be
higher than the distribution rate because of the compounding effect of the
assumed reinvestment. Investors should note that a Fund's yield is calculated
using a standardized formula the income component of which is computed from
the yields to maturity of all debt obligations held by the Portfolio based on
prescribed methods (with all purchases and sales of securities during such
period included in the income calculation on a settlement date basis), whereas
the distribution rate is based on a Fund's last monthly distribution which
tends to be relatively stable and may be more or less than the amount of net
investment income and short-term capital gain actually earned by the Fund
during the month.
Each Fund may also publish total return figures which do not take into account
any contingent deferred sales charge which may be imposed upon redemptions at
the end of the specified period. Any performance figure which does not take
into account the contingent deferred sales charge would be reduced to the
extent such charge is imposed upon a redemption.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of the Fund's current yield, total return,
distribution rate or effective distribution rate for any prior period should
not be considered a representation of what an investment may earn or what the
Fund's yield, total return, distribution rate or effective distribution rate
may be in any future period. If the expenses of a Fund or its corresponding
Portfolio are paid by Eaton Vance, the Fund's performance will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in the
obligations of issuers in its corresponding State, it is susceptible to
factors affecting that State. Each Portfolio may also invest up to 5% of its
net assets in obligations issued by the governments of Guam and the U.S.
Virgin Islands and up to 35% of its assets in obligations issued by the
government of Puerto Rico. Set forth below is certain economic and tax
information concerning the States in which the Portfolios invest and Puerto
Rico.
The bond ratings provided below are current as of the date of this Prospectus
and are based on economic conditions which may not continue; moreover, there
can be no assurance that particular bond issues may not be adversely affected
by changes in economic, political or other conditions. Unless stated
otherwise, the ratings indicated are for obligations of the State. A State's
political subdivisions may have different ratings which are unrelated to the
ratings assigned to State obligations.
CALIFORNIA. California has experienced severe economic and fiscal stress over
the past several years. Between 1990 and 1993, California lost 3% of its total
employment base and nearly 16% of higher paying manufacturing jobs. This was
during a period when population increased 6%. The unemployment rate in
California was 9.1% in 1992 and 9.2% in 1993, well above the U.S. rates of
7.4% and 6.8% for the same periods, respectively. Unemployment was 7.9% in
April 1995, compared to a U.S. rate of 5.8%.
The weak economy has seriously undermined the government's ability to
accurately estimate tax revenues and has increased social service expenditures
for recession-related welfare case loads. In addition, the continued influx of
illegal immigrants has strained the State's welfare and health care systems.
The result of these various problems is a $2 billion accumulated budget
deficit and a heavy reliance on short-term borrowing for day-to-day
operations. Short-term borrowing increased from 7.8% of general fund receipts
in 1990 to 12.4% in 1992 to a projected 16% in 1995. In July, 1994, the State
issued $7 billion in short-term debt, an unprecedented amount for a State.
The $2 billion budget deficit built up during the 1991 and 1992 fiscal years
and was not adequately addressed during the 1993 or 1994 fiscal years, despite
a Deficit Retirement and Reduction Plan put in place in June, 1993. The budget
for fiscal year 1995 (which commenced on July 1, 1994) includes general fund
expenditures of $40.9 billion, a 4.2% increase over 1993-94, and general fund
revenues of $41.9 billion, a 5.2% increase. A revised Deficit Retirement and
Reduction Plan was adopted which anticipated the elimination of the deficit by
April, 1996. Key to this revised plan is the assumed receipt of $2.8 billion
in Federal aid from the Federal government to offset the mounting costs
associated with illegal immigrants. As this money is in no way assured, the
budget includes a "trigger" mechanism that would require automatic spending
cuts should actual cash flow deviate significantly from projections. There can
be no assurances that bonds, some of which may be held by the Portfolio,
issued by California entities would not be adversely affected should this
"trigger" be used.
On January 17, 1994, a major earthquake struck the Los Angeles area causing
significant property damage. Preliminary estimates of total property damage
approximate $15 billion. The Federal government has approved $9.5 billion for
earthquake relief. The Governor has estimated that the State will have to pay
approximately $1.9 billion for relief not otherwise covered by the Federal
aid. The Governor had proposed to cover $1.05 billion of relief costs from a
general obligation bond issue, but the proposal was rejected by California
voters in June 1994. The Governor subsequently announced that funds earmarked
for other projects would be used for earthquake relief.
On December 7, 1994, Orange County, California (the "County"), together with
its pooled investment fund (the "Fund") filed for protection under Chapter 9
of the Federal Bankruptcy Code, after reports that the Fund had suffered
significant market losses in its investments caused a liquidity crisis for the
Fund and the County. More than 180 other public entities, most but not all
located in the County, were also depositors in the Fund. As of December 13,
1994, the County estimated the Fund's loss at about $2 billion, or 27% of its
initial deposits of around $7.4 billion. These losses could increase as the
County sells investments to restructure the Fund, or if interest rates rise.
Many of the entities which kept moneys in the Fund, including the County, are
facing cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. The County and some of these
entities have, and others may in the future, default in payment of their
obligations. Moody's and S&P have suspended, reduced to below investment grade
levels, or placed on "Credit Watch" various securities of the County and the
entities participating in the Fund. As of December 1994, the Portfolio did not
hold any direct obligations of the County. However, the Portfolio did hold
bonds of some of the governmental units that had money invested with the
County; the impact of the loss of access to these funds, the loss of expected
investment earnings and the potential loss of some of the principal invested
is not known at this point. There can be no assurances that these holdings
will maintain their current ratings and/or liquidity in the market.
In early June 1995, the County filed a proposal with the bankruptcy court that
would require holders of the County's short-term notes to wait one-year before
being repaid. The existence of this proposal and its adoption could disrupt
the market for short-term debt in California and possibly drive up the State's
borrowing costs. On June 27, 1995 the voters in Orange County rejected a
proposed one half cent increase in the sales tax, the revenues from which
would have been used to help the County emerge from bankruptcy. The failure of
this measure increases the likelihood that the County will default on some of
their obligations and, more broadly, could have a negative impact on the
perceived credit quality of municipal obligations throughout California.
Although the State of California has no obligation with respect to any
obligations or securities of the County or any of the other participating
entities, under existing legal precedents, the State may be obligated to
ensure that school districts have sufficient funds to operate. Longer term,
this financial crisis could have an adverse impact on the economic recovery
that has only recently taken hold in Southern California.
California voters have approved a series of amendments to the California State
constitution which have imposed certain limits on the taxing and spending
powers of the State and local governments. While the State legislature has, in
the past, enacted legislation designed to assist California issuers in meeting
their debt service obligations, other laws limiting the State's authority to
provide financial assistance to localities have also been enacted. Because of
the uncertain impact of such constitutional amendments and statutes, the
possible inconsistencies in their respective terms and the impossibility of
predicting the level of future appropriations and applicability of related
statutes to such questions, it is not currently possible to assess the impact
of such legislation and policies on the ability of California issuers to pay
interest or repay principal on their obligations.
As a result of the significant economic and fiscal problems described above,
the State's debt has been downgraded by all three rating agencies from Aa to
A1 by Moody's, from A(PL) to A by S&P, and from AA to A by Fitch.
CALIFORNIA TAXES. California law provides that dividends paid by the
California Fund and designated by the California Fund as tax-exempt are exempt
from California personal income tax on individuals who reside in California to
the extent such dividends are derived from interest payments on municipal
obligations exempt from regular federal income tax and California State
personal income taxes, provided that at least 50% of the assets of the
California Portfolio at the close of each quarter of its taxable year are
invested in obligations the interest on which is exempt under either federal
or California law from taxation by the State of California. Distributions of
short-term capital gains are treated as ordinary income, and distributions of
long-term capital gains are treated as long-term capital gains under the
California personal income tax.
FLORIDA. Florida's financial operations are considerably different than most
other states because, under the State's constitution, there is no state income
tax. The lack of an income tax exposes total State tax collections to
considerably more volatility than would otherwise be the case and, in the
event of an economic downswing, could effect the State's ability to pay
principal and interest in a timely manner. The General Fund budget for 1994-95
includes revenues of $14.6 billion (a 7.3% increase over 1993-94) and
expenditures of $14.3 billion (a 7.6% increase over 1993-94). Through
November, 1994, actual revenues were 1.6% ahead of projections. Unencumbered
reserves are projected to be $281 million, or 1.9% of expenditures for fiscal
year 1995. Unemployment in the State for November, 1994 was 6.8% compared to
the national unemployment rate of 5.6%.
In 1993, the State constitution was amended to limit the annual growth in the
assessed valuation of residential property and which, over time, could
constrain the growth in property taxes, a major revenue source for local
governments. While no immediate ratings implications are expected, the
amendment could have a negative impact on the financial performance of local
governments over time and lead to ratings revisions which may have a negative
impact on the prices of affected bonds.
General obligations of Florida are rated Aa, AA and AA by Moody's, S&P and
Fitch, respectively. S&P presently regards the outlook for the State as
stable.
FLORIDA TAXES. The Florida Department of Revenue has issued a ruling that
shareholders of the Florida Fund that are subject to the Florida intangibles
tax will not be required to include the value of their Florida Fund shares in
their taxable intangible property if all of the Florida Fund's investments on
the annual assessment date are obligations that would be exempt from such tax
if held directly by such shareholders, such as Florida and U.S. Government
obligations. The Florida Portfolio will normally attempt to invest
substantially all of its assets in tax-exempt obligations of Florida, the
United States, the Territories or political subdivisions of the United States
or Florida ("Florida obligations") and it will ensure that all of its assets
held on the annual assessment date are exempt from the Florida intanglibles
tax. Accordingly the value of the Florida Fund shares held by a shareholder
should under normal circumstances be exempt from the Florida intangibles tax.
MASSACHUSETTS. In recent years, the Commonwealth has experienced a significant
economic slowdown, and has experienced shifts in employment from labor-
intensive manufacturing industries to technology and service-based industries.
The unemployment rate was 6.4% as of October, 1994, while the national
unemployment rate was 5.8%.
Effective July 1, 1990, limitations were placed on the amount of direct bonds
the Commonwealth could have outstanding in a fiscal year, and the amount of
the total appropriation in any fiscal year that may be expended for debt
service on general obligation debt of the Commonwealth (other than certain
debt incurred to pay the fiscal 1990 deficit and certain Medicaid
reimbursement payments for prior years) was limited to 10%. In addition, the
power of Massachusetts cities and towns and certain tax-supported districts
and public agencies to raise revenue from property taxes to support their
operations, including the payment of debt service, is limited. Property taxes
are virtually the only source of tax revenues available to cities and towns to
meet local costs. This limitation on cities and towns to generate revenues
could create a demand for increases in state-funded local aid. The recent
difficulties experienced by the Commonwealth have resulted in a substantial
reduction in local aid from the Commonwealth, which may create financial
difficulties for certain municipalities.
General obligations of Massachusetts are rated A, A(PL) and A(PL) by Moody's,
S&P and Fitch, respectively.
MASSACHUSETTS TAXES. The Massachusetts Portfolio has received a letter ruling
(the "Ruling") from the Department of Revenue of The Commonwealth of
Massachusetts to the effect that it will be classified as a partnership for
Massachusetts tax purposes. The Ruling provides that, consequently, interest
income received by the Massachusetts Portfolio on (1) debt obligations issued
by The Commonwealth of Massachusetts or its political subdivisions, including
agencies or instrumentalities thereof ("Massachusetts Obligations"), (2) the
Governments of Puerto Rico, Guam, or the United States Virgin Islands
("Possessions Obligations"), or (3) the United States ("United States
Obligations") will be treated as if realized directly by investors in the
Massachusetts Portfolio. The Ruling concludes that, provided that an investor
in the Massachusetts Portfolio qualifies as a regulated investment company
("RIC") under the Code and satisfies certain notice requirements of
Massachusetts law, (1) dividends paid by such a RIC that are treated as tax-
exempt interest under the Code and that are directly attributable to interest
on Massachusetts Obligations (including the RIC's allocable share of interest
earned by the Massachusetts Portfolio on such obligations) and (2) dividends
paid by such a RIC that are directly attributable to interest on Possessions
Obligations or United States Obligations (including the RIC's allocable share
of interest earned by the Massachusetts Portfolio on such obligations) will,
in each case, be excluded from Massachusetts gross income. Because the
Massachusetts Fund intends to continue to invest in the Massachusetts
Portfolio, qualify for treatment as a RIC under the Code, and satisfy the
applicable notice requirements, the Massachusetts Fund's distributions to its
shareholders of its allocable share of the interest received by the
Massachusetts Portfolio that is attributable to Massachusetts Obligations,
Possessions Obligations or United States Obligations should consequently be
excluded from Massachusetts gross income for individuals, estates and trusts
that are subject to Massachusetts taxation. The Massachusetts Fund has also
been advised by its legal counsel that distributions properly designated as
capital gain dividends under the Code and attributable to gains realized by
the Massachusetts Portfolio and allocated to the Massachusetts Fund on the
sale of certain Massachusetts tax-exempt obligations issued pursuant to
statues that specifically exempt such gains from Massachusetts taxation will
also be exempt from Massachusetts personal income tax. Other distributions
from the Massachusetts Fund included in a shareholder's Federal gross income,
including distributions derived from net long-term capital gains not described
in the preceding sentence and net short-term capital gains, are generally not
exempt from Massachusetts personal income tax.
Beginning in 1996, long-term capital gains will generally be taxed in
Massachusetts on a sliding scale at rates ranging from 5% to 0%, with the
applicable tax rate declining as the tax holding period of the asset
(beginning on the later of January 1, 1995 or the date of actual acquisition)
increases from more than one year to more than six years. It is not clear what
Massachusetts tax rate will be applicable to capital gain dividends for
taxable years beginning after 1995.
Distributions from the Massachusetts Fund will be included in net income, and
in the case of intangible property corporations, shares of the Massachusetts
Fund, will be included in net worth for purposes of determining the
Massachusetts excise tax on corporations subject to Massachusetts taxation.
MISSISSIPPI. The State's economic outlook has improved recently, in part due
to the strong growth exhibited by the manufacturing sector. The food and
related paper and allied product sectors have also experienced strong and
steady growth. Also, the governmental and wholesale/retail trade and service
sectors have had sound gains in employment. In recent years, the State has
successfully expanded its economy through technology-based research and
education, and the Mississippi banking system has exhibited relative strength
and stability over the past several years, a period characterized by a growing
number of bank failures nationwide. The construction and casino industries
have also experienced growth recently.
All State indebtedness must be authorized by legislation governing the
specific programs or projects to be financed. Such debt may include short- and
long-term indebtedness, self-supporting general obligation bonds, highway
bonds and other types of indebtedness. As of December 31, 1994, the State's
total bond indebtedness was $926.9 million. For the fiscal year ended June 30,
1993, the constitutional debt limit was approximately $4.6 billion. State
revenues were $7.2 billion as of June 30, 1994.
General obligations of Mississippi are rated AA-, and Aa by S&P and Moody's.
S&P has a positive outlook for the State.
MISSISSIPPI TAXES. Under existing Mississippi law, interest received by a
Mississippi resident individual upon the obligations of the State of
Mississippi or political subdivisions thereof ("Mississippi obligations") are
exempt from Mississippi income tax. A recently adopted Mississippi Income Tax
Regulation provides a pass-through of the tax-exempt character of interest
received by a regulated investment company, such as the Mississippi Fund, upon
distribution to its shareholders where the Mississippi Fund directly owns such
Mississippi tax-exempt obligations. Under the new regulation, a taxpayer's pro
rata portion of interest dividends distributed by a regulated investment
company is exempt from Mississippi income tax to the extent that such pro rata
portion represents interest received by a regulated investment company from
governmental securities which would be exempt for Mississippi income tax
purposes if such governmental securities were directly held by the taxpayer.
In this situation, however, the Mississippi Fund will not own the Mississippi
tax-exempt obligations directly but will invest in the Mississippi Portfolio,
which will own the Mississippi tax-exempt obligations. There is no law
addressing the Mississippi income tax consequences to Mississippi resident
individuals receiving interest dividends from a regulated investment company,
such as the Mississippi Fund, that contributes its assets to a trust, such as
the Mississippi Portfolio, in exchange for an interest therein where the trust
owns Mississippi tax-exempt obligations and distributes the income therefrom
to the regulated investment company. In 1993, the Mississippi State Tax
Commission issued a ruling stating that a Mississippi resident taxpayer's pro
rata portion of interest dividends distributed by the Mississippi Fund will be
non-taxable to the extent that such pro rata portion represents interest
received by the Mississippi Fund, either directly or through the Mississippi
Portfolio, from Mississippi tax-exempt obligations, which would be exempt for
Mississippi income tax purposes if such tax-exempt obligations were directly
held by the taxpayer. In the opinion of Butler, Snow, O'Mara, Stevens &
Cannada, PLLC, special Mississippi tax counsel to the Mississippi Fund, a
Mississippi resident individual's pro rata portion of interest dividends
distributed by the Mississippi Fund will be exempt from Mississippi income tax
to the extent that such pro rata portion (i) is excluded from gross income
under the Code and (ii) represents interest the Mississippi Fund receives,
either directly or through the Mississippi Portfolio, from investments in
Mississippi tax-exempt obligations.
NEW YORK. New York is the second most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse with
a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a comparatively
small share of the nation's farming and mining activity. The State's general
credit standing has historically reflected its diverse and substantial
economic base. However, as the result of a recession ending in the first
quarter of 1993, 560,000 jobs were lost statewide (equal to 6.7% of the peak
employment figure for 1989). Since the first quarter of 1993, 100,130 jobs
have been added, with nearly half of such jobs occurring in the first quarter
of 1994. In fiscal year 1993, however, the State began the process of
financial reform. The 1993 and 1994 financial plans exceeded expectations and
produced operating surpluses in both years.
The fiscal stability of New York State is related, at least in part, to the
fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State. In some cases, the State has had to
provide special assistance in recent years to enable such agencies,
authorities and localities to meet their financial obligations and, in some
cases, to prevent or cure defaults. To the extent State agencies and local
governments require State assistance to meet their financial obligations, the
ability of the State to meet its own obligations as they become due or to
obtain additional financing could be adversely affected.
Like the State, New York City has experienced financial difficulties in recent
years and currently continues to experience such difficulties owing, in part,
to lower than anticipated revenues. Because New York City taxes comprise 40%
of the State's tax base, the City's difficulties adversely affect the State.
Both the State and the City will be constrained in addressing future fiscal
problems by their high current level of taxes.
In June, 1994, the Governor approved the 1994-1995 budget, which reduces taxes
by $476 million in the 1994-1995 fiscal year and by more than $1.6 billion
when fully implemented. A reduction in both State and City personal income
taxes scheduled to take effect in 1994 has been deferred for one year as a
part of the 1994-1995 budget.
New York's general obligations are rated A, A- and A(PL) by Moody's, S&P and
Fitch, respectively. S&P currently assesses the rating outlook for New York
obligations as positive. New York City obligations are rated Baa1, A- and A-
by Moody's, S&P and Fitch, respectively. On January 17, 1995, S&P placed the
City's general obligation bonds on CreditWatch with negative implications as
the result of plans by the City to refund some of its debt to provide budget
savings in its 1995 fiscal year. S&P stated that, by April, 1995, if the City
continues to use budget devices such as debt refundings or fails to get
ongoing budget relief from the State, S&P would lower the rating on New York
City general obligation debt to the "BBB" category. Any such downward revision
could have an adverse effect on the obligations held by the New York
Portfolio.
NEW YORK TAXES. In the opinion of Brown & Wood, under New York law, for
individuals subject to the New York State or New York City personal income
tax, dividends paid by the New York Fund are exempt from New York State and
New York City income tax for individuals who reside in New York to the extent
such dividends are excluded from gross income for Federal income tax purposes
and are derived from interest payments on tax-exempt obligations issued by or
on behalf of New York State and its political subdivisions and agencies, and
the govenments of Puerto Rico, the U.S. Virgin Islands and Guam. Other
distributions from the New York Fund, including distributions derived from
taxable ordinary income and net short-term and long-term capital gains, are
generally not exempt from New York State or City personal income tax.
OHIO. The State's economy is reliant in part on durable goods manufacturing,
largely concentrated in motor vehicles and equipment, steel, rubber products
and household appliances. As a result, economic activity in Ohio tends to be
more cyclical than in some other states and in the nation as a whole.
Unemployment declined from 6.5% to 4.2% between November, 1993 and November,
1994. The national unemployment rate in November, 1994 was 5.6%. In fiscal
1993, a projected $520 million budget gap was addressed through tax increases
and appropriation cuts. The fiscal year 1994 budget was balanced, and the
State's General Revenue Fund had an ending fund balance of $560 million.
General obligations of Ohio are rated Aa and AA by S&P and Moody's,
respectively (except that highway obligations are rated Aaa by S&P). Fitch
does not currently rate the State's general obligations.
OHIO TAXES. In the opinion of special tax counsel to the Ohio Fund, Squire,
Sanders & Dempsey, under Ohio law, individuals who are otherwise subject to
the Ohio personal income tax will not be subject to such tax on dividends paid
by the Ohio Fund to the extent such dividends properly attributable to
interest on obligations issued by or on behalf of the State of Ohio or its
political subdivisions or the agencies or instrumentalities thereof ("Ohio
obligations"). Dividends paid by the Ohio Fund also will be excluded from the
net income base of the Ohio corporation franchise tax to the extent such
dividends are excluded from gross income for Federal income tax purposes or
properly attributable to interest on Ohio obligations. However, the Ohio
Fund's shares will be included in the tax base computing the Ohio corporation
franchise tax on the net worth basis. These conclusions regarding Ohio
taxation are based on the assumption that the Ohio Fund will continue to
qualify as a regulated investment company under the Code and that at all times
at least 50% of the value of the total assets of the Ohio Fund will consist of
obligations of the State of Ohio and its political subdivisions or similar
obligations of other states or their subdivisions determined, to the extent
the Ohio Fund invests in the Ohio Portfolio, by treating the Ohio Fund as
owning its proportionate share of the assets owned by the Ohio Portfolio.
RHODE ISLAND. In an attempt to compensate for budget problems in 1990 and
1991, the State's budget for fiscal 1993 incorporated a combination of service
budget reductions, aggressive pursuit of federal program receipts and revenue
enhancements. In 1993, the State recorded an $8.4 million operating surplus,
boosting the undesignated general fund balance to $8.7 million. Combined with
budget stabilization reserves, the State ended fiscal 1993 with $32 million in
available monies (equal to 1.4% of expenditures). The fiscal year 1994 budget
excluded nearly all gasoline tax revenues and transportation expenditures,
which will now be recorded in a new dedicated surface transportation fund.
Fiscal 1994 revenue estimates were $14 million above the enacted budget.
Unaudited expenditures in excess of revised revenues are, however, expected to
yield a $2.9 million drawdown of balances to $5.8 million. The 1995 budget
includes budgeted reserves of $46.5 million (equal to 3% of fiscal 1995
expenditures).
In January, 1991, the collapse of the Rhode Island Share and Deposit Indemnity
Corporation precipitated the closure of 45 financial institutions with a total
deposit liability of approximately $1.7 billion. In response, the State
created the Rhode Island Depositors Economic Protection Corporation, a public
corporation, ("DEPCO"), to assist in the resolution of the resulting banking
crisis. By the end of 1992, substantially all of the frozen deposits had been
repaid or otherwise made available to depositors through the reopening, sale
or liquidation of the closed institutions. DEPCO currently has outstanding
approximately $475.8 million of special obligation bonds, the proceeds of
which were used to facilitate the sale of certain institutions and the payout
of frozen deposits. Receipts from .6% of the State's sales and use tax rate
are dedicated to a special revenue fund to be used for repayment of the
special obligation bonds. In addition, DEPCO has outstanding approximately
$130 million of general obligation bonds, which it expects will be repaid
primarily out of the proceeds from liquidating assets acquired from certain of
the failed institutions. Over the next 20 years, DEPCO is also obligated to
pay former depositors approximately $54 million.
Under the budget enacted for fiscal year 1993, State aid programs to Rhode
Island cities and towns is slated to be $379.9 million, representing a net
increase over fiscal year 1992 of $34.5 million. In fiscal year 1994, Rhode
Island cities and towns are expected to start receiving 1% of State tax
revenue (approximately $12.6 million) as a distribution through the general
revenue sharing program.
The State's budget difficulties, together with the banking crisis and the
issuance of the DEPCO debt, contributed to a lowering of the State's credit
rating in 1992 to A-1 by Moody's and AA- with a stable outlook from S&P. The
State reportedly ranks fourth among all states in per capita tax-supported
debt load. General obligations of Rhode Island are rated AA-, A-1 and AA-, by
S&P, Moody's and Fitch, respectively.
RHODE ISLAND TAXES. The Rhode Island Fund obtained an opinion from Hinckley,
Allen & Snyder, special tax counsel to the Rhode Island Fund, that under Rhode
Island law, dividends paid by the Rhode Island Fund are exempt from Rhode
Island state income tax for individuals who reside in Rhode Island to the
extent such dividends are excluded from gross income for Federal income tax
purposes and are derived from interest payments on obligations of Rhode
Island, its political subdivisions, the Territories or the United States
("Rhode Island obligations"). Other distibutions from the Rhode Island Fund,
including distributions from capital gains, are generally not exempt from
Rhode Island state personal income tax.
WEST VIRGINIA. The West Virginia economy is heavily dependent on the resource-
based industries, specifically coal, chemical and steel. Although the State's
economy has begun to rebound from the economic recession, the State
unemployment rate remains significantly above the national average. For
October, 1994, the State unemployment rate was 7.9% down from the October,
1993 level of 10.4%, but well above the national average of 5.8%. The service
and wood sectors and tourism are expected to lead the improving State economy.
The manufacturing sector has contracted in past years, and mining employment
is 16% below the level which existed in 1990. Per capita income for the state
is approximately 78% of the national average.
Despite attempts to make State government more efficient, the State continues
to experience revenue shortfalls. In addition, the State was faced with
significant unfunded liabilities in its Workers Compensation Fund, Teachers
Retirement Fund and certain other retirement systems in 1992. A Public
Retirement Task Force was established to examine the State's retirement
systems and to make recommendations to place the systems on a sound financial
basis. The current status of this situation was unavailable. On a budgetary
basis, for 1992, the General Fund was drawn down by $41 million to $27
million. In 1993, the State realized a $44 million operating surplus. The
Governor had imposed a 5% spending cut on most state agencies during 1993.
The West Virginia Supreme Court of Appeals recently declared a School Building
Authority to be unconstitutional. Although prior issuances were unaffected by
the ruling, the State cannot issue lease obligations going forward. There can
be no assurance as to the level of future debt borrowing and the possible
implications on the financial position of the State.
General obligations of West Virginia are currently rated A(PL), A1 and A(PL),
by S&P, Moody's and Fitch, respectively.
WEST VIRGINIA TAXES. In the opinion of Bowles, Rice, McDavid, Graff & Love,
special West Virginia tax counsel to the West Virginia Fund, under existing
West Virginia law, in 1991 the West Virginia Department of Tax and Revenue
issued Technical Assistance Advisory 91-002 which was declared to be of
precedential value. This Technical Assistance Advisory addresses liability for
West Virginia personal income tax on interest and dividend income received by
investors in regulated investment companies. Accordingly, under existing law,
as long as the West Virginia Fund qualifies as a separate "regulated
investment company" under the Code, that portion of exempt-interest dividends
that represents interest income received by the West Virginia Fund from
obligations of the United States and its possessions and interest or dividend
income received by the West Virginia Fund on obligations or securities of any
authority commission or instrumentality of the United States or of the State
of West Virginia, which is exempt from West Virginia State income tax by
Federal or West Virginia law, is exempt from West Virginia Personal Income
Tax. This exemption does not apply to any portion of interest income on
obligations of any state other than West Virginia, regardless of any exemption
provided under Federal law. In the event the West Virginia Fund fails to
qualify as a separate "regulated investment company", the foregoing exemption
may be unavailable or substantially limited.
The Technical Assistance Advisory contains a more specific, although
nonexclusive, list of obligations and authorities which are exempt from
taxation. The Technical Assistance Advisory also confirms that interest on
indebtedness incurred (directly or indirectly) by a shareholder of the West
Virginia Fund to purchase or carry shares of the West Virginia Fund will not
be deductible for West Virginia income purposes.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly
from fiscal 1984 through fiscal 1990, the rate of this expansion slowed during
fiscal years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several
factors, including the state of the U.S. economy and the relative stability in
the price of oil, the exchange rate of the U.S. dollar and the cost of
borrowing. Although the Puerto Rico unemployment rate has declined
substantially since 1985, the seasonally adjusted unemployment rate for June,
1995 was approximately 13.9%. The North American Free Trade Agreement (NAFTA),
which became effective January 1, 1994, could lead to the loss of Puerto
Rico's lower salaried or labor intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. Reliance
on nonrecurring revenues and economic weakness led S&P to change its outlook
from stable to negative.
<PAGE>
[LOGO]
EATON VANCE
===============
MUTUAL FUNDS
EV CLASSIC MUNICIPAL FUNDS
- -------------------------------------------------------------------------------
PROSPECTUS
FEBRUARY 1, 1996
EV CLASSIC CALIFORNIA MUNICIPALS FUND
EV CLASSIC FLORIDA MUNICIPALS FUND
EV CLASSIC MASSACHUSETTS MUNICIPALS FUND
EV CLASSIC MISSISSIPPI MUNICIPALS FUND
EV CLASSIC NEW YORK MUNICIPALS FUND
EV CLASSIC OHIO MUNICIPALS FUND
EV CLASSIC RHODE ISLAND MUNICIPALS FUND
EV CLASSIC WEST VIRGINIA MUNICIPALS FUND
EV CLASSIC
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- -------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
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, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
C-TFC2/1P
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV MARATHON
MUNICIPAL FUNDS
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
EV MARATHON CALIFORNIA MUNICIPALS FUND EV MARATHON NEW YORK MUNICIPALS FUND
EV MARATHON FLORIDA MUNICIPALS FUND EV MARATHON OHIO MUNICIPALS FUND
EV MARATHON MASSACHUSETTS MUNICIPALS FUND EV MARATHON RHODE ISLAND MUNICIPALS FUND
EV MARATHON MISSISSIPPI MUNICIPALS FUND EV MARATHON WEST VIRGINIA MUNICIPALS FUND
</TABLE>
THE EV MARATHON MUNICIPAL FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX AND THE STATE
TAXES DESCRIBED UNDER "THE FUNDS" INVESTMENT OBJECTIVES" IN THIS PROSPECTUS.
EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-DIVERSIFIED OPEN-END
INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME INVESTMENT OBJECTIVE AS THE
FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO OF
SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. EACH FUND IS A SERIES
OF EATON VANCE MUNICIPALS TRUST (THE "TRUST").
Shares of the Funds 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 Funds involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This combined Prospectus is designed to provide you with information you should
know before investing. Please retain this document for future reference. A
combined Statement of Additional Information dated February 1, 1996 for the
Funds, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. This Statement of
Additional Information is available without charge from the Funds' principal
underwriter, Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24
Federal Street, Boston, MA 02110 (telephone (800) 225-6265). The Portfolios'
investment adviser is Boston Management and Research (the "Investment Adviser"),
a wholly-owned subsidiary of Eaton Vance Management, and Eaton Vance Management
is the administrator (the "Administrator") of the Funds. The offices of the
Investment Adviser and the Administrator are located at 24 Federal Street,
Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE FOR
PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR YOUR
BROKER FOR FURTHER INFORMATION.
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
PAGE PAGE
Shareholder and Fund Expenses ....... 2 How to Redeem Fund Shares ........ 20
The Funds' Financial Highlights ..... 4 Reports to Shareholders .......... 22
The Funds' Investment Objectives .... 10 The Lifetime Investing Account/
How the Funds and the Portfolios Distribution Options .......... 22
Invest their Assets .............. 10 The Eaton Vance Exchange Privilege 23
Organization of the Funds and the Eaton Vance Shareholder Services.. 24
Portfolios ....................... 14 Distributions and Taxes .......... 24
Management of the Funds and the Performance Information .......... 25
Portfolios ....................... 16 Appendix -- State Specific
Distribution Plans .................. 17 Information ................... 27
Valuing Fund Shares ................. 19
How to Buy Fund Shares .............. 19
- --------------------------------------------------------------------------------
PROSPECTUS DATED FEBRUARY 1, 1996
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
-------------------------------------------------------------------------
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Range of Declining Contingent Deferred Sales Charges Imposed on
Redemption during the First Seven Years (as a percentage of
redemption proceeds exclusive of all reinvestments and capital
appreciation in the account) 5.00%-0%
<TABLE>
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
-------------------------------------------------------------------------------------------------------------------
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee (after any applicable fee
reduction) 0.50% 0.47% 0.46% 0.10%
Rule 12b-1 Distribution (and Service) Fees 0.94 0.89 0.90 0.87
Other Expenses (after any expense reduction) 0.21 0.18 0.22 0.40
---- ---- ---- ----
Total Operating Expenses 1.65% 1.54% 1.58% 1.37%
==== ==== ==== ====
EXAMPLE
-------------------------------------------------------------------------------------------------------------------
An investor would pay the following contingent deferred sales charge and expenses on a $1,000 investment, assuming
(a) 5% annual return and (b) redemption at the end of each period:
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 67 $ 66 $ 66 $ 64
3 Years 92 89 90 83
5 Years 110 104 106 95
10 Years 195 183 188 165
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b) no redemptions:
1 Year $ 17 $ 16 $ 16 $ 14
3 Years 52 49 50 43
5 Years 90 84 86 75
10 Years 195 183 188 165
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee (after any applicable fee
reduction) 0.47% 0.46% 0.13% 0.16%
Rule 12b-1 Distribution (and Service) Fees 0.90 0.90 0.85 0.89
Other Expenses (after any expense reduction) 0.18 0.23 0.49 0.35
---- ---- ---- ----
Total Operating Expenses 1.55% 1.59% 1.47% 1.40%
==== ==== ==== ====
EXAMPLE
-------------------------------------------------------------------------------------------------------------------
An investor would pay the following contingent deferred sales charge and expenses on a $1,000 investment, assuming
(a) 5% annual return and (b) redemption at the end of each period:
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 66 $ 66 $ 65 $ 64
3 Years 89 90 86 84
5 Years 104 107 100 97
10 Years 185 189 176 168
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b) no redemptions:
1 Year $ 16 $ 16 $ 15 $ 14
3 Years 49 50 46 44
5 Years 84 87 80 77
10 Years 185 189 176 168
</TABLE>
NOTES:
The tables and Examples summarize the aggregate expenses of the Funds and the
Portfolios and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in a Fund. Information for
each Fund is based on its expenses for the most recent fiscal year. Absent a fee
reduction, the Investment Adviser Fee of the following Funds would have been the
following percentage of average daily net assets: Mississippi Fund Investment
Adviser Fee would have been 0.22%; Rhode Island Fund Investment Adviser Fee
would have been 0.25%; and West Virginia Fund Investment Adviser Fee would have
been 0.24%.
Each Fund invests exclusively in its corresponding Portfolio. The Trustees
believe the aggregate per share expenses of a Fund and its corresponding
Portfolio should approximate, and over time may be less than, the per share
expenses the Fund would incur if the Fund were instead to retain the services of
an investment adviser and its assets were invested directly in the type of
securities being held by its corresponding Portfolio.
The Examples 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 Examples to assume a 5% annual return, but actual return
may vary. For further information regarding the expenses of the Funds and the
Portfolios see "The Funds" Financial Highlights", "Organization of the Funds and
the Portfolios", "Management of the Funds and the Portfolios" and "How to Redeem
Fund Shares". A long-term shareholder in a Fund 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.
See "Distribution Plans."
No contingent deferred sales charge is imposed on (a) shares purchased more than
six years prior to the redemption, (b) shares acquired through the reinvestment
of dividends and distributions and (c) any appreciation in value of other shares
in the account (see "How to Redeem Fund Shares"), and no such charge is imposed
on exchanges of Fund shares for shares of one or more other funds listed under
"The Eaton Vance Exchange Privilege".
Each Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 16.
Other investment companies with different distribution arrangements and fees
are investing in the Portfolios and others may do so in the future. See
"Organization of the Funds and the Portfolios".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Funds' annual report to shareholders which
is incorporated by reference into the Statement of Additional Information in
reliance upon reports of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information
regarding the performance of a Fund is contained in its annual report to
shareholders which may be obtained without charge by contacting the Principal
Underwriter, Eaton Vance Distributors, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA FUND
-----------------------------------------------------------------------------------------------------------
YEAR ENDED
-----------------------------------------------------------------------------------------------------------
SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
----------------------- ---------------------------------- ----------------------------------------------
1995 1994<F3> 1994 1993 1992<F1> 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.290 $ 9.560 $10.200 $ 9.850 $10.000 $ 9.570 $ 9.880 $ 9.810 $ 9.490
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.478 $ 0.240 $ 0.480 $ 0.509 $ 0.264 $ 0.533 $ 0.558 $ 0.580 $ 0.590
Net realized and
unrealized gain
(loss) on investments 0.250 (0.234) (0.395) 0.524 (0.100) 0.544 (0.203) 0.166 0.417
------- ------- ------- ------- ------- ------- ------- ------- -------
Total income
(loss) from
operations $ 0.728 $ 0.006 $ 0.085 $ 1.033 $ 0.164 $ 1.077 $ 0.355 $ 0.746 $ 1.007
------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.478) $(0.240) $(0.480) $(0.509) $(0.264) $(0.533) $(0.558) $(0.580) $(0.590)
In excess of net
investment income (0.013) (0.036) (0.092) (0.115) (0.050) (0.114) (0.107) (0.096) (0.097)
From net realized
gain on investment
transactions -- -- (0.153) (0.059) -- -- -- -- --
In excess of net
realized gain on
investment
transactions (0.117) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.608) $(0.276) $(0.725) $(0.683) $(0.314) $(0.647) $(0.665) $(0.676) $(0.687)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end
of year $ 9.410 $ 9.290 $ 9.560 $10.200 $ 9.850 $10.000 $ 9.570 $ 9.880 $ 9.810
======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN<F5> 8.30% 0.06% 0.55% 10.82% 3.29% 11.59% 3.63% 7.80% 10.95%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of
year (000 omitted) $401,742 $439,591 $463,414 $438,938 $362,597 $353,990 $281,723 $260,306 $206,741
Ratio of net
expenses to
average daily net
assets<F6> 1.65% 1.63%<F2> 1.67% 1.84%<F2> 1.87%<F2> 1.90% 1.95% 1.97% 1.97%
Ratio of net
investment income
to average daily
net assets 5.21% 5.06%<F2> 4.64% 5.05%<F2> 5.28%<F2> 5.42% 5.65% 5.80% 6.06%
PORTFOLIO TURNOVER<F7> -- -- 5% 139% 65% 36% 13% 8% 29%
<FN>
<F1> For the six months ended March 31, 1992. The California Fund changed its fiscal year end from September 30, to March 31,
effective March 31, 1992.
<F2> Annualized.
<F3> For the six months ended September 30, 1994 for the California Fund, for the period from the start of business August 28, 1990
and August 30, 1990 to September 30, 1990 for the Florida and New York Funds, respectively, for the period from the start of
business April 18, 1991 to September 30, 1991 for the Massachusetts and Ohio Funds, and for the period from the start of
business June 11, 1993 to September 30, 1993 for the Mississippi, Rhode Island and West Virginia Funds.
<F4> The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing of
sales of the Fund shares and the amount of per share realized and unrealized gains and losses at such time.
<F5> 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 computed on a non-annualized basis.
<F6> Includes the Fund's share of its corresponding Portfolio's allocated expenses.
<F7> Portfolio Turnover represents the rate of portfolio activity for the period while a Fund was making investments directly in
securities. The portfolio turnover rate for the period since a Fund transferred substantially all of its investable assets to
a Portfolio is shown in the Portfolio's financial statements which are included in the Fund's annual report.
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA FUND FLORIDA FUND
------------------------ ---------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
------------------------ ---------------------------------------------------------------------------------
1987 1986*** 1995 1994 1993 1992 1991 1990<F3>
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $10.480 $10.000 $10.270 $11.700 $10.940 $10.690 $ 9.990 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.612 $ 0.609 $ 0.514 $ 0.514 $ 0.516 $ 0.541 $ 0.573 $ 0.010
Net realized and
unrealized gain (loss)
on investments (0.886) 0.558 0.469 (1.228) 1.040 0.434 0.838 (0.003)(F4)
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss)
from operations $(0.274) $ 1.089 $ 0.983 $(0.714) $ 1.556 $ 0.975 $ 1.411 $ 0.007
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.612) $(0.609) $(0.514) $(0.514) $(0.516) $(0.541) $(0.573) $(0.010)
In excess of net
investment income (0.104) -- (0.019) (0.082) (0.121) (0.127) (0.138) (0.007)
From net realized
gain on investment
transactions -- -- -- -- (0.159) (0.057) -- --
In excess of net
realized gain on
investment
transactions -- -- -- (0.120) -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total
distributions $(0.716) $(0.609) $(0.533) $(0.716) $(0.796) $(0.725) $(0.711) $(0.017)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end
of year $ 9.490 $10.480 $10.720 $10.270 $11.700 $10.940 $10.690 $ 9.990
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN<F5> (2.93)% 10.80% 9.90% (6.34)% 14.85% 9.41% 14.45% (0.10)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of
year (000 omitted) $190,774 $105,979 $701,565 $760,867 $776,856 $463,279 $233,021 $22,028
Ratio of net expenses
to average daily net
assets<F6> 1.70% 0.08%<F2> 1.54% 1.44% 1.53% 1.64% 1.56% 1.00%<F2>
Ratio of net investment
income to average daily
net assets 5.82% 7.15%<F2> 4.97% 4.70% 4.54% 4.91% 5.33% 1.36%<F2>
PORTFOLIO TURNOVER<F7> 14% 41% -- -- 9% 95% 72% 6%
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Investment Adviser and/or the Administrator. Had such actions not been taken, net investment income per share and the ratios
would have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.561 $ 0.008
======= =======
RATIOS (As a percentage of average daily net assets):
Expenses<F6> 1.67% 1.25%<F2>
Net investment income 5.22% 1.11%<F2>
<FN>
Footnotes:
<F1> For the six months ended March 31, 1992. The California Fund changed its fiscal year end from September 30, to March 31,
effective March 31, 1992.
<F2> Annualized.
<F3> For the six months ended September 30, 1994 for the California Fund, for the period from the start of business August 28, 1990
and August 30, 1990 to September 30, 1990 for the Florida and New York Funds, respectively, for the period from the start of
business April 18, 1991 to September 30, 1991 for the Massachusetts and Ohio Funds, and for the period from the start of
business June 11, 1993 to September 30, 1993 for the Mississippi, Rhode Island and West Virginia Funds.
<F4> The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing of
sales of the Fund shares and the amount of per share realized and unrealized gains and losses at such time.
<F5> 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 computed on a non-annualized basis.
<F6> Includes the Fund's share of its corresponding Portfolio's allocated expenses.
<F7> Portfolio Turnover represents the rate of portfolio activity for the period while a Fund was making investments directly in
securities. The portfolio turnover rate for the period since a Fund transferred substantially all of its investable assets to
a Portfolio is shown in the Portfolio's financial statements which are included in the Fund's annual report.
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MASSACHUSETTS FUND
--------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------
1995 1994 1993 1992 1991<F3>
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.990 $11.250 $10.640 $10.250 $10.000
------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.499 $ 0.505 $ 0.514 $ 0.526 $ 0.245
Net realized and unrealized gain
(loss) on investments 0.307 (1.108) 0.784 0.556 0.305<F4>
------- ------- ------- ------- -------
Total income (loss) from operations $ 0.806 $(0.603) $ 1.298 $ 1.082 $ 0.550
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.499) $(0.505) $(0.514) $(0.526) $(0.245)
In excess of net investment income (0.027) (0.087) (0.116) (0.142) (0.055)
From net realized gain on investment
transactions -- -- (0.058) (0.024) --
In excess of net realized gain on
investment transactions -- (0.065) -- -- --
------- ------- ------- ------- -------
Total distributions $(0.526) $(0.657) $(0.688) $(0.692) $(0.300)
------- ------- ------- ------- -------
NET ASSET VALUE, end of year $10.270 $ 9.990 $11.250 $10.640 $10.250
======= ======= ======= ======= =======
TOTAL RETURN<F5> 8.38% (5.57)% 12.67% 10.88% 5.33%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year
(000 omitted) $291,114 $295,011 $286,801 $165,964 $35,532
Ratio of net expenses to average
daily net assets<F6> 1.58% 1.50% 1.58% 1.64% 1.28%<F2>
Ratio of net investment income to
average daily net assets 5.00% 4.75% 4.69% 4.85% 5.15%<F2>
PORTFOLIO TURNOVER<F7> -- -- 27% 72% 21%
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Investment Adviser and/or the Administrator. Had such actions not been taken, net investment income per share and the ratios
would have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.226
=======
RATIOS (As a percentage of average daily net assets):
Expenses<F6> 1.68%<F2>
Net investment income 4.75%<F2>
Footnotes:
<FN>
<F1> For the six months ended March 31, 1992. The California Fund changed its fiscal year end from September 30, to March 31,
effective March 31, 1992.
<F2> Annualized.
<F3> For the six months ended September 30, 1994 for the California Fund, for the period from the start of business August 28, 1990
and August 30, 1990 to September 30, 1990 for the Florida and New York Funds, respectively, for the period from the start of
business April 18, 1991 to September 30, 1991 for the Massachusetts and Ohio Funds, and for the period from the start of
business June 11, 1993 to September 30, 1993 for the Mississippi, Rhode Island and West Virginia Funds.
<F4> The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing of
sales of the Fund shares and the amount of per share realized and unrealized gains and losses at such time.
<F5> 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 computed on a non-annualized basis.
<F6> Includes the Fund's share of its corresponding Portfolio's allocated expenses.
<F7> Portfolio Turnover represents the rate of portfolio activity for the period while a Fund was making investments directly in
securities. The portfolio turnover rate for the period since a Fund transferred substantially all of its investable assets to
a Portfolio is shown in the Portfolio's financial statements which are included in the Fund's annual report.
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MISSISSIPPI FUND NEW YORK FUND
------------------------------------ ---------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
------------------------------------ ---------------------------------------------------------------
1995 1994 1993<F3> 1995 1994 1993 1992 1991 1990<F3>
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.110 $10.260 $10.000 $10.450 $11.880 $11.070 $10.740 $ 9.950 $10.000
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income $ 0.449 $ 0.453 $ 0.106 $ 0.523 $ 0.528 $ 0.535 $ 0.553 $ 0.563 $ 0.014
Net realized and
unrealized gain (loss)
on investments 0.379 (1.072) 0.300 0.406 (1.165) 1.014 0.524 0.929 (0.039)<F4>
------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss)
from operations $ 0.828 $(0.619) $ 0.406 $ 0.929 $(0.637) $ 1.549 $ 1.077 $ 1.492 $(0.025)
------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.449) $(0.453) $(0.106) $(0.523) $(0.528) $(0.535) $(0.553) $(0.563) $(0.014)
In excess of net investment
income (0.009) (0.071 (0.040) (0.026) (0.089) (0.120) (0.135) (0.139) (0.011)
From net realized gain on
investment transactions -- -- -- -- -- (0.084) (0.059) -- --
In excess of net realized
gain on investment
transactions -- (0.007) -- -- (0.176) -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.458) $(0.531) $(0.146) $(0.549) $(0.793) $(0.739) $(0.747) $(0.702) $(0.025)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end
of year $ 9.480 $ 9.110 $10.260 $10.830 $10.450 $11.880 $11.070 $10.740 $ 9.950
======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN<F5> 9.40% (6.20)% 3.85% 9.23% (5.62)% 14.53% 10.41% 15.58% (0.50)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year
(000 omitted) $26,756 $26,771 $11,810 $640,605 $648,325 $650,361 $415,144 $161,037 $7,640
Ratio of net expenses to
average daily
net assets<F6> 1.37% 0.99% 0.75%<F2> 1.55% 1.46% 1.55% 1.65% 1.62% 1.00%<F2>
Ratio of net investment
income to average daily
net assets 4.88% 4.63% 3.50%<F2> 4.99% 4.72% 4.68% 4.99% 5.28% 1.18%<F2>
PORTFOLIO TURNOVER<F7> -- -- -- -- -- 11% 57% 50% 0%
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Investment Adviser and/or the Administrator. Had such actions not been taken, net investment income per share and the ratios
would have been as follows:
NET INVESTMENT INCOME
PER SHARE $ 0.438 $ 0.407 $ 0.085 $ 0.556 $ 0.008
======= ======= ======= ======= =======
RATIOS (As a percentage of
average daily net assets):
Expenses<F6> 1.49% 1.45% 1.44%<F2> 1.69% 1.52%<F2>
Net investment income 4.76% 4.17% 2.81%<F2> 5.21% 0.66%<F2>
Footnotes:
<FN>
<F1> For the six months ended March 31, 1992. The California Fund changed its fiscal year end from September 30, to March 31,
effective March 31, 1992.
<F2> Annualized.
<F3> For the six months ended September 30, 1994 for the California Fund, for the period from the start of business August 28, 1990
and August 30, 1990 to September 30, 1990 for the Florida and New York Funds, respectively, for the period from the start of
business April 18, 1991 to September 30, 1991 for the Massachusetts and Ohio Funds, and for the period from the start of
business June 11, 1993 to September 30, 1993 for the Mississippi, Rhode Island and West Virginia Funds.
<F4> The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing of
sales of the Fund shares and the amount of per share realized and unrealized gains and losses at such time.
<F5> 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 computed on a non-annualized basis.
<F6> Includes the Fund's share of its corresponding Portfolio's allocated expenses.
<F7> Portfolio Turnover represents the rate of portfolio activity for the period while a Fund was making investments directly in
securities. The portfolio turnover rate for the period since a Fund transferred substantially all of its investable assets to
a Portfolio is shown in the Portfolio's financial statements which are included in the Fund's annual report.
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OHIO FUND RHODE ISLAND FUND
------------------------------------------------------------------- -------------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------- -------------------------------------
1995 1994 1993 1992 1991<F3> 1995 1994 1993<F3>
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $10.070 $11.300 $10.550 $10.210 $10.000 $ 9.090 $10.330 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.487 $ 0.494 $ 0.499 $ 0.509 $ 0.245 $ 0.452 $ 0.454 $ 0.113
Net realized and
unrealized gain
(loss) on
investments 0.461 (1.081) 0.901 0.495 0.261 0.332 (1.146) 0.361
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss)
from operations $ 0.948 $(0.587) $ 1.400 $ 1.004 $ 0.506 $ 0.784 $(0.692) $ 0.474
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.487) $(0.494) $(0.499) $(0.509) $(0.245) $(0.452) $(0.454) $(0.113)
In excess of net
investment income (0.021) (0.084) (0.118) (0.137) (0.051) (0.022) (0.078) (0.008)
From net realized
gain on investment
transactions -- -- (0.033) (0.018) -- -- -- (0.023)
In excess of net
realized gain on
investment
transactions -- (0.065) -- -- -- -- (0.016) --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.508) $(0.643) $(0.650) $(0.664) $(0.296) $(0.474) $(0.548) $(0.144)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
end of year $10.510 $10.070 $11.300 $10.550 $10.210 $ 9.400 $ 9.090 $10.330
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN<F5> 9.74% (5.39)% 13.74% 10.13% 4.88% 8.94% (6.91)% 4.53%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of
year (000 omitted) $315,891 $321,578 $299,331 $164,400 $51,215 $39,864 $34,261 $17,680
Ratio of net expenses
to average daily
net assets<F6> 1.59% 1.50% 1.58% 1.65% 1.47%<F2> 1.34% 1.02% 0.75%<F2>
Ratio of net
investment income
to average daily
net assets 4.80% 4.62% 4.57% 4.87% 5.04%<F2> 4.92% 4.65% 3.70%<F2>
PORTFOLIO TURNOVER<F7> -- -- 12% 40% 11% -- -- --
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses by the
Investment Adviser and/or the Administrator. Had such action not been taken, net investment income per share and the ratios
would have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.243 $ 0.440 $ 0.418 $ 0.096
======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses<F7> 1.52%<F2> 1.47% 1.38% 1.30%<F2>
Net investment income 4.99%<F2> 4.79% 4.29% 3.15%<F2>
Footnotes:
<FN>
<F1> For the six months ended March 31, 1992. The California Fund changed its fiscal year end from September 30, to March 31,
effective March 31, 1992.
<F2> Annualized.
<F3> For the six months ended September 30, 1994 for the California Fund, for the period from the start of business August 28, 1990
and August 30, 1990 to September 30, 1990 for the Florida and New York Funds, respectively, for the period from the start of
business April 18, 1991 to September 30, 1991 for the Massachusetts and Ohio Funds, and for the period from the start of
business June 11, 1993 to September 30, 1993 for the Mississippi, Rhode Island and West Virginia Funds.
<F4> The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing of
sales of the Fund shares and the amount of per share realized and unrealized gains and losses at such time.
<F5> 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 computed on a non-annualized basis.
<F6> Includes the Fund's share of its corresponding Portfolio's allocated expenses.
<F7> Portfolio Turnover represents the rate of portfolio activity for the period while a Fund was making investments directly in
securities. The portfolio turnover rate for the period since a Fund transferred substantially all of its investable assets to
a Portfolio is shown in the Portfolio's financial statements which are included in the Fund's annual report.
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WEST VIRGINIA FUND
--------------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------------
1995 1994 1993<F3>
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.130 $10.220 $10.000
------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.436 $ 0.450 $ 0.103
Net realized and unrealized gain
(loss) on investments 0.393 (1.011) 0.262
------- ------- -------
Total income (loss) from operations $ 0.829 $(0.561) $ 0.365
------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.436) $(0.450) $(0.103)
In excess of net investment income (0.023) (0.069) (0.042)
In excess of net realized gain on
investment transactions -- -- --
In excess of net realized gain on
investment transactions -- (0.010) --
------- ------- -------
Total distributions $(0.459) $(0.529) $(0.145)
------- ------- -------
NET ASSET VALUE, end of year $ 9.500 $ 9.130 $10.220
======= ======= =======
TOTAL RETURN<F3> 9.39% (5.66)% 3.47%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000 omitted) $39,569 $38,476 $25,717
Ratio of net expenses to average
daily net assets<F6> 1.40% 0.95% 0.75%<F2>
Ratio of net investment income to
average daily net assets 4.74% 4.62% 3.40%<F2>
PORTFOLIO TURNOVER<F7> -- -- --
* For the periods indicated, the operating expenses of the Funds and the Portfolios reflect
an allocation of expenses to the Investment Adviser and/or the Administrator. Had such
actions not been taken, net investment income per share and the ratios would have been:
NET INVESTMENT INCOME PER SHARE $ 0.429 $ 0.414 $ 0.090
======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses<F6> 1.48% 1.32% 1.19%<F2>
Net investment income 4.66% 4.25% 2.96%<F2>
Footnotes:
<FN>
<F1> For the six months ended March 31, 1992. The California Fund changed its fiscal year end from September 30, to March 31,
effective March 31, 1992.
<F2> Annualized.
<F3> For the six months ended September 30, 1994 for the California Fund, for the period from the start of business August 28, 1990
and August 30, 1990 to September 30, 1990 for the Florida and New York Funds, respectively, for the period from the start of
business April 18, 1991 to September 30, 1991 for the Massachusetts and Ohio Funds, and for the period from the start of
business June 11, 1993 to September 30, 1993 for the Mississippi, Rhode Island and West Virginia Funds.
<F4> The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing of
sales of the Fund shares and the amount of per share realized and unrealized gains and losses at such time.
<F5> 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 computed on a non-annualized basis.
<F6> Includes the Fund's share of its corresponding Portfolio's allocated expenses.
<F7> Portfolio Turnover represents the rate of portfolio activity for the period while a Fund was making investments directly in
securities. The portfolio turnover rate for the period since a Fund transferred substantially all of its investable assets to
a Portfolio is shown in the Portfolio's financial statements which are included in the Fund's annual report.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund seeks to
meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio") which
invests primarily in municipal obligations (as described below) which are rated
at least investment grade by a major rating agency or, if unrated, determined to
be of at least investment grade quality by the Investment Adviser. Each
Portfolio has the same investment objective as its corresponding Fund.
EV MARATHON CALIFORNIA MUNICIPALS FUND (the "California Fund") seeks to provide
current income exempt from regular federal income tax and California State
personal income taxes. The California Fund seeks to meet its objective by
investing its assets in the California Municipals Portfolio (the "California
Portfolio").
EV MARATHON FLORIDA MUNICIPALS FUND (the "Florida Fund") seeks to provide
current income exempt from regular federal income tax in the form of an
investment exempt from Florida intangibles tax. The Florida Fund seeks to meet
its objective by investing its assets in the Florida Municipals Portfolio (the
"Florida Portfolio").
EV MARATHON MASSACHUSETTS MUNICIPALS FUND (the "Massachusetts Fund") seeks to
provide current income exempt from regular federal income tax and Massachusetts
state personal income taxes. The Massachusetts Fund seeks to meet its objective
by investing its assets in the Massachusetts Municipals Portfolio (the
"Massachusetts Portfolio").
EV MARATHON MISSISSIPPI MUNICIPALS FUND (the "Mississippi Fund") seeks to
provide current income exempt from regular federal income tax and Mississippi
State personal income taxes. The Mississippi Fund seeks to meet its objective by
investing its assets in the Mississippi Municipals Portfolio (the "Mississippi
Portfolio").
EV MARATHON NEW YORK MUNICIPALS FUND (the "New York Fund") seeks to provide
current income exempt from regular federal income tax and New York State and New
York City personal income taxes. The New York Fund seeks to meet its objective
by investing its assets in the New York Municipals Portfolio (the "New York
Portfolio").
EV MARATHON OHIO MUNICIPALS FUND (the "Ohio Fund") seeks to provide current
income exempt from regular federal income tax and Ohio State personal income
taxes. The Ohio Fund seeks to meet its objective by investing its assets in the
Ohio Municipals Portfolio (the "Ohio Portfolio").
EV MARATHON RHODE ISLAND MUNICIPALS FUND (the "Rhode Island Fund") seeks to
provide current income exempt from regular federal income tax and Rhode Island
State personal income taxes. The Rhode Island Fund seeks to meet its objective
by investing in the Rhode Island Municipals Portfolio (the "Rhode Island
Portfolio").
EV MARATHON WEST VIRGINIA MUNICIPALS FUND (the "West Virginia Fund") seeks to
provide current income exempt from regular federal income tax and West Virginia
State personal income taxes. The West Virginia Fund seeks to meet its objective
by investing its assets in the West Virginia Municipals Portfolio (the "West
Virginia Portfolio").
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
- ------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN MUNICIPAL OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT FROM
REGULAR FEDERAL INCOME TAX AND FROM THE STATE TAXES WHICH, IN ACCORDANCE WITH
ITS INVESTMENT OBJECTIVE, THE FUND SEEKS TO AVOID. The foregoing policy is a
fundamental policy of each Fund and its corresponding Portfolio, which may not
be changed unless authorized by a vote of the Fund's shareholders or that
Portfolio's investors, as the case may be.
At least 75% of the net assets of the California Portfolio and Florida
Portfolio, at least 70% of the net assets of the Massachusetts Portfolio and New
York Portfolio, and at least 80% of the net assets of the Mississippi Portfolio,
Ohio Portfolio, Rhode Island Portfolio and West Virginia Portfolio will normally
be invested in obligations rated at least investment grade at the time of
investment (which are those rated Baa or higher by Moody's Investors Service,
Inc. ("Moody's") or BBB or higher by either Standard & Poor's Ratings Group
("S&P") or Fitch Investors Service, Inc. ("Fitch")) or, if unrated, determined
by the Investment Adviser to be of at least investment grade quality. The
balance of each Portfolio's net assets may be invested in municipal obligations
rated below investment grade (but not lower than B by Moody's, S&P or Fitch) and
unrated municipal obligations considered to be of comparable quality by the
Investment Adviser. Municipal obligations rated Baa or BBB may have speculative
characteristics. Also, 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. Securities rated below
BBB or Baa are commonly known as "junk bonds". A Portfolio may retain an
obligation whose rating drops below B after its acquisition if such retention is
considered desirable by the Investment Adviser. See "Risk Considerations." For a
description of municipal obligation ratings, see the Statement of Additional
Information.
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 bonds 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. 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. Under normal market
conditions, a Portfolio will invest at least 65% of its total assets in
obligations issued by its respective State or its political subdivisions.
Interest income from certain types of municipal obligations may be subject to
the federal alternative minimum tax for individual investors. As at September
30, 1995, the Portfolios had invested in such obligations as follows (as a
percentage of net assets): California Portfolio (18.0%); Florida Portfolio
(18.9%); Massachusetts Portfolio (18.1%); Mississippi Portfolio (13.5%); New
York Portfolio (4.82%); Ohio Portfolio (17.8%); Rhode Island Portfolio (19.1%);
and West Virginia Portfolio (16.6%). At September 30, 1995, the Portfolios
limited their investment in obligations subject to the federal alternative
minimum tax to not more than 20% of net assets. The Portfolios are no longer
subject to such limitation. Distributions to corporate investors of certain
interest income may also be subject to the federal alternative minimum tax.
CONCENTRATION. Each Portfolio will concentrate its investments in municipal
obligations issued by its respective State and that State's political
subdivisions. Each Portfolio is, therefore, more susceptible to factors
adversely affecting issuers in one State than mutual funds which do not
concentrate in a specific State. Municipal obligations of issuers in a single
State may be adversely effected by economic developments and by legislation and
other governmental activities in that State. To the extent that a Portfolio's
assets are concentrated in municipal obligations of issuers of a single State,
that Portfolio may be subject to an increased risk of loss. Each Portfolio may
also invest in obligations issued by the governments of Puerto Rico, the U.S.
Virgin Islands and Guam. See the Appendix to this Prospectus for a description
of economic and other factors relating to the States and Puerto Rico.
In addition, each Portfolio may invest 25% or more of its total assets in
municipal obligations of the same type, including, without limitation, the
following: lease rental obligations of State and local authorities; obligations
of State and local housing finance authorities, municipal utilities systems or
public housing authorities; obligations of hospitals or life care facilities; or
industrial development or pollution control bonds issued for electric utility
systems, steel companies, paper companies or other purposes. This may make a
Portfolio more susceptible 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. As a Portfolio's concentration
increases, so does the potential for fluctuation in the value of the
corresponding Fund's shares.
NON-DIVERSIFIED STATUS. Each Portfolio's classification under the Investment
Company Act of 1940 (the "1940 Act") as a "non-diversified" investment company
allows it to invest, with respect to 50% of its total assets, more than 5% (but
not more than 25%) of its total assets in the securities of any issuer. A
Portfolio is likely to invest a greater percentage of its assets in the
securities of a single issuer than would a diversified fund. Therefore, a
Portfolio would be more susceptible to any single adverse economic or political
occurrence or development affecting issuers of the relevant State's municipal
obligations.
OTHER INVESTMENT PRACTICES
Each Portfolio 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, each Portfolio
may temporarily borrow up to 5% of the value of its total assets to satisfy
redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield 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 a Portfolio agreed to pay for them. Each Portfolio may also
purchase instruments that give the Portfolio the option to purchase a municipal
obligation when and if issued.
INVERSE FLOATERS. Each Portfolio may invest in 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 a Portfolio when short-term
interest rates rise, and increase the interest paid to the Portfolio when
short-term interest rates fall. Inverse floaters have varying degrees of
liquidity, and the market for these securities is new and relatively volatile.
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. Each Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. The futures contracts may be based on various debt securities
(such as U.S. Government securities), securities indices (such as the Municipal
Bond Index traded on the Chicago Board of Trade) and other financial instruments
and indices. Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed a
Portfolio's initial investment in these contracts. A Portfolio may not purchase
or sell futures contracts or related options, except for closing purchase or
sale transactions, if immediately thereafter the sum of the amount of margin
deposits and premiums paid on the Portfolio's outstanding positions would exceed
5% of the market value of the Portfolio's net assets. These transactions involve
transaction costs. There can be no assurance that the Investment Adviser's use
of futures will be advantageous to a Portfolio. Distributions by a Fund of any
gains realized on its corresponding Portfolio's transactions in futures and
options on futures will be taxable.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce a Fund's 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 a Fund's shares.
RISK CONSIDERATIONS
Many municipal obligations offering current income are in the lowest investment
grade category (Baa or BBB), lower categories or may be unrated. As indicated
above, each Portfolio may invest in municipal obligations rated below investment
grade (but not lower than B by Moody's, S&P or Fitch) and comparable unrated
obligations. The lowest investment grade, lower rated and comparable unrated
municipal obligations in which a Portfolio may invest 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 the Portfolio invests in such municipal obligations,
the achievement of the Portfolio's goals is more dependent on the Investment
Adviser's ability than would be the case if the Portfolio were investing in
municipal obligations in the higher rating categories.
Each Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, a Portfolio may incur additional expense seeking recovery
of its investment. Municipal obligations held by a Portfolio 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 the Portfolio's investment policies. A Portfolio may retain in its
portfolio an obligation whose rating drops below B after its acquisition, if
such retention is considered desirable by the Investment Adviser; provided,
however, that holdings of obligations rated below Baa or BBB will not exceed 35%
of net assets. In the event the rating of an obligation held by a Portfolio is
downgraded, causing the Portfolio to exceed this limitation, the Investment
Adviser will (in an orderly fashion within a reasonable period of time) dispose
of such obligations as it deems necessary in order to comply with the
Portfolio's credit quality limitations. For a description of municipal
obligation ratings, see the Statement of Additional Information.
The net asset value of shares of a Fund will change in response to fluctuations
in prevailing interest rates and changes in the value of the securities held by
its corresponding Portfolio. When interest rates decline, the value of
securities held by a Portfolio 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 by a Portfolio will affect the principal value of (and possibly
the income earned on) 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 a Portfolio's 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 shares of a Fund will not constitute a complete investment
program.
At times, a substantial portion of the Portfolio's assets may be invested in
securities as to which the Portfolio, 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, the Portfolio
could find it more difficult to sell such securities when the Investment Adviser
believes it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the fair value of such
securities for purposes of computing the Portfolio's net asset value.
The secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15% of
its net assets would be invested in securities that are not readily marketable.
No established resale market exists for certain of the municipal obligations in
which a Portfolio may invest. The market for obligations rated below investment
grade is also likely to be less liquid than the market for higher rated
obligations. As a result, a Portfolio 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 held by the Portfolio may permit the issuer at its option to
"call", or redeem, its securities. If an issuer redeems securities held by the
Portfolio during a time of declining interest rates, the Portfolio may not be
able to reinvest the proceeds in securities providing the same investment return
as the securities redeemed.
Some of the securities in which a Portfolio invests may 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. Each Portfolio is required to accrue and distribute income from
zero-coupon bonds on a current basis, even though it does not receive that
income currently in cash. Thus, a Portfolio may have to sell other investments
to obtain cash needed to make income distributions.
Each Portfolio may invest in 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.
EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH 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 OF EACH FUND AND PORTFOLIO ARE NOT FUNDAMENTAL POLICIES
AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE PORTFOLIO
WITHOUT OBTAINING THE APPROVAL OF A FUND'S SHAREHOLDERS OR THE INVESTORS IN
THE CORRESPONDING PORTFOLIO, AS THE CASE MAY BE. IF ANY CHANGES WERE MADE IN A
FUND'S INVESTMENT OBJECTIVE, THE FUND MIGHT HAVE INVESTMENT OBJECTIVES
DIFFERENT FROM THE OBJECTIVE WHICH AN INVESTOR CONSIDERED APPROPRIATE AT THE
TIME THE INVESTOR BECAME A SHAREHOLDER IN THE FUND.
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
- ------------------------------------------------------------------------------
EACH FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST (THE
"TRUST"), A BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A
DECLARATION OF TRUST DATED SEPTEMBER 30, 1985, AS AMENDED. THE TRUST IS A MUTUAL
FUND -- AN OPEN-END MANAGEMENT INVESTMENT COMPANY. 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 and because the Trust can offer separate series
(such as the Funds) it is known as a "series company." Each share represents an
equal proportionate beneficial interest in a Fund. When issued and outstanding,
each Fund's shares are fully paid and nonassessable by the Trust and redeemable
as described under "How to Redeem Fund Shares." Shareholders are entitled to one
vote for each full share held. Fractional shares may be voted proportionately.
Shares have no preemptive or conversion rights and are freely transferable. In
the event of the liquidation of a Fund, shareholders of that Fund are entitled
to share pro rata in the net assets available for distribution to shareholders.
EACH PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolios, as well as the Trust, intend to comply with all applicable federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that Portfolio
(e.g., other U.S. and foreign investment companies, and common and commingled
trust funds) will each be liable for all obligations of the Portfolio. However,
the risk of a Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance exists and the
Portfolio itself is unable to meet its obligations. Accordingly, the Trustees of
the Trust believe that neither the Funds nor their shareholders will be
adversely affected by reason of the Funds investing in the Portfolios.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in a
Fund should be aware that the Fund, unlike mutual funds which directly acquire
and manage their own portfolios of securities, seeks to achieve its investment
objective by investing its assets in an interest in its corresponding Portfolio,
which is a separate investment company with an identical investment objective
(although the Fund may temporarily hold a de minimus amount of cash). Therefore,
a Fund's interest in the securities owned by its corresponding Portfolio is
indirect. In addition to selling an interest to its corresponding Fund, a
Portfolio may sell interests to other affiliated and non-affiliated mutual funds
or institutional investors. Such investors will invest in a Portfolio on the
same terms and conditions and will pay a proportionate share of the Portfolio's
expenses. However, the other investors investing in a Portfolio are not required
to sell their shares at the same public offering price as the corresponding Fund
due to variations in sales commissions and other operating expenses. Therefore,
investors in a Fund should be aware that these differences may result in
differences in returns experienced by investors in the various funds that invest
in its corresponding Portfolio. Such differences in returns are also present in
other mutual fund structures, including funds that have multiple classes of
shares. For information regarding the investment objective, policies and
restrictions of the Portfolios, see "The Funds" Investment Objectives" and "How
the Funds and the Portfolios Invest their Assets". Further information regarding
investment practices may be found in the Statement of Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages of
investing the assets of each Fund in its corresponding Portfolio, as well as the
advantages and disadvantages of the two-tier format. The Trustees believe that
the structure offers opportunities for substantial growth in the assets of the
Portfolios, and affords the potential for economies of scale for each Fund, at
least when the assets of its corresponding Portfolio exceed $500 million. The
public shareholders of each Fund have previously approved the policy of
investing such Fund's assets in an interest in its corresponding Portfolio.
A Fund may withdraw (completely redeem) all its assets from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of that Fund to do so. The investment objective and the
nonfundamental investment policies of each Fund and Portfolio may be changed by
the Trustees of the Trust and the Portfolio without obtaining the approval of
the shareholders of that Fund or the investors in that Portfolio, as the case
may be. Any such change of an investment objective will be preceded by thirty
days' advance written notice to the shareholders of the Fund or the investors in
the Portfolio, as the case may be. If a shareholder redeems shares because of a
change in the nonfundamental objective or policies of a Fund, those shares may
be subject to a contingent deferred sales charge, as described in "How to Redeem
Fund Shares". In the event a Fund withdraws all of its assets from its
corresponding Portfolio, or the Board of Trustees of the Trust determines that
the investment objective of such Portfolio is no longer consistent with the
investment objective of the Fund, such Trustees would consider what action might
be taken, including investing the assets of such Fund in another pooled
investment entity or retaining an investment adviser to manage the Fund's assets
in accordance with its investment objective. A Fund's investment performance may
be affected by a withdrawal of all its assets from its corresponding Portfolio.
Information regarding other pooled investment entities or funds which invest in
a Portfolio may be obtained by contacting Eaton Vance Distributors, Inc. (the
"Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110, (617)
482-8260. Smaller investors in a Portfolio may be adversely affected by the
actions of a larger investor investing in the Portfolio. For example, if a large
investor withdraws from a Portfolio, the remaining investors may experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, a Portfolio may become less diverse, resulting in increased
portfolio risk, and experience decreasing economies of scale. However, this
possibility exists as well for historically structured mutual funds which have
large or institutional investors.
Until recently, the Administrator sponsored and advised historically structured
funds. Funds which invest all their assets in interests in a separate investment
company are a relatively new development in the mutual fund industry and,
therefore, the Funds may be subject to additional regulations than historically
structured funds.
Each Portfolio's Declaration of Trust provides that the Portfolio will terminate
120 days after the complete withdrawal of a Fund or any other investor in the
Portfolio, unless either the remaining investors, by unanimous vote at a meeting
of such investors, or a majority of the Trustees of the Portfolio, by written
instrument consented to by all investors, agree to continue the business of the
Portfolio. This provision is consistent with treatment of the Portfolios as
partnerships for federal income tax purposes. See "Distributions and Taxes" for
further information. Whenever a Fund as an investor in a Portfolio is requested
to vote on matters pertaining to the Portfolio (other than the termination of
the Portfolio's business, which may be determined by the Trustees of the
Portfolio without investor approval), the Fund will hold a meeting of Fund
shareholders and will vote its interest in the Portfolio for or against such
matters proportionately to the instructions to vote for or against such matters
received from Fund shareholders. A Fund shall vote shares for which it receives
no voting instructions in the same proportion as the shares for which it
receives voting instructions. Other investors in a Portfolio may alone or
collectively acquire sufficient voting interests in the Portfolio to control
matters relating to the operation of the Portfolio, which may require the
corresponding Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, a Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of a Fund. Notwithstanding the above, there are other means
for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested Trustees,
have approved written procedures designed to identify and address any potential
conflicts of interest arising from the fact that the Trustees of the Trust and
the Trustees of each Portfolio are the same. Such procedures require each Board
to take action to resolve any conflict of interest between a Fund and its
corresponding Portfolio, and it is possible that the creation of separate Boards
may be considered. For further information concerning the Trustees and officers
of each of the Trust and the Portfolios, see the Statement of Additional
Information.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
- ------------------------------------------------------------------------------
EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF 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 each Portfolio,
BMR manages each Portfolio's investments and affairs and furnishes for the use
of each Portfolio office space and all necessary office facilities, equipment
and personnel for servicing the investments of the Porfolios. Under its
investment advisory agreement with a Portfolio, BMR receives a monthly advisory
fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the 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 daily gross income
on such day as that portion of the total daily net assets in the same
Category bears to the total daily net assets on such day) in each
Category as indicated below. Categories (1) and (2) below do not apply
to the California Portfolio and Category (3) is for daily net assets of
the California Portfolio of up to $500 million.
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 up to $20 million .......................................... 0.100% 1.00%
2 $20 million but less than $40 million ...................... 0.200% 2.00%
3 $40 million but less than $500 million ..................... 0.300% 3.00%
4 $500 million but less than $1 billion ...................... 0.275% 2.75%
5 $1 billion but less than $1.5 billion ...................... 0.250% 2.50%
6 $1.5 billion but less than $2 billion ...................... 0.225% 2.25%
7 $2 billion but less than $3 billion ........................ 0.200% 2.00%
8 $3 billion and over ........................................ 0.175% 1.75%
Each Portfolio paid (or, absent a fee reduction, would have paid) advisory fees for the fiscal year ended September 30, 1995
equivalent to the annualized percentage of average daily net assets stated below:
<CAPTION>
NET ASSETS AS OF
PORTFOLIO SEPTEMBER 30, 1995 ADVISORY FEE
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
California ..................................................... $ 2,121,262 0.50%
Florida ........................................................ 3,433,489 0.47%
Massachusetts .................................................. 1,383,407 0.46%
Mississippi .................................................... 65,442 0.22%<F1>
New York ....................................................... 3,031,508 0.47%
Ohio ........................................................... 1,463,895 0.46%
Rhode Island ................................................... 100,476 0.25%<F2>
West Virginia .................................................. 98,033 0.24%<F3>
<FN>
<F1> To enhance the net income of the Mississippi Portfolio, BMR made a
reduction of its advisory fee in the amount of $36,759.
<F2> To enhance the net income of the Rhode Island Portfolio, BMR made a
reduction of its advisory fee in the amount of $50,721.
<F3> To enhance the net income of the West Virginia Portfolio, BMR made a
reduction of its advisory fee in the amount of $32,526.
</TABLE>
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $16 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
Nicole Anderes has acted as the portfolio manager of the New York and Rhode
Island Portfolios since they commenced operations. She joined Eaton Vance and
BMR as a Vice President in January 1994. Prior to joining Eaton Vance, she was a
Vice President and portfolio manager at Lazard Freres Asset Management
(1992-1994) and a Vice President and Manager -- Municipal Research at Roosevelt
& Cross (1978-1992).
Timothy T. Browse has acted as the portfolio manager of the West Virginia
Portfolio since it commenced operations. He has been a Vice President of Eaton
Vance and of BMR since 1993 and an employee of Eaton Vance since 1992. Prior to
joining Eaton Vance, he was a municipal bond trader at Fidelity Management &
Research Company (1987-1992).
Cynthia J. Clemson has acted as the portfolio manager of the Mississippi
Portfolio since it commenced operations and the California Portfolio since
February 1, 1996. She has been a Vice President of Eaton Vance and BMR since
1993 and an employee of Eaton Vance since 1985.
Thomas J. Fetter has acted as the portfolio manager of the Florida and Ohio
Portfolios since they commenced operations. He has been a Vice President of
Eaton Vance since 1987 and of BMR since inception.
Robert B. MacIntosh has acted as the portfolio manager of the Massachusetts
Portfolio since it commenced operations. He has been a Vice President of Eaton
Vance since joining the firm in 1991 and of BMR since its inception. Prior to
joining Eaton Vance, he was a portfolio manager at Fidelity Management &
Research Company (1986-1991).
Municipal obligations are normally traded on a net basis (without commission)
through broker-dealers and banks acting for their own account. Such firms
attempt to profit from such transactions by buying at the bid price and selling
at the higher asked price of the market, and the difference is customarily
referred to as the spread. In selecting firms which will execute portfolio
transactions, BMR judges their professional ability and quality of service and
uses its best efforts to obtain execution at prices which are advantageous to
the Portfolios and at reasonably competitive spreads. Subject to the foregoing,
BMR may consider sales of shares of the Funds or of other investment companies
sponsored by BMR or Eaton Vance as a factor in the selection of firms to execute
portfolio transactions.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing its assets in the corresponding Portfolio. As Administrator, Eaton
Vance provides the Funds with general office facilities and supervises the
overall administration of the Fund. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible for
all respective costs and expenses not expressly stated to be payable by BMR
under the investment advisory agreement, by Eaton Vance under the administrative
services agreement, or by EVD under the distribution agreement.
DISTRIBUTION PLANS
- -----------------------------------------------------------------------------
EACH FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(A "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940. Rule
12b-1 permits a mutual fund, such as a Fund, to finance distribution activities
and bear expenses associated with the distribution of its shares provided that
any payments made by the fund are made pursuant to a written plan adopted in
accordance with the Rule. Each Plan is subject to, and complies with, the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). Each Fund's Plan is described further in the Statement of Additional
Information, and the following is a description of the salient features of the
Plans. Each Fund's Plan provides that the Fund, subject to the NASD Rule, will
pay sales commissions and distribution fees to the Principal Underwriter only
after and as a result of the sale of shares of the Fund. On each sale of Fund
shares (excluding reinvestment of distributions) a Fund will pay the Principal
Underwriter amounts representing (i) sales commissions equal to 5% of the amount
received by a 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 Principal Underwriter
currently expects to pay sales commissions (except on exchange transactions and
reinvestments) to a financial service firm (an "Authorized Firm") at the time of
sale equal to 4% of the purchase price of the shares sold by such Firm. The
Principal Underwriter will use its own funds (which may be borrowed from banks)
to pay such commissions. Because the payment of the sales commissions and
distribution fees to the Principal Underwriter is subject to the NASD Rule
described below, it will take the Principal Underwriter a number of years to
recoup the sales commissions paid by it to Authorized Firms from the payments
received by it from a Fund pursuant to a Plan.
THE NASD RULE REQUIRES EACH FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO AN AMOUNT NOT EXCEEDING .75% OF THE FUND'S
AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. Under its Plan, a Fund accrues
daily an amount at the rate of 1/365 of .75% of the Fund's net assets, and pays
such accrued amounts monthly to the Principal Underwriter. Each Plan requires
such accruals to be automatically discontinued during any period in which there
are no outstanding Uncovered Distribution Charges under the Plan. Uncovered
Distribution Charges are calculated daily and, briefly, are equivalent to all
unpaid sales commissions and distribution fees to which the Principal
Underwriter is entitled under a Plan less all contingent deferred sales charges
theretofore paid to the Principal Underwriter. The Eaton Vance organization may
be considered to have realized a profit under a Fund's Plan if at any point in
time the aggregate amounts of all payments received by the Principal Underwriter
from the Fund pursuant to the Plan, including any contingent deferred sales
charges, have exceeded the total expenses theretofore incurred by such
organization in distributing 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.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid during any fiscal year, a high level of sales of Fund
shares during the initial years of a Fund's operations would cause a large
portion of the sales commissions attributable to a sale of Fund shares to be
accrued and paid by the Fund to the Principal Underwriter in fiscal years
subsequent to the year in which such shares were sold. This spreading of sales
commissions payments under each Fund's Plan over an extended period would result
in the incurrence and payment of increased distribution fees under the Plan.
During the fiscal year ended September 30, 1995, each Fund paid sales
commissions under its Plan equivalent to .75% (annualized) of such Fund's
average daily net assets. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter on such day calculated under
each Fund's Plan amounted to approximately $7,451,654 (equivalent to 2.0% of net
assets on such day) in the case of The California Fund, $22,542,247 (equivalent
to 3.0% of net assets on such day) in the case of the Florida Fund, $9,990,955
(equivalent to 3.0% of net assets on such day) in the case of the Massachusetts
Fund, $1,214,528 (equivalent to 5.0% of net assets on such day) in the case of
the Mississippi Fund, $19,715,965 (equivalent to 3.0% of net assets on such day)
in the case of the New York Fund, $10,953,067 (equivalent to 3.0% of net assets
on such day) in the case of the Ohio Fund, $1,771,592 (equivalent to 4.0% of net
assets on such day) in the case of the Rhode Island Fund, and $1,689,681
(equivalent to 4.0% of net assets on such day) in the case of the West Virginia
Fund.
EACH PLAN ALSO AUTHORIZES A FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The Trustees of
the Trust have initially implemented this provision of each Fund's Plan by
authorizing the Fund to make quarterly payments of service fees to the Principal
Underwriter and Authorized Firms in amounts not expected to exceed .20% (.25%
for the California Fund) of the Fund's average daily net assets for each fiscal
year based on the value of Fund shares sold by such persons and remaining
outstanding for at least twelve months. However, each Fund's Plan authorizes the
Trustees of the Trust on behalf of the Fund to increase payments to the
Principal Underwriter, Authorized Firms and other persons from time to time
without further action by shareholders of the Fund, provided that the aggregate
amount of payments made to such persons under the Plan in any fiscal year of the
Fund does not exceed .25% of the Fund's average daily net assets. As permitted
by the NASD Rule, such payments are made for personal services and/or the
maintenance of shareholder accounts. Service fees are separate and distinct from
the sales commissions and distribution fees payable by a Fund to the Principal
Underwriter, and as such are not subject to automatic discontinuance when there
are no outstanding Uncovered Distribution Charges of the Principal Underwriter.
For the fiscal year ended September 30, 1995, the following Funds made service
fee payments (as an annualized percentage of average daily net assets):
California Fund (0.19%); Florida Fund (0.14%); Massachusetts Fund (0.15%);
Mississippi Fund (0.12%); New York Fund (0.15%); Ohio Fund (0.15%); Rhode Island
Fund (0.10%); and West Virginia Fund (0.14%).
The Principal Underwriter may, from time to time, at its own expense, provide
additional incentives to Authorized Firms which employ registered
representatives who sell a Fund's 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.
Each Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Funds' management intends to consider all relevant factors,
including without limitation the size of a Fund, the investment climate and
market conditions, the volume of sales and redemptions of Fund shares, and the
amount of Uncovered Distribution Charges of the Principal Underwriter. Each Plan
may continue in effect and payments may be made under the Plan following any
such suspension, discontinuance or limitation of the offering of Fund shares;
however, no Fund is contractually obligated to continue its Plan for any
particular period of time. Suspension of the offering of Fund shares would not,
of course, affect a shareholder's ability to redeem shares.
VALUING FUND SHARES
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EACH FUND VALUES ITS SHARES ONCE ON 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 Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of a Fund's total assets, less
its liabilities, by the number of shares outstanding. Because each Fund invests
its assets in an interest in its corresponding Portfolio, the Fund's net asset
value will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio) based
on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of a
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolios' assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
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SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms at
the net asset value per share of the Fund next determined after an order is
effective. A Fund may suspend the offering of shares at any time and may refuse
an order for the purchase of shares. Shares of each Fund are offered for sale
only in States where such shares may be legally sold. An Authorized Firm may
charge its customers a fee in connection with transactions executed by that
Firm.
An initial investment in a Fund 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 Funds' transfer agent (the "Transfer Agent") as follows: First
Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See
"Eaton Vance Shareholder Services."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares at their net asset value as determined above. The minimum value of
securities (or securities and cash) accepted for deposit is $5,000. Securities
accepted will be sold by IBT as agent for the account of their owner on the day
of their receipt by IBT 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 per
Fund share 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:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Marathon [State name] Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon [State name] Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a Fund,
or their representatives, must contact Eaton Vance to determine whether the
securities are acceptable before forwarding such securities to IBT. Eaton Vance
reserves the right to reject any securities. Exchanging securities for Fund
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 for Fund shares.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
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A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO FIRST DATA INVESTOR
SERVICES GROUP, BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per share of the applicable Fund next computed after such
delivery. 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 regulation of the Securities and Exchange Commission and
acceptable to First Data Investor Services Group. 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.
Within seven days after receipt of a redemption request in good order by First
Data Investor Services Group, a Fund 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 contingent deferred sales charges (described below) and federal
income tax required to be withheld. Although each Fund normally expects to make
payment 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 a Fund, either totally or partially, by a distribution in kind of
readily marketable securities withdrawn by that Fund from its corresponding
Portfolio. The securities so distributed would be valued pursuant to the
Portfolio'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.
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 such shares is based upon the net
asset value calculated after EVD, as the Funds' agent, receives the order. It is
the Authorized Firm's responsibility to transmit promptly repurchase orders to
EVD. Throughout this Prospectus, the word "redemption" is generally meant to
include a repurchase.
If shares were recently purchased, the proceeds of redemption (or repurchase)
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 or repurchases may result in a taxable
gain or loss.
Due to the high cost of maintaining small accounts, each Fund reserves the right
to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required by a Fund if the cause of the low
account balance was a reduction in the net asset value of Fund shares. No
contingent deferred sales charge will be imposed with respect to such
involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares redeemed within the first six years of
their purchase (except shares acquired through the reinvestment of
distributions) generally will be subject to a contingent deferred sales charge.
This contingent deferred sales charge is imposed on any redemption the amount of
which exceeds the aggregate value at the time of redemption of (a) all shares in
the account purchased more than six years prior to the redemption, (b) all
shares in the account acquired through reinvestment of monthly distributions and
capital gains distributions, and (c) the increase, if any, in the value of all
other shares in the account (namely those purchased within the six years
preceding the redemption) over the purchase price of such shares. Redemptions
are processed in a manner to maximize the amount of redemption proceeds which
will not be subject to a contingent deferred sales charge. That is, each
redemption will be assumed to have been made first from the exempt amounts
referred to in clauses (a), (b) and (c) above, and second through liquidation of
those shares in the account referred to in clause (c) on a first-in-first-out
basis. Any contingent deferred sales charge which is required to be imposed on
share redemptions will be made in accordance with the following schedule:
YEAR OF REDEMPTION CONTINGENT
AFTER PURCHASE DEFERRED
SALES CHARGE
----------------------------------------------------------------------------
First or Second ......................................... 5%
Third ................................................... 4%
Fourth .................................................. 3%
Fifth ................................................... 2%
Sixth ................................................... 1%
Seventh and following ................................... 0%
In calculating the contingent deferred sales charge upon the redemption of
shares acquired in an exchange of shares of a fund currently listed under "The
Eaton Vance Exchange Privilege," the contingent deferred sales charge schedule
applicable to the shares at the time of purchase will apply and the purchase of
shares acquired in the exchange is deemed to have occurred at the time of the
original purchase of exchanged shares.
No contingent deferred sales charge will be imposed on Fund shares which have
been sold to Eaton Vance or its affiliates, or to their respective employees or
clients. The contingent deferred sales charge applicable to shares will be
waived for shares redeemed (1) pursuant to a Withdrawal Plan (see "Eaton Vance
Shareholder Services"), (2) as part of a required distribution from a
tax-sheltered retirement plan or (3) following the death of all beneficial
owners of such shares, provided the redemption is requested within one year of
death (a death certificate and other applicable documents may be required). The
contingent deferred sales charge will be paid to the Principal Underwriter or
the Fund. When paid to the Principal Underwriter it will reduce the amount of
Uncovered Distribution Charges calculated under the Fund's Distribution Plan.
See "Distribution Plans."
THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CONTINGENT DEFERRED
SALES CHARGE. ASSUME THAT AN INVESTOR PURCHASES $10,000 OF A FUND'S SHARES AND
THAT 16 MONTHS LATER THE VALUE OF THE ACCOUNT HAS GROWN THROUGH INVESTMENT
PERFORMANCE AND REINVESTMENT OF DIVIDENDS TO $12,000. THE INVESTOR THEN MAY
REDEEM UP TO $2,000 OF SHARES WITHOUT INCURRING A CONTINGENT DEFERRED SALES
CHARGE. IF THE INVESTOR SHOULD REDEEM $3,000 OF SHARES, A CHARGE WOULD BE
IMPOSED ON $1,000 OF THE REDEMPTION. THE RATE WOULD BE 5% BECAUSE IT WAS IN
THE SECOND YEAR AFTER THE PURCHASE WAS MADE AND THE CHARGE WOULD BE $50.
REPORTS TO SHAREHOLDERS
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EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Funds' independent certified public accountants. Shortly
after the end of each calendar year, each Fund will furnish its shareholders
with information necessary for preparing federal and State tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
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AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUNDS' TRANSFER
AGENT, FIRST DATA INVESTOR SERVICES GROUP, WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE APPLICABLE FUND'S RECORDS. This account is a
complete record of all transactions between the investor and the Fund which at
all times shows the balance of shares owned. A Fund will not issue share
certificates except upon request.
At least quarterly, shareholders 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 to First Data Investor
Services Group.
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 First Data Investor Services Group, BOS725, P.O.
Box 1559, Boston, MA, 02104 (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 Funds'
dividend disbursing agent, First Data Investor Services Group, BOS725, P.O. Box
1559, Boston, MA 02104. 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 the INCOME OPTION or CASH OPTION has been selected, dividend and/or capital
gains distribution checks which are returned by the United States Postal Service
as not deliverable or which remain uncashed for six months or more will be
reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the SHARE OPTION until such time as the shareholder selects a
different option.
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 of a Fund 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 Fund and its Transfer Agent. Since the Fund
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 dealer or to an account directly with a Fund 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 investment firm, or
transferring the account to another investment firm, an investor wishing to
reinvest distributions should determine whether the firm which will hold the
shares allows reinvestment of distributions in "street name" accounts.
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS IN SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE.
THE EATON VANCE EXCHANGE PRIVILEGE
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Shares of each Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance Marathon Group of Funds (except Eaton Vance Prime Rate
Reserves) or Eaton Vance Money Market Fund, which are distributed with a
contingent deferred sales charge, on the basis of the net asset value per share
of each fund at the time of the exchange, provided that such exchange offers are
available only in States where shares of the fund being acquired may be legally
sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. 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 Funds do 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.
First Data Investor Services Group makes exchanges at the next determined net
asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult First Data Investor Services Group 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 contingent deferred sales charge is imposed on exchanges. For purposes of
calculating the contingent deferred sales charge upon redemption of shares
acquired in an exchange, the contingent deferred sales charge 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. For the contingent deferred
sales charge schedule applicable to the EV Marathon Group of Funds (except EV
Marathon Strategic Income Fund and Class I shares of any EV Marathon Limited
Maturity Fund), see "How to Redeem Fund Shares". The contingent deferred sales
charge schedule applicable to EV Marathon Strategic Income Fund or Class I
shares of any EV Marathon Limited Maturity Fund 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.
Shares of other funds in the Eaton Vance Marathon Group of Funds and shares of
Eaton Vance Money Market Fund may be exchanged for Fund shares on the basis of
the net asset value per share of each fund at the time of the exchange, but
subject to any restrictions or qualifications set forth in the current
prospectus of any such fund.
Telephone exchanges are accepted by First Data Investor Services Group provided
the investor has not disclaimed in writing the use of the privilege. To effect
such exchanges, call First Data Investor Services Group at 800-262- 1122 or,
within Massachusetts, 617-573-9403, 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 Funds, the Principal Underwriter nor First Data Investor
Services Group 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
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THE FUNDS OFFER 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 as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
being purchased may be mailed directly to First Data Investor Services Group,
BOS725, P.O. Box 1559, Boston, MA 02104 at any time -- whether or not dividends
are reinvested. The name of the shareholder, the Fund 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.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed annually
12% of the account balance at the time the Plan is established. Such amount will
not be subject to a contingent deferred sales charge. See "How to Redeem Fund
Shares". A minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES MAY
REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES PAID ON THE
REDEEMED OR REPURCHASED SHARES, ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE TO
ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF A FUND, provided
that the reinvestment is effected within 60 days after such repurchase or
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 a Fund (or by the Fund's Transfer Agent). To the
extent that any shares of a Fund are sold at a loss and the proceeds are
reinvested in shares of the Fund (or other shares of the Fund are acquired
within the period beginning 30 days before and ending 30 days after the date of
the 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 A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE
DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF
DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the fifteenth day of each month or
the next business day thereafter. Each Fund anticipates that for tax purposes
the entire distribution, whether paid in cash or reinvested in additional shares
of the Fund, 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 day that
collected funds for the purchase of Fund shares are available at the Transfer
Agent. Shareholders of a Fund 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. A Fund's net realized capital gains, if any, consist
of the net realized capital gains allocated to the Fund by its corresponding
Portfolio for tax purposes, after taking into account any available capital loss
carryovers; a Fund's net realized capital gains, if any, will be distributed at
least once a year, usually in December.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), and to satisfy all
requirements necessary to be relieved of federal taxes on income and gains it
distributes to shareholders. In satisfying these requirements, each Fund will
treat itself as owning its proportionate share of each of its corresponding
Portfolio's assets and as entitled to the income of the Portfolio properly
attributable to such share.
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, EACH FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO
SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN
ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE. AS PARTNERSHIPS
UNDER THE CODE, THE PORTFOLIOS DO NOT PAY FEDERAL INCOME OR EXCISE TAXES.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations. 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 Fund shares have been owned by the shareholder. Distributions are taxed
in the manner described above whether paid in cash or reinvested in additional
shares of a Fund.
Tax-exempt distributions received from a Fund are includable in the tax base for
determining the taxability of social security and railroad retirement benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of a Fund is not deductible to the extent it is deemed related to
the Fund's distribution of tax-exempt interest. Further, entities or persons who
are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of a Fund. "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.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE TAXES.
Shareholders should consult their own tax advisers with respect to the State,
local and foreign tax consequences of investing in a Fund.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------------------
FROM TIME TO TIME, EACH FUND MAY ADVERTISE THE YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. Each Fund's current yield is calculated by dividing the net investment
income per share earned during a recent 30-day period by the maximum offering
price per share (net asset value) of the Fund 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 one minus the tax rate. Each
Fund's average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price (net asset value) for specified periods ending with the most recent
calendar quarter, assuming reinvestment of all distributions. The average annual
total return calculation assumes a complete redemption of the investment and the
deduction of any applicable contingent deferred sales charge at the end of the
period. Each Fund may publish annual and cumulative total return figures from
time to time.
Each Fund may also publish its distribution rate and/or effective distribution
rate. Each Fund's distribution rate is computed by dividing the most recent
monthly distribution per share annualized by the current maximum offering price
per share (net asset value). Each Fund's effective distribution rate is computed
by dividing the distribution rate by the ratio used to annualize the most recent
monthly distribution and reinvesting the resulting amount for a full year on the
basis of such ratio. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed reinvestment.
Investors should note that a Fund's yield is calculated using a standardized
formula the income component of which is computed from the yields to maturity of
all debt obligations held by the Portfolio based on prescribed methods (with all
purchases and sales of securities during such period included in the income
calculation on a settlement date basis), whereas the distribution rate is based
on a Fund's last monthly distribution which tends to be relatively stable and
may be more or less than the amount of net investment income and short-term
capital gain actually earned by the Fund during the month.
Each Fund may also publish total return figures which do not take into account
any contingent deferred sales charge which may be imposed upon redemptions at
the end of the specified period. Any performance figure which does not take into
account the contingent deferred sales charge would be reduced to the extent such
charge is imposed upon a redemption.
Investors should note that the investment results of a Fund will fluctuate over
time, and any presentation of the Fund's current yield, total return,
distribution rate or effective distribution rate for any prior period should not
be considered a representation of what an investment may earn or what the Fund's
yield, total return, distribution rate or effective distribution rate may be in
any future period. If the expenses of a Fund or its corresponding Portfolio are
paid by Eaton Vance, the Fund's performance will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in the
obligations of issuers in its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net assets
in obligations issued by the governments of Guam and the U.S. Virgin Islands and
up to 35% of its assets in obligations issued by the government of Puerto Rico.
Set forth below is certain economic and tax information concerning the States in
which the Portfolios invest and Puerto Rico. The bond ratings provided below are
current as of the date of this Prospectus and are based on economic conditions
which may not continue; moreover, there can be no assurance that particular bond
issues may not be adversely affected by changes in economic, political or other
conditions. Unless stated otherwise the ratings indicated are for obligations of
the State. A State's political subdivisions may have different ratings which are
unrelated to the ratings assigned to State obligations.
CALIFORNIA. California has experienced severe economic and fiscal stress over
the past several years. Between 1990 and 1993, California lost 3% of its total
employment base and nearly 16% of higher paying manufacturing jobs. This was
during a period when population increased 6%. The unemployment rate in
California was 9.1% in 1992 and 9.2% in 1993, well above the U.S. rates of 7.4%
and 6.8% for the same periods, respectively. Unemployment was 7.9% in April
1995, compared to a U.S. rate of 5.8%.
The weak economy has seriously undermined the government's ability to accurately
estimate tax revenues and has increased social service expenditures for
recession-related welfare case loads. In addition, the continued influx of
illegal immigrants has strained the State's welfare and health care systems. The
result of these various problems is a $2 billion accumulated budget deficit and
a heavy reliance on short-term borrowing for day-to-day operations. Short-term
borrowing increased from 7.8% of general fund receipts in 1990 to 12.4% in 1992
to a projected 16% in 1995. In July, 1994, the State issued $7 billion in
short-term debt, an unprecedented amount for a State.
The $2 billion budget deficit built up during the 1991 and 1992 fiscal years and
was not adequately addressed during the 1993 or 1994 fiscal years, despite a
Deficit Retirement and Reduction Plan put in place in June, 1993. The budget for
fiscal year 1995 (which commenced on July 1, 1994) includes general fund
expenditures of $40.9 billion, a 4.2% increase over 1993-94, and general fund
revenues of $41.9 billion, a 5.2% increase. A revised Deficit Retirement and
Reduction Plan was adopted which anticipated the elimination of the deficit by
April, 1996. Key to this revised plan is the assumed receipt of $2.8 billion in
Federal aid from the Federal government to offset the mounting costs associated
with illegal immigrants. As this money is in no way assured, the budget includes
a "trigger" mechanism that would require automatic spending cuts should actual
cash flow deviate significantly from projections. There can be no assurances
that bonds, some of which may be held by the Portfolio, issued by California
entities would not be adversely affected should this "trigger" be used.
On January 17, 1994, a major earthquake struck the Los Angeles area causing
significant property damage. Preliminary estimates of total property damage
approximate $15 billion. The Federal government has approved $9.5 billion for
earthquake relief. The Governor has estimated that the State will have to pay
approximately $1.9 billion for relief not otherwise covered by the Federal aid.
The Governor had proposed to cover $1.05 billion of relief costs from a general
obligation bond issue, but the proposal was rejected by California voters in
June 1994. The Governor subsequently announced that funds earmarked for other
projects would be used for earthquake relief.
On December 7, 1994, Orange County, California (the "County"), together with its
pooled investment fund (the "Fund") filed for protection under Chapter 9 of the
Federal Bankruptcy Code, after reports that the Fund had suffered significant
market losses in its investments caused a liquidity crisis for the Fund and the
County. More than 180 other public entities, most but not all located in the
County, were also depositors in the Fund. As of December 13, 1994, the County
estimated the Fund's loss at about $2 billion, or 27% of its initial deposits of
around $7.4 billion. These losses could increase as the County sells investments
to restructure the Fund, or if interest rates rise. Many of the entities which
kept moneys in the Fund, including the County, are facing cash flow difficulties
because of the bankruptcy filing and may be required to reduce programs or
capital projects. The County and some of these entities have, and others may in
the future, default in payment of their obligations. Moody's and S&P have
suspended, reduced to below investment grade levels, or placed on "Credit Watch"
various securities of the County and the entities participating in the Fund. As
of December 1994, the Portfolio did not hold any direct obligations of the
County. However, the Portfolio did hold bonds of some of the governmental units
that had money invested with the County; the impact of the loss of access to
these funds, the loss of expected investment earnings and the potential loss of
some of the principal invested is not known at this point. There can be no
assurances that these holdings will maintain their current ratings and/or
liquidity in the market.
In early June 1995, the County filed a proposal with the bankruptcy court that
would require holders of the County's short-term notes to wait one-year before
being repaid. The existence of this proposal and its adoption could disrupt the
market for short-term debt in California and possibly drive up the State's
borrowing costs. On June 27, 1995 the voters in Orange County rejected a
proposed one half cent increase in the sales tax, the revenues from which would
have been used to help the County emerge from bankruptcy. The failure of this
measure increases the likelihood that the County will default on some of their
obligations and, more broadly, could have a negative impact on the perceived
credit quality of municipal obligations throughout California. Although the
State of California has no obligation with respect to any obligations or
securities of the County or any of the other participating entities, under
existing legal precedents, the State may be obligated to ensure that school
districts have sufficient funds to operate. Longer term, this financial crisis
could have an adverse impact on the economic recovery that has only recently
taken hold in Southern California.
California voters have approved a series of amendments to the California State
constitution which have imposed certain limits on the taxing and spending powers
of the State and local governments. While the State legislature has, in the
past, enacted legislation designed to assist California issuers in meeting their
debt service obligations, other laws limiting the State's authority to provide
financial assistance to localities have also been enacted. Because of the
uncertain impact of such constitutional amendments and statutes, the possible
inconsistencies in their respective terms and the impossibility of predicting
the level of future appropriations and applicability of related statutes to such
questions, it is not currently possible to assess the impact of such legislation
and policies on the ability of California issuers to pay interest or repay
principal on their obligations.
As a result of the significant economic and fiscal problems described above, the
State's debt has been downgraded by all three rating agencies from Aa to A1 by
Moody's, from A+ to A by S&P, and from AA to A by Fitch.
CALIFORNIA TAXES. California law provides that dividends paid by the California
Fund and designated by the California Fund as tax-exempt are exempt from
California personal income tax on individuals who reside in California to the
extent such dividends are derived from interest payments on municipal
obligations exempt from regular federal income tax and California State personal
income taxes, provided that at least 50% of the assets of the California
Portfolio at the close of each quarter of its taxable year are invested in
obligations the interest on which is exempt under either federal or California
law from taxation by the State of California. Distributions of short-term
capital gains are treated as ordinary income, and distributions of long-term
capital gains are treated as long-term capital gains under the California
personal income tax.
FLORIDA. Florida's financial operations are considerably different than most
other states because, under the State's constitution, there is no state income
tax. The lack of an income tax exposes total State tax collections to
considerably more volatility than would otherwise be the case and, in the event
of an economic downswing, could effect the State's ability to pay principal and
interest in a timely manner. The General Fund budget for 1994-95 includes
revenues of $14.6 billion (a 7.3% increase over 1993-94) and expenditures of
$14.3 billion (a 7.6% increase over 1993-94). Through November, 1994, actual
revenues were 1.6% ahead of projections. Unencumbered reserves are projected to
be $281 million, or 1.9% of expenditures for fiscal year 1995. Unemployment in
the State for November, 1994 was 6.8% compared to the national unemployment rate
of 5.6%.
In 1993, the State constitution was amended to limit the annual growth in the
assessed valuation of residential property and which, over time, could constrain
the growth in property taxes, a major revenue source for local governments.
While no immediate ratings implications are expected, the amendment could have a
negative impact on the financial performance of local governments over time and
lead to ratings revisions which may have a negative impact on the prices of
affected bonds.
General obligations of Florida are rated Aa, AA and AA by Moody's, S&P and
Fitch, respectively. S&P presently regards the outlook for the State as stable.
FLORIDA TAXES. The Florida Department of Revenue has issued a ruling that
shareholders of the Florida Fund that are subject to the Florida intangibles tax
will not be required to include the value of their Florida Fund shares in their
taxable intangible property if all of the Florida Fund's investments on the
annual assessment date are obligations that would be exempt from such tax if
held directly by such shareholders, such as Florida and U.S. Government
obligations. The Florida Portfolio will normally attempt to invest substantially
all of its assets in tax-exempt obligations of Florida, the United States, the
Territories or political subdivisions of the United States or Florida ("Florida
Obligations"), and it will ensure that all of its assets held on the annual
assessment date are exempt from the Florida intanglibles tax. Accordingly the
value of the Florida Fund shares held by a shareholder should under normal
circumstances be exempt from the Florida intangibles tax.
MASSACHUSETTS. In recent years, the Commonwealth has experienced a significant
economic slowdown, and has experienced shifts in employment from labor-
intensive manufacturing industries to technology and service-based industries.
The unemployment rate was 6.4% as of October, 1994, while the national
unemployment rate was 5.8%.
Effective July 1, 1990, limitations were placed on the amount of direct bonds
the Commonwealth could have outstanding in a fiscal year, and the amount of the
total appropriation in any fiscal year that may be expended for debt service on
general obligation debt of the Commonwealth (other than certain debt incurred to
pay the fiscal 1990 deficit and certain Medicaid reimbursement payments for
prior years) was limited to 10%. In addition, the power of Massachusetts cities
and towns and certain tax-supported districts and public agencies to raise
revenue from property taxes to support their operations, including the payment
of debt service, is limited. Property taxes are virtually the only source of tax
revenues available to cities and towns to meet local costs. This limitation on
cities and towns to generate revenues could create a demand for increases in
state-funded local aid. The recent difficulties experienced by the Commonwealth
have resulted in a substantial reduction in local aid from the Commonwealth,
which may create financial difficulties for certain municipalities.
General obligations of Massachusetts are rated A, A+ and A+ by Moody's, S&P and
Fitch, respectively.
MASSACHUSETTS TAXES. The Massachusetts Portfolio has received a letter ruling
(the "Ruling") from the Department of Revenue of The Commonwealth of
Massachusetts to the effect that it will be classified as a partnership for
Massachusetts tax purposes. The Ruling provides that, consequently, interest
income received by the Massachusetts Portfolio on (1) debt obligations issued by
The Commonwealth of Massachusetts or its political subdivisions, including
agencies or instrumentalities thereof ("Massachusetts Obligations"), (2) the
Governments of Puerto Rico, Guam, or the United States Virgin Islands
("Possessions Obligations"), or (3) the United States ("United States
Obligations") will be treated as if realized directly by investors in the
Massachusetts Portfolio. The Ruling concludes that, provided that an investor in
the Massachusetts Portfolio qualifies as a regulated investment company ("RIC")
under the Code and satisfies certain notice requirements of Massachusetts law,
(1) dividends paid by such a RIC that are treated as tax-exempt interest under
the Code and that are directly attributable to interest on Massachusetts
Obligations (including the RIC's allocable share of interest earned by the
Massachusetts Portfolio on such obligations) and (2) dividends paid by such a
RIC that are directly attributable to interest on Possessions Obligations or
United States Obligations (including the RIC's allocable share of interest
earned by the Massachusetts Portfolio on such obligations) will, in each case,
be excluded from Massachusetts gross income. Because the Massachusetts Fund
intends to continue to invest in the Massachusetts Portfolio, qualify for
treatment as a RIC under the Code, and satisfy the applicable notice
requirements, the Massachusetts Fund's distributions to its shareholders of its
allocable share of the interest received by the Massachusetts Portfolio that is
attributable to Massachusetts Obligations, Possessions Obligations or United
States Obligations should consequently be excluded from Massachusetts gross
income for individuals, estates and trusts that are subject to Massachusetts
taxation. Distributions properly designated as capital gain dividends under the
Code and attributable to gains realized by the Massachusetts Portfolio and
allocated to the Massachusetts Fund on the sale of certain Massachusetts
tax-exempt obligations issued pursuant to statues that specifically exempt such
gains from Massachusetts taxation will also be exempt from Massachusetts
personal income tax. Other distributions from the Massachusetts Fund included in
a shareholder's federal gross income, including distributions derived from net
long-term capital gains not described in the preceding sentence and net
short-term capital gains, are generally not exempt from Massachusetts personal
income tax.
Beginning in 1996, long-term capital gains will generally be taxed in
Massachusetts on a sliding scale at rates ranging from 5% to 0%, with the
applicable tax rate declining as the tax holding period of the asset (beginning
on the later of January 1, 1995 or the date of actual acquisition) increases
from more than one year to more than six years. It is not clear what
Massachusetts tax rate will be applicable to capital gain dividends for taxable
years beginning after 1995.
Distributions from the Massachusetts Fund will be included in net income, and in
the case of intangible property corporations, shares of the Massachusetts Fund,
will be included in net worth for purposes of determining the Massachusetts
excise tax on corporations subject to Massachusetts taxation.
MISSISSIPPI. The State's economic outlook has improved recently, in part due to
the strong growth exhibited by the manufacturing sector. The food and related
paper and allied product sectors have also experienced strong and steady growth.
Also, the governmental and wholesale/retail trade and service sectors have had
sound gains in employment. In recent years, the State has successfully expanded
its economy through technology-based research and education, and the Mississippi
banking system has exhibited relative strength and stability over the past
several years, a period characterized by a growing number of bank failures
nationwide. The construction and casino industries have also experienced growth
recently.
All State indebtedness must be authorized by legislation governing the specific
programs or projects to be financed. Such debt may include short- and long-term
indebtedness, self-supporting general obligation bonds, highway bonds and other
types of indebtedness. As of December 31, 1994, the State's total bond
indebtedness was $926.9 million. For the fiscal year ended June 30, 1993, the
constitutional debt limit was approximately $4.6 billion. State revenues were
$7.2 billion as of June 30, 1994.
General obligations of Mississippi are rated AA-, and Aa by S&P and Moody's. S&P
has a positive outlook for the State.
MISSISSIPPI TAXES. Under existing Mississippi law, interest received by a
Mississippi resident individual upon the obligations of the State of Mississippi
or political subdivisions thereof ("Mississippi obligations") are exempt from
Mississippi income tax. A recently adopted Mississippi Income Tax Regulation
provides a pass-through of the tax-exempt character of interest received by a
regulated investment company, such as the Mississippi Fund, upon distribution to
its shareholders where the Mississippi Fund directly owns such Mississippi
tax-exempt obligations. Under the new regulation, a taxpayer's pro rata portion
of interest dividends distributed by a regulated investment company is exempt
from Mississippi income tax to the extent that such pro rata portion represents
interest received by a regulated investment company from governmental securities
which would be exempt for Mississippi income tax purposes if such governmental
securities were directly held by the taxpayer. In this situation, however, the
Mississippi Fund will not own the Mississippi tax-exempt obligations directly
but will invest in the Mississippi Portfolio, which will own the Mississippi
tax-exempt obligations. There is no law addressing the Mississippi income tax
consequences to Mississippi resident individuals receiving interest dividends
from a regulated investment company, such as the Mississippi Fund, that
contributes its assets to a trust, such as the Mississippi Portfolio, in
exchange for an interest therein where the trust owns Mississippi tax-exempt
obligations and distributes the income therefrom to the regulated investment
company. In 1993, the Mississippi State Tax Commission issued a ruling stating
that a Mississippi resident taxpayer's pro rata portion of interest dividends
distributed by the Mississippi Fund will be non-taxable to the extent that such
pro rata portion represents interest received by the Mississippi Fund, either
directly or through the Mississippi Portfolio, from Mississippi tax-exempt
obligations, which would be exempt for Mississippi income tax purposes if such
tax-exempt obligations were directly held by the taxpayer. In the opinion of
Butler, Snow, O'Mara, Stevens & Cannada, PLLC, special Mississippi tax counsel
to the Mississippi Fund, a Mississippi resident individual's pro rata portion of
interest dividends distributed by the Mississippi Fund will be exempt from
Mississippi income tax to the extent that such pro rata portion (i) is excluded
from gross income under the Code and (ii) represents interest the Mississippi
Fund receives, either directly or through the Mississippi Portfolio, from
investments in Mississippi tax-exempt obligations.
NEW YORK. New York is the second most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a comparatively small share of the
nation's farming and mining activity. The State's general credit standing has
historically reflected its diverse and substantial economic base. However, as
the result of a recession ending in the first quarter of 1993, 560,000 jobs were
lost statewide (equal to 6.7% of the peak employment figure for 1989). Since the
first quarter of 1993, 100,130 jobs have been added, with nearly half of such
jobs occurring in the first quarter of 1994. In fiscal year 1993, however, the
State began the process of financial reform. The 1993 and 1994 financial plans
exceeded expectations and produced operating surpluses in both years.
The fiscal stability of New York State is related, at least in part, to the
fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State. In some cases, the State has had to
provide special assistance in recent years to enable such agencies, authorities
and localities to meet their financial obligations and, in some cases, to
prevent or cure defaults. To the extent State agencies and local governments
require State assistance to meet their financial obligations, the ability of the
State to meet its own obligations as they become due or to obtain additional
financing could be adversely affected.
Like the State, New York City has experienced financial difficulties in recent
years and currently continues to experience such difficulties owing, in part, to
lower than anticipated revenues. Because New York City taxes comprise 40% of the
State's tax base, the City's difficulties adversely affect the State. Both the
State and the City will be constrained in addressing future fiscal problems by
their high current level of taxes.
In June, 1994, the Governor approved the 1994-1995 budget, which reduces taxes
by $476 million in the 1994-1995 fiscal year and by more than $1.6 billion when
fully implemented. A reduction in both State and City personal income taxes
scheduled to take effect in 1994 has been deferred for one year as a part of the
1994-1995 budget.
Constitutional challenges to State laws have limited the amount of taxes which
political subdivisions can impose on real property, which may have an adverse
effect on the ability of issuers to pay obligations supported by such taxes. A
variety of additional court actions have been brought against the State and
certain agencies and municipalities relating to financings, amount of real
estate tax, use of tax revenues and other matters which could adversely affect
the ability of the State or such agencies or municipalities to pay their
obligations
New York's general obligations are rated A, A- and A+ by Moody's, S&P and Fitch,
respectively. S&P currently assesses the rating outlook for New York obligations
as positive. New York City obligations are rated Baa1, A- and A- by Moody's, S&P
and Fitch, respectively. On January 17, 1995, S&P placed the City's general
obligation bonds on CreditWatch with negative implications as the result of
plans by the City to refund some of its debt to provide budget savings in its
1995 fiscal year. S&P stated that, by April 1995, if the City continues to use
budget devices such as debt refundings or fails to get ongoing budget relief
from the State, S&P would lower the rating on New York City general obligation
debt to the "BBB" category. Any such downward revision could have an adverse
effect on the obligations held by the New York Portfolio.
NEW YORK TAXES. In the opinion of Brown & Wood, under New York law, for
individuals subject to the New York State or New York City personal income tax,
dividends paid by the New York Fund are exempt from New York State and New York
City income tax for individuals who reside in New York to the extent such
dividends are excluded from gross income for federal income tax purposes and are
derived from interest payments on tax-exempt obligations issued by or on behalf
of New York State and its political subdivisions and agencies, and the
governments or Puerto Rico, the U.S. Virgin Islands and Guam. Other
distributions from the New York Fund, including distributions derived from
taxable ordinary income and net short-term and long-term capital gains, are
generally not exempt from New York State or City personal income tax.
OHIO. The State's economy is reliant in part on durable goods manufacturing,
largely concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, economic activity in Ohio tends to be more
cyclical than in some other states and in the nation as a whole. Unemployment
declined from 6.5% to 4.2% between November, 1993 and November, 1994. The
national unemployment rate in November, 1994 was 5.6%. In fiscal 1993, a
projected $520 million budget gap was addressed through tax increases and
appropriation cuts. The fiscal year 1994 budget was balanced, and the State's
General Revenue Fund had an ending fund balance of $560 million.
General obligations of Ohio are rated Aa and AA by S&P and Moody's, respectively
(except that highway obligations are rated Aaa by S&P). Fitch does not currently
rate the State's general obligations.
OHIO TAXES. In the opinion of special tax counsel to the Ohio Fund, Squire,
Sanders & Dempsey, under Ohio law, individuals who are otherwise subject to the
Ohio personal income tax will not be subject to such tax on dividends paid by
the Ohio Fund to the extent such dividends are properly attributable to interest
on obligations issued by or on behalf of the State of Ohio or its political
subdivisions or the agencies or instrumentalities thereof ("Ohio Obligations").
Dividends paid by the Ohio Fund also will be excluded from the net income base
of the Ohio corporation franchise tax to the extent such dividends are excluded
from gross income for federal income tax purposes or properly attributable to
interest on Ohio obligations. However, the Ohio Fund's shares will be included
in the tax base computing the Ohio corporation franchise tax on the net worth
basis. These conclusions regarding Ohio taxation are based on the assumption
that the Ohio Fund will continue to qualify as a regulated investment company
under the Code and that at all times at least 50% of the value of the total
assets of the Ohio Fund will consist of obligations of the State of Ohio and its
political subdivisions or similar obligations of other states or their
subdivisions determined, to the extent the Ohio Fund invests in the Ohio
Portfolio, by treating the Ohio Fund as owning its proportionate share of the
assets owned by the Ohio Portfolio.
RHODE ISLAND. In an attempt to compensate for budget problems in 1990 and 1991,
the State's budget for fiscal 1993 incorporated a combination of service budget
reductions, aggressive pursuit of federal program receipts and revenue
enhancements. In 1993, the State recorded on $8.4 million operating surplus,
boosting the undesignated general fund balance to $8.7 million. Combined with
budget stabilization reserves, the State ended fiscal 1993 with $32 million in
available monies (equal to 1.4% of expenditures). The fiscal year 1994 budget
excluded nearly all gasoline tax revenues and transportation expenditures, which
will now be recorded in a new dedicated surface transportation fund. Fiscal 1994
revenues estimates were $14 million above the enacted budget. Unaudited
expenditures in excess of revised revenues are, however, expected to yield a
$2.9 million drawdown of balances to $5.8 million. The 1995 budget includes
budgeted reserves of $46.5 million (equal to 3% of fiscal 1995 expenditures).
In January, 1991, the collapse of the Rhode Island Share and Deposit Indemnity
Corporation precipitated the closure of 45 financial institutions with a total
deposit liability of approximately $1.7 billion. In response, the State created
the Rhode Island Depositors Economic Protection Corporation, a public
corporation, ("DEPCO"), to assist in the resolution of the resulting banking
crisis. By the end of 1992, substantially all of the frozen deposits had been
repaid or otherwise made available to depositors through the reopening, sale or
liquidation of the closed institutions. DEPCO currently has outstanding
approximately $475.8 million of special obligation bonds, the proceeds of which
were used to facilitate the sale of certain institutions and the payout of
frozen deposits. Receipts from .6% of the State's sales and use tax rate are
dedicated to a special revenue fund to be used for repayment of the special
obligation bonds. In addition, DEPCO has outstanding approximately $130 million
of general obligation bonds, which it expects will be repaid primarily out of
the proceeds from liquidating assets acquired from certain of the failed
institutions. Over the next 20 years, DEPCO is also obligated to pay former
depositors approximately $54 million.
Under the budget enacted for fiscal year 1993, State aid programs to Rhode
Island cities and towns is slated to be $379.9 million, representing a net
increase over fiscal year 1992 of $34.5 million. In fiscal year 1994, Rhode
Island cities and towns are expected to start receiving 1% of State tax revenue
(approximately $12.6 million) as a distribution through the general revenue
sharing program.
The State's budget difficulties, together with the banking crisis and the
issuance of the DEPCO debt, contributed to a lowering of the State's credit
rating in 1992 to A-1 by Moody's and AA- with a stable outlook from S&P. The
State reportedly ranks fourth among all states in per capita tax-supported debt
load. General obligations of Rhode Island are rated AA-, A-1 and AA-, by S&P,
Moody's and Fitch, respectively.
RHODE ISLAND TAXES. The Rhode Island Fund obtained an opinion from Hinckley,
Allen & Snyder, special tax counsel to the Rhode Island Fund, that under Rhode
Island law, dividends paid by the Rhode Island Fund are exempt from Rhode Island
state income tax for individuals who reside in Rhode Island to the extent such
dividends are excluded from gross income for federal income tax purposes and are
derived from interest payments on obligations of Rhode Island, its political
subdivisions, the Territories or the United States ("Rhode Island Obligations").
Other distibutions from the Rhode Island Fund, including distributions from
capital gains, are generally not exempt from Rhode Island state personal income
tax.
WEST VIRGINIA. The West Virginia economy is heavily dependent on the resource-
based industries, specifically coal, chemical and steel. Although the State's
economy has begun to rebound from the economic recession, the State unemployment
rate remains significantly above the national average. For October, 1994, the
State unemployment rate was 7.9% down from the October, 1993 level of 10.4%, but
well above the national average of 5.8%. The service and wood sectors and
tourism are expected to lead the improving State economy. The manufacturing
sector has contracted in past years, and mining employment is 16% below the
level which existed in 1990. Per capita income for the state is approximately
78% of the national average.
Despite attempts to make State government more efficient, the State continues to
experience revenue shortfalls. In addition, the State was faced with significant
unfunded liabilities in its Workers Compensation Fund, Teachers Retirement Fund
and certain other retirement systems in 1992. A Public Retirement Task Force was
established to examine the State's retirement systems and to make
recommendations to place the systems on a sound financial basis. The current
status of this situation was unavailable. On a budgetary basis, for 1992, the
General Fund was drawn down by $41 million to $27 million. In 1993, the State
realized a $44 million operating surplus. The Governor had imposed a 5% spending
cut on most state agencies during 1993.
The West Virginia Supreme Court of Appeals recently declared a School Building
Authority to be unconstitutional. Although prior issuances were unaffected by
the ruling, the State cannot issue lease obligations going forward. There can be
no assurance as to the level of future debt borrowing and the possible
implications on the financial position of the State.
General obligations of West Virginia are currently rated A+ , A1 and A+ , by
S&P, Moody's and Fitch, respectively.
WEST VIRGINIA TAXES. In the opinion of Bowles, Rice, McDavid, Graff & Love,
special West Virginia tax counsel to the West Virginia Fund, under existing West
Virginia law, in 1991 the West Virginia Department of Tax and Revenue issued
Technical Assistance Advisory 91-002 which was declared to be of precedential
value. This Technical Assistance Advisory addresses liability for West Virginia
personal income tax on interest and dividend income received by investors in
regulated investment companies. Accordingly, under existing law, as long as the
West Virginia Fund qualifies as a separate "regulated investment company" under
the Code, that portion of exempt-interest dividends that represents interest
income received by the West Virginia Fund from obligations of the United States
and its possessions and interest or dividend income received by the West
Virginia Fund on obligations or securities of any authority commission or
instrumentality of the United States or of the State of West Virginia, which is
exempt from West Virginia State income tax by federal or West Virginia law, is
exempt from West Virginia Personal Income Tax. This exemption does not apply to
any portion of interest income on obligations of any state other than West
Virginia, regardless of any exemption provided under federal law. In the event
the West Virginia Fund fails to qualify as a separate "regulated investment
company", the foregoing exemption may be unavailable or substantially limited.
The Technical Assistance Advisory contains a more specific, although
nonexclusive, list of obligations and authorities which are exempt from
taxation. The Technical Assistance Advisory also confirms that interest on
indebtedness incurred (directly or indirectly) by a shareholder of the West
Virginia Fund to purchase or carry shares of the West Virginia Fund will not be
deductible for West Virginia income purposes.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly from
fiscal 1984 through fiscal 1990, the rate of this expansion slowed during fiscal
years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several factors,
including the state of the U.S. economy and the relative stability in the price
of oil, the exchange rate of the U.S. dollar and the cost of borrowing. Although
the Puerto Rico unemployment rate has declined substantially since 1985, the
seasonally adjusted unemployment rate for June, 1995 was approximately 13.9%.
The North American Free Trade Agreement (NAFTA), which became effective January
1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. Reliance on
nonrecurring revenues and economic weakness led S&P to change its outlook from
stable to negative.
<PAGE>
[logo]
EV MARATHON MUNICIPAL FUNDS
- ----------------------------------------------------------------------------
PROSPECTUS
FEBRUARY 1, 1996
EV MARATHON CALIFORNIA MUNICIPALS FUND
EV MARATHON FLORIDA MUNICIPALS FUND
EV MARATHON MASSACHUSETTS MUNICIPALS FUND
EV MARATHON MISSISSIPPI MUNICIPALS FUND
EV MARATHON NEW YORK MUNICIPALS FUND
EV MARATHON OHIO MUNICIPALS FUND
EV MARATHON RHODE ISLAND MUNICIPALS FUND
EV MARATHON WEST VIRGINIA MUNICIPALS FUND
EV MARATHON
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- ----------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
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, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
M-TFC2/1P
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV TRADITIONAL
MUNICIPAL FUNDS
- ------------------------------------------------------------------------------
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
EV TRADITIONAL FLORIDA MUNICIPALS FUND
EV TRADITIONAL NEW YORK MUNICIPALS FUND
THE EV TRADITIONAL MUNICIPAL FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX AND THE STATE
TAXES DESCRIBED UNDER "THE FUNDS" INVESTMENT OBJECTIVES'' IN THIS PROSPECTUS.
EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-DIVERSIFIED OPEN-END
INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME INVESTMENT OBJECTIVE AS THE
FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO OF
SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. EACH FUND IS A SERIES
OF EATON VANCE MUNICIPALS TRUST (THE "TRUST").
Shares of the Funds 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 Funds involve
investment risks, including fluctuations in value and the possible loss of
some or all of the principal investment.
This combined Prospectus is designed to provide you with information you
should know before investing. Please retain this document for future
reference. A combined Statement of Additional Information dated February 1,
1996 for the Funds, as supplemented from time to time, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference.
This Statement of Additional Information is available without charge from the
Funds' principal underwriter, Eaton Vance Distributors, Inc. (the "Principal
Underwriter"), 24 Federal Street, Boston, MA 02110 (telephone (800) 225-6265).
The Portfolios' investment adviser is Boston Management and Research (the
"Investment Adviser"), a wholly-owned subsidiary of Eaton Vance Management,
and Eaton Vance Management is the administrator (the "Administrator") of the
Funds. The offices of the Investment Adviser and the Administrator are located
at 24 Federal Street, Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE FOR
PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR YOUR
BROKER FOR FURTHER INFORMATION.
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
<TABLE>
<C> <C>
PAGE PAGE
Shareholder and Fund Expenses ........................ 2 How to Redeem Fund Shares ......................... 13
The Funds' Financial Highlights ....................... 3 Reports to Shareholders ........................... 14
The Funds' Investment Objectives ...................... 4 The Lifetime Investing Account/Distribution
How the Funds and the Portfolios Invest Options ......................................... 14
their Assets ........................................ 4 The Eaton Vance Exchange Privilege ................ 15
Organization of the Funds and the Portfolios .......... 7 Eaton Vance Shareholder Services .................. 16
Management of the Funds and the Portfolios ............ 9 Distributions and Taxes ........................... 17
Service Plans ......................................... 11 Performance Information ........................... 18
Valuing Fund Shares ................................... 11 Statement of Intention and Escrow Agreement ....... 18
How to Buy Fund Shares ................................ 11 Appendix -- State Specific Information ............ 20
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS DATED FEBRUARY 1, 1996
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
-------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) 3.75%
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Contingent Deferred Sales Charges (on purchases of $1 million or more) Imposed on
Redemptions During the First Twelve Months (as a percentage of redemption
proceeds exclusive of all reinvestments and capital appreciation in the
account) 0.50%
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average net assets)
----------------------------------------------------------------------------------------------------------------
CALIFORNIA FLORIDA NEW YORK
FUND FUND FUND
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Adviser Fee 0.50% 0.47% 0.47%
Rule 12b-1 Fees (Service Plan) 0.01 0.01 0.01
Other Expenses 0.12 0.18 0.11
---- ---- ----
Total Operating Expenses 0.63% 0.66% 0.59%
==== ==== ====
<CAPTION>
EXAMPLE
----------------------------------------------------------------------------------------------------------------
An investor would pay the following expenses (including initial maximum sales charge) on a $1,000 investment,
assuming (a) 5% annual return and (b) redemption at the end of each time period:
----------------------------------------------------------------------------------------------------------------
CALIFORNIA FLORIDA NEW YORK
FUND FUND FUND
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $ 44 $ 44 $ 43
3 Years 57 58 56
5 Years 71 73 69
10 Years 113 117 109
</TABLE>
NOTES:
The table and the Example summarize the aggregate expenses of the Funds and
the Portfolios and are designed to help investors understand the costs and
expenses they will bear, directly or indirectly, by investing in a Fund.
Information for each Fund is based on its expenses for the most recent fiscal
year. Absent an expense allocation, Other Expenses of the following funds
would have been the following percentage of average daily net assets:
California Fund Other Expenses would have been 1.09%; Florida Fund Other
Expenses would have been 1.05%; and New York Fund Other Expenses would have
been 0.81%.
Each Fund invests exclusively in its corresponding Portfolio. The Trustees
believe the aggregate per share expenses of a Fund and its corresponding
Portfolio should approximate, and over time may be less than, the per share
expenses the Fund would incur if the Fund were instead to retain the services
of an investment adviser and its assets were invested directly in the type of
securities being held by its corresponding Portfolio.
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 Examples to assume a 5% annual return, but actual
return may vary. For further information regarding the expenses of the Funds
and the Portfolios see "The Funds" Financial Highlights'', "Organization of
the Funds and the Portfolios", "Management of the Funds and the Portfolios",
"Service Plans" and "How to Redeem Fund Shares".
If shares of a Fund are purchased at net asset value with no initial sales
charge by virtue of the purchase having been in the amount of $1 million or
more and are redeemed within 12 months of purchase, a contingent deferred
sales charge of 0.50% will be imposed on such redemption. See "How to Buy Fund
Shares," "How to Redeem Fund Shares" and "Eaton Vance Shareholder Services."
Each Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 10.
Other investment companies with different distribution arrangements and fees
are investing in the Portfolios and others may do so in the future. See
"Organization of the Funds and the Portfolios".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Funds' annual report to shareholders
which is incorporated by reference into the Statement of Additional
Information in reliance upon reports of Deloitte & Touche LLP, independent
certified public accountants, as experts in accounting and auditing. Further
information regarding the performance of a Fund is contained in its annual
report to shareholders which may be obtained without charge by contacting the
Principal Underwriter, Eaton Vance Distributors, Inc.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA FUND FLORIDA FUND NEW YORK FUND
------------------------ ------------------------ ------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
------------------------ ------------------------ ------------------------
1995 1994* 1995 1994* 1995 1994*
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.840 $10.000 $10.020 $10.000 $ 9.780 $10.000
------- ------- ------- ------- ------- -------
INCOME FROM OPERATIONS:
Net investment income $ 0.613 $ 0.209 $ 0.587 $ 0.288 $ 0.583 $ 0.271
Net realized and unrealized gain (loss)
on investments 0.332 (0.158) 0.438 0.023++ 0.390 (0.214)
------- ------- ------- ------- ------- -------
Total income from operations $ 0.945 $ 0.051 $ 1.025 $ 0.311 $ 0.973 $ 0.057
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.605) $(0.209) $(0.587) $(0.288) $(0.583) $(0.271)
In excess of net investment income -- (0.002) (0.008) (0.003) (0.017) (0.006)
In excess of net realized capital gain
on investments -- -- -- -- (0.003) --
------- ------- ------- ------- ------- -------
Total distributions $(0.605) $(0.211) $(0.595) $(0.291) $(0.603) $(0.277)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $10.180 $ 9.840 $10.450 $10.020 $10.150 $ 9.780
======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 9.94% 0.50% 10.59% 3.10% 10.32% 0.56%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year (000 omitted) $ 4,093 $ 3,101 $ 3,548 $ 1,246 $ 4,427 $ 1,383
Ratio of net expenses to average
daily net assets(2) 0.62% 0.54%+ 0.61% 0.50%+ 0.50% 0.44%+
Ratio of net investment income to
average daily net assets 6.11% 5.60%+ 5.68% 5.30%+ 5.77% 5.36%+
** For the periods indicated, the operating expenses of the Funds and the Portfolios reflects an allocation of expenses to the
Investment Adviser and/ or the Administrator. Had such actions not been taken, net investment income per share and the
ratios would have been:
NET INVESTMENT INCOME PER SHARE $ 0.509 $ 0.158 $ 0.497 $ 0.181 $ 0.512 $ 0.156
======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 1.59% 1.92%+ 1.48% 2.48%+ 1.20% 2.71%+
Net investment income 5.14% 4.22%+ 4.81% 3.32%+ 5.07% 3.09%+
Footnotes:
+ Annualized.
++ The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing
of sales of Fund shares and the amount of per share realized and unrealized gains and losses at such time.
* For the California, Florida and New York Funds, the Financial Highlights are for the period from the start of business,
March 27, 1994, April 5, 1994 and April 15, 1994, respectively, to September 30, 1994.
(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 computed on a non-annualized basis.
(2) Includes the Fund's share of its corresponding Portfolio's allocated expenses.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund seeks to
meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio") which
invests primarily in municipal obligations (as described below) which are
rated at least investment grade by a major rating agency or, if unrated,
determined to be of at least investment grade quality by the Investment
Adviser. Each Portfolio has the same investment objective as its corresponding
Fund.
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND (the "California Fund") seeks to
provide current income exempt from regular federal income tax and California
State personal income taxes. The California Fund seeks to meet its objective
by investing its assets in the California Municipals Portfolio (the
"California Portfolio").
EV TRADITIONAL FLORIDA MUNICIPALS FUND (the "Florida Fund") seeks to provide
current income exempt from regular federal income tax in the form of an
investment exempt from Florida intangibles tax. The Florida Fund seeks to meet
its objective by investing its assets in the Florida Municipals Portfolio (the
"Florida Portfolio").
EV TRADITIONAL NEW YORK MUNICIPALS FUND (the "New York Fund") seeks to provide
current income exempt from regular federal income tax and New York State and
New York City personal income taxes. The New York Fund seeks to meet its
objective by investing its assets in the New York Municipals Portfolio (the
"New York Portfolio").
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
- ------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER
DIRECTLY OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY
PRIMARILY (I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL
MARKET CONDITIONS) IN MUNICIPAL OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT
FROM REGULAR FEDERAL INCOME TAX AND FROM THE STATE TAXES WHICH, IN ACCORDANCE
WITH ITS INVESTMENT OBJECTIVE, THE FUND SEEKS TO AVOID. The foregoing policy
is a fundamental policy of each Fund and its corresponding Portfolio, which
may not be changed unless authorized by a vote of the Fund's shareholders or
that Portfolio's investors, as the case may be.
At least 75% of the net assets of the California Portfolio and Florida
Portfolio, and at least 70% of the net assets of the New York Portfolio will
normally be invested in obligations rated at least investment grade at the
time of investment (which are those rated Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or BBB or higher by either Standard & Poor's Ratings
Group ("S&P") or Fitch Investors Service, Inc. ("Fitch")) or, if unrated,
determined by the Investment Adviser to be of at least investment grade
quality. The balance of each Portfolio's net assets may be invested in
municipal obligations rated below investment grade (but not lower than B by
Moody's, S&P or Fitch) and unrated municipal obligations considered to be of
comparable quality by the Investment Adviser. Municipal obligations rated Baa
or BBB may have speculative characteristics. Also, 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. Securities rated below BBB or Baa are commonly known as
"junk bonds". A Portfolio may retain an obligation whose rating drops below B
after its acquisition if such retention is considered desirable by the
Investment Adviser. See "Risk Considerations." For a description of municipal
obligation ratings, see the Statement of Additional Information.
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
bonds 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. 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. Under normal market conditions, a Portfolio will invest
at least 65% of its total assets in obligations issued by its respective State
or its political subdivisions.
Interest income from certain types of municipal obligations may be subject to
the federal alternative minimum tax for individual investors. As at September
30, 1995, the Portfolios had invested in such obligations as follows (as a
percentage of net assets): California Portfolio (18.0%); Florida Portfolio
(18.9%); and New York Portfolio (4.82%). At September 30, 1995, the Portfolios
limited their investment in obligations subject to the federal alternative
minimum tax to not more than 20% of net assets. The Portfolios are no longer
subject to such limitation. Distributions to corporate investors of certain
interest income may also be subject to the federal alternative minimum tax.
CONCENTRATION. Each Portfolio will concentrate its investments in municipal
obligations issued by its respective State and that State's political
subdivisions. Each Portfolio is, therefore, more susceptible to factors
adversely affecting issuers in one State than mutual funds which do not
concentrate in a specific State. Municipal obligations of issuers in a single
State may be adversely effected by economic developments and by legislation
and other governmental activities in that State. To the extent that a
Portfolio's assets are concentrated in municipal obligations of issuers of a
single State, that Portfolio may be subject to an increased risk of loss. Each
Portfolio may also invest in obligations issued by the governments of Puerto
Rico, the U.S. Virgin Islands and Guam. See the Appendix to this Prospectus
for a description of economic and other factors relating to the States and
Puerto Rico.
In addition, each Portfolio may invest 25% or more of its total assets in
municipal obligations of the same type, including, without limitation, the
following: lease rental obligations of State and local authorities;
obligations of State and local housing finance authorities, municipal
utilities systems or public housing authorities; obligations of hospitals or
life care facilities; or industrial development or pollution control bonds
issued for electric utility systems, steel companies, paper companies or other
purposes. This may make a Portfolio more susceptible 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. As a
Portfolio's concentration increases, so does the potential for fluctuation in
the value of the corresponding Fund's shares.
NON-DIVERSIFIED STATUS. Each Portfolio's classification under the Investment
Company Act of 1940 (the "1940 Act") as a "non-diversified" investment company
allows it to invest, with respect to 50% of its total assets, more than 5%
(but not more than 25%) of its total assets in the securities of any issuer. A
Portfolio is likely to invest a greater percentage of its assets in the
securities of a single issuer than would a diversified fund. Therefore, a
Portfolio would be more susceptible to any single adverse economic or
political occurrence or development affecting issuers of the relevant State's
municipal obligations.
OTHER INVESTMENT PRACTICES
Each Portfolio 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, each
Portfolio may temporarily borrow up to 5% of the value of its total assets to
satisfy redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield 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 a Portfolio agreed to pay for them. Each
Portfolio may also purchase instruments that give the Portfolio the option to
purchase a municipal obligation when and if issued.
INVERSE FLOATERS. Each Portfolio may invest in 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 a Portfolio when
short-term interest rates rise, and increase the interest paid to the
Portfolio when short-term interest rates fall. Inverse floaters have varying
degrees of liquidity, and the market for these securities is new and
relatively volatile. 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. Each Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. The futures contracts may be based on various debt securities
(such as U.S. Government securities), securities indices (such as the
Municipal Bond Index traded on the Chicago Board of Trade) and other financial
instruments and indices. Such transactions involve a risk of loss or
depreciation due to unanticipated adverse changes in securities prices, which
may exceed a Portfolio's initial investment in these contracts. A Portfolio
may not purchase or sell futures contracts or related options, except for
closing purchase or sale transactions, if immediately thereafter the sum of
the amount of margin deposits and premiums paid on the Portfolio's outstanding
positions would exceed 5% of the market value of the Portfolio's net assets.
These transactions involve transaction costs. There can be no assurance that
the Investment Adviser's use of futures will be advantageous to a Portfolio.
Distributions by a Fund of any gains realized on its corresponding Portfolio's
transactions in futures and options on futures will be taxable.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market
price paid for insured obligations may reduce a Fund's 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 a Fund's shares.
RISK CONSIDERATIONS
Many municipal obligations offering current income are in the lowest
investment grade category (Baa or BBB), lower categories or may be unrated. As
indicated above, each Portfolio may invest in municipal obligations rated
below investment grade (but not lower than B by Moody's, S&P or Fitch) and
comparable unrated obligations. The lowest investment grade, lower rated and
comparable unrated municipal obligations in which a Portfolio may invest 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 the Portfolio invests in such
municipal obligations, the achievement of the Portfolio's goals is more
dependent on the Investment Adviser's ability than would be the case if the
Portfolio were investing in municipal obligations in the higher rating
categories.
Each Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, a Portfolio may incur additional expense seeking
recovery of its investment. Municipal obligations held by a Portfolio 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 the Portfolio's investment policies. A Portfolio
may retain in its portfolio an obligation whose rating drops below B after its
acquisition, if such retention is considered desirable by the Investment
Adviser; provided, however, that holdings of obligations rated below Baa or
BBB will not exceed 35% of net assets. In the event the rating of an
obligation held by a Portfolio is downgraded, causing the Portfolio to exceed
this limitation, the Investment Adviser will (in an orderly fashion within a
reasonable period of time) dispose of such obligations as it deems necessary
in order to comply with the Portfolio's credit quality limitations. For a
description of municipal obligation ratings, see the Statement of Additional
Information.
The net asset value of shares of a Fund will change in response to
fluctuations in prevailing interest rates and changes in the value of the
securities held by its corresponding Portfolio. When interest rates decline,
the value of securities held by a Portfolio 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 by a Portfolio will affect the principal
value of (and possibly the income earned on) 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 a Portfolio's 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 shares of a Fund will
not constitute a complete investment program.
At times, a substantial portion of the Portfolio's assets may be invested in
securities as to which the Portfolio, 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,
the Portfolio could find it more difficult to sell such securities when the
Investment Adviser believes it advisable to do so or may be able to sell such
securities only at prices lower than if such securities were more widely held.
Under such circumstances, it may also be more difficult to determine the fair
value of such securities for purposes of computing the Portfolio's net asset
value.
The secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15%
of its net assets would be invested in securities that are not readily
marketable. No established resale market exists for certain of the municipal
obligations in which a Portfolio may invest. The market for obligations rated
below investment grade is also likely to be less liquid than the market for
higher rated obligations. As a result, a Portfolio 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 held by the Portfolio may permit the issuer at its option
to "call", or redeem, its securities. If an issuer redeems securities held by
the Portfolio during a time of declining interest rates, the Portfolio may not
be able to reinvest the proceeds in securities providing the same investment
return as the securities redeemed.
Some of the securities in which a Portfolio invests may 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. Each Portfolio is required to accrue and distribute
income from zero-coupon bonds on a current basis, even though it does not
receive that income currently in cash. Thus, a Portfolio may have to sell
other investments to obtain cash needed to make income distributions.
Each Portfolio may invest in 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.
--------------------------------------------------------------------------
EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH 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 OF EACH FUND AND PORTFOLIO ARE NOT
FUNDAMENTAL POLICIES AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE
TRUST AND THE PORTFOLIO WITHOUT OBTAINING THE APPROVAL OF A FUND'S
SHAREHOLDERS OR THE INVESTORS IN THE CORRESPONDING PORTFOLIO, AS THE CASE
MAY BE. IF ANY CHANGES WERE MADE IN A FUND'S INVESTMENT OBJECTIVE, THE
FUND MIGHT HAVE INVESTMENT OBJECTIVES DIFFERENT FROM THE OBJECTIVE WHICH
AN INVESTOR CONSIDERED APPROPRIATE AT THE TIME THE INVESTOR BECAME A
SHAREHOLDER IN THE FUND.
--------------------------------------------------------------------------
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
- ------------------------------------------------------------------------------
EACH FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST (THE
"TRUST"), A BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A
DECLARATION OF TRUST DATED SEPTEMBER 30, 1985, AS AMENDED. THE TRUST IS A
MUTUAL FUND -- AN OPEN-END MANAGEMENT INVESTMENT COMPANY. 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 and because the Trust
can offer separate series (such as the Funds) it is known as a "series
company." Each share represents an equal proportionate beneficial interest in
a Fund. When issued and outstanding, each Fund's shares are fully paid and
nonassessable by the Trust and redeemable as described under "How to Redeem
Fund Shares." Shareholders are entitled to one vote for each full share held.
Fractional shares may be voted proportionately. Shares have no preemptive or
conversion rights and are freely transferable. In the event of the liquidation
of a Fund, shareholders of that Fund are entitled to share pro rata in the net
assets available for distribution to shareholders.
EACH PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolios, as well as the Trust, intend to comply with all applicable federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that
Portfolio (e.g., other U.S. and foreign investment companies, and common and
commingled trust funds) will each be liable for all obligations of the
Portfolio. However, the risk of a Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
exists and the Portfolio itself is unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Funds nor
their shareholders will be adversely affected by reason of the Funds investing
in the Portfolios.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
a Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in its
corresponding Portfolio, which is a separate investment company with an
identical investment objective (although the Fund may temporarily hold a de
minimus amount of cash). Therefore, a Fund's interest in the securities owned
by its corresponding Portfolio is indirect. In addition to selling an interest
to its corresponding Fund, a Portfolio may sell interests to other affiliated
and non-affiliated mutual funds or institutional investors. Such investors
will invest in a Portfolio on the same terms and conditions and will pay a
proportionate share of the Portfolio's expenses. However, the other investors
investing in a Portfolio are not required to sell their shares at the same
public offering price as the corresponding Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in a Fund
should be aware that these differences may result in differences in returns
experienced by investors in the various funds that invest in its corresponding
Portfolio. Such differences in returns are also present in other mutual fund
structures, including funds that have multiple classes of shares. For
information regarding the investment objective, policies and restrictions of
the Portfolios, see "The Funds" Investment Objectives'' and "How the Funds and
the Portfolios Invest their Assets". Further information regarding investment
practices may be found in the Statement of Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages of
investing the assets of each Fund in its corresponding Portfolio, as well as
the advantages and disadvantages of the two-tier format. The Trustees believe
that the structure offers opportunities for substantial growth in the assets
of the Portfolios, and affords the potential for economies of scale for each
Fund, at least when the assets of its corresponding Portfolio exceed $500
million.
A Fund may withdraw (completely redeem) all its assets from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of that Fund to do so. The investment objective and
the nonfundamental investment policies of each Fund and Portfolio may be
changed by the Trustees of the Trust and the Portfolio without obtaining the
approval of the shareholders of that Fund or the investors in that Portfolio,
as the case may be. Any such change of an investment objective will be
preceded by thirty days' advance written notice to the shareholders of the
Fund or the investors in the Portfolio, as the case may be. In the event a
Fund withdraws all of its assets from its corresponding Portfolio, or the
Board of Trustees of the Trust determines that the investment objective of
such Portfolio is no longer consistent with the investment objective of the
Fund, such Trustees would consider what action might be taken, including
investing the assets of such Fund in another pooled investment entity or
retaining an investment adviser to manage the Fund's assets in accordance with
its investment objective. A Fund's investment performance may be affected by a
withdrawal of all its assets from its corresponding Portfolio.
Information regarding other pooled investment entities or funds which invest
in a Portfolio may be obtained by contacting Eaton Vance Distributors, Inc.
(the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110,
(617) 482-8260. Smaller investors in a Portfolio may be adversely affected by
the actions of a larger investor investing in the Portfolio. For example, if a
large investor withdraws from a Portfolio, the remaining investors may
experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, a Portfolio may become less diverse, resulting in
increased portfolio risk, and experience decreasing economies of scale.
However, this possibility exists as well for historically structured mutual
funds which have large or institutional investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a
separate investment company are a relatively new development in the mutual
fund industry and, therefore, the Funds may be subject to additional
regulations than historically structured funds.
Each Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of a Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolios as partnerships for federal income tax purposes.
See "Distributions and Taxes" for further information. Whenever a Fund as an
investor in a Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may
be determined by the Trustees of the Portfolio without investor approval), the
Fund will hold a meeting of Fund shareholders and will vote its interest in
the Portfolio for or against such matters proportionately to the instructions
to vote for or against such matters received from Fund shareholders. A Fund
shall vote shares for which it receives no voting instructions in the same
proportion as the shares for which it receives voting instructions. Other
investors in a Portfolio may alone or collectively acquire sufficient voting
interests in the Portfolio to control matters relating to the operation of the
Portfolio, which may require the corresponding Fund to withdraw its investment
in the Portfolio or take other appropriate action. Any such withdrawal could
result in a distribution "in kind" of portfolio securities (as opposed to a
cash distribution from the Portfolio). If securities are distributed, a Fund
could incur brokerage, tax or other charges in converting the securities to
cash. In addition, the distribution in kind may result in a less diversified
portfolio of investments or adversely affect the liquidity of a Fund.
Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested Trustees,
have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of each Portfolio are the same. Such procedures require
each Board to take action to resolve any conflict of interest between a Fund
and its corresponding Portfolio, and it is possible that the creation of
separate Boards may be considered. For further information concerning the
Trustees and officers of the Trust and the Portfolios, see the Statement of
Additional Information.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in
this Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
- ------------------------------------------------------------------------------
EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF 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 each
Portfolio, BMR manages each Portfolio's investments and affairs and furnishes
for the use of each Portfolio office space and all necessary office
facilities, equipment and personnel for servicing the investments of the
Portfolios. Under its investment advisory agreement with a Portfolio, BMR
receives a monthly advisory fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the 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 daily gross income on such
day as that portion of the total daily net assets in the same Category
bears to the total daily net assets on such day) in each Category as
indicated below. Categories (1) and (2) below do not apply to the
California Portfolio and Category (3) is for daily net assets of the
California Portfolio of up to $500 million.
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
------------------------------------------------------------------------------
1 up to $20 million 0.100% 1.00%
2 $20 million but less than $40 million 0.200% 2.00%
3 $40 million but less than $500 million 0.300% 3.00%
4 $500 million but less than $1 billion 0.275% 2.75%
5 $1 billion but less than $1.5 billion 0.250% 2.50%
6 $1.5 billion but less than $2 billion 0.225% 2.25%
7 $2 billion but less than $3 billion 0.200% 2.00%
8 $3 billion and over 0.175% 1.75%
Each Portfolio paid advisory fees for the fiscal year ended September 30, 1995
equivalent to the annualized percentage of average daily net assets stated
below:
NET ASSETS AS OF
PORTFOLIO SEPTEMBER 30, 1995 ADVISORY FEE
---------------------------------------------------------------------------
California ............................ $2,121,262 0.50%
Florida ............................... $3,433,489 0.47%
New York .............................. $3,031,508 0.47%
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $16 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real
estate investment, consulting and management, and development of precious
metals properties.
Nicole Anderes has acted as the portfolio manager of the New York Portfolio
since January, 1994. She joined Eaton Vance and BMR as a Vice President in
January 1994. Previously, she was a Vice President and portfolio manager at
Lazard Freres Asset Management (1992-1994) and a Vice President and Manager --
Municipal Research at Roosevelt & Cross (1978-1992).
Thomas J. Fetter has acted as the portfolio manager of the Florida Portfolio
since it commenced operations. He has been a Vice President of Eaton Vance
since 1987 and of BMR since inception.
Cynthia J. Clemson has acted as the portfolio manager of the California
Portfolio since February 1, 1996. She has been a Vice President of Eaton Vance
and BMR since 1993 and an employee of Eaton Vance since 1985.
Municipal obligations are normally traded on a net basis (without commission)
through broker-dealers and banks acting for their own account. Such firms
attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolios and at reasonably competitive spreads. Subject
to the foregoing, BMR may consider sales of shares of the Funds or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing its assets in the corresponding Portfolio. As Administrator, Eaton
Vance provides the Funds with general office facilities and supervises the
overall administration of the Fund. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible for
all respective costs and expenses not expressly stated to be payable by BMR
under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by EVD under the distribution agreement.
SERVICE PLANS
- ------------------------------------------------------------------------------
In addition to advisory fees and other expenses, each Fund pays service fees
pursuant to a Service Plan (the "Plan") designed to meet the requirements of
Rule 12b-1 under the 1940 Act and the service fee requirements of the sales
charge rule of the National Association of Securities Dealers, Inc. EACH
FUND'S PLAN PROVIDES THAT THE FUND 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 THE FUND'S AVERAGE DAILY NET ASSETS FOR ANY
FISCAL YEAR. The Trustees of the Trust have initially implemented each Fund's
Plan by authorizing the Fund to make service fee payments to the Principal
Underwriter and Authorized Firms in amounts not expected to exceed .20% for
the New York and Florida Funds, and 0.25% for the California Fund of the
Fund's average daily net assets for any fiscal year which is based on the
value of Fund shares sold by such persons and remaining outstanding for at
least twelve months. Each Fund's Plan authorizes the Trustees of the Trust on
behalf of the Fund to increase payments to the Principal Underwriter,
Authorized Firms and other persons from time to time without further action by
shareholders of the Fund, provided that the aggregate amount of payments made
to such persons under the Plan in any fiscal year of the Fund does not exceed
.25% of the Fund's average daily net assets. For the fiscal year ended
September 30, 1995, each Fund made service fee payments (as a percentage of
average daily net assets) as follows: California Fund (0.01%); Florida Fund
(0.01%); and New York Fund (0.01%). The Plan is described further in the
Statement of Additional Information.
VALUING FUND SHARES
- ------------------------------------------------------------------------------
EACH FUND VALUES ITS SHARES ONCE ON 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 Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the
Trust. Net asset value is computed by dividing the value of a Fund's total
assets, less its liabilities, by the number of shares outstanding. Because
each Fund invests its assets in an interest in its corresponding Portfolio,
the Fund's net asset value will reflect the value of its interest in the
Portfolio (which, in turn, reflects the underlying value of the Portfolio's
assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share and the public offering
price based thereon. It is the Authorized Firms' responsibility to transmit
orders promptly to the Principal Underwriter, which is a wholly-owned
subsidiary of Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio)
based on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of a
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolios' assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
-------------------------------------------------------------------------
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING
THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
-------------------------------------------------------------------------
HOW TO BUY FUND SHARES
- ------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms
at the effective public offering price, which price is based on the effective
net asset value per share plus the applicable sales charge. A Fund receives
the net asset value, while the sales charge is divided between the Authorized
Firm and the Principal Underwriter. The Principal Underwriter will furnish the
names of Authorized Firms to an investor upon request. An Authorized Firm may
charge its customers a fee in connection with transactions executed by the
Firm. A Fund may suspend the offering of shares at any time and may refuse an
order for the purchase of shares. Shares of each Fund are offered for sale
only in States where such shares may be legally sold.
The sales charge may vary depending on the size of the purchase and the number
of shares of Eaton Vance funds the investor may already own, any arrangement
to purchase additional shares during a 13-month period or 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.
The current sales charges and dealer commissions are:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER COMMISSION
AS PERCENTAGE OF AS PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 3.75% 3.90% 4.00%
$50,000 but less than $100,000 2.75% 2.83% 3.00%
$100,000 but less than $250,000 2.25% 2.30% 2.50%
$250,000 but less than $500,000 1.75% 1.78% 2.00%
$500,000 but less than $1,000,000 1.25% 1.27% 1.50%
$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. A contingent deferred sales charge
("CDSC") of 0.50% will be imposed on such investments (as described below) in the event of certain redemptions within 12
months of purchase. Such purchases made before March 27, 1995 will be subject to a CDSC of 1% in the event of certain
redemptions within 18 months of purchase.
</TABLE>
The Principal Underwriter may at times allow discounts 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 Principal Underwriter may, from time to time,
at its own expense, provide additional incentives to Authorized Firms which
employ registered representatives who sell a minimum dollar amount of 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.
An initial investment in a Fund 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 Funds' transfer agent (the "Transfer Agent") as follows: First
Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See
"Eaton Vance Shareholder Services".
Shares of a Fund may be sold at net asset value to current and retired
Directors and Trustees of Eaton Vance funds, including the Portfolios; to
officers and employees and clients of Eaton Vance and its affiliates; to
registered representatives and employees of Authorized Firms; and bank
employees who refer customers to registered representatives of Authorized
Firms; and to such persons' spouses and children under the age of 21 and their
beneficial accounts. Shares may also be issued at net asset value (1) in
connection with the merger of an investment company with a 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, (3) 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 subject to a sales
charge, and (4) to an investor making an investment through an investment
adviser, financial planner, broker or other intermediary that charges a fee
for its services and has entered into an agreement with a Fund or its
Principal Underwriter.
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange
for Fund shares at the applicable public offering price as shown above. The
minimum value of securities (or securities and cash) accepted for deposit is
$5,000. Securities accepted will be sold by IBT as agent for the account of
their owner on the day of their receipt by IBT 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 public offering price per Fund share 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:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Traditional [State name] Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Traditional [State name] Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities to IBT. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
Fund 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 for Fund shares.
--------------------------------------------------------------------
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
--------------------------------------------------------------------
HOW TO REDEEM FUND SHARES
- ------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO FIRST DATA INVESTOR
SERVICES GROUP, BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per share of the applicable Fund next computed after such
delivery. 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 regulation of the Securities and Exchange
Commission and acceptable to First Data Investor Services Group. 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.
Within seven days after receipt of a redemption request in good order by First
Data Investor Services Group, a Fund 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 federal income tax required to be withheld. Although each Fund
normally expects to make payment 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 a Fund, either totally or partially, by
a distribution in kind of readily marketable securities withdrawn by that Fund
from its corresponding Portfolio. The securities so distributed would be
valued pursuant to the Portfolio'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.
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 such shares is based upon the net
asset value calculated after EVD, as the Funds' agent, receives the order. It
is the Authorized Firm's responsibility to transmit promptly repurchase orders
to EVD. Throughout this Prospectus, the word "redemption" is generally meant
to include a repurchase.
If shares were recently purchased, the proceeds of redemption (or repurchase)
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 or repurchases may result in a
taxable gain or loss.
Due to the high cost of maintaining small accounts, each Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required if the cause of the low account
balance was a reduction in the net asset value of Fund shares.
If shares have been purchased at net asset value with no initial sales charge
by virtue of the purchase having been in the amount of $1 million or more and
are redeemed within 12 months of purchase, a CDSC of 0.50% will be imposed on
such redemption. (Such purchases made before March 27, 1995 will be subject to
a CDSC of 1% in the event of certain redemptions made within 18 months of
purchase.) The CDSC will be retained by the Principal Underwriter.
The CDSC will be imposed on an amount equal to the lesser of the current
market value or the original purchase price of the shares redeemed.
Accordingly, no CDSC will be imposed on increases in account value above the
initial purchase price, including any dividends or distributions that have
been reinvested in additional shares. In determining whether a CDSC is
applicable to a redemption, the calculation will be made in a manner that
results in the lowest possible rate being charged. It will be assumed that
redemptions are made first from any shares in the shareholder's account that
are not subject to a CDSC.
The CDSC is waived for redemptions involving certain liquidation, merger or
acquisition transactions involving other investment companies. If a
shareholder reinvests redemption proceeds within a 60-day period and in
accordance with the conditions set forth under "Eaton Vance Shareholder
Services -- Reinvestment Privilege," the shareholder's account will be
credited with the amount of any CDSC paid on such redeemed shares.
REPORTS TO SHAREHOLDERS
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EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual
reports are audited by the Funds' independent certified public accountants.
Shortly after the end of each calendar year, each Fund will furnish its
shareholders 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
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AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUNDS'
TRANSFER AGENT, FIRST DATA INVESTOR SERVICES GROUP, WILL SET UP A LIFETIME
INVESTING ACCOUNT FOR THE INVESTOR ON THE APPLICABLE FUND'S RECORDS. This
account is a complete record of all transactions between the investor and the
Fund which at all times shows the balance of shares owned. A Fund will not
issue share certificates except upon request.
At least quarterly, shareholders 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 to First Data
Investor Services Group.
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 First Data Investor Services Group, BOS725, P.O.
Box 1559, Boston, MA, 02104 (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
Funds' dividend disbursing agent, First Data Investor Services Group, BOS725,
P.O. Box 1559, Boston, MA 02104. 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 the INCOME OPTION or CASH OPTION has been selected, dividend and/or capital
gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more
will be reinvested in the account at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the SHARE OPTION until such time as the shareholder selects a
different option.
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 of a Fund 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 Fund and its Transfer Agent.
Since the Fund 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 dealer or to an account
directly with a Fund 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 investment firm, or transferring the account to another
investment firm, an investor wishing to reinvest distributions should
determine whether the firm which will hold the shares allows reinvestment of
distributions in "street name" accounts.
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UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS IN SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE.
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THE EATON VANCE EXCHANGE PRIVILEGE
- ------------------------------------------------------------------------------
Shares of each Fund may currently be exchanged for shares of any of the
following funds: Eaton Vance Cash Management Fund, Eaton Vance Income Fund of
Boston, Eaton Vance Municipal Bond Fund L.P., Eaton Vance Tax Free Reserves
and any fund in the Eaton Vance Traditional Group of Funds on the basis of the
net asset value per share of each fund at the time of the exchange (plus, in
the case of an exchange made within six months of the date of purchase, 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). Such exchange offers are available only in States where
shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. 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 Fund 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.
Shares of a Fund which are subject to a CDSC may be exchanged into any of the
above funds without incurring the CDSC. The shares acquired in an exchange may
be subject to a CDSC upon redemption. For purposes of computing the CDSC
payable upon redemption of shares acquired in an exchange, the holding period
of the original shares is added to the holding period of the shares acquired
in the exchange.
First Data Investor Services Group makes exchanges at the next determined net
asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult First Data Investor Services Group 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.
Shares of certain other funds for which Eaton Vance acts as investment adviser
or administrator may be exchanged for Fund shares on the basis of the net
asset value per share of each fund at the time of exchange, but subject to any
restrictions or qualifications set forth in the current prospectus of any such
fund.
Telephone exchanges are accepted by First Data Investor Services Group
provided the investor has not disclaimed in writing the use of the privilege.
To effect such exchanges, call First Data Investor Services Group at 800-262-
1122 or, within Massachusetts, 617-573-9403, 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 Funds, the Principal Underwriter nor First Data
Investor Services Group 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 FUNDS OFFER 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 as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the
Fund being purchased may be mailed directly to First Data Investor Services
Group, BOS725, P.O. Box 1559, Boston, MA 02104 at any time -- whether or not
dividends are reinvested. The name of the shareholder, the Fund 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 the
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 $50,000 or more made over a 13-month
period are eligible for reduced sales charges. See "Statement of Intention and
Escrow Agreement."
RIGHT OF ACCUMULATION: Purchases may qualify for reduced sales charges when
the current market value of holdings (shares at current offering price), plus
new purchases, reaches $50,000 or more. 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 in an amount specified by the shareholder. A
minimum deposit of $5,000 in shares is required. The maintenance of a
withdrawal plan concurrently with purchases of additional shares would be
disadvantageous because of the sales charge included in such purchases.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES
MAY REINVEST ANY PORTION OR ALL OF THE REPURCHASE OR REDEMPTION PROCEEDS (PLUS
THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE TO ROUND OFF THE PURCHASE
TO THE NEAREST FULL SHARE) IN SHARES OF A FUND, or, provided that the shares
repurchased or redeemed have been held for at least 60 days, in shares of any
of the other funds offered by the Principal Underwriter subject to an initial
sales charge, provided that the reinvestment is effected within 60 days after
such repurchase or 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 fund the shares of which
are being purchased (or by such fund's transfer agent). The privilege is also
available to shareholders of the funds listed under "The Eaton Vance Exchange
Privilege" who wish to reinvest such redemption or repurchase proceeds in
shares of a Fund. If a shareholder reinvests redemption proceeds within the 60
day period the shareholder's account will be credited with the amount of any
CDSC paid on such redeemed shares. To the extent that any shares of the Fund
are sold at a loss and the proceeds are reinvested in shares of the Fund (or
other shares of the Fund are acquired within the period beginning 30 days
before and ending 30 days after the date of the 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 A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL
BE DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME
OF DECLARATION. Such distributions, 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. Each Fund anticipates that for tax purposes
the entire distribution, whether paid in cash or reinvested in additional
shares of the Fund, 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 day
that collected funds for the purchase of Fund shares are available at the
Transfer Agent. Shareholders of a Fund 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. A Fund's net realized capital gains, if
any, consist of the net realized capital gains allocated to the Fund by its
corresponding Portfolio for tax purposes, after taking into account any
available capital loss carryovers; a 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 Fund 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 shares of a Fund
or of another fund are subsequently acquired pursuant to a 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.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), and to satisfy all
requirements necessary to be relieved of federal taxes on income and gains it
distributes to shareholders. In satisfying these requirements, each Fund will
treat itself as owning its proportionate share of each of its corresponding
Portfolio's assets and as entitled to the income of the Portfolio properly
attributable to such share.
------------------------------------------------------------------------
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, EACH FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO
SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN
ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE. AS
PARTNERSHIPS UNDER THE CODE, THE PORTFOLIOS DO NOT PAY FEDERAL INCOME OR
EXCISE TAXES.
------------------------------------------------------------------------
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations. 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 Fund shares have been owned by the shareholder. Distributions are
taxed in the manner described above whether paid in cash or reinvested in
additional shares of a Fund.
Tax-exempt distributions received from a Fund are includable in the tax base
for determining the taxability of social security and railroad retirement
benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of a Fund is not deductible to the extent it is deemed related to
the Fund's distribution of tax-exempt interest. Further, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of a Fund. "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.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE TAXES.
Shareholders should consult their own tax advisers with respect to the State,
local and foreign tax consequences of investing in a Fund.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------------------
FROM TIME TO TIME, EACH FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL
TOTAL RETURN. Each Fund's current yield is calculated by dividing the net
investment income per share earned during a recent 30-day period by the
maximum offering price per share of the Fund 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. Each
Fund's average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compounded rate of
return (including capital appreciation/depreciation, and dividends and
distributions paid and reinvested) for the stated period and annualizing the
result. The average annual total return calculation assumes that the maximum
sales charge is deducted from the initial $1,000 purchase order and that all
dividends are reinvested at the net asset value on the reinvestment dates
during the period. Each Fund may publish annual and cumulative total return
figures from time to time. Each Fund may also quote total return for the
period prior to commencement of operations which would reflect the Portfolio's
total return (or that of its predecessor) adjusted to reflect any applicable
Fund sales charge.
Each Fund may also publish its distribution rate and/or effective distribution
rate. Each Fund's distribution rate is computed by dividing the most recent
monthly distribution per share annualized, by the current maximum offering
price per share. Each Fund's effective distribution rate is computed by
dividing the distribution rate by the ratio used to annualize the most recent
monthly distribution and reinvesting the resulting amount for a full year on
the basis of such ratio. The effective distribution rate will be higher than
the distribution rate because of the compounding effect of the assumed
reinvestment. Investors should note that a Fund's yield is calculated using a
standardized formula the income component of which is computed from the yields
to maturity of all debt obligations held by the Portfolio based on prescribed
methods (with all purchases and sales of securities during such period
included in the income calculation on a settlement date basis), whereas the
distribution rate is based on a Fund's last monthly distribution which tends
to be relatively stable and may be more or less than the amount of net
investment income and short-term capital gain actually earned by the Fund
during the month.
Each Fund may also furnish total return calculations based on investments at
various sales charge levels or at net asset value. Any performance data which
is based on a Fund's net asset value per share would be reduced if a sales
charge were taken into account. 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 of a Fund will fluctuate
over time, and any presentation of the Fund's current yield, total return,
distribution rate or effective distribution rate for any prior period should
not be considered a representation of what an investment may earn or what the
Fund's yield, total return, distribution rate or effective distribution rate
may be in any future period. If the expenses of a Fund or its corresponding
Portfolio are paid by Eaton Vance, the Fund's performance will be higher.
STATEMENT OF INTENTION AND ESCROW AGREEMENT
- ------------------------------------------------------------------------------
TERMS OF ESCROW. If the investor, on an application, makes a Statement of
Intention to invest a specified amount over a thirteen month period, 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 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 income dividends and capital gains 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 EVD 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 EVD 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.
In signing the application, the investor irrevocably constitutes and appoints
the escrow agent the investor's attorney to surrender for redemption any or
all escrowed shares with full power of substitution in the premises.
PROVISION FOR RETROACTIVE PRICE ADJUSTMENT. 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 EVD.
If at the time of the recomputation a firm other than the original firm is
placing the orders, the adjustment will be made only on those shares purchased
through the firm then handling the investor's account.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in the
obligations of issuers in its corresponding State, it is susceptible to
factors affecting that State. Each Portfolio may also invest up to 5% of its
net assets in obligations issued by the governments of Guam and the U.S.
Virgin Islands and up to 35% of its assets in obligations issued by the
government of Puerto Rico. Set forth below is certain economic and tax
information concerning the States in which the Portfolios invest and Puerto
Rico.
The bond ratings provided below are current as of the date of this Prospectus
and are based on economic conditions which may not continue; moreover, there
can be no assurance that particular bond issues may not be adversely affected
by changes in economic, political or other conditions.
CALIFORNIA. California has experienced severe economic and fiscal stress over
the past several years. Between 1990 and 1993, California lost 3% of its total
employment base and nearly 16% of higher paying manufacturing jobs. This was
during a period when population increased 6%. The unemployment rate in
California was 9.1% in 1992 and 9.2% in 1993, well above the U.S. rates of
7.4% and 6.8% for the same periods, respectively. Unemployment was 7.9% in
April 1995, compared to a U.S. rate of 5.8%.
The weak economy has seriously undermined the government's ability to
accurately estimate tax revenues and has increased social service expenditures
for recession-related welfare case loads. In addition, the continued influx of
illegal immigrants has strained the State's welfare and health care systems.
The result of these various problems is a $2 billion accumulated budget
deficit and a heavy reliance on short-term borrowing for day-to-day
operations. Short-term borrowing increased from 7.8% of general fund receipts
in 1990 to 12.4% in 1992 to a projected 16% in 1995. In July, 1994, the State
issued $7 billion in short-term debt, an unprecedented amount for a State.
The $2 billion budget deficit built up during the 1991 and 1992 fiscal years
and was not adequately addressed during the 1993 or 1994 fiscal years, despite
a Deficit Retirement and Reduction Plan put in place in June, 1993. The budget
for fiscal year 1995 (which commenced on July 1, 1994) includes general fund
expenditures of $40.9 billion, a 4.2% increase over 1993-94, and general fund
revenues of $41.9 billion, a 5.2% increase. A revised Deficit Retirement and
Reduction Plan was adopted which anticipated the elimination of the deficit by
April, 1996. Key to this revised plan is the assumed receipt of $2.8 billion
in Federal aid from the Federal government to offset the mounting costs
associated with illegal immigrants. As this money is in no way assured, the
budget includes a "trigger" mechanism that would require automatic spending
cuts should actual cash flow deviate significantly from projections. There can
be no assurances that bonds, some of which may be held by the Portfolio,
issued by California entities would not be adversely affected should this
"trigger" be used.
On January 17, 1994, a major earthquake struck the Los Angeles area causing
significant property damage. Preliminary estimates of total property damage
approximate $15 billion. The Federal government has approved $9.5 billion for
earthquake relief. The Governor has estimated that the State will have to pay
approximately $1.9 billion for relief not otherwise covered by the Federal
aid. The Governor had proposed to cover $1.05 billion of relief costs from a
general obligation bond issue, but the proposal was rejected by California
voters in June 1994. The Governor subsequently announced that funds earmarked
for other projects would be used for earthquake relief.
On December 7, 1994, Orange County, California (the "County"), together with
its pooled investment fund (the "Fund") filed for protection under Chapter 9
of the Federal Bankruptcy Code, after reports that the Fund had suffered
significant market losses in its investments caused a liquidity crisis for the
Fund and the County. More than 180 other public entities, most but not all
located in the County, were also depositors in the Fund. As of December 13,
1994, the County estimated the Fund's loss at about $2 billion, or 27% of its
initial deposits of around $7.4 billion. These losses could increase as the
County sells investments to restructure the Fund, or if interest rates rise.
Many of the entities which kept moneys in the Fund, including the County, are
facing cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. The County and some of these
entities have, and others may in the future, default in payment of their
obligations. Moody's and S&P have suspended, reduced to below investment grade
levels, or placed on "Credit Watch" various securities of the County and the
entities participating in the Fund. As of December 1994, the Portfolio did not
hold any direct obligations of the County. However, the Portfolio did hold
bonds of some of the governmental units that had money invested with the
County; the impact of the loss of access to these funds, the loss of expected
investment earnings and the potential loss of some of the principal invested
is not known at this point. There can be no assurances that these holdings
will maintain their current ratings and/or liquidity in the market.
In early June 1995, the County filed a proposal with the bankruptcy court that
would require holders of the County's short-term notes to wait one-year before
being repaid. The existence of this proposal and its adoption could disrupt
the market for short-term debt in California and possibly drive up the State's
borrowing costs. On June 27, 1995 the voters in Orange County rejected a
proposed one half cent increase in the sales tax, the revenues from which
would have been used to help the County emerge from bankruptcy. The failure of
this measure increases the likelihood that the County will default on some of
their obligations and, more broadly, could have a negative impact on the
perceived credit quality of municipal obligations throughout California.
Although the State of California has no obligation with respect to any
obligations or securities of the County or any of the other participating
entities, under existing legal precedents, the State may be obligated to
ensure that school districts have sufficient funds to operate. Longer term,
this financial crisis could have an adverse impact on the economic recovery
that has only recently taken hold in Southern California.
California voters have approved a series of amendments to the California State
constitution which have imposed certain limits on the taxing and spending
powers of the State and local governments. While the State legislature has, in
the past, enacted legislation designed to assist California issuers in meeting
their debt service obligations, other laws limiting the State's authority to
provide financial assistance to localities have also been enacted. Because of
the uncertain impact of such constitutional amendments and statutes, the
possible inconsistencies in their respective terms and the impossibility of
predicting the level of future appropriations and applicability of related
statutes to such questions, it is not currently possible to assess the impact
of such legislation and policies on the ability of California issuers to pay
interest or repay principal on their obligations.
As a result of the significant economic and fiscal problems described above,
the State's debt has been downgraded by all three rating agencies from Aa to
A1 by Moody's, from A(PL) to A by S&P, and from AA to A by Fitch.
CALIFORNIA TAXES. California law provides that dividends paid by the
California Fund and designated by the California Fund as tax-exempt are exempt
from California personal income tax on individuals who reside in California to
the extent such dividends are derived from interest payments on municipal
obligations exempt from regular federal income tax and California State
personal income taxes, provided that at least 50% of the assets of the
California Portfolio at the close of each quarter of its taxable year are
invested in obligations the interest on which is exempt under either federal
or California law from taxation by the State of California. Distributions of
short-term capital gains are treated as ordinary income, and distributions of
long-term capital gains are treated as long-term capital gains under the
California personal income tax.
FLORIDA. Florida's financial operations are considerably different than most
other states because, under the State's constitution, there is no state income
tax. The lack of an income tax exposes total State tax collections to
considerably more volatility than would otherwise be the case and, in the
event of an economic downswing, could effect the State's ability to pay
principal and interest in a timely manner. In April, 1993 the legislature
passed the 1993-94 budget which did not contain the $630 million in new taxes
proposed by Governor Chiles to fund schools, jails and public welfare
programs. Revenues are projected to increase 8.4% and expenditures 12%.
Unencumbered reserves are projected to be $276 million, or 2.1% of
expenditures for fiscal year 1994. A $38.6 billion budget was passed for
fiscal 1995. Unemployment in the State for March 1994 was 7.3% compared to the
national unemployment rate of 6.5%.
In 1993, the State constitution was amended to limit the annual growth in the
assessed valuation of residential property and which, over time, could
constrain the growth in property taxes, a major revenue source for local
governments. While no immediate ratings implications are expected, the
amendment could have a negative impact on the financial performance of local
governments over time and lead to ratings revisions which may have a negative
impact on the prices of affected bonds.
General obligations of Florida are rated Aa, AA and AA by Moody's, S&P and
Fitch, respectively. S&P presently regards the outlook for the State as
stable.
FLORIDA TAXES. Based on an opinion of tax counsel, management believes that
shareholders of the Florida Fund that are subject to the Florida intangibles
tax will not be required to include the value of their Florida Fund shares in
their taxable intangible property if all of the Florida Portfolio's
investments on the annual assessment date are obligations that would be exempt
from such tax if held directly by such shareholders, such as Florida and U.S.
Government obligations ("Florida obligations"). A ruling confirming this tax
treatment is being requested from the Florida Department of Revenue. The
Florida Portfolio will normally attempt to invest substantially all of its
assets in Florida obligations, and it will ensure that all of its assets held
on the annual assessment date are exempt from the Florida intangibles tax.
Accordingly, the value of the Florida Fund shares held by a shareholder should
under normal circumstances be exempt from the Florida intangibles tax.
NEW YORK. New York is the second most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse with
a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a comparatively
small share of the nation's farming and mining activity. The State's general
credit standing has historically reflected its diverse and substantial
economic base. However, the loss of more than 350,000 jobs since early 1991,
as well as chronic annual fiscal deficits and increasing debt levels, have
undermined this strength. In fiscal year 1993, however, the State began the
process of financial reform. New York closed the 1993 fiscal year with a
general fund operating surplus.
The fiscal stability of New York State is related, at least in part, to the
fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State. In some cases, the State has had to
provide special assistance in recent years to enable such agencies,
authorities and localities to meet their financial obligations and, in some
cases, to prevent or cure defaults. To the extent State agencies and local
governments require State assistance to meet their financial obligations, the
ability of the State to meet its own obligations as they become due or to
obtain additional financing could be adversely affected.
Like the State, New York City has experienced financial difficulties in recent
years owing, in part, to lower than anticipated revenues. Because New York
City taxes comprise 40% of the State's tax base, the City's difficulties
adversely affect the State. Both the State and the City will be constrained in
addressing future fiscal problems by their high current level of taxes.
In June 1994, the Governor approved the 1994-1995 budget, which reduces taxes
by $476 million in the 1994-1995 fiscal year and by more than $1.6 billion
when fully implemented. A reduction in both State and City personal income
taxes scheduled to take effect in 1994 has been deferred for one year as a
part of the 1994-1995 budget.
Constitutional challenges to State laws have limited the amount of taxes which
political subdivisions can impose on real property, which may have an adverse
effect on the ability of issuers to pay obligations supported by such taxes. A
variety of additional court actions have been brought against the State and
certain agencies and municipalities relating to financings, amount of real
estate tax, use of tax revenues and other matters which could adversely affect
the ability of the State or such agencies or municipalities to pay their
obligations.
New York's general obligations are rated A, A- and A(PL) by Moody's, S&P and
Fitch, respectively. S&P currently assesses the rating outlook for New York
obligations as "positive." New York City obligations are rated Baa1, A- and A-
by Moody's, S&P and Fitch, respectively.
NEW YORK TAXES. Based upon the advice of tax counsel, the management of the
New York Fund believes that under New York law dividends paid by the New York
Fund are exempt from New York State and New York City income tax for
individuals who reside in New York to the extent such dividends are excluded
from gross income for Federal income tax purposes and are derived from
interest payments on obligations exempt from regular Federal income tax, and
New York State and City income taxes. Other distributions from the New York
Fund, including distributions derived from net short-term and long-term
capital gains, are generally not exempt from New York State or City personal
income tax.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly
from fiscal 1984 through fiscal 1990, the rate of this expansion slowed during
fiscal years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several
factors, including the state of the U.S. economy and the relative stability in
the price of oil, the exchange rate of the U.S. dollar and the cost of
borrowing. Although the Puerto Rico unemployment rate has declined
substantially since 1985, the seasonally adjusted unemployment rate for June,
1995 was approximately 13.9%. The North American Free Trade Agreement (NAFTA),
which became effective January 1, 1994, could lead to the loss of Puerto
Rico's lower salaried or labor intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. Reliance
on nonrecurring revenues and economic weakness led S&P to change its outlook
from stable to negative.
<PAGE>
EV TRADITIONAL
MUNICIPAL
FUNDS
PROSPECTUS
FEBRUARY 1, 1996
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
EV TRADITIONAL FLORIDA MUNICIPALS FUND
EV TRADITIONAL NEW YORK MUNICIPALS FUND
EV TRADITIONAL
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- ---------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
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, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte &Touche LLP, 125 Summer Street, Boston, MA 02110
[LOGO]
EATON VANCE
================
MUTUAL FUNDS
T-TFC2/1P
<PAGE>
Part A
Information Required in a Prospectus
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO (THE "FUND") IS A NO-LOAD MUTUAL
FUND SEEKING TO PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX
AND MASSACHUSETTS STATE PERSONAL INCOME TAXES. THE FUND INVESTS ITS ASSETS IN
MASSACHUSETTS TAX FREE PORTFOLIO (THE "PORTFOLIO"), A NON-DIVERSIFIED OPEN-END
INVESTMENT COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND, RATHER THAN
BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO OF SECURITIES AS WITH
HISTORICALLY STRUCTURED MUTUAL FUNDS. THE FUND IS A SERIES OF EATON VANCE
MUNICIPALS 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 for the Fund dated February 1, 1996, as
supplemented from time to time, has been filed with the Securities and Exchange
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 Portfolio's investment adviser
is Boston Management and Research (the "Investment Adviser"), a wholly-owned
subsidiary of Eaton Vance Management, and Eaton Vance Management is the
administrator (the "Administrator") of the Fund. The offices of the Investment
Adviser and the Administrator are located at 24 Federal Street, Boston, MA
02110.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<TABLE>
TABLE OF CONTENTS
<C> <C>
Shareholder and Fund Expenses.......................2 How to Buy Fund Shares.............................15
The Fund's Financial Highlights.....................3 How to Redeem Fund Shares..........................17
The Fund's Investment Objective.....................4 Reports to Shareholders............................19
How the Fund and the Portfolio Invest their The Lifetime Investing Account/
Assets...........................................4 Distribution Options............................19
Organization of the Fund and the Portfolio.........11 Eaton Vance Shareholder Services...................20
Management of the Fund and the Portfolio...........13 Distributions and Taxes............................21
Valuing Fund Shares................................15 Performance Information............................23
</TABLE>
- --------------------------------------------------------------------------------
PROSPECTUS DATED FEBRUARY 1, 1996
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
Investment Adviser Fee 0.46%
Rule 12b-1 Distribution Expenses None
Other Expenses 0.17%
Total Operating Expenses 0.63%
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
An investor would pay the following expenses $6 $20 $35 $79
on a $1,000 investment, assuming (a) 5%
annual return and (b) redemption at the end
of each period:
Notes:
The table and Example summarize the aggregate expenses of the Fund and
the Portfolio and are designated to help investors understand the costs
and expenses they will bear, directly or indirectly, by investing in
the Fund. Information for the Fund is based on its expenses for the
most recent fiscal year. Absent an expense allocation to the
Administrator, Other Expenses would have been 0.42% of the Fund's
average daily net assets.
The Fund invests exclusively in the Portfolio. The Trustees believe the
aggregate per share expenses of the Fund and the Portfolio should
approximate, and over time may be less than, the per share expenses the
Fund would incur if the Fund were instead to retain the services of an
investment adviser and its assets were invested directly in the type of
securities being held by the Portfolio.
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 return may vary. For further information regarding the
expenses of both the Fund and the Portfolio see "The Fund's Financial
Highlights", "Organization of the Fund and the Portfolio" and
"Management of the Fund and the Portfolio".
The Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on daily gross income, as set forth in
the fee schedule on page 12.
Other investment companies with different distribution arrangements and
fees are investing in the Portfolio and additional such companies may
do so in the future. See "Organization of the Fund and the Portfolio".
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Fund's annual report to shareholders which
is incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information
regarding the performance of the Fund is contained in the Fund's annual report
to shareholders which may be obtained without charge by contacting the Fund's
Principal Underwriter, Eaton Vance Distributors, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30
-------------------------------------
1995 1994 1993*
---- ---- ----
<S> <C> <C> <C>
NET ASSET VALUE, beginning of year $9.220 $10.260 $10.000
------- -------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $0.546 $ 0.548 $ 0.141
Net realized and unrealized gain (loss) on investments .290 (1.026) 0.284
------- -------- -------
Total income (loss) from operations $0.836 ($ 0.478) $ 0.425
------- -------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.546) ($ 0.548) ($0.141)
------- -------- -------
In excess of net realized gain on investments -- ($0.010) --
In excess of net investment income (0.004) (0.024)
------- -------- -------
Total distributions $(0.546) ($ 0.562) ($0.165)
------- -------- -------
NET ASSET VALUE, end of year $9.510 $ 9.220 $10.260
====== ======= =======
TOTAL RETURN(2) 9.37% (4.79%) 4.04%
RATIOS/SUPPLEMENTAL DATA(**)
Net assets, end of period (000 omitted) $7.186 $ 9,338 $ 5,063
Ratio of net expenses to average daily net assets(1) 0.63% 0.60% 1.21%+
Ratio of net investment income to average daily net assets 5.93% 5.65% 4.80%+
** For the years ended September 30, 1995 and 1994, the operating expenses of the Fund reflect a
reduction of expenses by the Administrator. Had such action not been taken, net investment
income per share and the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE $0.523 $0.498
====== ======
RATIOS (As a percentage of average net assets):
Expenses(1) 0.88% 1.12%
Net investment income 5.68% 5.13%
* For the period from the start of business, June 17, 1993, to September 30, 1993.
+ Computed on an annualized basis.
(1) Includes the Fund's share of Massachusetts Tax Free Portfolio's allocated expenses.
(2) 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 computed on a non-annualized basis.
</TABLE>
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE CURRENT INCOME EXEMPT FROM REGULAR
FEDERAL INCOME TAX AND MASSACHUSETTS STATE PERSONAL INCOME TAXES. The Fund seeks
to meet its investment objective by investing its assets in the Massachusetts
Tax Free Portfolio (the "Portfolio"), a separate registered investment company
which invests primarily in Massachusetts obligations (as described below) which
are rated at least investment grade by a major rating agency or, if unrated,
determined to be of at least investment grade quality by the Portfolio's
Investment Adviser.
HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS
- --------------------------------------------------------------------------------
THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN MUNICIPAL OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT FROM
REGULAR FEDERAL INCOME TAX AND MASSACHUSETTS STATE PERSONAL INCOME TAXES
("MASSACHUSETTS TAX-EXEMPT OBLIGATIONS") WHICH, IN ACCORDANCE WITH ITS
INVESTMENT OBJECTIVE, THE FUND SEEKS TO AVOID. The foregoing policy is a
fundamental policy of both the Fund and the Portfolio, which may not be changed
unless authorized by a vote of the shareholders of the Fund or the investors in
the Portfolio, as the case may be.
At least 70% of the Portfolio's net assets will normally be invested in
obligations rated at least investment grade at the time of investment (which are
those rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB
or higher by either Standard & Poor's Ratings Group ("S&P") or by Fitch
Investors Service, Inc. ("Fitch")) or, if unrated, determined by the Investment
Adviser to be of at least investment grade quality. The balance of the
Portfolio's net assets may be invested in obligations rated below investment
grade (but not lower than B by Moody's, S&P or Fitch) and unrated obligations
considered to be of comparable quality by the Investment Adviser. Massachusetts
obligations rated Baa or BBB may have speculative characteristics. Also, 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. Securities rated below BBB or Baa are commonly known
as "junk bonds". The Portfolio may retain an obligation whose rating drops below
B after its acquisition if such retention is considered desirable by the
Investment Adviser. See "Risk Considerations." For a description of municipal
obligation ratings, see the Statement of Additional Information.
MASSACHUSETTS OBLIGATIONS. Municipal obligations eligible for the exemption from
Massachusetts state income taxes ("Massachusetts 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 federal income tax. Public purpose municipal bonds 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. Municipal notes include bond anticipation,
tax anticipation, 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. Under
normal market conditions, the Portfolio will invest at least 65% of its total
assets in obligations issued by the Commonwealth of Massachusetts or its
political subdivisions.
Interest income from certain municipal obligations may be subject to
the federal alternative minimum tax for individual investors. As at September
30, 1995, the Portfolio had 18.1% of its net assets in such obligations. At
September 30, 1995, the Portfolio limited its investment in obligations subject
to the federal alternative minimum tax to not more than 20% of net assets. The
Portfolio is no longer subject to such limitation. Distributions to corporate
investors of certain interest income may also be subject to the federal
alternative minimum tax.
CONCENTRATION. The Portfolio may invest 25% or more of its assets in
Massachusetts obligations of the same type, including, without limitation, the
following: general obligations of the Commonwealth of Massachusetts and its
political subdivisions; lease rental obligations of state and local authorities;
obligations of state and local housing finance authorities, municipal utilities
systems or public housing authorities; obligations for hospitals or life care
facilities; or industrial development or pollution control bonds issued for
electric utility systems, steel companies, paper companies or other purposes.
This may make the Portfolio more susceptible 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. As the Portfolio's concentration
in the securities of a particular category of issuer increases, the potential
for fluctuation in the value of the Fund's shares also increases.
NON-DIVERSIFIED STATUS. The Portfolio's classification under the Investment
Company Act of 1940 (the "1940 Act") as a "non-diversified" investment company
allows it to invest, with respect to 50% of its assets, more than 5% (but not
more than 25%) of its assets in the securities of any issuer. Because of the
small number of issues of Massachusetts obligations, the Portfolio is likely to
invest a greater percentage of its assets in the securities of a single issuer
than would a diversified fund. Therefore, the Portfolio would be more
susceptible to any single adverse economic or political occurrence or
development affecting Massachusetts issuers. The Portfolio will also be subject
to an increased risk of loss if the issuer is unable to make interest or
principal payments or if the market value of such securities declines. It is
also possible that sufficient suitable Massachusetts tax-exempt obligations will
not be available for the Portfolio to achieve its investment objective.
CONCENTRATION IN MASSACHUSETTS OBLIGATIONS - RISKS. Because the Portfolio will
normally invest at least 65% of its assets in Massachusetts obligations, it is
susceptible to factors affecting Massachusetts. The Portfolio may also invest up
to 5% of its net assets in obligations issued by the governments of Guam and the
U.S. Virgin Islands and up to 35% of its assets in obligations issued by the
government of Puerto Rico. Set forth below is certain economic and tax
information concerning Massachusetts and Puerto Rico. The bond ratings provided
below are current as of the date of this Prospectus and are based on economic
conditions which may not continue; moreover, there can be no assurance that
particular bond issues may not be adversely affected by changes in economic,
political or other conditions. Unless stated otherwise, the ratings indicated
are for obligations of Massachusetts. Massachusetts political subdivisions may
have different ratings which are unrelated to the ratings assigned to
Massachusetts obligations.
MASSACHUSETTS. In recent years, the Commonwealth has experienced a significant
economic slowdown, and has experienced shifts in employment from labor-intensive
manufacturing industries to technology and service-based industries. The
unemployment rate was 6.4% as of October, 1994, while the national unemployment
rate was 5.8%.
Effective July 1, 1990, limitations were placed on the amount of direct
bonds the Commonwealth could have outstanding in a fiscal year, and the amount
of the total appropriation in any fiscal year that may be expended for debt
service on general obligation debt of the Commonwealth (other than certain debt
incurred to pay the fiscal 1990 deficit and certain Medicaid reimbursement
payments for prior years) was limited to 10%. In addition, the power of
Massachusetts cities and towns and certain tax-supported districts and public
agencies to raise revenue from property taxes to support their operations,
including the payment of debt service, is limited. Property taxes are virtually
the only source of tax revenues available to cities and towns to meet local
costs. This limitation on cities and towns to generate revenues could create a
demand for increases in state-funded local aid. The recent difficulties
experienced by the Commonwealth have resulted in a substantial reduction in
local aid from the Commonwealth, which may create financial difficulties for
certain municipalities.
As of the date of this Prospectus, general obligations of the
Commonwealth of Massachusetts were rated A, A+ and A+ by Moody's, S&P and Fitch,
respectively.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly from
fiscal 1984 through fiscal 1990, the rate of this expansion slowed during fiscal
years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several factors,
including the state of the U.S. economy and the relative stability in the price
of oil, the exchange rate of the U.S. dollar and the cost of borrowing. Although
the Puerto Rico unemployment rate has declined substantially since 1985, the
seasonally adjusted unemployment rate for June, 1995 was approximately 13.9%.
The North American Free Trade Agreement (NAFTA), which became effective January
1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates
it Baa1; these ratings have been in place since 1956 and 1976, respectively. S&P
assigned a stable outlook on Puerto Rico on April 26, 1994.
OTHER INVESTMENT PRACTICES
The Portfolio 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 Portfolio may
temporarily borrow up to 5% of the value of its total assets to satisfy
redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. The Portfolio may purchase securities on a "when-issued"
basis, which means that payments 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 deliver the securities may be worth more or
less than the Portfolio agreed to pay for them. The Portfolio may also purchase
instruments that give the Portfolio the option to purchase a municipal
obligation when and if issued.
INVERSE FLOATERS. The Portfolio may invest in 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 Portfolio when short-term
interest rates rise, and increase the interest paid to the Portfolio when
short-term interest rates fall. Inverse floaters have varying degrees of
liquidity, and the market for these securities is new and relatively volatile.
These securities tend to under perform the market for fixed rate bonds in a
rising interest rate environment, but tend to outperform the market for fixed
rate bonds when interest rates decline. Shifts in long-term interest rates may
alter this tendency, however. 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 interest rates if exercised at an opportune time. Inverse
floaters are leveraged because they provide two or more dollars of bond market
exposure for every dollar invested.
FUTURES TRANSACTIONS. The Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. The futures contracts may be based on various debt securities
(such as U.S. Government securities), securities indices (such as the Municipal
Bond Index traded on the Chicago Board of Trade) and other financial instruments
and indices. Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed the
Portfolio's initial investment in these contracts. The Portfolio may not
purchase or sell futures contracts or related options, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of margin deposits and premiums paid on the Portfolio's outstanding positions
would exceed 5% of the market value of the Portfolio's net assets. These
transactions involve transaction costs. There can be no assurance that the
Investment Adviser's use of futures will be advantageous to the Portfolio.
Distributions by the Fund of any gains realized on its corresponding Portfolio's
transactions in futures and options on futures will be taxable.
INSURED OBLIGATIONS. The Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce the Fund's 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 the Fund's shares.
RISKS CONSIDERATIONS. Many Massachusetts obligations offering current income are
in the lowest investment grade category (Baa or BBB), lower categories or may be
unrated. The Portfolio may invest up to 30% of its net assets in Massachusetts
obligations rated below investment grade (but not lower than B by Moody's, S&P
or Fitch) and comparable unrated obligations. The lowest investment grade, lower
rated and comparable unrated Massachusetts obligations in which the Portfolio
may invest 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 Portfolio may retain
defaulted obligations in its portfolio when such retention is considered
desirable by the Investment Adviser. In the case of a defaulted obligation, the
Portfolio may incur additional expense seeking recovery of its investment.
Municipal obligations held by the Portfolio 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 the
Portfolio's investment policies. The Portfolio's holdings of obligations rated
below investment grade generally will be less than 35% of its net assets. In the
event the rating of an obligation held by the Portfolio is downgraded, causing
the Portfolio to exceed this limitation, the Investment Adviser will (in an
orderly fashion within a reasonable period of time) dispose of such obligations
as it deems necessary in order to comply with the foregoing limitation. For a
description of municipal obligation ratings, see the Statement of Additional
Information.
The net asset value of shares of the Fund will change in response to
fluctuations in prevailing interest rates and changes in the value of the
securities held by the Portfolio. When interest rates decline, the value of
securities held by the Portfolio 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 by the Portfolio will affect the principal value of (and
possibly the income earned on) 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 interest may also affect the value
of the Portfolio's investments. The amount of information about he 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 share of the Fund will not constitute a complete investment
program.
At times, a substantial portion of the Portfolio's assets may be invested in
securities as to which the Portfolio, by itself or together with other accounts
managed by the Investment Adviser and its affiliates, holds a major portion of
such securities. Under adverse market or economic conditions or in the event of
adverse changes in the financial condition of the issuer, the Portfolio could
find it more difficult to sell such securities when the Investment Adviser
believes it advisable to do so or may also be more difficult to determine the
fair value of such securities for purposes of computing the Portfolio's net
asset value.
Certain securities held by the Portfolio may permit the issuer at its option to
"call", or redeem, its securities. If an issuer redeems securities held by the
Portfolio during a time of declining interest rates, the Portfolio may not e
able to reinvest the proceeds in securities providing the same investment return
as the securities redeemed.
Some of the securities in which the Portfolio invests may 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 form face value and pay
interest only at maturity rather than at intervals during the life of the
security. The Portfolio is required to accrue and distribute income from
zero-coupon bonds on a current basis, even though it does not receive that
income currently in cash. Thus, the Portfolio may have to sell other investments
to obtain cash needed to make income distributions.
The Portfolio may invest in 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.
The secondary market for some Massachusetts obligations (including issues which
are privately placed with the Portfolio) is less liquid than that for taxable
debt obligations or for large issues of municipal obligations that trade in a
national market. The Portfolio will not invest in illiquid securities if more
than 15% of its net assets would be invested in securities that are not readily
marketable. No established resale market exists for certain of the Massachusetts
obligations in which the Portfolio may invest. The market for obligations rated
below investment grade is also likely to be less liquid than the market for
higher rated obligations. These considerations may restrict the availability of
such obligations, may affect the choice of securities sold to meet redemption
requests and may limit the ability of the Portfolio to sell or dispose of such
securities. Also, valuation of such obligations may be more difficult.
INVESTMENT RESTRICTIONS. The Fund and the Portfolio have adopted certain
fundamental investment restrictions which are enumerated in detail in the
Statement of Additional Information and which 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 of the Fund and the Portfolio are not
fundamental policies and accordingly may be changed by the Trustees of the Trust
and the Portfolio without obtaining the approval of the Fund's shareholders or
the investors in the Portfolio, as the case may be. If any changes were made in
the Fund's investment objective, the Fund might have investment objectives
different from the objectives which an investor considered appropriate at the
time the investor became a shareholder in the Fund.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
THE FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST (THE
"TRUST"), A BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A
DECLARATION OF TRUST DATED SEPTEMBER 30, 1985, AS AMENDED. THE TRUST IS A MUTUAL
FUND - AN OPEN-END MANAGEMENT INVESTMENT COMPANY. The Trustees of the Trust are
responsible for the overall management and supervision of its affairs. The Fund
has one class of shares of beneficial interest, an unlimited number of which may
be issued. Each share represents an equal proportionate beneficial interest in
the Fund. When issued and outstanding, the shares are fully paid and
nonassessable by the Fund and redeemable as described under "How to Redeem Fund
Shares." Shareholders are entitled to one vote for each full share held.
Fractional shares may be voted proportionately. 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 rate in the net assets of
the Fund available for distribution to shareholders.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF
NEW YORK AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES.
The Portfolio, as well as the Trust, intends to comply with all applicable
federal and state securities laws. The Portfolio's Declaration of Trust provides
that the Fund and other entities permitted to invest in the Portfolio (e.g.,
other U.S. and foreign investment companies, and common and commingled trust
funds) will each be liable for all obligations of the Portfolio. However, the
risk of the Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance exists and the
Portfolio itself is unable to meet its obligations. Accordingly, the Trustees of
the Trust believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund investing in the Portfolio.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
the Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in the Portfolio,
which is a separate investment company with an identical investment objective
(although the Fund may hold a de minimus amount of cash). Therefore, the Fund's
interest in the securities owned by the Portfolio is indirect. In addition to
selling an interest to the Fund, the Portfolio may sell interests to other
affiliated and non-affiliated mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the various funds that invest in the Portfolio. Such
differences in returns are also present in other mutual fund structures,
including funds that have multiple classes of shares. For information regarding
the investment objective, policies and restrictions of the Portfolio, see "The
Fund's Investment Objective" and "How the Fund and the Portfolio Invest their
Assets". Further information regarding investment practices may be found in the
Statement of Additional Information.
The Trustees of the Trust have considered the advantages and
disadvantages of investing the assets of the Fund in the Portfolio, as will as
the advantages and disadvantages of the two-tier format. The Trustees believe
that the structure offers opportunities for substantial growth in the assets of
the Portfolio, and affords the potential for economies of scale for the Fund, at
least when the assets of the Portfolio exceed $500 million.
The Fund may withdraw (completely redeem) all its assets from the
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of the Fund to do so. The investment objective and the
nonfundamental investment policies of the Fund and the Portfolio may be changed
by the Trustees of the Trust and the Portfolio without obtaining the approval of
the shareholders of the Fund or the investors in the Portfolio, as the case may
be. Any such change of the investment objective will be preceded by thirty days'
advance written notice to the shareholders of the Fund or the investors in the
Portfolio, as the case may be. In the event the Fund withdraws all of its assets
from the Portfolio, or the Board of Trustees of the Trust determines that the
investment objective of the Portfolio is no longer consistent with the
investment objective of the Fund, such Trustees would consider what action might
be taken, including investing the assets of the Fund in another pooled
investment entity or retaining an investment adviser to manage the Fund's assets
in accordance with its investment objective. The Fund's investment performance
may be affected by a withdrawal of all its assets from the Portfolio.
Information regarding other pooled investment entities or funds which
invest in the Portfolio may be obtained by contacting Eaton Vance Distributors,
Inc. (the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110
(617) 482-8260. Smaller investors in the Portfolio may be adversely affected by
the actions of a larger investor investing in the Portfolio. For example, if a
large investor withdraws from the Portfolio, the remaining investors may
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, the Portfolio may become less diverse, resulting in increased
portfolio risk, and experience decreasing economies of scale. However, this
possibility exists as well for historically structured funds which have large or
institutional investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund industry
and, therefore, the Fund may be subject to additional regulations than
historically structured funds.
The Declaration of Trust of the Portfolio provides that the Portfolio
will terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for Federal income tax purposes. See
"Distributions and Taxes" for further information. Whenever the Fund as an
investor in the Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may be
determined by the Trustees of the Portfolio without investor approval), the Fund
will hold a meeting of Fund shareholders and will vote its interest in the
Portfolio for or against such matters proportionately to the instructions to
vote for or against such matters received from Fund shareholders. The Fund shall
vote shares for which it receives no voting instructions in the same proportion
as the shares for which it receives voting instructions. Other investors in the
Portfolio may alone or collectively acquire sufficient voting interests in the
Portfolio to control matters relating to the operation of the Portfolio, which
may require the Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, the Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Fund. Notwithstanding the above, there are other
means for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested
Trustees, have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of the Portfolio are the same. Such procedures require
each Board to take action to resolve any conflict of interest between the Fund
and the Portfolio, and it is possible that the creation of separate Boards may
be considered. For further information concerning the Trustees and officers of
the Trust and the Portfolio, see the Statement of Additional Information.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
THE PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF 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
Portfolio, BMR manages the Portfolio's investments and affairs and furnishes for
the use of the Portfolio office space and all necessary office facilities,
equipment and personnel for servicing the investments of the Portfolio. Under
its investment advisory agreement with the Portfolio, BMR receives a monthly
advisory fee equal to the aggregate of:
(a) a daily asset based fee computed by applying the annual asset
rate applicable to that portion of the 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
daily gross income on such day as that portion of the total daily
net assets in the same Category bears to the total daily net
assets on such day) in each Category as indicated below:
ANNUAL DAILY
ASSET INCOME
CATEGORY DAILY NET ASSETS RATE RATE
- -------- ---------------- ---- ----
1 up to $20 million 0.100% 1.00%
2 $20 million but less than $40 million 0.200% 2.00%
3 $40 million but less than $500 million 0.300% 3.00%
4 $500 million but less than $1 billion 0.275% 2.75%
5 $1 billion but less than $1.5 billion 0.250% 2.50%
6 $1.5 billion but less than $2 billion 0.225% 2.25%
7 $2 billion but less than $3 billion 0.200% 2.00%
8 $3 billion and over 0.175% 1.75%
As at September 30, 1995, the Portfolio had net assets of $302,170,247.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees equivalent to 0.46% of the Portfolio's average daily net assets.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES
AND VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $16 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
Robert B. MacIntosh has acted as the portfolio manager of the Portfolio
since it commenced operations. Mr. MacIntosh has been a Vice President of Eaton
Vance since 1991 and of BMR since its inception. Prior to joining Eaton Vance,
he was a portfolio manager at Fidelity Management & Research Company
(1986-1991).
Municipal obligations, including Massachusetts obligations, are
normally traded on a net basis (without commission) through broker-dealers and
banks acting for their own account. Such firms attempt to profit from such
transactions by buying at the bid price and selling at the higher asked price of
the market, and the difference is customarily referred to as the spread. In
selecting firms which will execute portfolio transactions, BMR judges their
professional ability and quality of service and uses its best efforts to obtain
execution at prices which are advantageous to the Portfolio and at reasonably
competitive spreads. Subject to the foregoing, BMR may consider sales of shares
of other investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
The Trust has retained the services of Eaton Vance to act as its
Administrator. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of the Fund by
investing its assets in the Portfolio. As Administrator, Eaton Vance provides
the Fund with general office facilities and supervises the overall
administration of the Fund. For these services Eaton Vance currently receives no
compensation. The Trustees of the Trust may determine, in the future, to
compensate Eaton Vance for such services.
The Portfolio and the Fund, as the case may be, will each be responsible for all
respective costs and expenses not expressly stated to be payable by BMR under
the investment advisory agreement, by Eaton Vance under the administrative
services agreement, or by EVD under the distribution agreement.
VALUING FUND SHARES
- --------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON 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). The Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of the Fund's total assets,
less its liabilities, by the number of shares outstanding. Because the Fund
invests its assets in an interest in the Portfolio, the Fund's net asset value
will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Orders must be received by the Principal Underwriter prior to the close
of the Principal Underwriter's business day to receive that day's net asset
value per Fund share.
The Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT (as custodian and agent for the
Portfolio), based on market or fair value in the manner authorized by the
Trustees of the Portfolio. Net asset value is computed by subtracting the
liabilities of the Portfolio from the value of its total assets. Massachusetts
obligations will normally be valued on the basis of valuations furnished by a
pricing service. For further information regarding the valuation of the
Portfolio's assets, see "Determination of Net Asset Value" in the Statement of
Additional Information.
HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------
The Trustees of the Trust have determined that shares of the Fund shall only be
available to employees of Eaton Vance Corp. (and its affiliates, including
subsidiaries), clients of Eaton Vance Corp. (and its affiliates, including
subsidiaries) and certain institutional investors.
Investors may purchase shares of the Fund without a sales charge at the
net asset value per share of the Fund next determined after an order is
effective as described under "Other Purchase Procedures" below. An initial
investment in the Fund must be at least $1,000. Once an account has been
established the investor may send investment of $50 or more at any time. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services". The Fund may suspend the offering of shares at any
time and may refuse an order for the purchase of shares.
PURCHASES BY WIRE: Investors may purchase shares by requesting their bank to
transmit immediately available funds (Federal funds) by wire to: ABA #011001438,
Federal Reserve Bank of Boston, A/C Investors Bank & Trust Company, Further
Credit Massachusetts Municipal Bond Portfolio, A/C #[Insert your account number
- - see below].
Upon making an initial investment by wire, you must first telephone the
Order Department of the Fund (800-225-6265, extension 3) to advise of your
action and to be assigned an account number. If you neglect to make the
telephone call, it may not be possible to process your order promptly. In
addition, the Account Application form which accompanies this Prospectus should
be promptly forwarded to First Data Investor Services Group, BOS725, P.O. Box
1559, Boston, MA 02104.
Additional investments may be made at any time through the wire
procedure described above. The Fund Order Department must be immediately advised
by telephone (800-225-6265, extension 3) of each transmission of funds by wire.
Purchases received by wire by 4:00 P.M. on any business day are
invested at the net asset value determined at 4:00 P.M. the same day.
PURCHASES BY MAIL: For an initial purchase by mail, the Account
Application form which accompanies this Prospectus should be completed, signed
and mailed with a check, Federal Reserve Draft, or other negotiable bank draft,
drawn on a U.S. bank and payable in U.S. dollars, to the order of Massachusetts
Municipal Bond Portfolio to: First Data Investor Services Group, BOS725, P.O.
Box 1559, Boston, MA 02104.
Additional purchases may be made at any time by mailing a check,
Federal Reserve Draft, or other negotiable bank draft, drawn on a U.S. bank and
payable in U.S. dollars, to the order of Massachusetts Municipal Bond Portfolio
at the above address. The account to which the subsequent purchase is to be
credited should be identified as to the name(s) of the registered owner(s) and
by account number.
PURCHASES IN EXCHANGE FOR SECURITIES: IBT, as escrow agent, will receive
securities acceptable to Eaton Vance, as Administrator, in exchange for Fund
shares at their net asset value as determined above. The minimum value of
securities or securities and cash accepted for deposit is $5,000. Securities
accepted will be sold by IBT as agent for the account of their owner on the day
of their receipt by IBT 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 per
Fund share on the day such proceeds are received. Eaton Vance will use
reasonable efforts to obtain the 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, together with a
completed and signed Letter of Transmittal in approved form, as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C Massachusetts Municipal Bond Portfolio
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: Massachusetts Municipal Bond Portfolio
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of
the Fund, or their representatives, are advised to contact Eaton Vance to
determine whether the securities are acceptable before forwarding such
securities to IBT. Eaton Vance reserves the right to reject any securities.
Exchanging securities for Fund 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 for Fund
shares.
OTHER PURCHASE PROCEDURES: The Fund intends at all times to be as fully invested
as is feasible in order to maximize its earnings. Accordingly, purchase orders
will be executed at the net asset value next determined after their receipt by
the Fund only if the Fund has received payment in cash or in federal funds. If
remitted in other than the foregoing manner, such as by money order or personal
check, purchase orders will be executed as of the close of business on the
second Boston business day after receipt. Information on how to procure a
Federal Reserve Draft or to transmit federal funds by wire is available at your
bank. The bank may charge for these services.
HOW TO REDEEM FUND SHARES
- --------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO FIRST DATA INVESTOR
SERVICES GROUP, BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per share of the Fund next computed after such delivery.
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 regulation of the Securities and Exchange Commission and
acceptable to First Data Investor Services Group. 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.
Within seven days after receipt of a redemption request in good order
by First Data Services Group, the Fund 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 federal income tax required to be withheld. Although the Fund normally
expects to make payment 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 by the Fund from
the Portfolio. The securities so distributed would be valued pursuant to the
Portfolio'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.
REDEMPTIONS BY WIRE: Shareholders who have given authorization in advance may
request that redemption proceeds of $1,000 or more be wired directly to their
bank account. This request may generally be made by letter or telephone to the
Fund Order Department at 800-225-6265, extension 3. However, shareholders
holding certificates for shares in the Fund must return such certificates in
properly endorsed form requesting redemption prior to being eligible to have
redemption proceeds wired directly to their bank account. To use this service a
shareholder must designate his bank and bank account number on the Account
Application form used to open an account. The bank designated may be any bank in
the United States.
Redemption requests received will be processed at 4:00 P.M. and the
redemption proceeds will be wired on the next business day. The shareholder may
be required to pay any costs of such transaction; however, no such costs are
currently charged. The Fund will limit this method of paying redemptions to
shares purchased with cash, Federal Reserve Draft, by wire with federal funds,
or by other means when payment for shares purchased has been assured. The Fund
reserves the right at any time to suspend or terminate the expedited payment
procedure; however, the Fund would provide reasonable advance notice (in no
event less than 30 days) of its intention to suspend or terminate this
procedure. The Fund will process redemption instructions received by telephone
if the shareholder has authorized telephone redemptions when completing the
Account Application form. However, the Fund will not process redemption requests
by telephone if share certificates have been issued to such shareholders. The
responsibility for the authenticity of redemption instructions received by
telephone is discussed under "Eaton Vance Shareholder Services - Exchange
Privilege".
REDEMPTIONS BY CHECK: To sell shares by writing a check, shareholders holding
shares for which certificates have not been issued may appoint Boston Safe
Deposit and Trust Company ("Boston Safe") their agent and may request on the
Account Application form that Boston Safe provide them with special forms of
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 held in the
shareholder's account for which the Fund has collected payment, the check will
be returned and the shareholder may be subject to extra charges.
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.
If shares were recently purchased, the proceeds of redemption (or
repurchase) 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 or repurchases may result in
a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves
the right to redeem Fund accounts with balances of less than $1,000. Prior to
such a redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required if the cause of the low account
balance was a reduction in the net asset value of Fund shares.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL REPORTS CONTAINING FINANCIAL
STATEMENTS. Financial statements included in annual reports are audited by the
Fund's independent certified public accountants. Shortly after the end of each
calendar year, the Fund will furnish all shareholders with information necessary
for preparing federal and State tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S TRANSFER
AGENT, FIRST DATA SERVICES GROUP, WILL SET UP A LIFETIME INVESTING ACCOUNT FOR
THE INVESTOR ON THE FUND'S RECORDS. This account is a complete record of all
transactions between the investor and the Fund which at all times shows the
balance of shares owned. The Fund will not issue share certificates except upon
request.
At least quarterly, shareholders 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 BY SENDING A CHECK FOR $50 OR MORE to First Data Services
Group.
Any questions concerning a shareholder's account or services available
may also be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at
800-225-6265, extension 2, or in writing to First Data Services Group, BOS725,
P.O. Box 1559, Boston, MA 02104 (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 Fund's dividend disbursing agent, First Data Services Group, BOS725, P.O.
Box 1559, Boston, MA 02104. 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 the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account at the then current net asset value. Furthermore,
the distribution option on the account will be automatically changed to the
Share Option until such time as the shareholder selects a different option.
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.
EATON VANCE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
THE FUND 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 the Principal Underwriter. The cost of
administering such services for the benefit of shareholders who participate in
them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL - FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
may be mailed directly to First Data Services Group, BOS725, P.O. Box 1559,
Boston, MA 02104 at any time - whether or not dividends are reinvested. The name
of the shareholder, the Fund 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.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an amount specified by the shareholder. A minimum
deposit of $5,000 in shares is required.
EXCHANGE PRIVILEGE: You may currently exchange your Fund shares for shares of
any of the following funds at their respective net asset value per share: Eaton
Vance Cash Management Fund, Eaton Vance Income Fund of Boston, Eaton Vance
Municipal Bond Fund L.P., Eaton Vance Tax Free Reserves, EV Traditional
Government Obligations Fund, EV Traditional Greater China Growth Fund, EV
Traditional Greater India Fund, EV Traditional Growth Fund, EV Traditional
Investors Fund, EV Traditional Special Equities fund, EV Traditional Stock Fund
and EV Traditional Total Return Fund. These offers are available only in states
where shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at
least $1,000. 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 Fund does not
permit the exchange 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.
First Data Investor Services Group makes exchanges at the next
determined net asset value after receiving an exchange request in good order
(see "How to Redeem Fund Shares"). Consult First Data Services Group for
additional information concerning the exchange privilege. Applications and
prospectuses of the other funds are available from your financial service firm
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.
Shares of certain other open-end funds for which Eaton Vance acts as
investment adviser or administrator may be exchanged for Fund shares at their
respective net asset value per share, but subject to any restrictions or
qualifications set forth in the current prospectus of any such fund.
Telephone exchanges are accepted by First Data Investor Services Group,
provided the investor has not disclaimed in writing the use of the privilege. To
effect such exchanges, call First Data Services Group at 800-262-1122 or, within
Massachusetts 617-573-9403, 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 Fund, the Principal Underwriter nor First Data Services
Group 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.
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE DECLARED DAILY
AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF DECLARATION.
Such distributions, whether taken in cash or reinvested in additional 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 taken in cash or reinvested in additional shares of the
Fund, will constitute tax-exempt income to shareholders for Federal income tax
purposes, 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 day that collected funds for the purchase of Fund shares are
available at the transfer agent. Shareholders of the Fund 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 allocated to
the Fund by the Portfolio for tax purposes, 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.
In order to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), the Fund must satisfy
certain requirements relating to the sources of its income, the distribution of
its income, and the diversification of its assets. In satisfying these
requirements, the Fund will treat itself as owning its proportionate share of
each of the Portfolio's assets and as entitled to the income of the Portfolio
properly attribute to such share.
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
ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN ACCORDANCE WITH THE
TIMING REQUIREMENTS IMPOSED BY THE CODE. AS A PARTNERSHIP UNDER THE CODE, THE
PORTFOLIO ALSO DOES NOT PAY FEDERAL INCOME OR EXCISE TAXES.
Distributions of interest on certain municipal obligations constitute a
tax preference item under the alternative minimum tax provisions applicable to
individuals and corporations. 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 Fund shares have been owned by the shareholder. Distributions are taxed
in the manner described above whether paid in cash or reinvested in additional
shares of the Fund.
Tax-exempt distributions received from the Fund are includable in the
tax base for determining the taxability of social security and railroad
retirement benefits.
Interest on indebtedness incurred or continued by a shareholder to
purchase or carry shares of the Fund is not deductible to the extent it is
deemed related to the Fund's distribution of tax-exempt interest. Further,
entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by industrial development or private
activity bonds should consult their tax advisers before purchasing shares of the
Fund. "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.
MASSACHUSETTS TAXES. The Portfolio has received a letter ruling (the "Ruling")
from the Department of Revenue of The Commonwealth of Massachusetts to the
effect that it will be classified as a partnership for Massachusetts tax
purposes. The Ruling provides that, consequently, interest income received by
the Portfolio on (1) debt obligations issued by The Commonwealth of
Massachusetts or its political subdivisions, including agencies or
instrumentalities thereof ("Massachusetts Obligations"), (2) the Governments of
Puerto Rico, Guam, or the United States Virgin Islands ("Possessions
Obligations"), or (3) the United States ("United States Obligations") will be
treated as if realized directly by investors in the Portfolio. The Ruling
concludes that, provided that an investor in the Portfolio qualifies as a
regulated investment company ("RIC") under the Code and satisfies certain notice
requirements of Massachusetts law, (1) dividends paid by such a RIC that are
treated as tax-exempt interest under the Code and that are directly attributable
to interest on Massachusetts Obligations (including the RIC's allocable share of
interest earned by the Portfolio on such obligations) and (2) dividends paid by
such a RIC that are directly attributable to interest on Possessions Obligations
or United States Obligations (including the RIC's allocable share of interest
earned by the Portfolio on such obligations) will, in each case, be excluded
from Massachusetts gross income. Because the Fund intends to continue to invest
in the Portfolio, qualify for treatment as a RIC under the Code, and satisfy the
applicable notice requirements, the Fund's distributions to its shareholders of
its allocable share of the interest received by the Portfolio that is
attributable to Massachusetts Obligations, Possessions Obligations or United
States Obligations should consequently be excluded from Massachusetts gross
income for individuals, estates and trusts that are subject to Massachusetts
taxation. The Fund has also been advised by its legal counsel that distributions
properly designated as capital gain dividends under the Code and attributable to
gains realized by the Portfolio and allocated to the Fund on the sale of certain
Massachusetts tax-exempt obligations issued pursuant to statutes that
specifically exempt such gains from Massachusetts taxation will also be exempt
from Massachusetts personal income tax. Other distributions from the Fund
included in a shareholder's federal gross income, including distributions
derived from net long-term capital gains not described in the preceding sentence
and net short-term capital gains, are generally not exempt from Massachusetts
personal income tax.
Beginning in 1996, long-term capital gains will generally be taxed in
Massachusetts on a sliding scale at rates ranging from 5% to 0%, with the
applicable tax rate declining as the tax holding period of the asset (beginning
on the later of January 1, 1995 or the date of actual acquisition) increases
from more than one year to more than six years. It is not clear what
Massachusetts tax rate will be applicable to capital gain dividends for taxable
years beginning after 1995.
Distributions from the Fund will be included in net income, and in the
case of intangible property corporations, shares of the Fund will be included in
net worth for purposes of determining the Massachusetts excise tax on
corporations subject to Massachusetts taxation.
Shareholders should consult their own tax advisers with respect to the
state, local and foreign tax consequences of investing in the Fund.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The current yield for the Fund will be calculated by dividing the net
investment income per share earned during a recent 30-day period by the maximum
offering price per share (net asset value) of the Fund 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 one minus the tax
rate. The Fund's average annual total return is determined by computing the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (net asset value) for specified periods ending with the
most recent calendar quarter, assuming reinvestment of all distributions. The
total return calculation assumes a complete redemption of the investment. The
Fund may also publish annual and cumulative total return figures from time to
time.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized by the current net asset value
per share. The Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio used to annualize the most recent monthly
distribution and reinvesting the resulting amount for a full year on the basis
of such ratio. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed reinvestment.
The Fund's yield is calculated using a standardized formula, the income
component of which is computed from the yields to maturity of all debt
obligations held by the Portfolio based on prescribed methods (with all
purchases and sales of securities during such period included in the income
calculation on a settlement date basis), whereas the distribution rate is based
on the Fund's last monthly distribution. The monthly distribution tends to be
relatively stable and may be more or less than the amount of net investment
income and short-term capital gain actually earned by the Fund during the month.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's current yield or total
return for any prior period should not be considered a representation of what an
investment may earn or what an investor's yield or total return may be in any
future period. If the expenses of the Fund are paid by Eaton Vance, the Fund's
performance will be higher.
<PAGE>
INVESTMENT ADVISER OF MASSACHUSETTS MUNICIPAL
MASSACHUSETTS TAX FREE PORTFOLIO
BOND PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF MASSACHUSETTS
MUNICIPAL BOND PORTFOLIO
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 PROSPECTUS
Investors Bank & Trust Company
89 South Street FEBRUARY 1, 1996
Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
24 FEDERAL STREET
BOSTON, MA 02110
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1996
EV CLASSIC MUNICIPAL FUNDS
<TABLE>
<S> <C>
EV CLASSIC CALIFORNIA MUNICIPALS FUND EV CLASSIC NEW YORK MUNICIPALS FUND
EV CLASSIC FLORIDA MUNICIPALS FUND EV CLASSIC OHIO MUNICIPALS FUND
EV CLASSIC MASSACHUSETTS MUNICIPALS FUND EV CLASSIC RHODE ISLAND MUNICIPALS FUND
EV CLASSIC MISSISSIPPI MUNICIPALS FUND EV CLASSIC WEST VIRGINIA MUNICIPALS FUND
</TABLE>
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund") and
certain other series of Eaton Vance Municipals Trust (the "Trust"). As described
in the Prospectus, each Fund invests its assets in a separate registered
investment company (a "Portfolio") with the same investment objective and
policies as the Fund. Each Fund's Part II (a "Part II") provides information
solely about a Fund and its corresponding Portfolio. Where appropriate Part I
includes cross-references to the relevant sections of Part II.
TABLE OF CONTENTS
PART I Page
Additional Information about Investment Policies ...... 1
Investment Restrictions ............................... 7
Trustees and Officers ................................. 9
Investment Adviser and Administrator .................. 10
Custodian ............................................. 13
Service for Withdrawal ................................ 13
Determination of Net Asset Value ...................... 13
Investment Performance ................................ 14
Taxes ................................................. 15
Principal Underwriter ................................. 17
Distribution Plan ..................................... 18
Portfolio Security Transactions ....................... 19
Other Information ..................................... 21
Independent Certified Public Accountants .............. 22
Financial Statements .................................. 22
Appendix .............................................. 23
PART II Page
EV Classic California Municipals Fund ................. a-1
EV Classic Florida Municipals Fund .................... b-1
EV Classic Massachusetts Municipals Fund .............. c-1
EV Classic Mississippi Municipals Fund ................ d-1
EV Classic New York Municipals Fund ................... e-1
EV Classic Ohio Municipals Fund ....................... f-1
EV Classic Rhode Island Municipals Fund ............... g-1
EV Classic West Virginia Municipals Fund .............. h-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in
this Statement of Additional Information regarding another Fund because the
Funds use this combined Statement of Additional Information. The Trustees of
the Trust have considered this factor in approving the use of a combined
Statement of Additional Information.
THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED FEBRUARY 1, 1996 AS SUPPLEMENTED
FROM TIME TO TIME. THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION 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>
STATEMENT OF ADDITIONAL INFORMATION
PART I
The following provides information about the Fund, certain other series of
the Trust and the Portfolio. Capitalized terms used in this Statement of
Additional Information and not otherwise defined have the meanings given them
in the Fund's Prospectus. The Fund is subject to the same investment policies
as those of the Portfolio. The Fund currently seeks to achieve its objective
by investing in the Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations 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 on
which is also exempt from federal income taxes and is not a tax preferred item
for purposes of the federal alternative minimum tax: (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 obligation, the Portfolio will generally rely on an opinion of
the issuer's counsel (when available) 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 federal alternative minimum tax. For corporate
shareholders, the Fund's distributions derived from interest on all municipal
obligations (whenever issued) is included in "adusted current earnings" for
purposes of the federal alternative minimum tax as applied to corporations (to
the extent not already included in alternative minimum taxable income as
income attributable to private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary
market after April 30, 1993 is taxable as ordinary income. A long-term debt
obligation is generally treated as acquired at a market discount if the
secondary market purchase price is less than (i) the stated principal amount
payable at maturity, in the case of an obligation that does have original
issue discount or (ii) in the case of an obligation that does have original
issue discount, the sum of the issue price and any original issue discount
that accrued before the obligation was purchased, subject to a de minimus
amount.
Issuers of general obligation bonds include states, counties, cities,
towns and regional districts. The proceeds of these obligations are used to
fund a wide range of public projects including the construction or improvement
of schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the
issuer's pledge of its faith, credit, and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source.
Revenue bonds have been issued to fund a wide variety of capital projects
including: electric, gas, water, sewer and solid waste disposal systems;
highways, bridges and tunnels; port, airport and parking facilities;
transportation systems; housing facilities, colleges and universities and
hospitals. Although the principal security behind these bonds varies widely,
many provide additional security in the form of a debt service reserve fund
whose monies may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities have a wide range of
security including partially or fully insured, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. In addition to a debt service reserve fund, some authorities provide
further security in the form of a state's ability (without legal obligation)
to make up deficiencies in the debt service reserve fund. Lease rental revenue
bonds issued by a state or local authority for capital projects are normally
secured by annual lease rental payments from the state or locality to the
authority sufficient to cover debt service on the authority's obligations.
Such payments are usually subject to annual appropriations by the state or
locality.
Industrial development and pollution control bonds, although nominally
issued by municipal authorities, are in most cases revenue bonds and are
generally not secured by the taxing power of the municipality, but are usually
secured by the revenues derived by the authority from payments of the
industrial user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants
or similar rights covering equity securities. Such warrants or rights may be
held indefinitely, but if exercised, the Portfolio 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 person or entity to
pay when due principal of and interest on a municipal obligation may be
materially affected. There have been recent instances of defaults and
bankruptcies involving municipal obligations which were not foreseen by the
financial and investment communities. The Portfolio will take whatever action
it considers appropriate in the event of anticipated financial difficulties,
default or bankruptcy of either the issuer of any municipal obligation or of
the underlying source of funds for debt service. Such action may include
retaining the services of various persons or firms (including affiliates of
Boston Management and Research (the "Investment Adviser")) to evaluate or
protect any real estate, facilities or other assets securing any such
obligation or acquired by the Portfolio as a result of any such event, and the
Portfolio may also manage (or engage other persons to manage) or otherwise
deal with any real estate, facilities or other assets so acquired. The
Portfolio anticipates that real estate consulting and management services may
be required with respect to properties securing various municipal obligations
in its portfolio or subsequently acquired by the Portfolio. The Portfolio will
incur additional expenditures in taking protective action with respect to
portfolio obligations in default and assets securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment,
general money market conditions, general conditions of the municipal bond
market, size of a particular offering, maturity of the obligation and rating
of the issue. The ratings of Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P") and Fitch Investors Service, Inc.
("Fitch") represent their opinions as to the quality of the municipal
obligations which they undertake to rate. It should be emphasized, however,
that ratings are based on judgment and are not absolute standards of quality.
Consequently, municipal obligations with the same maturity, coupon and rating
may have different yields while obligations of the same maturity and coupon
with different ratings may have the same yield. In addition, the market price
of such obligations will normally fluctuate with changes in interest rates,
and therefore the net asset value of the Portfolio will be affected by such
changes.
RISKS OF CONCENTRATION
Municipal Obligations. For a discussion of the risks associated with the
Portfolio's policy of concentrating its investments in particular issuers of
municipal obligations, see "Risks of Concentration" in the Fund's Part II.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or
more of its total assets in municipal obligations of the same type. There
could be economic, business or political developments which might affect all
municipal obligations of the same type. In particular, investments in the
industrial revenue bonds listed above 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
increase of hospital charges.
Electric utilities face problems in financing large construction programs
in an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear
facilities), difficulty in obtaining fuel at reasonable prices, and in
achieving timely and adequate rate relief from regulatory commissions, effects
of energy conservation and limitations on the capacity of the capital market
to absorb utility debt.
Pollution control and other industrial development bonds are issued by
state or local agencies to finance various projects, including those of
domestic steel producers, and may be backed solely by agreements with such
companies. Domestic steel companies are expected to suffer the consequences of
such adverse trends as high labor costs, high foreign imports encouraged by
foreign productivity increases and a strong U.S. dollar, and other cost
pressures such as those imposed by anti-pollution legislation. Domestic steel
capacity is being reduced currently by large-scale plant closings and this
period of rationalization may not end until further legislative protection is
provided through tariff price supports or mandatory import quotas, such as
those recently enacted for certain specialty steel products.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style
and, if needed, the comprehensive care of nursing home services. Bonds to
finance these facilities have been issued by various state industrial
development authorities. Since the bonds are normally secured only by the
revenues of each facility and not by state or local government tax payments,
they are subject to a wide variety of risks. Primarily, the projects must
maintain adequate occupancy levels to be able to provide revenues sufficient
to meet debt service payments. Moreover, since a portion of housing, medical
care and other services may be financed by an initial deposit, it is important
that the facility maintain adequate financial reserves to secure estimated
actuarial liabilities. The ability of management to accurately forecast
inflationary cost pressures is an important factor in this process. The
facilities may also be affected adversely by regulatory cost restrictions
applied to health care delivery in general, particularly state regulations or
changes in Medicare and Medicaid payments or qualifications, or restrictions
imposed by medical insurance companies. They may also face competition from
alternative health care or conventional housing facilities in the private or
public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the Fund's
investment policies as set forth in the Prospectus, the Portfolio may invest in
the obligations of Puerto Rico, the U.S. Virgin Islands and Guam (the
"Territories"). Accordingly, the Portfolio may be adversely affected by local
political and economic conditions and developments within the Territories
affecting the issuers of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. The three largest sectors of the economy (as a percentage of
employment) are services (47%), government (22%) and manufacturing (16.4%).
These three sectors represent 39%, 11% and 39%, respectively, of the gross
domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five
years. The North American Free Trade Agreement ("NAFTA"), which became
effective January 1, 1994, could lead to the loss of Puerto Rico's lower
salaried or labor intensive jobs to Mexico. The June, 1995 unemployment rate
was 13.9%.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the
states in its relationship with the federal government. Most federal taxes,
except those such as social security taxes that are imposed by mutual consent,
are not levied in Puerto Rico. However, in conjunction with the 1993 U.S.
budget plan, Section 936 of the Internal Revenue Code was amended and provided
for two alternative limitations to the Section 936 credit. The first option
will limit the credit against such income to 40% of the credit allowable under
current law, with a five year phase-in period starting at 60% of the allowable
credit. The second option is a wage and depreciation based credit. The
reduction of the tax benefits to those U.S. companies with operations in
Puerto Rico may lead to slower growth in the future. There can be no assurance
that these modifications will not lead to a weakened economy, a lower rating
on Puerto Rico's debt or lower prices for Puerto Rican bonds that may be held
by the Portfolio.
Puerto Rico's financial reporting was first conformed to generally
accepted accounting principles in fiscal 1990. Nonrecurring revenues have been
used frequently to balance recent years' budgets. In November, 1993 Puerto
Ricans voted on whether they wished to retain their Commonwealth status,
become a state or establish an independent nation. Puerto Ricans voted to
retain Commonwealth status, leaving intact the current relationship with the
federal government. There can be no assurance that the statehood issue will
not be brought to a vote in the future. A successful statehood vote in Puerto
Rico would then require ratification by the U.S. Congress.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. The economy is heavily reliant on the tourism industry, with roughly 43%
of non-agricultural employment in tourist-related trade and services. The
tourism industry is economically sensitive and would likely be adversely
affected by a recession in either the United States or Europe. In September
1995, St. Thomas was hit by a hurricane and sustained extensive damage. The
longer term impact on the tourism industry is not yet known. There can be no
assurances that the market for USVI bonds will not be affected.
An important component of the USVI revenue base is the federal excise tax
on rum exports. Tax revenues rebated by the federal government to the USVI
provide the primary security of many outstanding USVI bonds. Since more than
90% of the rum distilled in the USVI is distilled at one plant, any
interruption in its operations (as occurred after Hurricane Hugo in 1989)
would adversely affect these revenues. Consequently, there can be no assurance
that rum exports to the United States and the rebate of tax revenues to the
USVI will continue at their present levels. The preferential tariff treatment
the USVI rum industry currently enjoys could be reduced under NAFTA. Increased
competition from Mexican rum producers could reduce USVI rum imported to the
U.S., decreasing excise tax revenues generated. The USVI experienced a budget
deficit in 1989 due to wage settlements with the unionized government
employees. A deficit was also experienced in 1990 due to Hurricane Hugo. The
USVI recorded a small surplus in fiscal year 1991. At the end of fiscal 1992,
the last year for which results are available, the USVI had an unreserved
General Fund deficit of approximately $8.31 million, or approximately 2.1% of
expenditures. In order to close a forecasted fiscal 1994 revenue gap of $45.6
million, the Department of Finance has proposed several tax increases and fund
transfers. There is currently no rated, unenhanced Virgin Islands debt
outstanding (although there is unrated debt outstanding).
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast
of Tokyo. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. Guam
is expected to benefit from the closure of the Subic Bay Naval Base and the
Clark Air Force Base in the Philippines. The Naval Air Station, one of several
U.S. military facilities on the island, has been slated for closure by the
Defense Base Closure and Realignment Committee; however, the administration
plans to use these facilities to expand the island's commercial airport. Guam
is also heavily reliant on tourists, particularly the Japanese. For 1994, the
financial position of Guam was weakened as it incurred an unaudited General
Fund operating deficit. The administration has taken steps to improve its
financial position; however, there are no guarantees that an improvement will
be realized. Guam's general obligation debt is rated Baa by Moody's.
MUNICIPAL LEASES
The Portfolio 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 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 Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities
for the purpose of such limitation. In determining the liquidity of municipal
lease obligations, 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 Portfolio. In the event the Portfolio 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 Portfolio (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 Portfolio or a third party subsequent to the obligation's
original issuance (which may not be reflected in the obligation's market
value. In either event, such insurance may provide that in the event of non-
payment of interest or principal when due with respect to an insured
obligation, the insurer is not required to make such payment until a specified
time has lapsed (which may be 30 days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In
evaluating the credit quality of a particular issue, whether rated or unrated,
the Investment Adviser will normally take into consideration, among other
things, the financial resources of the issuer (or, as appropriate, of the
underlying source of funds for debt service), its sensitivity to economic
conditions and trends, any operating history of and the community support for
the facility financed by the issue, the ability of the issuer's management and
regulatory matters. The Investment Adviser will attempt to reduce the risks of
investing in 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.
See "Portfolio of Investments" in the "Financial Statements" incorporated
by reference into this Statement of Additional Information with respect to any
defaulted obligations held by the Portfolio.
SHORT-TERM TRADING
The Portfolio 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 Portfolio believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment
quality of particular issues or the general movement of interest rates, such
as changes in the overall demand for or supply of various types of 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
Portfolio anticipates that its annual portfolio turnover rate will generally
not exceed 100% (excluding turnover of securities having a maturity of one
year or less).
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
Portfolio's commitment and are subject to certain conditions such as the
issuance of satisfactory legal opinions. The Portfolio may also purchase
securities on a when-issued basis pursuant to refunding contracts in
connection with the refinancing of an issuer's outstanding indebtedness.
Refunding contracts generally require the issuer to sell and the Portfolio to
buy such securities on a settlement date that could be several months or
several years in the future.
The Portfolio will make commitments to purchase when-issued securities
only with the intention of actually acquiring the securities, but may sell
such securities before the settlement date if it is deemed advisable as a
matter of investment strategy. The payment obligation and the interest rate
that will be received on the securities are fixed at the time the Portfolio
enters into the purchase commitment. The Portfolio's custodian will segregate
cash or high grade liquid debt securities in a separate account of the
Portfolio in an amount at least equal to the when-issued commitments. If the
value of the securities placed in the separate account declines, additional
cash or high grade liquid debt securities will be placed in the account on a
daily basis so that the value of the account will at least equal the amount of
the Portfolio's when-issued commitments. When the Portfolio commits to
purchase a security on a when-issued basis it records the transaction and
reflects the value of the security in determining its net asset value.
Securities purchased on a when-issued basis and the securities held by the
Portfolio are subject to changes in value based upon the perception of the
creditworthiness of the issuer and changes in the level of interest rates
(i.e. appreciation when interest rates decline and depreciation when interest
rates rise). Therefore, to the extent that the Portfolio remains substantially
fully invested at the same time that it has purchased securities on a when-
issued basis, there will be greater fluctuations in the Portfolio's net asset
value than if it solely set aside cash to pay for when-issued securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified
intervals (weekly, monthly, semi-annually, etc.). The revised rates are
usually set at the issuer's discretion, in which case the investor normally
enjoys the right to "put" the security back to the issuer or his agent. Rate
revisions may alternatively be determined by formula or in some other
contractual fashion. Variable rate obligations normally provide that the
holder can demand payment of the obligation on short notice at par with
accrued interest and are frequently secured by letters of credit or other
credit support arrangements provided by banks. To the extent that such letters
of credit or other arrangements constitute an unconditional guarantee of the
issuer's obligations, a bank may be treated as the issuer of a security for
the purpose of complying with the diversification requirements set forth in
Section 5(b) of the Investment Company Act of 1940 and Rule 5b-2 thereunder.
The Portfolio would anticipate using these obligations as cash equivalents
pending longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier.
Also, some bonds may have "put" or "demand" features that allow early
redemption by the bondholder. Interest income generated by certain bonds
having demand features may not qualify as tax-exempt interest. 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 Portfolio may retain the
bond if interest rates decline. By acquiring these kinds of obligations the
Portfolio obtains the contractual right to require the issuer of the security
or some other person (other than a broker or dealer) to purchase the security
at an agreed upon price, which right is contained in the obligation itself
rather than in a separate agreement with the seller or some other person.
Because this right is assignable with the security, which is readily
marketable and valued in the customary manner, the Portfolio will not assign
any separate value to such right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller of
the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price.
The Portfolio intends to limit this type of transaction to institutions (such
as banks or securities dealers) which the Investment Adviser believes present
minimal 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 Portfolio or that selling institutions will be willing to
permit the Portfolio 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 Portfolio does not expect to
assign any value to any separate put option which may be acquired to
facilitate portfolio liquidity, inasmuch as the value (if any) of the put will
be reflected in the value assigned to the associated security; any put
acquired for hedging purposes would be valued in good faith under methods or
procedures established by the Trustees of the Portfolio after consideration of
all relevant factors, including its expiration date, the price volatility of
the associated security, the difference between the market price of the
associated security and the exercise price of the put, the creditworthiness of
the issuer of the put and the market prices of comparable put options.
Interest income generated by certain bonds having put features may not qualify
as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by
collateral in cash, cash equivalents or U.S. Government securities held by the
Portfolio'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 Portfolio 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 Portfolio will continue to receive
the equivalent of the interest paid by the issuer on the securities loaned and
will also receive a fee, or all or a portion of the interest on investment of
the collateral, if any. However, the Portfolio may pay lending fees to such
borrowers. The Portfolio would not have the right to vote any securities
having voting rights during the existence of the loan, but would call the loan
in anticipation of an important vote to be taken among holders of the
securities or the giving or withholding of their consent on a material matter
affecting the investment. As with other extensions of credit there are risks
of delay in recovery or even loss of rights in the securities loaned if the
borrower of the securities fails financially. However, the loans will be made
only to organizations deemed by the Portfolio's management to be of good
standing and when, in the judgment of the Portfolio's management, the
consideration which can be earned from securities loans of this type justifies
the attendant risk. Distributions by the Fund of any income realized by the
Portfolio from securities loans will be taxable. If the management of the
Portfolio decides to make securities loans, it is intended that the value of
the securities loaned would not exceed 30% of the Portfolio's total assets.
The Portfolio has no present intention of engaging in securities lending.
FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects
to purchase). To hedge against changes in rates, the Portfolio may enter into
(i) futures contracts for the purchase or sale of debt securities, (ii)
futures contracts on securities indices and (iii) futures contracts on other
financial instruments and indices. All futures contracts entered into by the
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States or
foreign exchange or board of trade.
The Portfolio will engage in futures and related options transactions only
for bona fide hedging purposes as defined in or permitted by CFTC regulations.
The Portfolio 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 Portfolio or which it expects to
purchase. The Portfolio's futures transactions will be entered into for
traditional hedging purposes -- that is, futures contracts will be sold to
protect against a decline in the price of securities that the Portfolio owns,
or futures contracts will be purchased to protect the Portfolio against an
increase in the price of securities it intends to purchase. As evidence of
this hedging intent, the Portfolio expects that on 75% or more of the
occasions on which it takes a long futures (or option) position (involving the
purchase of futures contracts), the Portfolio will have purchased, or will be
in the process of purchasing, equivalent amounts of related securities in the
cash market at the time when the futures (or option) position is closed out.
However, in particular cases, when it is economically advantageous for the
Portfolio to do so, a long futures position may be terminated (or an option
may expire) without the corresponding purchase of securities. The Portfolio
will engage in transactions in futures and related options contracts only to
the extent such transactions are consistent with the requirements of the
Internal Revenue Code for maintaining qualification of the Fund as a regulated
investment company for federal income tax purposes (see "Taxes").
The Portfolio will be required, in connection with transactions in futures
contracts and the writing of options on futures, to make margin deposits,
which will be held by the Portfolio's custodian for the benefit of the futures
commission merchant through whom the Portfolio engages in such futures and
options transactions. Cash or liquid high grade debt securities required to be
segregated in connection with a "long" futures position taken by the Portfolio
will also be held by the custodian in a segregated account and will be marked
to market daily.
PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but
it is anticipated that the annual turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A
100% annual turnover rate would occur, for example, if all the securities held
by the Portfolio were replaced once in a period of one year. A high turnover
rate (100% or more) necessarily involves greater expenses to the Portfolio.
The Portfolio engages in portfolio trading (including short-term trading) if
it believes that a transaction including all costs will help in achieving its
investment objective.
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 Statement of Additional Information means the lesser of (a) 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 (b) more than 50% of the shares of the Fund. Accordingly, the Fund
may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(2) 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;
(3) 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;
(4) Purchase or sell real estate, (including limited partnership interests
in real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest
or deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) 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.
Notwithstanding the investment policies and restrictions of the Fund; the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund;
such restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio, which as used in this
Statement of Additional Information means the lesser of (a) 67% of the
outstanding voting securities of the Portfolio present or represented by proxy
at a meeting if the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented at the meeting or (b)
more than 50% of the outstanding voting securities of the Portfolio. The term
"voting securities" as used in this paragraph has the same meaning as in the
Investment Company Act of 1940 (the "1940 Act"). Whenever the Trust is
requested to vote on a change in the fundamental investment restrictions of
the Portfolio (or the Portfolio's 80% investment policy with respect to State
obligations described in the Fund's current Prospectus), the Trust will hold a
meeting of Fund shareholders and will cast its vote as instructed by the
shareholders.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. As a matter of
nonfundamental policy, the Fund and the Portfolio will not: (a) engage in
options, futures or forward transactions if more than 5% of its net assets, as
measured by the aggregate of the premiums paid by the Fund or the Portfolio,
would be so invested; (b) make short sales of securities or maintain a short
position, unless at all times when a short 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; (c) invest more than
15% of net assets in investments which are not readily marketable, including
restricted securities and repurchase agreements maturing in more than seven
days. Restricted securities for the purposes of this limitation do not include
securities eligible for resale pursuant to Rule 144A under the Securities Act
of 1933 and commercial paper issued pursuant to Section 4(2) of said Act that
the Board of Trustees of the Trust or the Portfolio, or their delegate,
determines to be liquid; (d) 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 the Portfolio or is
a member, officer, director or trustee of any investment adviser of the Trust
or the Portfolio, if after the purchase of the securities of such issuer by
the Fund or the Portfolio one or more of such persons owns beneficially more
than 1/2 of 1% of the 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 (e) purchase oil, gas or other mineral
leases or purchase partnership interests in oil, gas or other mineral
exploration or development programs.
For purposes of the Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligation which is not a general obligation
bond will be made by the Portfolio's Investment Adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interest of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio 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 Portfolio's investment
adviser, Boston Management and Research ("BMR" or the "Investment Adviser"), a
wholly-owned subsidiary of Eaton Vance Management ("Eaton Vance"); of Eaton
Vance's parent, Eaton Vance Corp. ("EVC"); and of BMR's and Eaton Vance's
trustee, Eaton Vance, Inc. ("EV"). Eaton Vance and EV are both wholly-owned
subsidiaries of EVC. Those Trustees who are "interested persons" of the Trust,
the Portfolio, BMR, Eaton Vance, EVC or EV, as defined in the 1940 Act, by
virtue of their affiliation with any one or more of the Trust, the Portfolio,
BMR, Eaton Vance, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New
England, Inc., since 1983. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (54), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of
EVC and EV. Director, Trustee and officer of various investment companies
managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (60), Trustee
President and Director, United Asset Management Corporation, 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 (69), Trustee
Director, Fiduciary Company Incorporated, Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (52), President
Vice President of BMR, Eaton Vance and EV. Mr. Fetter was elected a Vice
President of the Trust on December 17, 1990 and President of the Trust and
the Portfolio on December 13, 1993. Officer of various investment companies
managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (38), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments --
Portfolio Manager (1986-1991). Officer of various investment companies
managed by Eaton Vance or BMR. Mr. MacIntosh was elected Vice President of
the Trust on March 22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (64), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of
various investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management
& Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary of
the Trust and the Portfolio on March 27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate
attorney at Dechert, Price & Rhoads and Gaston & Snow. Officer of various
investment companies managed by Eaton Vance or BMR. Mr. Woodubury was
elected Assistant Secretary on June 19, 1995.
For additional officers of the Portfolio (if any), see "Additional Officer
Information" in the Fund's Part II.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Fund's
contractual relationship with the Administrator on behalf of the Fund and the
Portfolio's contractual relationship with the Investment Adviser, making
recommendations to the Trustees regarding the compensation of those Trustees
who are not members of the Eaton Vance organization, and making
recommendations to the Trustees regarding candidates to fill vacancies, as and
when they occur, in the ranks of those Trustees who are not "interested
persons" of the Trust, the Portfolio, or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee
of the Board of Trustees of the Trust and of the Portfolio. The Audit
Committee's functions include making recommendations to the Trustees regarding
the selection of the independent certified public accountants, and reviewing
with such accountants and the Treasurer of the Trust and of the Portfolio
matters relative to accounting and auditing practices and procedures,
accounting records, internal accounting controls, and the functions performed
by the custodian and transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio 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
"Plan"). Under the Plan, an eligible Trustee may elect to have his deferred
fees invested by the Portfolio in the shares of one or more funds in the Eaton
Vance Family of Funds, and the amount paid to the Trustees under the Plan will
be determined based upon the performance of such investments. Deferral of
Trustees' fees in accordance with the Plan will have a negligible effect on
the Portfolio's assets, liabilities, and net income per share, and will not
obligate the Portfolio to retain the services of any Trustee or obligate the
Portfolio to pay any particular level of compensation to the Trustee.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to
investment companies and various individual and institutional clients with
combined assets under management of approximately $16 billion.
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 offers single-state tax-free portfolios in more states than
any other sponsor of mutual funds. There are 30 long-term state portfolios, 5
national portfolios and 12 limited maturity portfolios. A staff of 32 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 $9.1 billion. The following persons manage one or more of the
Eaton Vance tax-free portfolios. For the identity of the Portfolio's portfolio
manager, see the Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
David C. Reilly is a Vice President of Eaton Vance and BMR. Mr. Reilly, a
Chartered Financial Analyst, received a B.S. from Skidmore College. He is a
member and former President of the Boston Municipal Analysts Forum. He also
holds memberships in the Boston Securities Analysts Society and the Financial
Analysts Federation.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the
Portfolio investment research, advice and supervision, furnishes an investment
program and determines what securities will be purchased, held or sold by the
Portfolio and what portion, if any, of the Portfolio's assets will be held
uninvested. The Investment Advisory Agreement requires BMR to pay the salaries
and fees of all officers and Trustees of the Portfolio who are members of the
BMR organization and all personnel of BMR performing services relating to
research and investment activities. The Portfolio is responsible for all
expenses not expressly stated to be payable by BMR under the Investment
Advisory Agreement, including, without implied limitation, (i) expenses of
maintaining the Portfolio and continuing its existence, (ii) registration of
the Portfolio under the 1940 Act, (iii) commissions, fees and other expenses
connected with the acquisition, holding and disposition of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale and redemption
of interests in the Portfolio, (viii) expenses of registering and qualifying
the Portfolio and interests in the Portfolio under Federal and state
securities laws and of preparing and printing registration statements or other
offering statements or memoranda for such purposes and for distributing the
same to investors, and fees and expenses of registering and maintaining
registrations of the Portfolio and of the Portfolio's placement agent as
broker-dealer or agent under state securities laws, (ix) expenses of reports
and notices to investors and of meetings of investors and proxy solicitations
therefor, (x) expenses of reports to governmental officers and commissions,
(xi) insurance expenses, (xii) association membership dues, (xiii) fees,
expenses and disbursements of custodians and subcustodians for all services to
the Portfolio (including without limitation safekeeping of funds, securities
and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax
capital account balances), (xiv) fees, expenses and disbursements of transfer
agents, dividend disbursing agents, investor servicing agents and registrars
for all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of
the Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio
who are not members of BMR's organization, and (xviii) such non-recurring
items as may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Portfolio to indemnify its
Trustees, officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under
the Investment Advisory Agreement, see the Fund's current Prospectus. For
additional information about the Investment Advisory Agreement, including the
net assets of the Portfolio and the investment advisory fees that the
Portfolio paid BMR under the Investment Advisory Agreement, see "Fees and
Expenses" in the Fund's Part II.
A commitment may be made to a state securities authority that Eaton Vance
will take certain actions, if necessary, so that the Fund's expenses will not
exceed expense limitation requirements of such state. The commitment may be
amended or rescinded by Eaton Vance in response to changes in the requirements
of the state or for other reasons.
The Investment Advisory Agreement with BMR may be continued indefinitely
so long as such continuance is approved at least annually (i) by the vote of a
majority of the Trustees of the Portfolio who are not interested persons of
the Portfolio or of BMR cast in person at a meeting specifically called for
the purpose of voting on such approval and (ii) by the Board of Trustees of
the Portfolio or by vote of a majority of the outstanding voting securities of
the Portfolio. The Agreement may be terminated at any time without penalty on
sixty (60) days' written notice by the Board of Trustees of either party, or
by vote of the majority of the outstanding voting securities of the Portfolio,
and the Agreement will terminate automatically in the event of its assignment.
The Agreement provides that BMR may render services to others and engage in
other business activities and may permit other fund clients and other
corporations and organizations to use the words "Eaton Vance" or "Boston
Management and Research" in their names. The Agreement also provides that BMR
shall not be liable for any loss incurred in connection with the performance
of its duties, or action taken or omitted under that Agreement, in the absence
of willful misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
thereunder, or for any losses sustained in the acquisition, holding or
disposition of any security or other investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its agreement with the Fund, Eaton Vance has been
engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund. For additional information about the Administrator,
see "Fees and Expenses" in the Fund's Part II.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro
rata share of registration of the Trust under the 1940 Act, (iii) commissions,
fees and other expenses connected with the purchase or sale of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase
and redemption of shares, (viii) expenses of registering and qualifying the
Fund and its shares under federal and state securities laws and of preparing
and printing prospectuses for such purposes and for distributing the same to
shareholders and investors, and fees and expenses of registering and
maintaining registrations of the Fund and of the Fund's principal underwriter,
if any, as broker-dealer or agent under state securities laws, (ix) expenses
of reports and notices to shareholders and of meetings of shareholders and
proxy solicitations therefor, (x) expenses of reports to governmental officers
and commissions, (xi) insurance expenses, (xii) association membership dues,
(xiii) fees, expenses and disbursements of custodians and subcustodians for
all services to the Fund (including without limitation safekeeping of funds,
securities and other investments, keeping of books and accounts and
determination of net asset values), (xiv) fees, expenses and disbursements of
transfer agents, dividend disbursing agents, shareholder servicing agents and
registrars for all services to the Fund, (xv) expenses for servicing
shareholder accounts, (xvi) any direct charges to shareholders approved by the
Trustees of the Trust, (xvii) compensation and expenses of Trustees of the
Trust who are not members of the Eaton Vance organization, and (xviii) such
non-recurring items as may arise, including expenses incurred in connection
with litigation, proceedings and claims and the obligation of the Trust to
indemnify its Trustees and officers with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier
Gardner, James B. Hawkes and Benjamin A. Rowland, Jr. The Directors of EVC
consist of the same persons and John G. L. Cabot and Ralph Z. Sorenson. Mr.
Clay is chairman and Mr. Gardner is president and chief executive officer of
EVC, BMR, Eaton Vance and EV. All of the issued and outstanding shares of
Eaton Vance and EV are owned by EVC. All of the issued and outstanding shares
of BMR are owned by Eaton Vance. All shares of the outstanding Voting Common
Stock of EVC are deposited in a Voting Trust, which expires on December 31,
1996, the Voting Trustees of which are Messrs. Clay, Brigham, Gardner, Hawkes
and Rowland. The Voting Trustees have unrestricted voting rights for the
election of Directors of EVC. All of the outstanding voting trust receipts
issued under said Voting Trust are owned by certain of the officers of BMR and
Eaton Vance who are also officers and Directors of EVC and EV. As of October
31, 1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively, of
such voting trust receipts. Messrs. Hawkes and Otis are officers or Trustees
of the Trust and the Portfolio and are members of the EVC, BMR, Eaton Vance
and EV organizations. Messrs. Browse, Fetter, MacIntosh, Metzold, Murphy,
O'Connor, Reilly and Woodbury and Ms. Anderes, Ms. Clemson and Ms. Sanders are
officers of the Trust and/or the Portfolio and are also members of the BMR,
Eaton Vance and EV organizations. BMR will receive the fees paid under the
Investment Advisory Agreement.
EVC owns all of the stock of Energex Energy Corp., which engages in oil
and gas operations. In addition, Eaton Vance owns all of the stock of
Northeast Properties, Inc., which is engaged in real estate investment,
consulting and management. EVC owns all of the stock of Fulcrum Management,
Inc. and MinVen Inc., which are engaged in the development of precious metal
properties. EVC also owns 21% of the Class A shares of Lloyd George Management
(B.V.I.) Limited, a registered investment adviser. EVC, BMR, Eaton Vance and
EV may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's opinion
that the terms and conditions of such transactions were not and will not be
influenced by existing or potential custodial or other relationships between
the Fund or the Portfolio and such banks.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts acts as custodian for the Fund and the Portfolio. IBT has the
custody of all cash and securities representing the Fund's interest in the
Portfolio, has custody of all the Portfolio's assets, maintains the general
ledger of the Portfolio and the Fund, and computes the daily net asset value
of interests in the Portfolio and the 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 Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Fund and the Portfolio. 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 and Portfolio 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. Landon T. Clay, a Director of EVC and an
officer, Trustee or Director of other members of the Eaton Vance organization,
owns approximately 13% of the stock of IBT. Management believes that such
ownership does not create an affiliated person relationship between the Fund
or Portfolio and IBT under the Investment Company Act of 1940. For the custody
fees that the Portfolio and the Fund paid to IBT, see "Fees and Expenses" in
the Fund's Part II.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's 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 Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence, are a
return of principal. Income dividends and capital gains distributions in
connection with withdrawal 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.
To use this service, at least $5,000 in cash or shares at the public
offering price (i.e., net asset value) will have to be deposited with the
Transfer Agent. 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
The net asset value of the shares of the Fund is determined by IBT (as
agent and custodian for the Fund) in the manner described under "Valuing Fund
Shares" in the Fund's current Prospectus. The net asset value of the Portfolio
is also computed by IBT (as agent and custodian for the Portfolio) by
subtracting the liabilities of the Portfolio from the value of its total
assets. Inasmuch as the market for municipal obligations is a dealer market
with no central trading location or continuous quotation system, it is not
feasible to obtain last transaction prices for most municipal obligations held
by the Portfolio, and such obligations, including those purchased on a when-
issued basis, will normally be valued on the basis of valuations furnished by
a pricing service. The pricing services 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 Portfolio. Other assets
are valued at fair value using methods determined in good faith by the
Trustees of the Portfolio. The Fund and the Portfolio will be closed for
business and will not price their respective shares or interests on the
following business holidays: New Year's Day, Presidents' Day, Good Friday (a
New York Stock Exchange holiday), Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying
the net asset value of the Portfolio by the percentage, determined on the
prior Portfolio Business Day, which represented that investor's share of the
aggregate interests in the Portfolio on such prior day. Any additions or
withdrawals for the current Portfolio Business Day will then be recorded. Each
investor's percentage of the aggregate interest in the Portfolio will then be
recomputed as a percentage equal to a fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of the Portfolio
Valuation Time on the prior Portfolio Business Day plus or minus, as the case
may be, the amount of any additions to or withdrawals from the investor's
investment in the Portfolio on the current Portfolio Business Day and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the Portfolio Valuation Time on the prior Portfolio Business Day plus or
minus, as the case may be, the amount of the net additions to or withdrawals
from the aggregate investment in the Portfolio on the current Portfolio
Business Day by all investors in the Portfolio. The percentage so determined
will then be applied to determine the value of the investor's interest in the
Portfolio for the current Portfolio Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the result. The
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period and a complete
redemption of the investment and, if applicable, the deduction of the
contingent deferred sales charge at the end of the period. For further
information concerning the total return of the Fund, see "Performance
Information" in the Fund's Part II.
Yield is computed pursuant to a standardized formula by dividing the net
investment income per share earned during a recent thirty-day period by the
maximum offering price (net asset value) 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 held by the
Portfolio based on prescribed methods, reduced by accrued Fund expenses for
the period with the resulting number being divided by the average daily number
of Fund shares outstanding and entitled to receive dividends during the
period. This yield figure does not reflect the deduction of the contingent
deferred sales charge imposed on certain redemptions of shares within one year
of their purchase. See "How to Redeem Fund Shares" in the Prospectus. 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 Fund,
see "Performance Information" in the Fund's Part II.
The Fund may also publish the distribution rate and/or the effective
distribution rate. The Fund's distribution rate is computed by dividing the
most recent monthly distribution per share annualized, by the current net
asset value per share. The Fund's effective distribution rate is computed by
dividing the distribution rate by the ratio (the days in a year divided by the
accrual days of the monthly period) used to annualize the most recent monthly
distribution and reinvesting the resulting amount for a full year on the basis
of such ratio. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed
reinvestment. Investor's should note that the Fund's yield is calculated using
a standardized formula, the income component of which is computed from the
yields to maturity of all debt obligations held by the Portfolio based on
prescribed methods (with all purchases and sales of securities during such
period included in the income calculation on a settlement date basis), whereas
the distribution rate is based on the Fund's last monthly distribution which
tends to be relatively stable and may be more or less than the amount of net
investment income and short-term capital gain actually earned by the Fund
during the month. See "Distributions and Taxes" in the Fund's current
Prospectus. For the Fund's distribution rate and effective distribution rate,
see "Performance Information" in the Fund's Part II.
The Fund's total return may be compared to relevant indicies, 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. The Fund's
performance may differ from that of other investors in the Portfolio,
including other investment companies.
The Fund may provide investors with information on municipal bond
investing, which may include comparative performance information, evaluations
of Fund performance, charts and/or illustrations prepared by independent
sources (such as Lipper Analytical Services Inc., CDA/Wiesenberger or
Morningstar, Inc.). The Fund may also refer in investor publications to Tax
Freedom Day, as computed by the Tax Foundation, Washington, DC 20005, to help
illustrate the value of tax free investing, as well as other tax-related
information.
Information, charts and illustrations relating to inflation and the
effects of inflation on the dollar may be included in advertisements and other
material furnished to present and prospective shareholders. For example, after
10 years, the purchasing power of $25,000 would shrink to $16,621, $14,968,
$13,465 and $12,100, if the annual rates of inflation during such period were
4%, 5%, 6% and 7%, respectively. (To calculate the purchasing power, the value
at the end of each year is reduced by the above inflation rates for 10
consecutive years.)
Information about portfolio allocation and holdings of the Portfolio 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 Portfolio's bond holdings on such date.
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, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and in materials furnished to present
and prospective shareholders may include statements or illustrations relating
to the appropriateness of types of securities and/or mutual funds which may be
employed to meet specific financial goals, such as (1) funding retirement, (2)
paying for children's education, and (3) financially supporting aging parents.
These three financial goals may be referred to in such advertisements or
materials as the "Triple Squeeze."
For additional information, charts and illustrations relating to the
Fund's investment performance, see "Performance Information" in the Fund's
Part II.
TAXES
See "Distributions and Taxes" in the Fund's current Prospectus.
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
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the Fund
intends to satisfy certain requirements relating to sources of its income and
diversification of its assets and to distribute its net investment income
(including tax-exempt income) and net realized capital gains in accordance
with the timing requirements imposed by the Code, so as to avoid any Federal
income or excise tax on the Fund. The Fund so qualified for its fiscal year
ended September 30, 1995 (see the Notes to the Financial Statements
incorporated by reference in this Statement of Additional Information).
Because the Fund invests its assets in the Portfolio, the Portfolio normally
must satisfy the applicable source of income and diversification requirements
in order for the Fund to satisfy them. The Portfolio will allocate at least
annually among its investors, including the Fund, the Portfolio's net taxable
(if any) and tax-exempt investment income, net realized capital gains, and any
other items of income, gain, loss, deduction or credit. For purposes of
applying the requirements of the Code regarding qualification as a RIC, the
Fund will be deemed (i) to own its proportionate share of each of the assets
of the Portfolio and (ii) to be entitled to the gross income of the Portfolio
attributable to such share.
In order to avoid federal excise tax, 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 the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year
period ending on October 31 of such year, after reduction by any available
capital loss carryforwards, and 100% of any 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 and the Portfolio is
treated as a partnership for Massachusetts and federal tax purposes, neither
the Fund nor the Portfolio is liable for any income, corporate excise or
franchise tax in the Commonwealth of Massachusetts.
The Portfolio'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 to interests
in the Portfolio and, in order to enable the Fund to distribute its
proportionate share of this income and avoid a tax payable by the Fund, the
Portfolio may be required to liquidate portfolio securities that it might
otherwise have continued to hold in order to generate cash that the Fund may
withdraw from the Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
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 the tax-exempt interest
income allocated to it by the Portfolio 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. For purposes
of applying this 50% requirement, the Fund will be deemed to own its
proportionate share of each of the assets of the Portfolio, and the Portfolio
currently intends to invest its assets in a manner such that the Fund can meet
this 50% requirement. Interest on certain municipal obligations is treated as
a tax preference item for purposes of the federal alternative minimum tax.
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 Portfolio and the value of the securities held by the Portfolio may be
affected.
In the course of managing its investments, the Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when-
issued securities and options and futures transactions. The Portfolio may also
realize taxable income from certain short-term taxable obligations, securities
loans, a portion of original issue discount with respect to certain stripped
municipal obligations or their stripped coupons, and certain realized accrued
market discount. Any distributions by the Fund of its share of such capital
gains (after reduction by any capital loss carryforwards) 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 Portfolio and allocated to the Fund. Certain distributions of the Fund
declared in October, November or December and paid the following January will
be taxed to shareholders as if received on December 31 of the year in which
they are declared.
The Portfolio'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 Portfolio on the last business day of each taxable year will be marked to
market (i.e., treated as if closed out on such day), and any resulting gain or
loss will generally be treated as 60% long-term and 40% short-term capital
gain or loss. Certain positions held by the Portfolio that substantially
diminish the Portfolio's risk of loss with respect to other positions in its
portfolio may constitute "straddles," which are subject to tax rules that may
cause deferral of Portfolio losses, adjustments in the holding period of
Portfolio securities and conversion of short-term into long-term capital
losses. The Portfolio may have to limit its activities in options and futures
contracts in order to enable the Fund to maintain its qualification as a RIC.
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 treated as a long-term capital
loss to the extent of any distribution of net long-term capital gains with
respect to such shares. Any loss realized on the sale or exchange of shares
which have been held for tax purposes for 6 months or less (or such shorter
period as may be prescribed by Treasury regulations) will be disallowed to the
extent the shareholder has received tax-exempt interest with respect to such
shares. In addition, a loss realized on a redemption of Fund shares will be
disallowed to the extent the shareholder acquired other Fund shares 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
and certain required certifications, as well as shareholders with respect to
whom the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on 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 treaty. 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
the shareholder is engaged in a trade or business in the United States, is
present in the United States for a sufficient period of time during a taxable
year to be treated as a U.S. resident, or fails to provide any required
certifications regarding status as a non-resident alien investor. Foreign
shareholders should consult their tax advisers regarding the U.S. and foreign
tax consequences of an investment in 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 or foreign tax consequences
of investing in the Fund.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as
principal in selling shares of the Fund. 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. In addition, the Fund makes
payments to the Principal Underwriter pursuant to its Distribution Plan as
described in the Fund's current 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 its Trustees who are not interested persons of the
Trust and who have no direct or indirect financial interest in the operation
of the Fund's 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 voting securities of the Fund or on six months'
notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold. The Fund 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 Fund will exceed the amounts paid therefor by the Fund. For the amount
paid by the Fund to the Principal Underwriter for acting as repurchase agent,
see "Fees and Expenses" in the Fund's Part II.
DISTRIBUTION PLAN
The Distribution Plan (the "Plan") is described in the prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the
sales charge rule of the National Association of Securities Dealers, Inc. (the
"NASD Rule"). The purpose of the Plan is to compensate the Principal
Underwriter for its distribution services and facilities provided to the Fund
by paying the Principal Underwriter sales commissions and a separate
distribution fee in connection with sales of Fund shares. The following
supplements the discussion of the Plan contained in the Fund's Prospectus.
The amount payable to the Principal Underwriter pursuant to the Plan as
sales commissions and distribution fees with respect to each day will be
accrued on such day as a liability of the Fund and will accordingly reduce the
Fund's net assets 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 Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Fund and the Portfolio accrued and allocated to the Fund on
such day, income on portfolio investments of the Portfolio accrued and
allocated to the Fund on such day, and any dividends and distributions
declared on Fund shares. The Fund does not accrue possible future payments as
a liability of the Fund or reduce the Fund's 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 Fund will receive all contingent deferred sales
charges 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. Contingent deferred sales charges and accrued
amounts will be paid by the Fund to the Principal Underwriter whenever there
exist Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low
level of early redemptions of Fund shares resulting in the imposition of
contingent deferred sales charges will tend to increase the time during which
there will exist Uncovered Distribution Charges of the Principal Underwriter.
Conversely, periods with a low level of sales of Fund shares accompanied by a
high level of early redemptions of Fund shares resulting in the imposition of
contingent deferred sales charges will tend to reduce the time during which
there will exist Uncovered Distribution Charges of the Principal Underwriter.
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 Plan since its inception. Payments theretofore paid and
payable under the Plan by the Fund to the Principal Underwriter and contingent
deferred sales charges therefore 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 Fund 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 Fund
shares upon which a contingent deferred sales charge will be imposed, the
level and timing of redemptions of Fund shares upon which no contingent
deferred sales charge will be imposed (including redemptions involving
exchanges of Fund shares for shares of another fund in the Eaton Vance Classic
Group of Funds which result in a reduction of Uncovered Distribution Charges),
changes in the level of the net assets of the Fund, and changes in the
interest rate used in the calculation of the distribution fee under the Plan.
(For shares sold prior to January 30, 1995, Plan payments are as follows: the
Principal Underwriter pays monthly sales commissions and service fee payments
to Authorized Firms equivalent to approximately .75% and .15%, respectively,
annualized of the assets maintained in the Fund by their customers beginning
at the time of sale. No payments were made at the time of sale and there is no
contingent deferred sales charge.)
As currently implemented by the Trustees, the Fund's Plan authorizes
payments of sales commissions and distribution fees to the Principal
Underwriter and service fees to the Principal Underwriter and Authorized Firms
which may be equivalent, on an aggregate basis during any fiscal year of the
Fund, to .90% of the Fund's average daily net assets for such year. For the
sales commission and service fee payments made by the Fund and the outstanding
Uncovered Distribution Charges of the Principal Underwriter, see "Fees and
Expenses -- Distribution Plan" in the Fund's Part II. The Fund 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 BMR by the Portfolio)
resulting from the sale of Fund shares and through the amounts paid to the
Principal Underwriter, including contingent deferred sales charges, 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 therefore
received by the Principal Underwriter pursuant to the Plan and from contingent
deferred sales charges have exceeded the total expenses theretofore incurred
by such organization in distributing 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 Fund.
The Plan provides that it shall continue in effect for so long as such
continuance is approved at least annually by the vote of both a majority of
(i) the Trustees of the Trust who are not interested persons of the Trust and
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 a vote of a majority of the Rule 12b-1 Trustees or by a vote of a
majority of the outstanding voting securities of the Fund. The provisions of
the Plan relating to payments of sales commissions and distribution fees to
the Principal Underwriter are also included in the Distribution Agreement
between the Trust on behalf of the Fund and the Principal Underwriter. Under
the Plan the President or a Vice President of the Trust shall provide to the
Trustees for their review, and the Trustees shall review at least quarterly, 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 Fund, and all material amendments of the Plan must also be approved by
the Trustees as required by Rule 12b-1. So long as the Plan is in effect, the
selection and nomination of Trustees who are not interested persons of the
Trust shall be committed to the discretion of the Trustees who are not such
interested persons.
The Trustees believe that the Plan will be a significant factor in the
growth of the Fund's assets, resulting in increased investment flexibility and
advantages which have benefited and will continue to benefit the Fund and its
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 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 have
determined that in their judgment there is a reasonable likelihood that the
Plan will benefit the Fund and its shareholders.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other
accounts managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or
(when a disclosed commission is being charged) at reasonably competitive
commission rates. In seeking such execution, BMR will use its 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, including State obligations,
purchased and sold by the Portfolio are generally traded in the over-the-
counter market on a net basis (i.e., without commission) through broker-
dealers and banks acting for their own account rather than as brokers, or
otherwise involve transactions directly with the issuer of such obligations.
Such firms attempt to profit from such transactions by buying at the bid price
and selling at the higher asked price of the market for such obligations, and
the difference between the bid and asked price is customarily referred to as
the spread. The Portfolio may also purchase municipal obligations from
underwriters, the cost of which may include undisclosed fees and concessions
to the underwriters. While it is anticipated that the Portfolio will not pay
significant brokerage commissions in connection with such portfolio security
transactions, on occasion it may be necessary or appropriate to purchase or
sell a security through a broker on an agency basis, in which case the
Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the
Portfolio may receive a commission which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if BMR determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided. This determination may be made on the basis of either that
particular transaction or on the basis of overall responsibilities which BMR
and its affiliates have for accounts over which they exercise investment
discretion. In making any such determination, BMR will not attempt to place a
specific dollar value on the brokerage and research services provided or to
determine what portion of the commission should be related to such services.
Brokerage and research services may include advice as to the value of
securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts; effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement); and the
"Research Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers
and from third parties with which such broker-dealers have arrangements.
Consistent with this practice, BMR receives Research Services from many
broker-dealer firms with which BMR places the Portfolio transactions and from
third parties with which these broker-dealers have arrangements. These
Research Services include such matters as general economic and market reviews,
industry and company reviews, evaluations of securities and portfolio
strategies and transactions and recommendations as to the purchase and sale of
securities and other portfolio transactions, financial, industry and trade
publications, news and information services, pricing and quotation equipment
and services, and research oriented computer hardware, software, data bases
and services. Any particular Research Service obtained through a broker-dealer
may be used by BMR in connection with client accounts other than those
accounts which pay commissions to such broker-dealer. Any such Research
Service may be broadly useful and of value to BMR in rendering investment
advisory services to all or a significant portion of its clients, or may be
relevant and useful for the management of only one client's account or of a
few clients' accounts, or may be useful for the management of merely a segment
of certain clients' accounts, regardless of whether any such account or
accounts paid commissions to the broker-dealer through which such Research
Service was obtained. The advisory fee paid by the Portfolio is not reduced
because BMR receives such Research Services. BMR evaluates the nature and
quality of the various Research Services obtained through broker-dealer firms
and attempts to allocate sufficient commissions to such firms to ensure the
continued receipt of Research Services which BMR believes are useful or of
value to it in rendering investment advisory services to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at
reasonably competitive spreads or commission rates, BMR is authorized to
consider as a factor in the selection of any firm with whom portfolio orders
may be placed the fact that such firm has sold or is selling shares of the
Fund or of other investment companies sponsored by BMR or Eaton Vance. This
policy is not inconsistent with a rule of the National Association of
Securities Dealers, Inc., which rule provides that no firm which is a member
of the Association shall favor or disfavor the distribution of shares of any
particular investment company or group of investment companies on the basis of
brokerage commissions received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate equitably portfolio security transactions among
the Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or sell
securities by the Portfolio and one or more of such other accounts
simultaneously. In making such allocations, the main factors to be considered
are the respective investment objectives of the Portfolio and such other
accounts, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment by the Portfolio and such
accounts, the size of investment commitments generally held by the Portfolio
and such accounts and the opinions of the persons responsible for recommending
investments to the Portfolio and such accounts. While this procedure could
have a detrimental effect on the price or amount of the securities available
to the Portfolio from time to time, it is the opinion of the Trustees of the
Trust and the Portfolio that the benefits available from the BMR organization
outweigh any disadvantage that may arise from exposure to simultaneous
transactions. For the brokerage commissions paid by the Portfolio on portfolio
transactions, see "Fees and Expenses" in the Fund's Part II.
OTHER INFORMATION
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" and "EV" in other connections and for other purposes. The Trust,
which is a Massachusetts business trust established in 1985, was originally
called Eaton Vance High Yield Municipals Trust. The Trust changed its name to
Eaton Vance Municipals Trust on January 7, 1991.
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 shareholders' 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 Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him
from that office either by a written declaration filed with the Trust's
custodian or by votes cast at a meeting called for that purpose. The By-laws
further provide that under certain circumstances the shareholders may call a
meeting to remove a Trustee and that the Trust is required to provide
assistance in communication with shareholders about such a meeting.
The Trust's 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 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 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.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed
from office either by declaration in writing filed with the custodian of the
assets of the Trust or by votes cast in person or by proxy at a meeting called
for the purpose.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action
of the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with
the Portfolio's custodian or by votes cast at a meeting called for that
purpose. The Declaration of Trust further provides that under certain
circumstances the investors may call a meeting to remove a Trustee and that
the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
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
Portfolio 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, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities
and Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference
into this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche, LLP, independent certified public
accountants, as experts in accounting and auditing.
Registrant incorporates by reference the audited financial information for
the Fund's and the Portfolio's for the fiscal year ended September 30, 1995 as
previously filed electronically with the Securities and Exchange Commission
(Accession No. 0000950135-95-002546).
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risk appear somewhat larger than the Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
- -------------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this 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 Portfolio's fiscal year end.
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will
be designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors
effecting the liquidity of the borrower and short term cyclical elements are
critical in short term ratings, while other factors of major importance in
bond risk, long term secular trends for example, may be less important over
the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol
to reflect such characteristics as payment upon periodic demand rather than
fixed maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be
limited to the external liquidity with no or limited legal recourse to the
issuer in the event the demand is not met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of 365 days.
Issuers (or supporting institutions) rated PRIME-1 (P-1) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness
to pay interest and repay principal. The B rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied BB or
BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+ ) OR MINUS (-): The ratings from AA to
CCC may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
p: The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk
of default upon failure of such completion. The investor should exercise his
own judgment with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is insured
by the Federal Deposit Insurance Corp. and interest is adequately
collateralized. In the case of certificates of deposit, the letter "L"
indicates that the deposit, combined with other deposits being held in the
same right and capacity, will be honored for principal and accrued pre-default
interest up to the federal insurance limits within 30 days after closing of
the insured institution or, in the event that the deposit is assumed by a
successor insured institution, upon maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a plus(+)
designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3: Speculative capacity to pay principal and interest.
COMMERCIAL PAPER
S&P's commercial paper ratings are a current assessments of the likelihood of
timely payment of debts considered short-term in the relevant market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus(+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period had not expired, unless S&P believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified that could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very 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 could cause these securities to be rated
below investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the
issuer's ability to make interest and principal payments.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC CALIFORNIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax in the form of an investment exempt from
California State personal income taxes. The Fund currently seeks to achieve its
investment objective by investing its assets in the California Municipals
Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain California considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in California issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
California issuers. Neither the Trust nor the Portfolio has independently
verified this information.
CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS
LIMITATION ON TAXES. Certain California municipal obligations may be obligations
of issuers which rely in whole or in part, directly or indirectly, on ad valorem
property taxes as a source of revenue. The taxing powers of California local
governments and districts are limited by Article XIII A of the California
Constitution, enacted by the voters in 1978 and commonly known as "Proposition
13." Briefly, Article XIII A limits to 1% of full cash value the rate of ad
valorem property taxes on real property and generally restricts the reassessment
of property to 2% per year, except upon new construction or change of ownership
(subject to a number of exemptions). Taxing entities may, however, raise ad
valorem taxes above the 1% limit to pay debt service on certain voter-approved
bonded indebtedness.
Under Article XIII A, the basic 1% ad valorem tax levy is applied against
the assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This system
has resulted in widely varying amounts of tax on similarly situated properties.
Several lawsuits have been filed challenging the acquisition-based assessment
system of Proposition 13. The U.S. Supreme Court recently heard one of these
lawsuits, and on June 18, 1992 announced a decision upholding Proposition 13.
Article XIII A prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." A
California Supreme Court decision, however, allowed the levy, without voter
approval, of "general taxes" which were not dedicated to a specific use. In
response to these decisions, the voters of the State in 1986 adopted an
initiative statute which imposed significant new limits on the ability of local
entities to raise or levy general taxes, except by receiving majority local
voter approval. Significant elements of this initiative, "Proposition 62," have
been overturned in recent court cases. An initiative proposed to reenact the
provisions of Proposition 62 as a constitutional amendment was defeated by the
voters in November 1990, but such a proposal may be renewed in the future.
APPROPRIATIONS LIMITS. The State and its local governments are subject to an
annual "appropriations limit" imposed by Article XIII B of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Proposition 98 and 111 in 1988 and 1990, respectively. Article XIII B prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIII B appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of post-
1989 increases in gasoline taxes and vehicle weight fees, and (5) appropriations
made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized by Proposition 111 to follow more closely growth in the State's
economy. "Excess" revenues are measured over a two-year cycle. Local
governments, must return any excess to taxpayers by rate reductions. With more
liberal annual adjustment factors since 1988, and depressed revenues since 1990
because of the recession, few governments are currently operating near their
spending limits, but this condition may change over time. Local governments may
by voter approval exceed their spending limit for up to four years.
Because of the complex nature of Articles XIII A and XIII B of the
California Constitution, the ambiguities and possible inconsistencies in their
terms, and the impossibility of predicting future appropriations or changes in
population and cost of living, and the probability of continuing legal
challenges, it is not currently possible to determine fully the impact of
Article XIII A or Article XIII B on California municipal obligations or on the
ability of the State or local governments to pay debt service on such
obligations. It is not presently possible to predict the outcome of any pending
litigation with respect to the ultimate scope, impact or constitutionality of
either Article XIII A or Article XIII B, or the impact of any such
determinations upon State agencies or local governments, or upon their ability
to pay debt service on their obligations. Future initiatives or legislative
changes in laws or the California Constitution may also affect the ability of
the State or local issuers to repay their obligations.
OBLIGATIONS OF THE STATE OF CALIFORNIA
As of April 1, 1995, the State had approximately $19.2 billion of general
obligation bonds outstanding, and $3.3 billion remained authorized but unissued.
In addition, at June 30, 1994, the State had lease-purchase obligations, payable
from the State's general fund, of approximately $6.0 billion with authorized but
unissued lease purchase debt of $1.3 billion. The State's outstanding general
obligation bond debt has gradually risen in recent years: from approximately
$15.9 billion in 1991-92 to approximately $19.2 billion in 1994-95. Of the
State's outstanding general obligation debt, approximately 22% is presently
self-liquidating (for which program revenues are anticipated to be sufficient to
reimburse the general fund for debt service payments). Three general obligation
bond propositions, totalling $3.7 billion, were approved by voters in 1992. The
State has paid the principal of and interest on its general obligation bonds,
lease-purchase debt and short-term obligations when due.
As of the date of this Statement of Additional Information, general
obligation bonds issued by the State of California are rated A1, A, A by
Moody's, S&P and Fitch, respectively. Starting in 1991 and continuing through
the middle of 1994, there has been a relatively steady deterioration in the
State's general obligation bond rating. On July 15, 1994, all three of the
rating agencies rating the State's long-term debt lowered their ratings of the
State's general obligation bonds. Moody's lowered its rating from "AA" to "A1,"
S&P lowered its rating from "A+" to "A" and termed its outlook as "stable," and
Fitch lowered its rating from "AA" to "A." An explanation of such actions may be
obtained only from the respective rating agencies. Future deterioration in the
State's fiscal condition could result in additional downgrades by the rating
agencies.
RECENT FINANCIAL RESULTS
Since the start of the 1990-91 Fiscal Year, the State has faced the worst
economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), exports and financial services, among
others, have all been severely affected. Job losses have been the worst of any
post-war recession and continued through the end of 1993. Following Department
of Finance projections that non-farm employment levels would be stable in 1994,
employment grew 3% between November 1993 and November 1994. However,
unemployment was well above the national average through 1994.
The recession has seriously affected State tax revenues, which basically
mirror economic conditions. It has also caused increased expenditures for health
and welfare programs. The State has also been facing a structural imbalance in
its budget with the largest programs supported by the General Fund -- K-12
schools and community colleges, health and welfare, and corrections -- growing
at rates higher than the growth rates for the principal revenue sources of the
General Fund. As a result, the State has experienced recurring budget deficits.
The State Controller reports that expenditures exceeded revenues for four of the
five fiscal years ending with 1991-92, and were essentially equal in 1992-93. By
June 30, 1993, according to the Department of Finance, the State's Special Fund
for Economic Uncertainties had a deficit, on a budget basis, of approximately
$2.8 billion. The 1993-94 Budget Act incorporated a Deficit Retirement Plan to
repay this deficit over two fiscal years. The original budget for 1993-94
reflected revenues which exceeded expenditures by approximately $2.0 billion. As
a result of the continuing recession, the excess of revenues over expenditures
for the fiscal year was only about $522 million. Thus the accumulated budget
deficit at June 30, 1994 was approximately $2.0 billion, and the deficit will
not be retired by June 30, 1995 as planned.
The accumulated budget deficits over the past several years, together with
expenditures for school funding which have not been reflected in the budget, and
reduction of available internal borrowable funds, have combined to significantly
deplete the State's cash resources to pay its ongoing expenses. In order to meet
its cash needs, the State has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year.
The 1994-95 Budget Act is projected to have $41.9 billion of General Fund
revenues and transfers and $40.0 billion of budget expenditures. In addition,
the 1994-95 Budget Act anticipates deferring retirement of about $1 billion of
the accumulated budget deficit to the 1995-96 Fiscal Year when it is intended to
be fully retired by June 30, 1996.
1993-94 BUDGET. The 1993-94 budget represented the third consecutive year of
extremely difficult budget choices for the State, in view of the continuing
recession. The budget act, signed on June 30, 1993, provided for General Fund
expenditures of $38.5 billion, a 6.3% decline from the prior year. Revenues were
projected at $40.6 billion, about $400 million below the prior year. To bring
the budget into balance, the budget act and related legislation provided for
transfer of $2.6 billion of local property taxes to school districts, thus
relieving State support obligations; reductions in health and welfare
expenditures; reductions in support for higher education institutions; a
two-year suspension of the renters' tax credit; and miscellaneous cuts in
general government spending and certain one-time and accounting adjustments.
There were no general State tax increases, but a 0.5% temporary State sales tax
scheduled to expire on June 30 was extended for six months, and dedicated to
support local government public safety costs.
Revenues for 1993-94 were $800 million lower than original projections and
expenditures were $780 million higher as a result of higher health and welfare
caseloads, lower property taxes and lower than anticipated federal government
payments for immigration-related costs.
1994-95 BUDGET. The 1994-95 fiscal year represents the fourth consecutive
year the Governor and Legislature were faced with a very difficult budget
environment to produce a balanced budget. Many program cuts and budgetary
adjustments have already been made in the last three years. The Budget
recognized that the accumulated deficit could not be repaid in one year, and
proposed a two-year solution. The budget projects operating surpluses for the
budget for both 1994-95 and 1995-96, and lead to the elimination of the
accumulated budget deficit, estimated at about $2.0 billion at June 30, 1994, by
June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projects
revenues and transfers of $41.9 billion, $2.1 billion higher than revenues in
1993-94. This reflects the Administration's forecast of an improving economy.
The Budget Act projects the effective receipt of about $770 million from the
Federal Government, $360 million of which is to reimburse the State's costs for
immigrant-related expenses and the balance is attributable to federal
subventions thus reducing State expenditures. Little or none of this money is
now expected to be received. The Legislature took no action on a proposal in the
January Governor's Budget to undertake an expansion of the transfer of certain
programs to counties, which would also have transferred to counties 0.5% of the
State's current sales tax. The Budget Act projects Special Fund revenues of
$12.1 billion, a decrease of 2.4% from 1993-94 estimated revenues. The
Governor's 1995-96 Budget proposal of January, 1995 included an upward revision
of General Fund revenues to $42.4 billion for the 1994-95 fiscal year.
The 1994-95 Budget Act projects General Fund expenditures of $40.9 billion,
an increase of $1.6 billion over 1993-94. The Budget Act also projects Special
Fund expenditures of $13.7 billion, a 5.4% increase over 1993-94 estimated
expenditures. Although, the 1994-95 Budget Act contains no tax increases, under
legislation enacted for the 1993-94 Budget, the renters' tax credit was
suspended for two years (1993 and 1994). A ballot proposition to permanently
restore the renters' tax credit after this year failed at the June, 1994
election. The Legislature enacted a further one-year suspension of the renters'
tax credit, for 1995, saving about $390 million in the 1995-96 Fiscal Year. The
1994-95 Budget assumes that the State will use a cash flow borrowing program in
1994-95 which combines one-year notes and certain warrants. Issuance of the
warrants allows the State to defer repayment of approximately $1.0 billion of
its accumulated budget deficit into the 1995-96 Fiscal Year. The Budget
Adjustment Law, enacted along with the 1994-95 Budget Act is designed to ensure
that the warrants will be repaid in the 1995-96 Fiscal Year. The State's severe
financial difficulties for the current budget year will result in continued
pressure upon almost all local governments, particularly school districts and
counties which depend on State aid. Despite efforts in recent years to increase
taxes and reduce governmental expenditures, there can be no assurance that the
State will not face budget gaps in the future.
PROPOSED 1995-96 BUDGET. On January 10, 1995, the Governor presented his
proposed fiscal year 1995-96 Budget. This budget projects total General Fund
revenues and transfers of $42.5 billion, and expenditures of $41.7 billion, to
complete the elimination of the accumulated budget deficits from earlier years.
However, this proposal leaves no cushion, as the projected budget reserve at
June 30, 1996 would be only about $92 million. While proposing increases in
funding for schools, universities and corrections, the Governor proposes further
cuts in welfare programs, and a continuation of the "realignment" of functions
with counties which would save the State about $240 million. The Governor also
expects about $800 million in new federal aid for the State's costs of
incarcerating and educating illegal immigrants. The Budget proposal also does
not account for possible additional costs if the State loses its appeals on
lawsuits which are currently pending concerning such matters as school funding
and pension payments, but these appeals could take several years to resolve.
Part of the Governor's proposal also is a 15% cut in personal income and
corporate taxes, to be phased in over three years, starting with calendar year
1996 (which would have only a small impact on 1995-96 income).
LEGAL PROCEEDINGS
The State is involved in certain legal proceedings (described in the State's
recent financial statements) that, if decided against the State, may require the
State to make significant future expenditures or may substantially impair
revenues.
ECONOMY
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of over 31 million represents 12.3%
of the total United States population and grew by 27% in the 1980s. Total
personal income in the State, at an estimated $683 billion in 1993, accounts for
about 13% of all personal income in the nation.
Reports issued by the State Department of Finance and the Commission on
State Finance indicate that the State's economy is recovering from its worst
recession since the 1930s. The largest job losses have been in Southern
California, led by declines in the aerospace and construction industries.
Weakness statewide occurred in manufacturing, construction, services and trade.
Additional military base closures will have further adverse effects on the
State's economy later in the decade. California's unemployment rate was 7.9% in
April, 1995, a significant improvement over the previous year's level of 9.3%
but still above the national rate of 5.8%.
OTHER CONSIDERATIONS
On December 7, 1994, Orange County, California (the "County"), together with
its pooled investment fund (the "Fund") filed for protection under Chapter 9 of
the Federal Bankruptcy Code, after reports that the Fund had suffered
significant market losses in its investments which caused a liquidity crisis for
the Fund and the County. More than 180 other public entities, most but not all
located in the County, were also depositors in the Fund. As of December 13,
1994, the County estimated the Fund's loss at about $2 billion, or 27% of its
initial deposits of around $7.4 billion. These losses could increase as the
County sells investments to restructure the Fund, or if interest rates rise.
Many of the entities which kept moneys in the Fund, including the County, are
facing cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. The County and some of these
entities have, and others may in the future, default in payment of their
obligations. Moody's and S&P have suspended, reduced to below investment grade
levels, or placed on "Credit Watch" various securities of the County and the
entities participating in the Fund. As of December 1994, the Portfolio did not
hold any direct obligations of the County. However, the Portfolio did hold bonds
of some of the governmental units that had money invested with the County; the
impact of the loss of access to these funds, the loss of expected investment
earnings and the potential loss of some of the principal invested is not known
at this point. There can be no assurances that these holdings will maintain
their current ratings and/or liquidity in the market.
Although the State of California has no obligation with respect to any
obligations or securities of the County or any of the other participating
entities, under existing legal precedents, the State may be obligated to ensure
that school districts have sufficient funds to operate. Longer term, this
financial crisis could have an adverse impact on the economic recovery that has
only recently taken hold in Southern California.
In early June, 1995, Orange County filed a proposal with the bankruptcy
court that would require holders of the County's short-term notes to wait a year
before being repaid. The existence of this proposal and its adoption could
disrupt the market for short-term debt in California and possibly drive up the
State's borrowing costs.
The repayment of industrial development securities and other obligations
secured by real property may be affected by California laws limiting foreclosure
rights of creditors. Securities backed by healthcare and hospital revenues may
be affected by changes in State regulations governing cost reimbursements to
health care providers under Medi-Cal (the State's Medicaid program), including
risks related to the policy of awarding exclusive contracts to certain
hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project area decline (e.g., because of a major
natural disaster such as an earthquake), or there is a deemphasis or
reallocation of property taxes by legislation or initiative, the tax increment
revenue may be insufficient to make principal and interest payments on these
bonds. Both Moody's and S&P suspended ratings on California tax allocation bonds
after the enactment of Articles XIII A and XIII B, and only resumed such ratings
on a selective basis.
Proposition 87, approved by California voters in 1988, required that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay the entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when taxes
on property in the project area are increased to repay voter-approved bonded
indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remains unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Legislation has been or may be introduced
which would modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively, would increase the abilities of
state and local governments to impose new taxes or increase existing taxes. It
is not presently possible to predict the extent to which any such legislation
will be enacted. Nor is it presently possible to determine the impact of any
such legislation on California municipal obligations in which the Portfolio may
invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California municipal obligations.
Certain California obligations may be payable solely from the revenues of
health care institutions. Such revenues may be negatively affected by efforts of
the state and of private health plans and insurers to contract with such
institutions for fixed, discounted payments for services to Medicaid and
insurance beneficiaries. Such California obligations may be insured by the
state. In the event of a default by the health care institution, the state has
the option of issuing replacement debentures payable from a reserve fund.
However, this reserve fund has been found to be underfunded in a study conducted
in 1986 and is subject to reappropriation by the California Legislature for
other purposes.
Certain California obligations may be secured by real estate mortgages or
deeds of trust. California has several statutory provisions that may limit the
remedies of secured creditors, such as issuers of California obligations. A
creditor's right to obtain a deficiency judgment is barred when a foreclosure is
accomplished through a nonjudicial trustee's sale. A secured creditor is also
required to exhaust its real property security by foreclosure before bringing a
personal action against the debtor. Any deficiency judgment following a judicial
sale of foreclosed property is limited to the excess of the outstanding debt
over the fair value of the property at the time of sale, even if the actual bids
at such sale were lower than such value. Finally, the debtor has the right to
redeem the foreclosed property from any judicial foreclosure sale that could
result in a deficiency judgment.
Due to certain limitations on a creditor's private powers of sale after
foreclosure, the effective minimum period for foreclosing on a mortgage could
exceed seven months after the initial default. Such delays in collections could
disrupt the flow of revenues to an issuer for the payment of debt service on
California obligations secured by real estate mortgages. In some cases, the
nonjudicial sale of property by an issuer could be precluded as a violation of
constitutional due process.
Under California's anti-deficiency law, there is no personal recourse
against a mortgagor of a single family residence purchased with a loan secured
by a mortgage. California law also limits the charges that may be imposed with
respect to voluntary mortgage prepayments. These provisions could affect the
flow of revenues available for debt service to the issuers of California
obligations secured by single family home mortgages.
Substantially all of California is within an active geologic region subject
to major seismic activity. Any California municipal obligation in the Portfolio
could be affected by an interruption of revenues because of damaged facilities,
or, consequently, income tax deduction for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained by
the inability of (i) an issuer to have obtained earthquake insurance coverage at
reasonable rates; (ii) an insurer to perform on its contracts of insurance in
the event of widespread losses; or (iii) the Federal or State government to
appropriate sufficient funds within their respective budget limitations.
On January 17, 1994, an earthquake struck Los Angeles causing significant
damage to public and private structures and facilities. Although some
individuals and businesses suffered losses totaling in the billions of dollars,
the overall effect of the earthquake on the regional and State economy is not
expected to be serious.
The State has shifted responsibility for certain health and welfare programs
and provided the counties with increased taxing powers to cover their costs.
While the State expects that the increased taxes will be sufficient to cover
increased costs, there can be no assurance that this will be the case. If the
increased costs are not covered by the increased taxes, the counties will be
responsible to fund the difference. Any added expenditures in excess of
increased revenues and subsequent adverse effect upon county finances would
likely have a negative impact upon individual county and local bond prices.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $410,762,918. For
the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory fees
of $2,121,262 (equivalent to 0.50% of the Portfolio's average daily net assets
for such year). For the six month period ended September 30, 1994, the Portfolio
paid BMR advisory fees of $1,141,013 (equivalent to 0.50% of the Portfolio's
average daily net assets for such year). For the period from the Portfolio's
start of business, May 3, 1993, to the fiscal year ended March 31, 1994, the
Portfolio paid BMR advisory fees of $2,149,273 (equivalent to 0.49% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and remains in
effect until February 28, 1996. The Agreement may be continued as described
under "Investment Adviser and Administrator" in Part I of this Statement of
Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended September 30, 1995, the six month period ended September 30, 1994 and
for the period from the start of business, December 3, 1993, to the fiscal year
ended March 31, 1994, $39,199, $29,004 and $2,670, respectively, of the Fund's
operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, as required by Rule 12b-1. During the
fiscal year ended September 30, 1995, the Principal Underwriter paid to
Authorized Firms sales commissions of $20,715 on sales of Fund shares. During
the same period, the Fund paid sales commission payments under the Plan to the
Principal Underwriter aggregating $21,336. Such payments reduced Uncovered
Distribution Charges. During such period, contingent deferred sales charges
aggregating approximately $400 were imposed on early redeeming shareholders and
paid to the Principal Underwriter to reduce Uncovered Distribution Charges. As
at September 30, 1995, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$330,967 (which amount was equivalent to 12.0% of the Fund's net assets on such
date). During the fiscal year ended September 30, 1995, the Fund paid service
fee payments under the Plan aggregating $7,029, of which $6,837 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $110 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $3,526 and
the Portfolio paid IBT $187,581.
BROKERAGE
For the fiscal years ended September 30, 1995 and 1994, and for the period
from the start of business, February 1, 1993, to the fiscal year ended September
30, 1993, the Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended September 30, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and of the funds in
the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight .......... $0 $3,690(2) $135,000(4)
Samuel L. Hayes, III ...... 0 3,659(3) 150,000(5)
Norton H. Reamer .......... 0 3,633 135,000
John L. Thorndike ......... 0 3,748 140,000
Jack L. Treynor ........... 0 3,841 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $1,237 of deferred compensation.
(3) Includes $1,178 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
Cynthia J. Clemson (32) has served as a Vice President of the Portfolio since
February 1, 1996. Ms. Clemson has been a Vice President of BMR and Eaton Vance
since 1993 and an employee of Eaton Vance since 1985. Ms. Clemson is an officer
of various investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from December 19, 1985 through
September 30, 1995 and for the five and one year periods ended September 30,
1995. The total return for the period prior to the Fund's commencement of
operations on December 3, 1993 reflects the Portfolio's total return (or that of
its predecessor) adjusted to reflect any applicable Fund contingent deferred
sales charge ("CDSC"). The total return for such prior period has not been
adjusted to reflect the Fund's distribution fees and certain other expenses. If
such an adjustment were made, the performance would be lower.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE BEFORE VALUE AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER
DEDUCTING THE DEDUCTING THE DEDUCTING THE CDSC DEDUCTING THE CDSC*
INVESTMENT INVESTMENT AMOUNT OF CDSC CDSC* -------------------------- ---------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ----------- --------------- --------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 12/19/85 $1,000 $1,833.06 $1,833.06 83.31% 6.39% 83.31% 6.39%
5 Years
Ended
9/30/95** 9/30/90 $1,000 $1,374.89 $1,374.89 37.49% 6.56% 37.49% 6.56%
1 Year
Ended
9/30/95** 9/30/94 $1,000 $1,083.18 $1,073.18 8.32% 8.32% 7.32% 7.32%
</TABLE>
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.
- ----------
* No CDSC is imposed on certain redemptions. See the Fund's current
Prospectus.
** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.32%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.32% would be 6.96%,
assuming a combined federal and State tax rate of 37.90%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would have
had a lower yield.
The Fund's distribution rate (calculated on September 30, 1995 and based on
the Fund's monthly distribution paid September 22, 1995) was 4.95%, and the
Fund's effective distribution rate (calculated on the same date and based on the
same monthly distribution) was 5.06%. If a portion of the Fund's expenses had
not been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
See the Tax Equivalent Yield Table in this Part II concerning applicable tax
rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 68.83% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below shows the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the 1995 regular federal income tax
rates and California State income tax laws and tax rates applicable for 1994.
<TABLE>
<CAPTION>
A FEDERAL AND CALIFORNIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------------------------------- CA STATE ------------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------- ----------- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 34.70 6.13 6.89 7.66 8.42 9.19 9.95 10.72
$ 56,551 - $117,950 $ 94,251 - $143,600 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27
$117,951 - $256,500 $143,601 - $256,500 43.04 7.02 7.90 8.78 9.66 10.53 11.41 12.29
Over $256,500 Over $256,500 46.24 7.44 8.37 9.30 10.23 11.16 12.09 13.02
</TABLE>
* Net amount subject to federal and California personal income tax after
deductions and exemptions.
+ The combined federal and California tax brackets are calculated using the
highest California State rate applicable at the upper portion of these
brackets and assume that taxpayers deduct California State income taxes paid
on their federal income tax returns. An investor with taxable income within
these brackets may have a lower combined tax rate than the combined rate
shown. Investors who do not itemize deductions on their federal income tax
return will have a higher combined bracket and higher taxable equivalent yield
than those indicated above.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including California State income taxes)
for taxpayers with adjusted gross income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $114,700 and joint filers with
adjusted gross income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above. The applicable federal tax rates within the brackets are 15%, 28%, 31%,
36% and 39.6%, over the same ranges of income.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Classic California
Municipals 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 and California personal
income taxes, 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 except for California personal income taxes.
It should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular federal income
tax, is treated as a tax preference item which could subject the recipient to or
increase the recipient's liability for the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not applicable
and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above. Investors should consult their tax adviser for additional
information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC FLORIDA MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax in the form of an investment exempt from Florida
intangibles tax. The Fund currently seeks to achieve its investment objective by
investing its assets in the Florida Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Florida considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Florida issuers. Such information supplements the information in the Prospectus.
It is derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information from
official statements relating to securities offerings of Florida issuers. Neither
the Trust nor the Portfolio has independently verified this information.
Florida is characterized by rapid population growth and substantial capital
needs which are being funded through more frequent debt issuance and pay-as-
you-go financing. The State of Florida operates on the basis of a fiscal
biennium for its appropriations and expenditures and is constitutionally bound
to maintain a balanced budget. The State's financial operations are considerably
different than most other states because, under the State's constitution, there
is no state income tax. A constitutional amendment would therefore be necessary
to impose an income tax. Only seven states currently do not impose income taxes
upon their residents. The lack of an income tax exposes total State tax
collections to considerably more volatility than would otherwise be the case
and, in the event of an economic downswing, could affect the State's ability to
pay principal and interest in a timely manner.
The 1992-1993 Florida budget authorized $11.862 billion in General Fund
spending, an increase of 6.5% from the final 1991-1992 level. New taxes,
including a 0.5 mill ($0.50 per $1,000 of valuation) increase in the intangible
personal property tax, were expected to produce an additional $378.2 million in
revenue to fund school and prison construction. Other tax changes included a 1%
sales tax increase on taxable purchases of telecommunications and electric
services, an increase in documentary stamp taxes, and the inclusion of several
previously exempt services for the sales tax. Revenue collections were $200
million over initial estimates, with $170 million due to normal economic
activity and $30 million attributed to rebuilding after Hurricane Andrew.
Combined general revenue fund and working capital unencumbered reserves
increased to $441.4 million, or 3.7% of expenditures.
Non-recurring revenue from rebuilding efforts following Hurricane Andrew
was $220 million in 1993-94 and is estimated to be $159 million in 1994-95. In
1993-94, $190 million was transferred to a hurricane relief trust fund and $159
million is budgeted to be transferred in 1994-95.
In 1993, the Florida state constitution was amended to limit the annual
growth in the assessed valuation of residential property. This amendment could,
over time, constrain the growth in property taxes, a major revenue source for
local governments. The amendment restricts annual increases in assessed
valuation to the lesser of 3% or the Consumer Price Index. The amendment applies
only to residential properties eligible for the homestead exemption and does not
affect the valuation of rental, commercial, or industrial properties. When sold,
residential property would be reassessed at market value. While no immediate
ratings implications are expected, the amendment could have a negative impact on
the financial performance of local governments over time and lead to ratings
revisions which may have a negative impact on the prices of affected bonds.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $712,203,136.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees of $3,433,489 (equivalent to 0.47% of the Portfolio's average daily net
assets for such year). For the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $3,644,215 (equivalent to 0.46% of the
Portfolio's average daily net assets for such year). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $2,024,390
(equivalent to 0.46% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended September 30, 1995 and for the period from the start of business,
December 3, 1993, to the fiscal year ended September 30, 1994, $24,340 and
$15,286, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended September 30, 1995, the Principal Underwriter
paid to Authorized Firms sales commissions of $45,896 on sales of Fund shares.
During the same period, the Fund paid sales commission payments under the Plan
to the Principal Underwriter aggregating $46,646. Such payments reduced
Uncovered Distribution Charges. During such period, contingent deferred sales
charges aggregating approximately $917 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $712,800 (which amount was equivalent to 13.5% of
the Fund's net assets on such date). During the fiscal year ended September
30, 1995, the Fund paid service fee payments under the Plan aggregating
$12,466, of which $12,152 was paid to Authorized Firms and the balance of
which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $180 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $3,526 and
the Portfolio paid IBT $10,722.
BROKERAGE
For the fiscal years ended September 30, 1995 and 1994, and for the period
from the start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio, and
of the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight .......... $34 $4,291(2) $135,000(4)
Samuel L. Hayes, III ...... 32 4,239(3) 150,000(5)
Norton H. Reamer .......... 32 4,200 135,000
John L. Thorndike ......... 32 4,322 140,000
Jack L. Treynor ........... 35 4,464 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,439 of deferred compensation.
(3) Includes $1,333 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from August 28, 1990
through September 30, 1995 and for the five and one year periods ended
September 30, 1995. The total return for the period prior to the Fund's
commencement of operations on December 3, 1993 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
contingent deferred sales charge ("CDSC"). The total return for such prior
period has not been adjusted to reflect the Fund's distribution fees and
certain other expenses. If such an adjustment were made, the performance would
be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING CDSC DEDUCTING CDSC*
INVESTMENT INVESTMENT AMOUNT OF DEDUCTING CDSC DEDUCTING CDSC* -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 8/28/90 $1,000 $1,457.27 $1,457.27 45.73% 7.66% 45.73% 7.66%
5 Years
Ended
9/30/95** 9/30/90 $1,000 $1,458.76 $1,458.76 45.88% 7.83% 45.88% 7.83%
1 Year
Ended
9/30/95** 9/30/94 $1,000 $1,097.21 $1,087.21 9.72% 9.72% 8.72% 8.72%
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.
- ----------
* No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
** If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.40%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.40% would be 6.38%,
assuming a federal tax rate of 31%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on September 30, 1995 and based on
the Fund's monthly distribution paid September 22, 1995) was 4.87%, and the
Fund's effective distribution rate (calculated on the same date and based on the
same monthly distribution) was 4.98%. If a portion of the Fund's expenses had
not been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
See the Tax Equivalent Yield Table in this Part II concerning applicable
tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 46.0% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. In addition, as of such date, National
Financial Services Corporation for the benefit of Lake Placid Holding Company,
Lake Placid, FL was the record owner of 7.1% of the outstanding shares of the
Fund. To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic Florida Tax Free Fund to EV Classic Florida
Municipals Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The tables below give the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and the Florida intangibles tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
YOU ARE IN
IF THE TAXABLE INCOME ON OR THE TAXABLE INCOME ON THIS FEDERAL IN YOUR BRACKET, A TAX-FREE YIELD OF
YOUR SINGLE RETURN IS* YOUR JOINT RETURN IS* BRACKET 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------ ------------------------- ------------ --------------------------------------------------------
EQUALS THAT OF A TAXABLE INVESTMENT YIELDING
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $23,350 Up to $39,000 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 56,551-$117,950 $ 94,251-$143,600 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$117,951-$256,500 $143,601-$256,500 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $256,500 Over $256,500 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
<CAPTION>
IF THE TAXABLE INCOME ON OR THE TAXABLE INCOME ON IN YOUR BRACKET, A TAX-FREE YIELD OF
YOUR SINGLE RETURN IS* YOUR JOINT RETURN IS* 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------ ------------------------- -----------------------------------------------------------------
TAX EQUIVALENT YIELD REFLECTING EXEMPTION FROM INTANGIBLES TAX:**
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $23,350 Up to $39,000 4.95% 5.54% 6.13% 6.71% 7.30% 7.89% 8.48%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 5.85 6.54 7.23 7.93 8.62 9.31 10.01
$ 56,551-$117,950 $ 94,251-$143,600 6.10 6.83 7.55 8.27 9.00 9.72 10.44
$117,951-$256,500 $143,601-$256,500 6.58 7.36 8.14 8.92 9.70 10.48 11.26
Over $256,500 Over $256,500 6.97 7.80 8.62 9.45 10.28 11.10 11.93
* Net amount subject to federal personal income tax after deductions and exemptions.
** A Florida intangibles tax on personal property of $2.00 per $1,000 is generally imposed after exemptions on the value of
stocks, bonds, other evidences of indebtedness and mutual fund shares. An example of the effect of the Florida intangibles tax
on the tax brackets of Florida taxpayers is as follows. A $10,000 investment subject to the tax would require payment of $20
annually in intangibles taxes. If the investment yielded 5.5% annually or $550, the intangibles tax as a percentage of income
would be $20/$550 or 3.64%. If a taxpayer were in the 36% federal income tax bracket, assuming the intangibles taxes were
deducted as an itemized deduction on the federal return, the taxpayer would be on a combined federal and Florida State tax
bracket of 38.33% [36% (PL) (1 - .36) X 3.64%] with respect to such investment. A Florida taxpayer whose intangible personal
property is exempt or partially exempt from tax due to the availability of exemptions will have a lower taxable equivalent
yield than indicated above.
</TABLE>
Note: The 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 $114,700. The tax brackets also do not show
the effects of phaseout of personal exemptions for single and joint filers
with adjusted gross incomes in excess of $114,700 and $172,050. 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 EV Classic Florida
Municipals 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 the Florida intangibles tax, state or local
taxes, if any, payable on Fund distributions to individuals who are not
Florida residents, or intangibles taxes, if any, imposed under the laws of
other states. It should also be noted that the interest earned on certain
"private activity bonds" issued after August 7, 1986, while exempt from the
regular federal income tax, is treated as a tax preference item which could
subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult their tax adviser for
additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC MASSACHUSETTS
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and Massachusetts state personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the Massachusetts Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Massachusetts considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Massachusetts issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of Massachusetts issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Beginning in 1989, the Commonwealth's economy slowed significantly. Most
of the employment growth during this period was experienced in the services
and trade sectors of the economy, while the manufacturing sector continues to
suffer employment losses. Like most other industrial states, Massachusetts has
seen a shift in employment from manufacturing to more technology and service-
based industries. Per capita personal income growth has slowed, after several
years during which the per capita personal income growth rate in Massachusetts
was among the highest in the nation. Between 1992 and 1993, per capita
personal income in Massachusetts increased 3.7% as compared to 3.5% for the
nation as a whole. The unemployment rate for the Commonwealth fell from 6.7%
in October 1993 to 6.4% for October 1994. The national unemployment rate for
October 1994 was 5.8% little changed from 5.9% in September 1994.
In January 1992, the Governor submitted his fiscal year 1993 budget of
$13.9 billion, which was 3.1% higher than fiscal year 1992's state spending
level. Annual budgeted revenues increased from fiscal 1992 to fiscal 1993 by
approximately 7.1% and are projected to increase by approximately 5.6% in
fiscal 1994. Annual budgeted expenditures increased by approximately 9.5% in
fiscal 1993 and are estimated to increase by 6.9% in fiscal 1994. Fiscal 1993
ended with a positive fund balance of $562.5 million, including $309.5 million
in the Budget Stabilization Fund. Fiscal 1994 preliminary financial results
for the three main operating funds (General, Highway and Local Aid) show a
small $18 million surplus. The total fund balance for the three funds is $581
million, with $377 million earmarked for the Budget Stabilization Fund.
The $16.364 billion fiscal 1995 budget is tightly balanced, with tax
revenue growth reasonably estimated at 5.9% from fiscal 1994's level. The
budget includes increased state aid for localities and additional spending for
education reform and water/sewer rate relief.
The Commonwealth faces significant additional costs due to a June ruling
by the state supreme judicial court. The court ruled that the Commonwealth has
failed in its constitutional obligation to provide equal education.
Massachusetts anticipates spending an additional $1.2 billion over three years
on school reform. The fiscal 1994 budget includes an increase in school aid of
$175 million. The bulk of the $1.2 billion in increased aid will occur in
fiscal 1995 and 1996. After the fiscal 1994 budget was adopted, the governor
announced a $207 million tax relief package. The package includes a 4.3 cent
gas tax reduction to offset the federal gas tax increase, a reduction to 5.85%
from the 5.95% income tax rate and other deductions for elderly homeowners and
lower income taxpayers. This package proposed by the Governor is waiting
legislative discussion. The Governor has also proposed a $672 million
convention center megaplex Additionally, major infrastructure projects are
anticipated over the next decade with the federal government assuming
responsibility for approximately 90% of the $5 billion cost. The projects
include the depression of the central artery which traverses the City of
Boston and the construction of a third harbor tunnel linking downtown Boston
to Logan Airport.
The fiscal viability of the Commonwealth's authorities and Municipalities
is inextricably linked to that of the Commonwealth. The Commonwealth
guarantees the debt of several authorities, most notably the Massachusetts Bay
Transportation Authority and the University of Massachusetts Building
Authority. Their ratings are based on this guarantee and can be expected to
move in tandem. Several other authorities are funded in part or in whole by
the Commonwealth and their debt ratings may be adversely affected by a
negative change in those of the Commonwealth.
Massachusetts' municipal governments are constrained in their ability to
increase local revenues by an initiative passed in 1980, "Proposition 2 1/2".
Proposition 2 1/2 limits the amount of property taxes that can be levied in a
fiscal year to the lower of 2.5% of fair value or 102.5% of the previous
year's levy unless overridden by a majority of local voters. Proposition 2 1/2
also limits the amount the municipality can be charged by certain government
entities such as counties. While Proposition 2 1/2 is not a constitutional
question and can therefore be amended or abolished by the legislature, no
significant challenge has been raised since it took effect. Increased revenues
received by the state and passed on to local governments during the 1980's
ameliorated the effect of this initiative and made local governments in
Massachusetts more dependent on state aid than those in other states.
Therefore, the recent fiscal problems encountered by the state have amplified
the economic and fiscal problems encountered by cities and towns throughout
the Commonwealth. A continuation of the Commonwealth's fiscal problems
resulting in further local aid reductions could, in the absence of overrides,
result in payment defaults by local cities and towns and/or ratings downgrades
resulting in an erosion of their market value.
FEES AND EXPENSES
INVESTMENT ADVISER
As at September 30, 1995, the Portfolio had net assets of $302,170,247.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees of $1,383,407 (equivalent to 0.46% of the Portfolio's average daily net
assets for such year). For the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $1,397,963 (equivalent to 0.46% of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $735,829
(equivalent to 0.45% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended September 30, 1995 and for the period from the start of business,
December 7, 1993, to the fiscal year ended September 30, 1994, $13,833 and
$26,572, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended September 30, 1995, the Principal Underwriter
paid to Authorized Firms sales commissions of $19,884 on sales of Fund shares.
During the same period, the Fund paid sales commission payments under the Plan
to the Principal Underwriter aggregating $21,745. Such payments reduced
Uncovered Distribution Charges. During such period, contingent deferred sales
charges aggregating approximately $1,445 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $309,676 (which amount was equivalent to 11.0% of
the Fund's net assets on such date). During the fiscal year ended September
30, 1995, the Fund paid service fee payments under the Plan aggregating
$5,800, of which $5,305 was paid to Authorized Firms and the balance of which
was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $162.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $3,543 and
the Portfolio paid IBT $135,884.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 1994, and for the period from the start of business, February 1,
1993, to the fiscal year ended September 30, 1993, the Portfolio paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight .......... $0 $3,188(2) $135,000(4)
Samuel L. Hayes, III ...... 0 3,172(3) 150,000(5)
Norton H. Reamer .......... 0 3,160 135,000
John L. Thorndike ......... 0 3,268 140,000
Jack L. Treynor ........... 0 3,325 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,069 of deferred compensation.
(3) Includes $962 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from April 19, 1991 through
September 30, 1995 and for the one-year period ended September 30, 1995. The
total return for the period prior to the Fund's commencement of operations on
December 7, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund contingent deferred sales
charge ("CDSC"). The total return for such prior period has not been adjusted
to reflect the Fund's distribution fees and certain other expenses. If such an
adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING CDSC DEDUCTING CDSC*
INVESTMENT INVESTMENT AMOUNT OF DEDUCTING CDSC DEDUCTING CDSC* -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 4/19/91 $1,000 $1,343.50 $1,343.50 34.35% 6.84% 34.35% 6.84%
1 Year
Ended
9/30/95** 9/30/94 $1,000 $1,084.45 $1,074.45 8.45% 8.45% 7.45% 7.45%
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.
- ----------
* No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
**If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.67%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.67% would be 7.69%,
assuming a combined federal and State tax rate of 39.28%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 22, 1995) was 5.00%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 5.12%. If a portion of the Fund's expenses
had not been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 35.67% of the outstanding
shares, which were held on behalf of its customers who are the beneficial
owners of such shares, and as to which it had voting power under certain
limited circumstances. In addition, as of the same date, the following
shareholders owned of record the percentages of outstanding shares indicated
after their names: Wilkins Management, Inc., NFSC FEBO #CL5-368962, Cambridge,
MA (15.62%) and Maurice Lasden & Ann Lasden JTWROS, Canton, MA. To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic Massachusetts Tax Free Fund to EV Classic
Massachusetts Municipals Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Massachusetts state income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND MASSACHUSETTS STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- MA STATE ----------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------ ----------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 25.20% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69% 9.36%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 36.64 6.31 7.10 7.89 8.68 9.47 10.26 11.05
$ 56,551 - $117,950 $ 94,251 - $143,600 39.28 6.59 7.41 8.23 9.06 9.88 10.70 11.53
$117,951 - $256,500 $143,601 - $256,500 43.68 7.10 7.99 8.88 9.77 10.65 11.54 12.43
Over $256,500 Over $256,500 46.85 7.53 8.47 9.41 10.35 11.29 12.23 13.17
* Net amount subject to federal and Massachusetts personal income tax after deductions and exemptions.
+ The combined tax rates include a Massachusetts tax rate of 12% applicable to taxable bond interest and dividends, and assume
that Massachusetts taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions on
their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those indicated
above.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Massachusetts state income
taxes) for taxpayers with Adjusted Gross Income in excess of $114,700. The tax
brackets also do not show the effects of phase out of personal exemptions for
single filers with Adjusted Gross Income in excess of $114,700 and joint
filers with Adjusted Gross Income in excess of $172,050. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above. The applicable federal tax rates within the brackets
are 15%, 28%, 31%, 36%, and 39.6%, over the same ranges of income.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Classic
Massachusetts Municipals 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 and Massachusetts personal income taxes, 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
except for Massachusetts personal income taxes. It should also be noted that
the interest earned on certain "private activity" Massachusetts obligations
issued after August 7, 1986, while exempt from the regular federal income tax,
is treated as a tax preference item which could subject the recipient to the
federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult with their tax adviser for
additional information. See the Tax Equivalent Yield Table in this Part II
concerning applicable tax rates and income brackets.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC MISSISSIPPI MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Mississippi State personal income taxes.
The Fund currently seeks to achieve its investment objective by investing its
assets in the Mississippi Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Mississippi considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Mississippi issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of Mississippi issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Funding of the various State operations is derived principally from the
General Fund revenues and Special Fund receipts. For the fiscal year ending
June 30, 1993, $4.14 billion in revenue was collected by the Special Fund. The
major sources of such revenue being $2.19 billion from Federal grants-in-aid,
including $1.39 billion for public health and welfare and $345.6 million for
public education. Funding for the General Fund is derived principally from
revenues generated by income, corporate, excise and sales taxes as well as
profits from the wholesale sales of alcoholic beverages, interest earned on
investments, proceeds from sales of various supplies and services, and
licensing fees. As of fiscal year ending June 30, 1994, the State derived
42.3% of total revenue from sales taxes, 26.5% from individual income taxes
and 9.1% from corporate income taxes. Sales taxes, the largest source of
revenue for the General Fund, can be adversely affected by downturns in the
economy. In an effort to increase sales tax collections, the Legislature has
increased the State sales tax from 6% to 7% effective June 1, 1992. The
General Fund had an ending fund balance of $166 million for 1994. In the event
revenues fall below the amounts projected during the budgeting phase, the
Department of Finance Administration has the authority to reduce allocations
to agencies and restrict a particular agency's monthly allotment if it appears
that that agency may deplete its appropriations prior to the close of the
fiscal year. Even with budgetary controls in place, the State has experienced
cash flow problems in prior years.
The following cases which have been reviewed by the Attorney General's
office purport to be a representative sampling of the most significant cases
in which the State is the defendant and wherein the State's financial
resources may be materially adversely affected: (1) an action against the
State and certain public officials challenging the constitutionality of the
statewide system of public education; (2) an action against the State
regarding the conditions in its penal institutions; and (3) a suit against the
Mississippi State Tax Commission alleging improper taxation against multi-
state corporations.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $28,992,960. For
the fiscal year ended September 30, 1995, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $65,442 (equivalent to 0.22% of
the Portfolio's average daily net assets for such year). To enhance the net
income of the Portfolio, BMR made a reduction of its advisory fee in the
amount of $36,759. For the fiscal year ended September 30, 1994, absent a fee
reduction, the Portfolio would have paid BMR advisory fees of $45,841
(equivalent to 0.19% of the Portfolio's average daily net assets for such
year). To enhance the net income of the Portfolio, BMR made a reduction of the
full amount of its advisory fee and BMR was allocated a portion of expenses
related to the operation of the Portfolio in the amount of $19,780. For the
period from the Portfolio's start of business, June 11, 1993, to the fiscal
year ended September 30, 1993, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $2,303 (equivalent to 0.14% (annualized) of the
Portfolio's average daily net assets for such period). To enhance the net
income of the Portfolio, BMR made a reduction of the full amount of its
advisory fee and BMR was allocated a portion of the expenses related to the
operation of the Portfolio in the amount of $1,810. The Portfolio's Investment
Advisory Agreement with BMR is dated June 7, 1993 and remains in effect until
February 28, 1996. The Agreement may be continued as described under
"Investment Adviser and Administrator" in Part I of this Statement of
Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended September 30, 1995 and for the period from the start of business,
December 7, 1993, to the fiscal year ended September 30, 1994, $14,260 and
$19,179, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended September 30, 1995, the Principal Underwriter
paid to Authorized Firms sales commissions of $17,628 on sales of Fund shares.
During the same period, the Fund paid sales commission payments under the Plan
to the Principal Underwriter aggregating $18,730. Such payments reduced
Uncovered Distribution Charges. During such period, contingent deferred sales
charges aggregating approximately $59 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $281,300 (which amount was equivalent to 12.1% of
the Fund's net assets on such date). During the fiscal year ended September
30, 1995, the Fund paid service fee payments under the Plan aggregating
$5,039, of which $4,679 was paid to Authorized Firms and the balance of which
was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $92.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $3,130 and
the Portfolio paid IBT $9,679.
BROKERAGE
For the fiscal years ended September 30, 1995 and 1994, and for the period
from the start of business, June 11, 1993, to the fiscal year ended September
30, 1993, the Portfolio paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio, and
of the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight .......... $0 $336(2) $135,000(4)
Samuel L. Hayes, III ...... 0 324(3) 150,000(5)
Norton H. Reamer .......... 0 316 135,000
John L. Thorndike ......... 0 321 140,000
Jack L. Treynor ........... 0 346 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $113 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Cynthia J. Clemson (32) is a Vice President of the Portfolio. Ms.
Clemson has served as a Vice President of the Portfolio since June 19, 1995.
Ms. Clemson has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1985. Ms. Clemson is an officer of various
investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from June 11, 1993 through
September 30, 1995 and for the one year period ended September 30, 1995. The
total return for the period prior to the Fund's commencement of operations on
December 7, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund contingent deferred sales
charge ("CDSC"). The total return for such prior period has not been adjusted
to reflect the Fund's distribution fees and certain other expenses. If such an
adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING CDSC DEDUCTING CDSC*
INVESTMENT INVESTMENT AMOUNT OF DEDUCTING CDSC DEDUCTING CDSC* -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 6/11/93 $1,000 $1,059.75 $1,059.75 5.98% 2.54% 5.98% 2.54%
1 Year
Ended
9/30/95** 9/30/94 $1,000 $1,094.67 $1,084.67 9.47% 9.47% 8.47% 8.47%
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.
- ----------
* No CDSC is imposed on certain redemptions. See the Fund's current prospectus.
** If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.13%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.13% would be 6.30%,
assuming a combined federal and State tax rate of 34.45%. If a portion of the
Portfolio's and the Fund's expenses had not been allocated to the Investment
Adviser and the Administrator, respectively, the Fund would have had a lower
yield.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 22, 1995) was 4.60%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.70%. If a portion of the Portfolio's and
the Fund's expenses had not been allocated to the Investment Adviser and the
Administrator, respectively, the Fund would have had a lower distribution rate
and effective distribution rate.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 32.1% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. In addition, as of such date, the following
shareholders owned beneficially and of record the percentage of outstanding
shares of the Fund indicated after their name: Shirley Pickich Delcambre,
Biloxi, MS (14.6%); George J. Higginbotham, Biloxi, MS (11.8%) and Denis J.
Damiens Sr., Madison, MS (7.5%). To the knowledge of the Trust, no other
person owned of record or beneficially 5% or more of the Fund's outstanding
shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic Mississippi Tax Free Fund to EV Classic
Mississippi Municipals Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Mississippi State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND MISSISSIPPI STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- MS STATE ----------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------ ----------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 19.25% 4.95 5.57 6.19 6.81 7.43 8.05 8.67
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 31.60 5.85 6.58 7.31 8.04 8.77 9.50 10.23
$ 56,551 - $117,950 $ 94,251 - $143,600 34.45 6.10 6.86 7.63 8.39 9.15 9.92 10.68
$117,951 - $256,500 $143,601 - $256,500 39.20 6.58 7.40 8.22 9.05 9.87 10.69 11.51
Over $256,500 Over $256,500 42.62 6.97 7.84 8.71 9.59 10.46 11.33 12.20
* Net amount subject to federal and Mississippi personal income tax after eductions and exemptions.
+ The first tax bracket is calculated using the highest Mississippi tax rate within the bracket. Taxpayers with taxable income
within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax rates
assume that Mississippi taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions
on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those indicated
above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over the same
ranges of income. The assumed Mississippi State income tax rate is 5%.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Mississippi State income
taxes) for taxpayers with adjusted gross income in excess of $114,700. The tax
brackets also do not show the effects of phase out of personal exemptions for
single filers with adjusted gross income in excess of $114,700 and joint
filers with adjusted gross income in excess of $172,050. 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 EV Classic Mississippi
Municipals 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 and
Mississippi personal income taxes, 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 except for
Mississippi personal income taxes. It should also be noted that the interest
earned on certain "private activity" Mississippi obligations issued after
August 7, 1986, while exempt from the regular federal income tax, is treated
as a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits
that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult their tax adviser for
additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC NEW YORK MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and New York City and New York State personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the New York Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain New York considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in New York issuers. Such information supplements the information
in the Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of New
York issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The recession lasted longer in New York and the State's economic recovery
has lagged behind the nation's. Although the State has added approximately
185,000 jobs since November 1992, employment growth in the State has been
below the national average primarily due to significant cutbacks in the
computer, manufacturing, defense and banking industries. New York's economy is
expected to continue to expand modestly during 1995 with a pronounced slow-
down during the course of the year. The unemployment rate for the State for
1995 is projected to be 6.4%, compared to the national rate of 5.6%. New York
City's unemployment rate was 8.1% in June 1995, down from 8.5% a year earlier.
For the fiscal year 1991-92, the State incurred an operating deficit in
the General Fund of $575 million, which, after a $44 million withdrawal from
the Tax Stabilization Reserve Fund, was financed through the public issuance
of $531 million of 1992 Deficit Notes on March 30, 1992.
In the 1992-1993 fiscal year, the State began the process of financial
reform closing the fiscal year with fund surpluses totalling $738 million. The
1992-1993 fiscal year marked the first time in four years that the State did
not have to issue deficit notes to close a budget gap.
The 1993-1994 fiscal year ended with combined fund balances of $1.539
billion due to an improving national economy, State employment growth, better
than projected tax collections and disbursements that were below projections.
The 1994-1995 fiscal year, which included tax reductions of $476 million,
closed with the General Fund in balance and positive fund balances of $157
million and $1 million in the Tax Stabilization Reserve Fund and the
Contingency Reserve Fund, respectively. Tax revenues for the fiscal year fell
short of original projections by $1.16 billion, the shortfall being offset by
disbursements which were lower than projected and planned spending reductions.
The 1995-1996 fiscal year budget, adopted in June 1995, includes a planned
three-year 20% reduction in the State's personal income tax and is the first
budget in over 50 years which projects a decline in General Fund disbursements
and spending on State operations. The 1995-1996 State Financial Plan, based on
the enacted budget, includes gap-closing actions to offset a previously
projected budget gap of $5 billion, the largest in the State's history. Such
gap-closing actions include, among others, substantial reductions in social
and medical entitlement programs, reductions in State services and capital
programs and increased lottery revenues. There can be no assurance that
additional gap-closing measures will not be required and there is no assurance
that any such measures will enable the State to achieve a balanced budget for
its 1995-1996 fiscal year.
In 1994 and 1995, the State legislature passed a proposed constitutional
amendment on debt reform. The proposed amendment would permit the State to
issue non-voter approved revenue bonds secured by a pledge of certain tax
receipts, up to a cap equal to 5% of State personal income. If approved by the
voters in November 1995, such amendment would become effective January 1,
1996.
During the past several years, the State has been forced to borrow on a
seasonal basis due to cash flow timing problems. In June, 1990, the Local
Government Assistance Corporation ("LGAC") was formed as a public benefit
corporation for the purpose of issuing long term obligations designed to
eliminate this need. The legislation which created the LGAC specified that the
obligations will be amortized over no more than 30 years and put a $4.7
billion dollar cap, net of LGAC proceeds, on the seasonal borrowing program.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of
$4.7 billion completing the program. This cap may be exceeded in cases where
the Governor and the legislature have certified the need for additional
borrowing and have devised a method for reducing it back to the cap no later
than the fourth fiscal year after the limit is exceeded. If this cap were to
be exceeded, it could result in action by the rating agencies which could
adversely affect prices of bonds held by the Portfolio.
In 1975, New York City encountered severe financial difficulties which
impaired and continues to impair the borrowing ability of the City. For each
of the 1981 through 1994 fiscal years, the City achieved balanced operating
results as reported in accordance with generally accepted accounting
principles. Pursuant to the laws of the State, the City prepares a four-year
annual financial plan, which is reviewed and revised on a quarterly basis and
which includes the City's capital, revenue and expense projections and
outlines proposed gap-closing programs for years with projected budget gaps.
The City implemented various actions to close budget gaps of $3.3 billion,
$2.1 billion and $3.5 billion for the 1992, 1994 and 1995 fiscal years,
respectively. Such actions included, among others, tax increases, service and
personnel reductions, productivity savings, debt refinancings, asset sales and
cost savings related to employee benefits. For the 1996 fiscal year, the City
has projected a budget gap of $3.1 billion and has proposed to implement
various gap-closing actions to balance the 1996 fiscal year budget including,
among others, substantial reductions in entitlement programs, service and
personnel reductions, cost saving initiatives related to labor and pension
costs and increases in certain lease and fee payments due the City. The City
currently projects budget gaps of $888 million, $1.459 billion and $1.484
billion for its 1997, 1998 and 1999 fiscal years, respectively. The City's
gap-closing plans for the 1997 through 1999 fiscal years include reductions in
City agency expenditures and cost saving actions related to entitlement
programs and procurement. There can be no assurance that additional gap-
closing measures will not be required, the implementation of which could
adversely affect the City's economic base, and there is no assurance that such
measures will enable the City to achieve a balanced budget, as required by
State law, for any of the 1996 through 1999 fiscal years. The fiscal health of
New York City, which is the largest issuer of municipal bonds in the country
and a leading international commercial center, exerts a significant influence
upon the fiscal health and bond values of issues throughout the State. Bond
values of the Municipal Assistance Corporation, the State of New York, the New
York Local Government Assistance Corporation, the New York State Dormitory
Authority -- City University, the New York City Municipal Water Finance
Authority and The Metropolitan Transportation Authority would be particularly
affected by serious financial difficulties encountered by New York City. The
Portfolio could be expected to hold bonds issued by many, if not all of these
issuers, at any given time.
Moody's rates the City's general obligation bonds "Baa1" and Fitch rates
such bonds "A-". On July 10, 1995, S&P revised downward its rating on City
general obligation bonds from A- to BBB(PL). S&P stated that the downgrade was
a reflection of the City's inability to eliminate a structural budget
imbalance due to persistent softness in the City's economy, weak job growth, a
trend of using nonrecurring budget devices, optimistic projections of State
and federal aid and high levels of debt service. There is no assurance that
such ratings will continue for any given period of time or that they will not
be revised downward or withdrawn entirely. Any such downward revision or
withdrawal could have an adverse effect on obligations held by the Portfolio.
The State's economic and fiscal viability are mutually and intricately
tied to those of its authorities and localities, which make up the major
portion of State bond issuance. Any serious financial difficulties encountered
by these entities, including their inability to access capital markets, would
have a significant, adverse effect upon the value of bonds issued elsewhere
within the State and thus upon the value of the interests in the Portfolio.
State plans to reduce aid to local cities and towns may have a negative impact
on municipal finances and ratings throughout the State. Such ratings changes
could erode the value of their bonds and/or lead to defaults.
The State either guarantees or supports lease-purchase agreements or
contractual obligations, financing arrangements or through moral obligation
provisions, a large amount of Authority indebtedness. While debt service is
normally paid out of revenues generated by the projects of the Authorities,
the State has, from time to time, had to appropriate amounts to enable the
Authorities to meet their financial obligations and, in some cases, to prevent
default. Certain authorities continue to show financial weakness due to the
economy.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $652,736,309.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees of $3,031,508 (equivalent to 0.47% of the Portfolio's average daily net
assets for such year). For the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $3,073,565 (equivalent to 0.46% of the
Portfolio's average daily net assets for such year). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $1,755,148
(equivalent to 0.46% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended September 30, 1995, and for the period from the start of business,
December 6, 1993, to the fiscal year ended September 30, 1994, $24,385 and
$16,232, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended September 30, 1995, the Principal Underwriter
paid to Authorized Firms sales commissions of $39,375 on sales of Fund shares.
During the same period, the Fund paid sales commission payments under the Plan
to the Principal Underwriter aggregating $42,135. Such payments reduced
Uncovered Distribution Charges. During such period, contingent deferred sales
charges aggregating approximately $97 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at September 30, 1995 the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $467,000 (which amount was equivalent to 9.1% of the
Fund's net assets on such date). During the fiscal year ended September 30,
1995, the Fund paid service fee payments under the Plan aggregating $11,259,
of which $10,360 was paid to Authorized Firms and the balance of which was
retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $122.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $453 and
the Portfolio paid IBT $1,500.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 1994 and for the period from the start of business, February 1,
1993, to the fiscal year ended September 30, 1993, the Portfolio paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Fund or the Portfolio.) During the fiscal year ended September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight .......... $34 $4,093(2) $135,000(4)
Samuel L. Hayes, III ...... 32 4,048(3) 150,000(5)
Norton H. Reamer .......... 32 4,013 135,000
John L. Thorndike ......... 32 4,133 140,000
Jack L. Treynor ........... 35 4,257 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,373 of deferred compensation.
(3) Includes $1,302 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Nicole Anderes (34) has served as a Vice President of the
Portfolio since June 19, 1995. Ms. Anderes has been a Vice President of BMR
and Eaton Vance since 1994, and is an officer of various investment companies
managed by Eaton Vance or BMR. Prior to joining Eaton Vance, Ms. Anderes was
Vice President and portfolio manager, Lazard Freres Asset Management (1992-
1994) and Vice President and Manager -- Municipal Research, Roosevelt & Cross
(1978-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from August 30, 1990
through September 30, 1995 and for the one- and five-year periods ended
September 30, 1995. The total return for the period prior to the Fund's
commencement of operations on December 6, 1993 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
contingent deferred sales charge ("CDSC"). The total return for such prior
period has not been adjusted to reflect the Fund's distribution fees and
certain other expenses. If such an adjustment were made, the performance would
be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING CDSC DEDUCTING CDSC*
INVESTMENT INVESTMENT AMOUNT OF DEDUCTING CDSC DEDUCTING CDSC* -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 8/30/90 $1,000 $1,499.06 $1,499.06 49.91% 8.28% 49.91% 8.28%
5 Years
Ended
9/30/95** 9/30/94 $1,000 $1,506.55 $1,506.55 50.66% 8.52% 50.66% 8.52%
1 Year
Ended
9/30/95** 9/30/94 $1,000 $1,094.48 $1,084.48 9.45% 9.45% 8.45% 8.45%
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.
- ----------
* No CDSC is imposed on certain redemptions. See the Fund's current prospectus.
**If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.31%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.31% would be 7.10%,
assuming a combined federal and State tax rate of 39.32%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 22, 1995) was 4.85%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.96%. If a portion of the Fund's expenses
had not been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
Investors should consult with their tax advisers for additional
information about the Fund's performance. See the Tax Equivalent Yield Table
in this Part II for information concerning applicable tax rates and income
brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 30.1% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. In addition, as of the same date, the following
shareholders owned of record the percentages of outstanding shares indicated
after their names: Design Tex Fabrics Inc., Attn: Mark Gray, New York, NY
10014-4810 (9.8%), and Vector Magnetics Inc., Ithaca, NY 14850 (6.3%). To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic New York Tax Free Fund to EV Classic New York
Municipals Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLES
The table below shows the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and New York State and New York City income tax laws in effect for 1995.
<TABLE>
<CAPTION>
COMBINED
FEDERAL,
SINGLE RETURN JOINT RETURN NY STATE A FEDERAL, NEW YORK STATE AND NEW YORK CITY TAX EXEMPT YIELD OF:
- ------------------- ------------------- AND NY CITY ----------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------------ ----------------- ----------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 25.19% 5.35% 6.01% 6.68% 7.35% 8.02% 8.69% 9.36%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 36.64 6.31 7.10 7.89 8.68 9.47 10.26 11.05
$ 56,551 - $117,950 $ 94,251 - $143,600 39.32 6.59 7.42 8.24 9.06 9.89 10.71 11.54
$117,951 - $256,500 $143,601 - $256,500 43.71 7.11 7.99 8.88 9.77 10.66 11.55 12.44
Over $256,500 Over $256,500 46.88 7.53 8.47 9.41 10.35 11.29 12.24 13.18
* Net amount subject to federal, New York State and New York City personal income tax (including New York City personal income
tax surcharges) after deductions and exemptions.
+ The combined tax rate for the two lowest federal income brackets are calculated using the highest State rate (7.59375%
effective annualized State tax rate based on a rate of 7.875% for the first 3 months of the 1995 tax year and 7.5% for the
remaining 9 months) and the highest City rate applicable at the upper portion of that bracket. Therefore, an investor with
taxable income below the highest dollar amount in the two lowest brackets may have a lower combined tax rate than the combined
rate shown for that bracket. The applicable State and City rates are at their maximum (7.59375% and 4.457%, respectively)
throughout all other brackets.
</TABLE>
The table below shows the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and New York State income tax laws in effect for 1995.
<TABLE>
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL, NEW YORK STATE AND NEW YORK CITY TAX EXEMPT YIELD OF:
- ------------------- ------------------- NY STATE ----------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------------ ----------------- ----------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 21.45% 5.09% 5.73% 6.37% 7.00% 7.64% 8.28% 8.91%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.47 6.01 6.76 7.52 8.27 9.02 9.77 10.52
$ 56,551 - $117,950 $ 94,251 - $143,600 36.24 6.27 7.06 7.84 8.63 9.41 10.19 10.98
$117,951 - $256,500 $143,601 - $256,500 40.86 6.76 7.61 8.45 9.30 10.15 10.99 11.84
Over $256,500 Over $256,500 44.19 7.17 8.06 8.96 9.85 10.75 11.65 12.54
* Net amount subject to federal and New York State and personal income tax after deductions and exemptions.
+ The combined tax rate for the lowest federal income brackets shown in the left column is calculated using the highest State
rate (7.59375% effective annualized State tax rate based on a rate of 7.875% for the first 3 months of the 1995 tax year and
7.5% for the remaining 9 months) applicable at the upper portion of that bracket. Therefore, an investor with taxable income
below the highest dollar amount in the lowest bracket may have a lower combined tax rate than the combined rate shown for that
bracket. The applicable State rate is the maximum rate, 7.59375%, throughout all other brackets.
</TABLE>
Note: Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield. The applicable federal tax rates within the
brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over the same ranges
of income. The combined brackets are based on the highest New York State and/
or New York City income tax rates within each bracket. No assurance can be
given that EV Classic New York Municipals 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 and New York State and New York City personal income taxes, 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 except for New York State and New York City personal income
taxes. It should also be noted that the interest earned on certain "private
activity bonds" issued after August 7, 1986, while exempt from the regular
federal income tax, is treated as a tax preference item which could subject
the recipient to the federal alternative minimum tax.
The above-indicated combined federal and New York State/City income brackets
assume State and City taxes are itemized deductions and do not take into
account the effect of a reduction in the deductibility of itemized deductions
(including New York State and City Income Taxes) for taxpayers with adjusted
gross income in excess of $114,700, nor do they reflect phaseout of personal
exemptions for single and joint filers with adjusted gross income in excess
of $114,700 and $172,050, respectively. The effective combined tax brackets
and equivalent taxable yields of taxpayers who do not itemize or who are
subject to such limitations will be higher than those indicated above. In
addition, investors who do not itemize deductions on their federal income tax
returns will have higher combined brackets and equivalent taxable yields than
indicated above. The illustrations assume that the federal alternative minimum
tax is not applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC OHIO MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Ohio State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Ohio Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Ohio considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Ohio issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of Ohio
issuers. Neither the Trust nor the Portfolio has independently verified this
information.
During the 1980's, Ohio's economy underperformed the nation's. The State's
economic performance was reflected in below average earnings growth, declining
per capita personal income as a percentage of the U.S. and unemployment rates
consistently above the national unemployment rates. Ohio's economic base was
cyclical in nature due to its reliance on durable goods manufacturing of
steel, rubber products and household appliances though largely concentrated in
motor vehicles and equipment manufacturing. Unemployment fell from 7.3% to
6.6% between March 1993 and March 1994. Ohio is more reliant on manufacturing
jobs, 22% of all jobs, than is the U.S. as a whole (17%).
The State of Ohio operates on the basis of a fiscal biennium for its
appropriations and expenditures. The State is effectively prohibited by law
from ending a fiscal year or a biennium in a deficit position. The Governor
has the power to order State agencies to operate within the State's means. The
State carries out most of its operations through the General Revenue Fund
("GRF") which receives general State revenues not otherwise dedicated. GRF
revenues are derived mainly from personal income and sales taxes and corporate
franchise taxes. State GRF figures generally show a pattern related to
national economic conditions, evident in growth and depletion of its GRF
ending fund balances, with the June 30 (end of fiscal year) GRF fund balance
reduced during less favorable national economic periods and increased during
more favorable economic periods.
The general appropriations act for the 1994-95 biennium was signed by the
Governor on July 1, 1993. This act appropriated $30.7 billion for GRF
purposes. Appropriations for the first fiscal year of the biennium were
approximately 9.2% above those for fiscal year 1993 while those for the second
year were approximately 6.6% higher than those for fiscal year 1994. These
additional appropriations were mainly for increased costs in most State
financed programs such as education, Medicaid, mental health and corrections.
During the 1991-1993 biennium, the national economic downturn required a $200
million transfer from the Budget Stabilization Fund to the GRF. As fiscal year
1992 progressed, reduced tax collections led to a revenue. This, in
combination with additional expenditures produced a budget deficit. The State
addressed this deficit through a combination of budget cuts, tax payment
accelerations and a depletion of the Budget Stabilization Fund. A projected
fiscal year 1993 gap of $520 million was covered through a combination of tax
increases and a reduction in appropriations. The fiscal year 1994 budget was
balanced, and the State's GRF had an ending fund balance of $560 million.
Local school districts in Ohio receive a major portion of their operating
monies from State subsidies, but are dependent upon local taxes for
significant portions of their budgets. School districts may submit for voter
approval income taxes on the district income of individuals and estates. To
date, this income tax has been approved in 107 of the State's 600(PL) local
school districts. A small number of local school districts have in any year
required emergency advances from the State under a prior program in order to
avoid year-end deficits. Forty-four school districts borrowed $68.6 million in
fiscal year 1992 and 27 districts borrowed $94.5 million in 1993, including
Cleveland which borrowed $75 million. Twenty-eight districts borrowed $42.1
million in fiscal year 1994. Schools were affected by budget-balancing
expenditure reductions discussed above.
Litigation, similar to that in other states, is pending questioning the
constitutionality of Ohio's system of school funding. A trial court recently
concluded that aspects of the system (including basic operating assistance)
are unconstitutional, and ordered the State to provide for and fund a system
complying with the Ohio Constitution. The State has appealed. At this time, it
is not possible to determine either the outcome or the financial burden which
an unfavorable decision would have on either the State's or the local school
districts' financial health.
Resolutions have been introduced in both houses of the General Assembly
that would submit at the November 1995 election constitutional amendments
relating to State debt. One amendment would authorize, among other things, the
issuance of State general obligation debt for a variety of purposes and
without additional vote of the people to the extent that debt service on all
State general obligation debt and GRF-supported obligations would not exceed
5% of the preceding fiscal year's GRF expenditures. It cannot be predicted
whether any of the proposed amendments will in fact be submitted, or, if
submitted, approved by the electors.
FEES AND EXPENSES
INVESTMENT ADVISER
As at September 30, 1995, the Portfolio had net assets of $319,016,648.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees of $1,463,895 (equivalent to 0.46% of the Portfolio's average daily net
assets for such year). For the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $1,454,208 (equivalent to 0.45% of the
Portfolio's average daily net assets for such year). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $750,672
(equivalent to 0.44% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended September 30, 1995 and for the period from the start of business,
December 7, 1993, to the fiscal year ended September 30, 1994, $20,605 and
$20,643, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended September 30, 1995, the Principal Underwriter
paid to Authorized Firms sales commissions of $14,797 on sales of Fund shares.
During the same period, the Fund paid sales commission payments under the Plan
to the Principal Underwriter aggregating $15,306. Such payments reduced
Uncovered Distribution Charges. During such period, contingent deferred sales
charges aggregating approximately $19 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at September 30, 1995 the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $240,000 (which amount was equivalent to 11.1% of
the Fund's net assets on such date). During the fiscal year ended September
30, 1995, the Fund paid service fee payments under the Plan aggregating
$4,163, of which $3,946 was paid to Authorized Firms and the balance of which
was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $77.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $3,321 and
the Portfolio paid IBT $157,716.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 1994 and for the period from the start of business, February 1,
1993, to the fiscal year ended September 30, 1993, the Portfolio paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Fund or the Portfolio.) During the fiscal year ended September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight ......... $0 $3,287(2) $135,000(4)
Samuel L. Hayes, III ..... 0 3,270(3) 150,000(5)
Norton H. Reamer ......... 0 3,254 135,000
John L. Thorndike ........ 0 3,364 140,000
Jack L. Treynor .......... 0 3,426 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,102 of deferred compensation.
(3) Includes $1,054 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from April 18, 1991 through
September 30, 1995 and for the one-year period ended September 30, 1995. The
total return for the period prior to the Fund's commencement of operations on
December 7, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund contingent deferred sales
charge ("CDSC"). The total return for such prior period has not been adjusted
to reflect the Fund's distribution fees and certain other expenses. If such an
adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING CDSC DEDUCTING CDSC*
INVESTMENT INVESTMENT AMOUNT OF DEDUCTING CDSC DEDUCTING CDSC* -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 4/18/91 $1,000 $1,346.62 $1,346.62 34.66% 6.90% 34.66% 6.90%
1 Year
Ended
9/30/95** 9/30/94 $1,000 $1,096.38 $1,086.38 9.64% 9.64% 8.64% 8.64%
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.
- ----------
* No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
**If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.57%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.57% would be 7.11%,
assuming a combined federal and State tax rate of 35.76%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 22, 1995) was 4.75%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.86%. If a portion of the Fund's expenses
had not been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
Investors should consult with their tax advisers for additional
information about the Fund's performance. See the Tax Equivalent Yield Table
in this Part II for information concerning applicable tax rates and income
brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 37.9% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. In addition, as of the same date, the following
shareholders owned of record the percentages of outstanding shares indicated
after their names: NFSC FEBO # OGD-521515, Ellis Brothers Inc., Mt. Vernon, OH
43050 (7.9%) and Paine Webber FBO Mary Alice Wilson, Lucasville, OH 45648-9806
(6.3%). To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
TAXES
In the opinion of special tax counsel to the Fund, Squire, Sanders &
Dempsey, under Ohio law, provided that the Fund continues to qualify as a
regulated investment company under the Code and that at all times at least 50%
of the value of the total assets of the Fund consists of obligations issued by
or on behalf of Ohio, political subdivisions thereof or agencies or
instrumentalities of Ohio or its political subdivisions ("Ohio Obligations"),
or similar obligations of other states or their subdivisions (a fund
satisfying such requirements being referred to herein as an "Ohio fund"), (i)
dividends paid by the Fund will be exempt from the Ohio personal income tax
and any municipal or school district income taxes in Ohio to the extent such
dividends are properly attributable to interest on Ohio Obligations, and (2)
distributions of "capital gain dividends," as defined in the Internal Revenue
Code, which are properly attributable to the Fund's capital gains on the sale
or other disposition of Ohio Obligations, will not be subject to the Ohio
personal income tax or municipal or school district income taxes in Ohio.
Other distributions from the Fund will generally not be exempt from the Ohio
personal income tax or municipal or school district income taxes in Ohio.
Provided the Fund qualifies as an Ohio fund, (1) distributions from the
Fund will be excluded from the net income base of the Ohio corporation
franchise tax to the extent that such distributions are excludable from gross
income for Federal income tax purposes or are properly attributable to
interest on Ohio Obligations, and (2) distributions which are derived from the
Fund's capital gains on the sale or other disposition of Ohio Obligations,
also will be excluded from the net income base of the Ohio corporation
franchise tax. However, shares of the Fund will not be excluded from the tax
base for purposes of computing such tax on the net worth basis.
Distributions by the Fund properly attributable to interest on obligations
of the United States or the governments of Puerto Rico, the Virgin Islands or
Guam or their authorities or municipalities are exempt from the Ohio personal
income tax and municipal and school district income taxes in Ohio, and are
excluded from the net income base of the Ohio corporate franchise tax to the
same extent that such interest would be so exempt or excluded if the
obligations were held directly by the shareholders.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic Ohio Tax Free Fund to EV Classic Ohio
Municipals Fund on December 8, 1995.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular federal income
tax and Ohio State income tax laws and tax rates applicable for 1995. It gives
the approximate yield a taxable security must earn at various income brackets
to produce after-tax yields equivalent to those of tax exempt bonds yielding
from 4% to 7%.
<TABLE>
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL AND OHIO STATE TAX EXEMPT YIELD OF:
- ------------------- --------------------- OHIO STATE ----------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------------ ------------------ ----------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 18.79% 4.93% 5.54% 6.16% 6.77% 7.39% 8.00% 8.62%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.28 5.91 6.64 7.38 8.12 8.86 9.60 10.34
$ 56,551 - $117,950 $ 94,251 - $143,600 35.76 6.23 7.01 7.78 8.56 9.34 10.12 10.90
$117,951 - $256,500 $143,601 - $256,500 40.80 6.76 7.60 8.45 9.29 10.14 10.98 11.82
Over $256,500 Over $256,500 44.13 7.16 8.05 8.95 9.84 10.74 11.63 12.53
* Net amount subject to federal and Ohio personal income tax after deductions and exemptions.
+ The combined tax rates for the tax brackets shown in the left hand columns are calculated using the highest Ohio State rate
applicable at the upper portion of these brackets and assume that taxpayers deduct Ohio State income taxes paid on their
federal income tax returns. Investors who do not itemize deductions on their federal income tax return will have a higher
combined bracket and higher taxable equivalent yield than those indicated above.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Ohio State income taxes) for
taxpayers with adjusted gross income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $114,700 and joint filers with
adjusted gross income in excess of $172,050. 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. The applicable federal tax rates within each of these
combined brackets are 15%, 28%, 31%, 36% and 39.6% over the same ranges of
income. The combined brackets are based on the highest or average of highest
Ohio State income tax rates for single and joint taxpayers within the
brackets. No assurance can be given that EV Classic Ohio Municipals 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 and Ohio personal income taxes, 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 except for Ohio personal income taxes. It should also be noted
that the interest earned on certain "private activity" Ohio obligations issued
after August 7, 1986, while exempt from the regular federal income tax, is
treated as a tax preference item which could subject the recipient to the
federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credit that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC RHODE ISLAND MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Rhode Island State personal income taxes.
The Fund currently seeks to achieve its investment objective by investing its
assets in the Rhode Island Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Rhode Island considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Rhode Island issuers. Such information supplements the
information in the Prospecuts. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of Rhode Island issuers. Neither the Trust nor the
Portfolio has independently verified this information.
The economic slowdown beginning in 1989 resulted in significant State
budget constraints. Declining State revenues, combined with increased demand
for certain governmental services, such as public assistance, have occurred as
a result of the difficult general economic conditions. State law requires that
the State end each year with a balanced budget and does not permit a deficit
to continue into the next fiscal year. In response to this legal mandate and
overall budgetary pressures, the State has undertaken a variety of strong
financial management controls and initiatives, including reducing
expenditures, improving revenue estimating procedures and increasing taxes.
The fiscal 1991 Appropriations Act limited appropriations in fiscal year
1992 to 99.5% of General Fund revenues, with the limitation increasing to
99.0%, 98.5% and 98.0% for fiscal years 1993, 1994, and 1995 and thereafter,
respectively. The remaining balance is to be deposited into the Budget Revenue
and Cash Stabilization Fund, provided that the total reserve fund balance is
capped at 3% of General Fund revenues. The 1992 Appropriations Act as enacted,
suspended those provisions for fiscal year 1992, but provided that any
revenues received in excess of the amount estimated shall be deposited in the
Budget Reserve and Cash Stabilization Fund, up to 1/2% of general revenues.
The 1992 General Assembly approved placing spending limits on the ballot as a
constitutional requirement. On November 3, 1992, the voters approved the
constitutional provisions limiting State appropriations to 98% of estimated
revenues.
The State's fiscal year 1992 opened with a small surplus but by October
1991, a general revenue shortfall of at least $63.1 million was projected by
the Revenue Estimating Conference. At that time, the State Budget Office also
projected "deficiency" spending of as much as $42 million. The fiscal 1992
revenue projections were further impaired by the lowering of federal
withholding rates in 1991, because the State's income tax rates are tied to
federal rates. As a result of approximately $140 million in federal
"disproportionate share" reimbursements, the State was able to balance the
1992 budget and ended fiscal year 1992 with a small surplus, after $8.5
million was transferred to the Budget Reserve and Cash Stabilization Account.
The 1993 fiscal year budget contained a number of revenue raising components,
including a temporary 32% "piggyback" personal income tax rate for federal
liability greater than $15,000, initiating video lottery games at two existing
gambling sites, levying new health care provider assessments on nursing homes
and certain outpatient care facilities (but not hospitals), and increasing
estimated "disproportionate share" reimbursements, a substantial portion of
which is expected to be one-time. In 1993, the State recorded an $8.4 million
operating surplus, boosting the undesignated general fund balance to $8.7
million. Combined with budget stabilization reserves, the State ended fiscal
1993 with $32 million in available monies (equal to 1.4% of expenditures).
Fiscal 1994 revenue estimates were $14 million above the enacted budget.
Unaudited expenditures in excess of revised revenues are, however, expected to
yield a $2.9 million drawdown of balances to $5.8 million. The 1995 budget
includes budgeted reserves of $46.5 million (equal to 3% of fiscal 1995
expenditures).
The collapse of Rhode Island Share and Indemnity Corporation, a private
insurer ("RISDIC"), at the end of December 1990 precipitated the closure on
January 1, 1991 of financial institutions with total deposit liabilities of
approximately $1.7 billion. The resulting banking crisis presented risks of
short-term dislocation in many parts of the State which the State sought to
address through the creation of the Rhode Island Depositors Economic
Protection Corporation ("DEPCO"). Through DEPCO, the State's efforts to
address the crisis were directed at minimizing the larger economic risks as
well as alleviating the social costs from the potential loss of personal
savings for many individual depositors. By the end of 1992, substantially all
of the frozen deposits had been repaid or otherwise made available to the
affected depositors through the reopening, sale or liquidation of the closed
institutions. Over the next 20 years, DEPCO is also obligated to pay former
depositors approximately $54 million. The necessary steps to resolve the
crisis, including the property management and disposition programs to be
conducted by DEPCO in its efforts to meet the cash requirements for depositor
repayments, are under way. To facilitate the sale of certain institutions and
the payout of frozen deposits, DEPCO incurred approximately $456.5 million of
special obligation bonds. As a result of a recent refinancing to take
advantage of favorable interest rates, there are currently approximately
$475.8 million of special obligation bonds outstanding. Receipts from .6% of
the State's sales and use tax rate are dedicated to a special revenue fund to
be used for repayment of the special obligation bonds. In addition, DEPCO has
outstanding approximately $130 million of general obligation bonds, which it
expects will be repaid primarily out of the proceeds from liquidating assets
acquired from certain of the failed institutions.
The State's budget difficulties, together with the banking crisis and the
issuance of the DEPCO debt, contributed to a lowering of the State's credit
rating in 1992 to A-1 by Moody's Investors Services, Inc. and AA- "with a
stable outlook" from Standard & Poor's Ratings Group. The State reportedly
ranks fourth among all states in per capita tax-supported debt load.
Below the level of State government, Rhode Island is divided into 39
cities and towns which exercise the functions of local general government. As
provided in the State Constitution, municipalities have the right of self
government in all local matters by adopting a "home rule" charter. Every city
or town, however, has the power to levy, assess and collect taxes, or borrow
money, only as specifically authorized by the General Assembly. Legislation
enacted in 1985 limits tax levy or rate increases by municipalities to an
increase no greater than 5 1/2% over the previous year. However tax levy or
rate increases of greater than 5 1/2% are permitted in the event that debt
service costs on present and future general obligation debt increase at a rate
greater than 5 1/2%. This limitation may also be exceeded in the event of loss
of non-property tax revenue, or when an emergency situation arises and is
certified by the State Auditor General. In addition, State statutes require
every city and town to adopt a balanced budget for each fiscal year. Local
governments rely principally upon general real and tangible personal property
taxes and automobile excise taxes for provision of revenue.
In recent years, Rhode Island has relieved its cities and towns from a
portion of the costs of major public expenditures through the assumption of
costs and services by the State. However, the economic downturn affecting the
State's revenue base necessitated a reduction in aid by the State in fiscal
year 1991. Under the fiscal year 1993 budget, State aid to municipalities is
slated to be $379.9 million, representing a net increase over fiscal year 1992
of $34.5 million.
The largest category of State aid to cities and towns involves assistance
programs for school operations and school buildings. Such aid has been
approximately 90% of total State aid over the last two years. The general
school aid program, which amounted to $268.7 million in 1990 and $295.2
million in 1991, reimburses communities on the basis of the relationship
between the number of students and the property wealth of the community and
its personal income. Communities are guaranteed a minimum reimbursement of 15
percent of eligible expenditures of the second prior year for fiscal year 1993
and 9 percent thereafter. The fiscal 1993 budget modified formulas related to
the disbursement of funds under the major education aid programs. Under the
modifications, greater aid would be distributed to those communities with less
property wealth. The Governor's fiscal year 1994 budget proposal would further
modify the allocation formula with the result that 21 communities would
receive less State assistance in fiscal year 1994 than they were allocated in
fiscal year 1993. In addition to school aid, the State provides a general
revenue sharing program for local governments which is intended for direct
property tax relief and incorporates a distribution formula based upon
relative population, tax effort and personal income of each municipality. In
addition, the State provides municipal aid programs which include
reimbursement to local governments for their cost of carrying out certain
State mandates. For fiscal year 1992, $6.0 million was appropriated. No funds
were appropriated for fiscal year 1993. However, the 1991 General Assembly
passed legislation that provides that commencing in the fiscal year 1994,
municipalities will receive 1% of total State tax revenues.
FEES AND EXPENSES
INVESTMENT ADVISER
As at September 30, 1995, the Portfolio had net assets of $42,905,967.
For the fiscal year ended September 30, 1995, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $100,476 (equivalent to 0.25%
of the Portfolio's average daily net assets for such year). To enhance the net
income of the Portfolio, BMR made a reduction of its advisory fee in the
amount of $50,721. For the fiscal year ended September 30, 1994, absent a fee
reduction, the Portfolio would have paid BMR advisory fees of $63,773
(equivalent to 0.21% of the Portfolio's average daily net assets for such
year). To enhance the net income of the Portfolio, BMR made a reduction of the
full amount of its advisory fee. For the period from the Portfolio's start of
business June 11, 1993, to the fiscal year ended September 30, 1993, absent a
fee reduction, the Portfolio would have paid BMR advisory fees of $4,206
(equivalent to 0.15% (annualized) of the Portfolio's average net assets for
such period). To enhance the net income of the Portfolio, BMR made a reduction
of the full amount of its advisory fee, and BMR was allocated expenses related
to the operation of the Portfolio in the amount of $3,373. The Portfolio's
Investment Advisory Agreement with BMR is dated June 7, 1993 and remains in
effect until February 28, 1996. The Agreement may be continued as described
under "Investment Adviser and Administrator" in Part I of this Statement of
Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator receives no
compensation for providing administrative services to the Fund. For fiscal
year ended September 30, 1995 and for the period from the start of business,
December 7, 1993, to the fiscal year ended September 30, 1994, $20,429 and
$18,025, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended September 30, 1995, the Principal Underwriter
paid to Authorized Firms sales commissions of $24,223 on sales of Fund shares.
During the same period, the Fund paid sales commissions payments under the
Plan to the Principal Underwriter aggregating $25,614. Such payments reduced
Uncovered Distribution Charges. During such period, contingent deferred sales
charges aggregating approximately $186 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at September 30, 1995 the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $340,000 (which amount was equivalent to 11.2% of
the Fund's net assets on such date). During the fiscal year ended September
30, 1995, the Fund paid service fee payments under the Plan aggregating
$6,823, of which $6,465 was paid to Authorized Firms and the balance of which
was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $115.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $3,503 and
the Portfolio paid IBT $25,652.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 1994 and for the period from the start of business, June 11,
1993, to the fiscal year ended September 30, 1993, the Portfolio paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Fund or the Portfolio.) During the fiscal year ended September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight .... $0 $336(2) $135,000(4)
Samuel L. Hayes, III 0 324(3) 150,000(5)
Norton H. Reamer .... 0 316 135,000
John L. Thorndike ... 0 321 140,000
Jack L. Treynor ..... 0 346 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $113 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Nicole Anderes (34) has served as a Vice President of the
Portfolio since June 19, 1995. Ms. Anderes has been a Vice President of BMR
and Eaton Vance since 1994, and is an officer of various investment companies
managed by Eaton Vance or BMR. Prior to joining Eaton Vance, Ms. Anderes was
Vice President and portfolio manager, Lazard Freres Asset Management (1992-
1994) and Vice President and Manager -- Municipal Research, Roosevelt & Cross
(1978-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from June 11, 1993 through
September 30, 1995 and for the one-year perod ended September 30, 1995. The
total return for the period prior to the Fund's commencement of operations on
December 7, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund contingent deferred sales
charge ("CDSC"). The total return for such prior period has not been adjusted
to reflect the Fund's distribution fees and certain other expenses. If such an
adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING CDSC DEDUCTING CDSC*
INVESTMENT INVESTMENT AMOUNT OF DEDUCTING CDSC DEDUCTING CDSC* -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 6/11/93 $1,000 $1,057.34 $1,057.34 5.73% 2.44% 5.73% 2.44%
1 Year
Ended
9/30/95** 9/30/94 $1,000 $1,090.04 $1,080.04 9.00% 9.00% 8.00% 8.00%
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.
- ----------
* No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
** If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.61%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.61% would be 7.30%,
assuming a combined Federal and State tax rate of 36.88%. If a portion of the
Portfolio's and the Fund's expenses had not been allocated to the Investment
Adviser and the Administrator, respectively, the Fund would have had a lower
yield.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 22, 1995) was 4.82%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.93%. If a portion of the Portfolio's and
the Fund's expenses had not been allocated to the Investment Adviser and the
Administrator, respectively, the Fund would have had a lower distribution rate
and effective distribution rate.
Investors should consult with their tax advisers for additional
information about the Fund's performance. See the Tax Equivalent Yield Table
in this Part II for information concerning applicable tax rates and income
brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 72.1% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic Rhode Island Tax Free Fund to EV Classic
Rhode Island Municipals Fund.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below shows the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Rhode Island State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND RHODE ISLAND STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- --------------------- RI STATE -----------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------ ----------------- -----------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 18.51% 4.91% 5.52% 6.14% 6.75% 7.36% 7.98% 8.59%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.54 6.02 6.77 7.52 8.28 9.03 9.78 10.53
$ 56,551 - $117,950 $ 94,251 - $143,600 36.88 6.34 7.13 7.92 8.71 9.51 10.30 11.09
$117,951 - $256,500 $143,601 - $256,500 42.34 6.94 7.80 8.67 9.54 10.41 11.27 12.14
Over $256,500 Over $256,500 46.18 7.43 8.36 9.29 10.22 11.15 12.08 13.01
* Net amount subject to federal and Rhode Island personal income tax after deductions and exemptions.
+ The combined tax rates assume a Rhode Island rate of 27.5% of federal income tax liability and that Rhode Island taxes are
itemized deductions for federal income tax purposes. Investors who do not itemize deductions on their federal income tax return
will have a higher combined bracket and higher taxable equivalent yield than those indicated above.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Rhode Island State income
taxes) for taxpayers with adjusted gross income in excess of $114,700. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $114,700 and joint
filers with adjusted gross income in excess of $172,050. 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. The applicable federal tax rates within each of these
combined brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of
income. The assumed Rhode Island State income tax rates within these combined
brackets are 4.125%, 7.7%, 8.525%, 9.9% and 10.89%, respectively. The stated
Rhode Island tax rate is actually 27.5% of the federal income tax. The 4.125%,
7.7%, 8.525%, 9.9% and 10.89% rates have been restated to reflect a tax rate
on taxable income as opposed to a tax rate on federal income tax as follows:
15% X 27.5% = 4.125%, 28% X 27.5% = 7.7%, 31% X 27.5% = 8.525%, 36% x 27.5% =
9.9% and 39.6% x 27.5% = 10.89%. No assurance can be given that EV Classic
Rhode Island Municipals 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 and Rhode
Island personal income taxes, 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 except for Rhode
Island personal income taxes. It should also be noted that the interest earned
on certain "private activity bonds" issued after August 7, 1986, while exempt
from the regular federal income tax, is treated as a tax preference item
which could subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not
applicable and do not take into account any tax credit that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC WEST VIRGINIA
MUNICIPALS. The investment objective of the Fund is to provide current income
exempt from regular federal income tax and West Virginia state personal income
taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the West Virginia Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain West Virginia considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in West Virginia issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of West Virginia issuers. Neither the Trust nor the
Portfolio has independently verified this information.
The economy of the State is based primarily on manufacturing, mining and
tourism. Major manufacturing sectors include chemicals and primary metals. The
State is the second leading coal producing state and the leading coal
exporting state in the nation. The State is also one of the leading oil and
gas producing states east of the Mississippi. Technological advancements have
reduced the size of employment in the coal industry. The majority of the job
creation in the State has occurred in the service sector. The State has taken
steps to foster growth in this sector as well as other non-resource related
industries.
Based on a 1990 task force report indicating potential fiscal problems for
the State, the State took a number of actions designed to eliminate the
projected deficit, including revenue enhancement measures, such as changes to
the Consumer Sales and Service tax, and reductions in State spending. The
Governor imposed a 5% spending cut on most state agencies during fiscal year
1993 to ensure balanced operations to offset the negative impact of a weaker
than expected economic recovery. West Virginia generated a $44 million surplus
in fiscal 1993. The 1994 budget was constructed with limited expenditure
growth, but was based on aggressive revenue growth.
The Business and Occupation Tax, the Personal Income Tax, the Consumer
Sales and Service Tax, the Severance Tax, the Corporate Net Income Tax and the
Business Franchise Tax together provided over 89.9% of the revenue for the
General Revenue Fund in the fiscal year ended June 30, 1992. The amounts
collected pursuant to the business registration, cigarette, insurance,
telecommunications, inheritance, other taxes, liquor profits and racing fees
constitute the remainder of the General Revenue Fund, but individually did not
account for more than 2.9% of total revenues.
The federal programs administered in West Virginia are a substantial part
of the operation of State government. Historically, federal grants have either
been part of an ongoing program, limited to a specific project or structured
to institute immediate state action. In all cases, they become due either
temporarily or permanently and are a significant feature of State services and
the budget process.
FEES AND EXPENSES
INVESTMENT ADVISER
As at September 30, 1995, the Portfolio had net assets of $40,835,061. For
the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory fees
of $98,033 (equivalent to 0.24% of the Portfolio's average daily net assets
for such year). For the fiscal year ended September 30, 1994, BMR would have
earned, absent a fee reduction, advisory fees of $82,158 (equivalent to 0.23%
of the Portfolio's average daily net assets for such period). To enhance the
net income of the Portfolio, BMR made a reduction of the full amount of its
advisory fee. For the period from the Portfolio's start of business, June 11,
1993, to the fiscal year ended September 30, 1993, the Portfolio would have
paid BMR, absent a fee reduction, advisory fees of $6,768 (equivalent to 0.15%
(annualized) of the Portfolio's average daily net assets for such period). To
enhance the net income of the Portfolio, BMR made a reduction of its advisory
fee in the amount of $6,768, and BMR was allocated a portion of the expenses
related to the operation of the Portfolio in the amount of $2,559. The
Portfolio's Investment Advisory Agreement with BMR is dated June 7, 1993 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended September 30, 1995 and for the period from the start of business,
December 13, 1993, to the fiscal year ended September 30, 1994, $16,838 and
$17,812, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended September 30, 1995, the Principal Underwriter
paid to Authorized Firms sales commissions of $11,015 on sales of Fund shares.
During the same period, the Fund paid sales commission payments under the Plan
to the Principal Underwriter aggregating $11,217. Such payments reduced
Uncovered Distribution Charges. During such period, no contingent deferred
sales charges were paid to the Principal Underwriter. As at September 30,
1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $165,816
(which amount was equivalent to 16.0% of the Fund's net assets on such date).
During the fiscal year ended September 30, 1995, the Fund paid service fee
payments under the Plan aggregating $3,019, of which $2,937 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $102.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $3,416 and
the Portfolio paid IBT $19,975.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 1994, and for the period from the start of business, June 11,
1993, to the fiscal year ended September 30, 1993, the Portfolio paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight .......... $0 $336(2) $135,000(4)
Samuel L. Hayes, III ...... 0 324(3) 150,000(5)
Norton H. Reamer .......... 0 316 135,000
John L. Thorndike ......... 0 321 140,000
Jack L. Treynor ........... 0 346 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $113 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Timothy T. Browse (36) has served as a Vice President of the
Portfolio since it Commenced Operations. Mr. Browse has been a Vice President
of BMR and Eaton Vance since 1993 and an employee of Eaton Vance since 1992.
Mr. Browse is an officer of various investment companies managed by Eaton
Vance or BMR. Prior to joining Eaton Vance, Mr. Browse was a Municipal Bond
Trader -- Fidelity Management & Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from June 11, 1993 through
September 30, 1995 and for the one-year period ended September 30, 1995. The
total return for the period prior to the Fund's commencement of operations on
December 13, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund contingent deferred sales
charge ("CDSC"). The total return for such prior period has not been adjusted
to reflect the Fund's distribution fees and certain other expenses. If such an
adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING CDSC DEDUCTING CDSC*
INVESTMENT INVESTMENT AMOUNT OF DEDUCTING CDSC DEDUCTING CDSC* -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 6/11/93 $1,000 $1,059.59 $1,059.59 5.96% 2.54% 5.96% 2.54%
1 Year
Ended
9/30/95** 9/30/94 $1,000 $1,093.53 $1,083.53 9.35% 9.35% 8.35% 8.35%
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.
- ----------
* No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
**If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.69%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.69% would be 7.27%,
assuming a combined federal and State tax rate of 35.49%. If a portion of the
Portfolio's and the Fund's expenses had not been allocated to the Investment
Adviser and the Administrator, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 22, 1995) was 4.63%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.73%. If a portion of the Portfolio's and
the Fund's expenses had not been allocated to the Investment Adviser and the
Administrator, the Fund would have had a lower distribution rate and effective
distribution rate.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 25.84% of the outstanding
shares, which were held on behalf of its customers who are the beneficial
owners of such shares, and as to which it had voting power under certain
limited circumstances. In addition, as of the same date, the following
shareholders owned beneficially and of record the percentages of outstanding
shares of the Fund indicated after their names: Joseph Beam and Betty S. Beam,
Belle, WV (9.08%); William S. Gallagher and Joan P. Gallagher JTWROS, Weirton,
WV (19.63%); William D. Strauch & Elaine B. Strauch JTWROS, Wheeling, WV
(5.3%) and Joseph M. Sanders, Jr., Bluefield, WV (9.13%). To the knowledge of
the Trust, no other person owned of record or beneficially 5% or more of the
Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic West Virginia Tax Free Fund to EV Classic
West Virginia Municipals Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and West Virginia state income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND WEST VIRGINIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- WV STATE ----------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------ ----------------- ----------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 18.83% 4.93% 5.54% 6.16% 6.78% 7.39% 8.01% 8.62%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.68 5.94 6.68 7.43 8.17 8.91 9.66 10.40
$ 56,551 - $117,950 $ 94,251 - $143,600 35.49 6.20 6.98 7.75 8.53 9.30 10.08 10.85
$117,951 - $256,500 $143,601 - $256,500 40.16 6.68 7.52 8.36 9.19 10.03 10.86 11.70
Over $256,500 Over $256,500 43.53 7.08 7.97 8.85 9.74 10.62 11.51 12.40
* Net amount subject to federal and West Virginia personal income tax after deductions and exemptions.
+ The combined tax rate for the two lowest federal income tax brackets are calculated using the highest West Virginia tax rate
within the bracket. Taxpayers with taxable income within this bracket may have a lower combined bracket and taxable equivalent
yield than indicated above. The combined tax rates assume that West Virginia taxes are itemized deductions for federal income
tax purposes. Investors who do not itemize deductions on their federal income tax return will have a higher combined bracket
and higher taxable equivalent yield than those indicated above. The state rate is at its maximum (6.5%) throughout all other
brackets.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including West Virginia state income
taxes) for taxpayers with Adjusted Gross Income in excess of $114,700. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with Adjusted Gross Income in excess of $114,700 and joint
filers with Adjusted Gross Income in excess of $172,050. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above. The applicable federal tax rates within the brackets
are 15%, 28%, 31%, 36%, and 39.6%, over the same ranges of income.
Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield. No assurance can be given that EV Classic
West Virginia Municipals 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 and West Virginia personal income taxes, 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
except for West Virginia personal income taxes. It should also be noted that
the interest earned on certain "private activity bonds" issued after August 7,
1986, while exempt from the regular federal income tax and the West Virginia
personal income tax, is treated as a tax preference item which could subject
the recipient to the federal alternative minimum tax and the West Virginia
minimum tax. The illustrations assume that the federal alternative minimum tax
and the West Virginia minimum tax are not applicable and do not take into
account any tax credit that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult with their tax adviser for
additional information. See the Tax Equivalent Yield Table in this Part II
concerning applicable tax rates and income brckets.
<PAGE>
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
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
Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV CLASSIC
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
C-TFC2/1SAI
<PAGE>
[LOGO]
EV Classic California
Municipals Fund
*
EV Classic Florida
Municipals Fund
*
EV Classic Massachusetts
Municipals Fund
*
EV Classic Mississippi
Municipals Fund
*
EV Classic New York
Municipals Fund
*
EV Classic Ohio
Municipals Fund
*
EV Classic Rhode Island
Municipals Fund
*
EV Classic West Virginia
Municipals Fund
*
STATEMENT OF
ADDITIONAL INFORMATION
FEBRUARY 1, 1996
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1996
<TABLE>
EV MARATHON MUNICIPAL FUNDS
<C> <C>
EV MARATHON CALIFORNIA MUNICIPALS FUND EV MARATHON NEW YORK MUNICIPALS FUND
EV MARATHON FLORIDA MUNICIPALS FUND EV MARATHON OHIO MUNICIPALS FUND
EV MARATHON MASSACHUSETTS MUNICIPALS FUND EV MARATHON RHODE ISLAND MUNICIPALS FUND
EV MARATHON MISSISSIPPI MUNICIPALS FUND EV MARATHON WEST VIRGINIA MUNICIPALS FUND
</TABLE>
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund") and
certain other series of Eaton Vance Municipals Trust (the "Trust"). As described
in the Prospectus, each Fund invests its assets in a separate registered
investment company (a "Portfolio") with the same investment objective and
policies as the Fund. Each Fund's Part II (a "Part II") provides information
solely about a Fund and its corresponding Portfolio. Where appropriate Part I
includes cross-references to the relevant sections of Part II.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<C> <C>
PART I Page PART II Page
Additional Information about Investment Policies ..... 1 EV Marathon California Municipals Fund ............... a-1
Investment Restrictions .............................. 7 EV Marathon Florida Municipals Fund .................. b-1
Trustees and Officers ................................ 9 EV Marathon Massachusetts Municipals Fund ............ c-1
Investment Adviser and Administrator ................. 10 EV Marathon Mississippi Municipals Fund .............. d-1
Custodian ............................................ 13 EV Marathon New York Municipals Fund ................. e-1
Service for Withdrawal ............................... 13 EV Marathon Ohio Municipals Fund ..................... f-1
Determination of Net Asset Value ..................... 13 EV Marathon Rhode Island Municipals Fund ............. g-1
Investment Performance ............................... 14 EV Marathon West Virginia Municipals Fund ............ h-1
Taxes ................................................ 15
Principal Underwriter ................................ 17
Distribution Plan .................................... 18
Portfolio Security Transactions ...................... 19
Other Information .................................... 21
Independent Certified Public Accountants ............. 22
Financial Statements ................................. 23
Appendix ............................................. 24
</TABLE>
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in
this Statement of Additional Information regarding another Fund because the
Funds use this combined Statement of Additional Information. The Trustees of
the Trust have considered this factor in approving the use of a combined
Statement of Additional Information.
THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED FEBRUARY 1, 1996, AS SUPPLEMENTED
FROM TIME TO TIME. THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION 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>
STATEMENT OF ADDITIONAL INFORMATION
PART I
The following provides information about the Fund, certain other series of
the Trust and the Portfolio. Capitalized terms used in this Statement of
Additional Information and not otherwise defined have the meanings given them
in the Fund's Prospectus. The Fund is subject to the same investment policies
as those of the Portfolio. The Fund currently seeks to achieve its objective
by investing in the Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations 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 on
which is also exempt from federal income taxes and is not a tax preference
item for purposes of the federal alternative minimum tax: (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 obligation, the Portfolio will generally rely on an opinion of
the issuer's counsel (when available) 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 federal alternative minimum tax. 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 federal alternative minimum tax as applied to corporations (to
the extent not already included in alternative minimum taxable income as
income attributable to private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary
market after April 30, 1993 is taxable as ordinary income. A long-term debt
obligation is generally treated as acquired at a market discount if the
secondary market purchase price is less than (i) the stated principal amount
payable at maturity, in the case of an obligation that does have original
issue discount or (ii) in the case of an obligation that does have original
issue discount, the sum of the issue price and any original issue discount
that accrued before the obligation was purchased, subject to a de minimus
amount.
Issuers of general obligation bonds include states, counties, cities,
towns and regional districts. The proceeds of these obligations are used to
fund a wide range of public projects including the construction or improvement
of schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the
issuer's pledge of its faith, credit, and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source.
Revenue bonds have been issued to fund a wide variety of capital projects
including: electric, gas, water, sewer and solid waste disposal systems;
highways, bridges and tunnels; port, airport and parking facilities;
transportation systems; housing facilities, colleges and universities and
hospitals. Although the principal security behind these bonds varies widely,
many provide additional security in the form of a debt service reserve fund
whose monies may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities have a wide range of
security including partially or fully insured, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. In addition to a debt service reserve fund, some authorities provide
further security in the form of a state's ability (without legal obligation)
to make up deficiencies in the debt service reserve fund. Lease rental revenue
bonds issued by a state or local authority for capital projects are normally
secured by annual lease rental payments from the state or locality to the
authority sufficient to cover debt service on the authority's obligations.
Such payments are usually subject to annual appropriations by the state or
locality.
Industrial development and pollution control bonds are in most cases
revenue bonds and are generally not secured by the taxing power of the
municipality, but are usually secured by the revenues derived by the authority
from payments of the industrial user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants
or similar rights covering equity securities. Such warrants or rights may be
held indefinitely, but if exercised, the Portfolio 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 person or entity to
pay when due principal of and interest on a municipal obligation may be
materially affected. There have been recent instances of defaults and
bankruptcies involving municipal obligations which were not foreseen by the
financial and investment communities. The Portfolio will take whatever action
it considers appropriate in the event of anticipated financial difficulties,
default or bankruptcy of either the issuer of any municipal obligation or of
the underlying source of funds for debt service. Such action may include
retaining the services of various persons or firms (including affiliates of
Boston Management and Research (the "Investment Adviser")) to evaluate or
protect any real estate, facilities or other assets securing any such
obligation or acquired by the Portfolio as a result of any such event, and the
Portfolio may also manage (or engage other persons to manage) or otherwise
deal with any real estate, facilities or other assets so acquired. The
Portfolio anticipates that real estate consulting and management services may
be required with respect to properties securing various municipal obligations
in its portfolio or subsequently acquired by the Portfolio. The Portfolio will
incur additional expenditures in taking protective action with respect to
portfolio obligations in default and assets securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment,
general money market conditions, general conditions of the municipal bond
market, size of a particular offering, maturity of the obligation and rating
of the issue. The ratings of Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P") and Fitch Investors Service, Inc.
("Fitch") represent their opinions as to the quality of the municipal
obligations which they undertake to rate. It should be emphasized, however,
that ratings are based on judgment and are not absolute standards of quality.
Consequently, municipal obligations with the same maturity, coupon and rating
may have different yields while obligations of the same maturity and coupon
with different ratings may have the same yield. In addition, the market price
of such obligations will normally fluctuate with changes in interest rates,
and therefore the net asset value of the Portfolio will be affected by such
changes.
RISKS OF CONCENTRATION
Municipal Obligations. For a discussion of the risks associated with the
Portfolio's policy of concentrating its investments in particular issuers of
municipal obligations, see "Risks of Concentration" in the Fund's Part II.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or
more of its total assets in municipal obligations of the same type. There
could be economic, business or political developments which might affect all
municipal obligations of the same type. In particular, investments in the
industrial revenue bonds listed above 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
increase of hospital charges.
Electric utilities face problems in financing large construction programs
in an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear
facilities), difficulty in obtaining fuel at reasonable prices, and in
achieving timely and adequate rate relief from regulatory commissions, effects
of energy conservation and limitations on the capacity of the capital market
to absorb utility debt.
Pollution control and other industrial development bonds are issued by
state or local agencies to finance various projects, including those of
domestic steel producers, and may be backed solely by agreements with such
companies. Domestic steel companies are expected to suffer the consequences of
such adverse trends as high labor costs, high foreign imports encouraged by
foreign productivity increases and a strong U.S. dollar, and other cost
pressures such as those imposed by anti-pollution legislation. Domestic steel
capacity is being reduced currently by large-scale plant closings and this
period of rationalization may not end until further legislative protection is
provided through tariff price supports or mandatory import quotas, such as
those recently enacted for certain specialty steel products.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style
and, if needed, the comprehensive care of nursing home services. Bonds to
finance these facilities have been issued by various state industrial
development authorities. Since the bonds are normally secured only by the
revenues of each facility and not by state or local government tax payments,
they are subject to a wide variety of risks. Primarily, the projects must
maintain adequate occupancy levels to be able to provide revenues sufficient
to meet debt service payments. Moreover, since a portion of housing, medical
care and other services may be financed by an initial deposit, it is important
that the facility maintain adequate financial reserves to secure estimated
actuarial liabilities. The ability of management to accurately forecast
inflationary cost pressures is an important factor in this process. The
facilities may also be affected adversely by regulatory cost restrictions
applied to health care delivery in general, particularly state regulations or
changes in Medicare and Medicaid payments or qualifications, or restrictions
imposed by medical insurance companies. They may also face competition from
alternative health care or conventional housing facilities in the private or
public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the
Fund's investment policies as set forth in the Prospectus, the Portfolio may
invest in the obligations of Puerto Rico, the U.S. Virgin Islands and Guam
(the "Territories"). Accordingly, the Portfolio may be adversely affected by
local political and economic conditions and developments within the
Territories affecting the issuers of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. The three largest sectors of the economy (as a percentage of
employment) are services (47%), government (22%) and manufacturing (16.4%).
These three sectors represent 39%, 11% and 39%, respectively, of the gross
domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five
years. The North American Free Trade Agreement ("NAFTA"), which became
effective January 1, 1994, could lead to the loss of Puerto Rico's lower
salaried or labor intensive jobs to Mexico. The June, 1995 unemployment rate
was 13.9%.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the
states in its relationship with the federal government. Most federal taxes,
except those such as social security taxes that are imposed by mutual consent,
are not levied in Puerto Rico. However, in conjunction with the 1993 U.S.
budget plan, Section 936 of the Internal Revenue Code was amended and provided
for two alternative limitations to the Section 936 credit. The first option
will limit the credit against such income to 40% of the credit allowable under
current law, with a five year phase-in period starting at 60% of the allowable
credit. The second option is a wage and depreciation based credit. The
reduction of the tax benefits to those U.S. companies with operations in
Puerto Rico may lead to slower growth in the future. There can be no assurance
that these modifications will not lead to a weakened economy, a lower rating
on Puerto Rico's debt or lower prices for Puerto Rican bonds that may be held
by the Portfolio.
Puerto Rico's financial reporting was first conformed to generally
accepted accounting principles in fiscal 1990. Nonrecurring revenues have been
used frequently to balance recent years' budgets. In November, 1993 Puerto
Ricans voted on whether they wished to retain their Commonwealth status,
become a state or establish an independent nation. Puerto Ricans voted to
retain Commonwealth status, leaving intact the current relationship with the
federal government. There can be no assurance that the statehood issue will
not be brought to a vote in the future. A successful statehood vote in Puerto
Rico would then require ratification by the U.S. Congress.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. The economy is heavily reliant on the tourism industry, with roughly 43%
of non-agricultural employment in tourist-related trade and services. The
tourism industry is economically sensitive and would likely be adversely
affected by a recession in either the United States or Europe. In September
1995, St. Thomas was hit by a hurricane and sustained extensive damage. The
longer term impact on the tourism industry is not yet known. There can be no
assurances that the market for USVI bonds will not be affected.
An important component of the USVI revenue base is the federal excise tax
on rum exports. Tax revenues rebated by the federal government to the USVI
provide the primary security of many outstanding USVI bonds. Since more than
90% of the rum distilled in the USVI is distilled at one plant, any
interruption in its operations (as occurred after Hurricane Hugo in 1989)
would adversely affect these revenues. Consequently, there can be no assurance
that rum exports to the United States and the rebate of tax revenues to the
USVI will continue at their present levels. The preferential tariff treatment
the USVI rum industry currently enjoys could be reduced under NAFTA. Increased
competition from Mexican rum producers could reduce USVI rum imported to the
U.S., decreasing excise tax revenues generated. The USVI experienced a budget
deficit in 1989 due to wage settlements with the unionized government
employees. A deficit was also experienced in 1990 due to Hurricane Hugo. The
USVI recorded a small surplus in fiscal year 1991. At the end of fiscal 1992,
the last year for which results are available, the USVI had an unreserved
General Fund deficit of approximately $8.31 million, or approximately 2.1% of
expenditures. In order to close a forecasted fiscal 1994 revenue gap of $45.6
million, the Department of Finance has proposed several tax increases and fund
transfers. There is currently no rated, unenhanced Virgin Islands debt
outstanding (although there is unrated debt outstanding).
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast
of Tokyo. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. Guam
is expected to benefit from the closure of the Subic Bay Naval Base and the
Clark Air Force Base in the Philippines. The Naval Air Station, one of several
U.S. military facilities on the island, has been slated for closure by the
Defense Base Closure and Realignment Committee; however, the administration
plans to use these facilities to expand the island's commercial airport. Guam
is also heavily reliant on tourists, particularly the Japanese. For 1994, the
financial position of Guam was weakened as it incurred an unaudited General
Fund operating deficit. The administration has taken steps to improve its
financial position; however, there are no guarantees that an improvement will
be realized. Guam's general obligation debt is rated Baa by Moody's.
MUNICIPAL LEASES
The Portfolio 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 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 Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities
for the purpose of such limitation. In determining the liquidity of municipal
lease obligations, 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 Portfolio. In the event the Portfolio 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 Portfolio (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 Portfolio or a third party subsequent to the obligation's
original issuance (which may not be reflected in the obligation's market
value. In either event, such insurance may provide that in the event of non-
payment of interest or principal when due with respect to an insured
obligation, the insurer is not required to make such payment until a specified
time has lapsed (which may be 30 days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In
evaluating the credit quality of a particular issue, whether rated or unrated,
the Investment Adviser will normally take into consideration, among other
things, the financial resources of the issuer (or, as appropriate, of the
underlying source of funds for debt service), its sensitivity to economic
conditions and trends, any operating history of and the community support for
the facility financed by the issue, the ability of the issuer's management and
regulatory matters. The Investment Adviser will attempt to reduce the risks of
investing in 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.
See "Portfolio of Investments" in the "Financial Statements" incorporated
by reference into this Statement of Additional Information with respect to any
defaulted obligations held by the Portfolio.
SHORT-TERM TRADING
The Portfolio 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 Portfolio believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment
quality of particular issues or the general movement of interest rates, such
as changes in the overall demand for or supply of various types of 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
Portfolio anticipates that its annual portfolio turnover rate will generally
not exceed 100% (excluding turnover of securities having a maturity of one
year or less).
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
Portfolio's commitment and are subject to certain conditions such as the
issuance of satisfactory legal opinions. The Portfolio may also purchase
securities on a when-issued basis pursuant to refunding contracts in
connection with the refinancing of an issuer's outstanding indebtedness.
Refunding contracts generally require the issuer to sell and the Portfolio to
buy such securities on a settlement date that could be several months or
several years in the future.
The Portfolio will make commitments to purchase when-issued securities
only with the intention of actually acquiring the securities, but may sell
such securities before the settlement date if it is deemed advisable as a
matter of investment strategy. The payment obligation and the interest rate
that will be received on the securities are fixed at the time the Portfolio
enters into the purchase commitment. The Portfolio's custodian will segregate
cash or high grade liquid debt securities in a separate account of the
Portfolio in an amount at least equal to the when-issued commitments. If the
value of the securities placed in the separate account declines, additional
cash or high grade liquid debt securities will be placed in the account on a
daily basis so that the value of the account will at least equal the amount of
the Portfolio's when-issued commitments. When the Portfolio commits to
purchase a security on a when-issued basis it records the transaction and
reflects the value of the security in determining its net asset value.
Securities purchased on a when-issued basis and the securities held by the
Portfolio are subject to changes in value based upon the perception of the
creditworthiness of the issuer and changes in the level of interest rates
(i.e., appreciation when interest rates decline and depreciation when interest
rates rise). Therefore, to the extent that the Portfolio remains substantially
fully invested at the same time that it has purchased securities on a when-
issued basis, there will be greater fluctuations in the Portfolio's net asset
value than if it solely set aside cash to pay for when-issued securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified
intervals (weekly, monthly, semi-annually, etc.). The revised rates are
usually set at the issuer's discretion, in which case the investor normally
enjoys the right to "put" the security back to the issuer or his agent. Rate
revisions may alternatively be determined by formula or in some other
contractual fashion. Variable rate obligations normally provide that the
holder can demand payment of the obligation on short notice at par with
accrued interest and are frequently secured by letters of credit or other
credit support arrangements provided by banks. To the extent that such letters
of credit or other arrangements constitute an unconditional guarantee of the
issuer's obligations, a bank may be treated as the issuer of a security for
the purpose of complying with the diversification requirements set forth in
Section 5(b) of the Investment Company Act of 1940 and Rule 5b-2 thereunder.
The Portfolio would anticipate using these obligations as cash equivalents
pending longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier.
Also, some bonds may have "put" or "demand" features that allow early
redemption by the bondholder. Interest income generated by certain bonds
having demand features may not qualify as tax-exempt interest. 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 Portfolio may retain the
bond if interest rates decline. By acquiring these kinds of obligations the
Portfolio obtains the contractual right to require the issuer of the security
or some other person (other than a broker or dealer) to purchase the security
at an agreed upon price, which right is contained in the obligation itself
rather than in a separate agreement with the seller or some other person.
Because this right is assignable with the security, which is readily
marketable and valued in the customary manner, the Portfolio will not assign
any separate value to such right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller of
the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price.
The Portfolio intends to limit this type of transaction to institutions (such
as banks or securities dealers) which the Investment Adviser believes present
minimal 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 Portfolio or that selling institutions will be willing to
permit the Portfolio 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 Portfolio does not expect to
assign any value to any separate put option which may be acquired to
facilitate portfolio liquidity, inasmuch as the value (if any) of the put will
be reflected in the value assigned to the associated security; any put
acquired for hedging purposes would be valued in good faith under methods or
procedures established by the Trustees of the Portfolio after consideration of
all relevant factors, including its expiration date, the price volatility of
the associated security, the difference between the market price of the
associated security and the exercise price of the put, the creditworthiness of
the issuer of the put and the market prices of comparable put options.
Interest income generated by certain bonds having put features may not qualify
as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by
collateral in cash, cash equivalents or U.S. Government securities held by the
Portfolio'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 Portfolio 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 Portfolio will continue to receive
the equivalent of the interest paid by the issuer on the securities loaned and
will also receive a fee, or all or a portion of the interest on investment of
the collateral, if any. However, the Portfolio may pay lending fees to such
borrowers. The Portfolio would not have the right to vote any securities
having voting rights during the existence of the loan, but would call the loan
in anticipation of an important vote to be taken among holders of the
securities or the giving or withholding of their consent on a material matter
affecting the investment. As with other extensions of credit there are risks
of delay in recovery or even loss of rights in the securities loaned if the
borrower of the securities fails financially. However, the loans will be made
only to organizations deemed by the Portfolio's management to be of good
standing and when, in the judgment of the Portfolio's management, the
consideration which can be earned from securities loans of this type justifies
the attendant risk. Distributions by the Fund of any income realized by the
Portfolio from securities loans will be taxable. If the management of the
Portfolio decides to make securities loans, it is intended that the value of
the securities loaned would not exceed 30% of the Portfolio's total assets.
The Portfolio has no present intention of engaging in securities lending.
FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects
to purchase). To hedge against changes in rates, the Portfolio may enter into
(i) futures contracts for the purchase or sale of debt securities, (ii)
futures contracts on securities indices and (iii) futures contracts on other
financial instruments and indices. All futures contracts entered into by the
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States or
foreign exchange or board of trade.
The Portfolio will engage in futures and related options transactions only
for bona fide hedging purposes as defined in or permitted by CFTC regulations.
The Portfolio 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 Portfolio or which it expects to
purchase. The Portfolio's futures transactions will be entered into for
traditional hedging purposes -- that is, futures contracts will be sold to
protect against a decline in the price of securities that the Portfolio owns,
or futures contracts will be purchased to protect the Portfolio against an
increase in the price of securities it intends to purchase. As evidence of
this hedging intent, the Portfolio expects that on 75% or more of the
occasions on which it takes a long futures (or option) position (involving the
purchase of futures contracts), the Portfolio will have purchased, or will be
in the process of purchasing, equivalent amounts of related securities in the
cash market at the time when the futures (or option) position is closed out.
However, in particular cases, when it is economically advantageous for the
Portfolio to do so, a long futures position may be terminated (or an option
may expire) without the corresponding purchase of securities. The Portfolio
will engage in transactions in futures and related options contracts only to
the extent such transactions are consistent with the requirements of the
Internal Revenue Code for maintaining qualification of the Fund as a regulated
investment company for federal income tax purposes (see "Taxes").
The Portfolio will be required, in connection with transactions in futures
contracts and the writing of options on futures, to make margin deposits,
which will be held by the Portfolio's custodian for the benefit of the futures
commission merchant through whom the Portfolio engages in such futures and
options transactions. Cash or liquid high grade debt securities required to be
segregated in connection with a "long" futures position taken by the Portfolio
will also be held by the custodian in a segregated account and will be marked
to market daily.
PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but
it is anticipated that the annual turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A
100% annual turnover rate would occur, for example, if all the securities held
by the Portfolio were replaced once in a period of one year. A high turnover
rate (100% or more) necessarily involves greater expenses to the Portfolio.
The Portfolio engages in portfolio trading (including short-term trading) if
it believes that a transaction including all costs will help in achieving its
investment objective.
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 Statement of Additional Information means the lesser of (a) 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 (b) more than 50% of the shares of the Fund. Accordingly, the Fund
may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(2) 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;
(3) 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;
(4) Purchase or sell real estate, (including limited partnership interests
in real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest
or deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) 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.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund;
such restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio, which as used in this
Statement of Additional Information means the lesser of (a) 67% of the
outstanding voting securities of the Portfolio present or represented by proxy
at a meeting if the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented at the meeting or (b)
more than 50% of the outstanding voting securities of the Portfolio. The term
"voting securities" as used in this paragraph has the same meaning as in the
Investment Company Act of 1940 (the "1940 Act"). Whenever the Trust is
requested to vote on a change in the fundamental investment restrictions of
the Portfolio (or the Portfolio's 80% investment policy with respect to State
obligations described in the Fund's current Prospectus), the Trust will hold a
meeting of Fund shareholders and will cast its vote as instructed by the
shareholders.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. As a matter of
nonfundamental policy, the Fund and the Portfolio will not: (a) engage in
options, futures or forward transactions if more than 5% of its net assets, as
measured by the aggregate of the premiums paid by the Fund or the Portfolio,
would be so invested; (b) make short sales of securities or maintain a short
position, unless at all times when a short 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; (c) invest more than
15% of net assets in investments which are not readily marketable, including
restricted securities and repurchase agreements maturing in more than seven
days. Restricted securities for the purposes of this limitation do not include
securities eligible for resale pursuant to Rule 144A under the Securities Act
of 1933 and commercial paper issued pursuant to Section 4(2) of said Act that
the Board of Trustees of the Trust or the Portfolio, or their delegate,
determines to be liquid; (d) 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 the Portfolio or is
a member, officer, director or trustee of any investment adviser of the Trust
or the Portfolio, if after the purchase of the securities of such issuer by
the Fund or the Portfolio one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities of 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 (e) purchase oil, gas or other mineral
leases or purchase interests in oil, gas or other mineral exploration or
development programs.
For purposes of the Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligation which is not a general obligation
bond will be made by the Portfolio's Investment Adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interest of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio 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 Portfolio's investment
adviser, Boston Management and Research ("BMR" or the "Investment Adviser"), a
wholly-owned subsidiary of Eaton Vance Management ("Eaton Vance"); of Eaton
Vance's parent, Eaton Vance Corp. ("EVC"); and of BMR's and Eaton Vance's
trustee, Eaton Vance, Inc. ("EV"). Eaton Vance and EV are both wholly-owned
subsidiaries of EVC. Those Trustees who are "interested persons" of the Trust,
the Portfolio, BMR, Eaton Vance, EVC or EV, as defined in the 1940 Act, by
virtue of their affiliation with any one or more of the Trust, the Portfolio,
BMR, Eaton Vance, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New
England, Inc., since 1983. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (54), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of
EVC and EV. Director, Trustee and officer of various investment companies
managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (60), Trustee
President and Director, United Asset Management Corporation, 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 (69), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (52), President
Vice President of BMR, Eaton Vance and EV. Mr. Fetter was elected a Vice
President of the Trust on December 17, 1990 and President of the Trust and
the Portfolio on December 13, 1993. Officer of various investment companies
managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (38), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments --
Portfolio Manager (1986-1991). Officer of various investment companies
managed by Eaton Vance or BMR. Mr. MacIntosh was elected Vice President of
the Trust on March 22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (64), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of
various investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management
& Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary of
the Trust and the Portfolio on March 27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate
attorney at Dechert, Price & Rhoads and Gaston & Snow. Officer of various
investment companies managed by Eaton Vance or BMR. Mr. Woodubury was
elected Assistant Secretary on June 19, 1995.
For additional officers of the Portfolio (if any), see "Additional Officer
Information" in the Fund's Part II.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Fund's
contractual relationship with the Administrator on behalf of the Fund and the
Portfolio's contractual relationship with the Investment Adviser, making
recommendations to the Trustees regarding the compensation of those Trustees
who are not members of the Eaton Vance organization, and making
recommendations to the Trustees regarding candidates to fill vacancies, as and
when they occur, in the ranks of those Trustees who are not "interested
persons" of the Trust, the Portfolio, or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee
of the Board of Trustees of the Trust and of the Portfolio. The Audit
Committee's functions include making recommendations to the Trustees regarding
the selection of the independent certified public accountants, and reviewing
with such accountants and the Treasurer of the Trust and of the Portfolio
matters relative to accounting and auditing practices and procedures,
accounting records, internal accounting controls, and the functions performed
by the custodian and transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio that 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
"Plan"). Under the Plan, an eligible Trustee may elect to have his deferred
fees invested by the Portfolio in the shares of one or more funds in the Eaton
Vance Family of Funds, and the amount paid to the Trustees under the Plan will
be determined based upon the performance of such investments. Deferral of
Trustees' fees in accordance with the Plan will have a negligible effect on
the Portfolio's assets, liabilities, and net income per share, and will not
obligate the Portfolio to retain the services of any Trustee or obligate the
Portfolio to pay any particular level of compensation to the Trustee.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to
investment companies and various individual and institutional clients with
combined assets under management of approximately $16 billion.
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 offers single-state tax-free portfolios in more states than
any other sponsor of mutual funds. There are 30 long-term state portfolios, 5
national portfolios and 12 limited maturity portfolios. A staff of 32 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 $9.1 billion. The following persons manage one or more of the
Eaton Vance tax-free portfolios. For the identity of the Portfolio's portfolio
manager, see the Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
David C. Reilly is a Vice President of Eaton Vance and BMR. Mr. Reilly, a
Chartered Financial Analyst, received a B.S. from Skidmore College. He is a
member and former President of the Boston Municipal Analysts Forum. He also
holds memberships in the Boston Securities Analysts Society and the Financial
Analysts Federation.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the
Portfolio investment research, advice and supervision, furnishes an investment
program and determines what securities will be purchased, held or sold by the
Portfolio and what portion, if any, of the Portfolio's assets will be held
uninvested. The Investment Advisory Agreement requires BMR to pay the salaries
and fees of all officers and Trustees of the Portfolio who are members of the
BMR organization and all personnel of BMR performing services relating to
research and investment activities. The Portfolio is responsible for all
expenses not expressly stated to be payable by BMR under the Investment
Advisory Agreement, including, without implied limitation, (i) expenses of
maintaining the Portfolio and continuing its existence, (ii) registration of
the Portfolio under the 1940 Act, (iii) commissions, fees and other expenses
connected with the acquisition, holding and disposition of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale and redemption
of interests in the Portfolio, (viii) expenses of registering and qualifying
the Portfolio and interests in the Portfolio under Federal and state
securities laws and of preparing and printing registration statements or other
offering statements or memoranda for such purposes and for distributing the
same to investors, and fees and expenses of registering and maintaining
registrations of the Portfolio and of the Portfolio's placement agent as
broker-dealer or agent under state securities laws, (ix) expenses of reports
and notices to investors and of meetings of investors and proxy solicitations
therefor, (x) expenses of reports to governmental officers and commissions,
(xi) insurance expenses, (xii) association membership dues, (xiii) fees,
expenses and disbursements of custodians and subcustodians for all services to
the Portfolio (including without limitation safekeeping of funds, securities
and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax
capital account balances), (xiv) fees, expenses and disbursements of transfer
agents, dividend disbursing agents, investor servicing agents and registrars
for all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of
the Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio
who are not members of BMR's organization, and (xviii) such non-recurring
items as may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Portfolio to indemnify its
Trustees, officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under
the Investment Advisory Agreement, see the Fund's current Prospectus. For
additional information about the Investment Advisory Agreement, including the
net assets of the Portfolio and the investment advisory fees that the
Portfolio paid BMR under the Investment Advisory Agreement, see "Fees and
Expenses" in the Fund's Part II.
A commitment may be made to a state securities authority that Eaton Vance
will take certain actions, if necessary so that the Fund's expenses will not
exceed expense limitation requirements of such state. The commitment may be
amended or rescinded by Eaton Vance in response to changes in the requirements
of the state or for other reasons.
The Investment Advisory Agreement with BMR may be continued indefinitely
so long as such continuance is approved at least annually (i) by the vote of a
majority of the Trustees of the Portfolio who are not interested persons of
the Portfolio or of BMR cast in person at a meeting specifically called for
the purpose of voting on such approval and (ii) by the Board of Trustees of
the Portfolio or by vote of a majority of the outstanding voting securities of
the Portfolio. The Agreement may be terminated at any time without penalty on
sixty (60) days' written notice by the Board of Trustees of either party, or
by vote of the majority of the outstanding voting securities of the Portfolio,
and the Agreement will terminate automatically in the event of its assignment.
The Agreement provides that BMR may render services to others and engage in
other business activities and may permit other fund clients and other
corporations and organizations to use the words "Eaton Vance" or "Boston
Management and Research" in their names. The Agreement also provides that BMR
shall not be liable for any loss incurred in connection with the performance
of its duties, or action taken or omitted under that Agreement, in the absence
of willful misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
thereunder, or for any losses sustained in the acquisition, holding or
disposition of any security or other investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its agreement with the Fund, Eaton Vance has been
engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund. For additional information about the Administrator.
See "Fees and Expenses" in the Fund's Part II.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro
rata share of registration of the Trust under the 1940 Act, (iii) commissions,
fees and other expenses connected with the purchase or sale of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase
and redemption of shares, (viii) expenses of registering and qualifying the
Fund and its shares under federal and state securities laws and of preparing
and printing prospectuses for such purposes and for distributing the same to
shareholders and investors, and fees and expenses of registering and
maintaining registrations of the Fund and of the Fund's principal underwriter,
if any, as broker-dealer or agent under state securities laws, (ix) expenses
of reports and notices to shareholders and of meetings of shareholders and
proxy solicitations therefor, (x) expenses of reports to governmental officers
and commissions, (xi) insurance expenses, (xii) association membership dues,
(xiii) fees, expenses and disbursements of custodians and subcustodians for
all services to the Fund (including without limitation safekeeping of funds,
securities and other investments, keeping of books and accounts and
determination of net asset values), (xiv) fees, expenses and disbursements of
transfer agents, dividend disbursing agents, shareholder servicing agents and
registrars for all services to the Fund, (xv) expenses for servicing
shareholder accounts, (xvi) any direct charges to shareholders approved by the
Trustees of the Trust, (xvii) compensation and expenses of Trustees of the
Trust who are not members of the Eaton Vance organization, and (xviii) such
non-recurring items as may arise, including expenses incurred in connection
with litigation, proceedings and claims and the obligation of the Trust to
indemnify its Trustees and officers with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier
Gardner, James B. Hawkes and Benjamin A. Rowland, Jr. The Directors of EVC
consist of the same persons and John G. L. Cabot and Ralph Z. Sorenson. Mr.
Clay is chairman and Mr. Gardner is president and chief executive officer of
EVC, BMR, Eaton Vance and EV. All of the issued and outstanding shares of
Eaton Vance and EV are owned by EVC. All of the issued and outstanding shares
of BMR are owned by Eaton Vance. All shares of the outstanding Voting Common
Stock of EVC are deposited in a Voting Trust which expires on December 31,
1996, the Voting Trustees of which are Messrs. Clay, Brigham, Gardner, Hawkes
and Rowland. The Voting Trustees have unrestricted voting rights for the
election of Directors of EVC. All of the outstanding voting trust receipts
issued under said Voting Trust are owned by certain of the officers of BMR and
Eaton Vance who are also officers and Directors of EVC and EV. As of October
31, 1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively, of
such voting trust receipts. Messrs. Hawkes and Otis are officers or Trustees
of the Trust and the Portfolio and are members of the EVC, BMR, Eaton Vance
and EV organizations. Messrs. Browse, Fetter, MacIntosh, Metzold, Murphy,
O'Connor, Reilly and Woodbury and Ms. Anderes, Ms. Clemson and Ms. Sanders,
are officers of the Trust and/or the Portfolio and are also members of the
BMR, Eaton Vance and EV organizations. BMR will receive the fees paid under
the Investment Advisory Agreement.
EVC owns all of the stock of Energex Energy Corp, which engages in oil and
gas operations. In addition, Eaton Vance owns all the stock of Northeast
Properties, Inc., which is engaged in real estate investment, consulting and
management. EVC owns all the stock of Fulcrum Management, Inc., and MinVen
Inc., which are engaged in the development of precious metal properties. EVC
also owns 21% of the Class A shares of Lloyd George Management (B.V.I.)
Limited, a registered investment adviser. EVC, BMR, Eaton Vance and EV may
also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's opinion
that the terms and conditions of such transactions were not and will not be
influenced by existing or potential custodial or other relationships between
the Fund or the Portfolio and such banks.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts acts as custodian for the Fund and the Portfolio. IBT has the
custody of all cash and securities representing the Fund's interest in the
Portfolio, has custody of all the Portfolio's assets, maintains the general
ledger of the Portfolio and the Fund and computes the daily net asset value of
interests in the Portfolio and the 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 Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Fund and the Portfolio. 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 and Portfolio 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. Landon T. Clay, a Director of EVC and an
officer, Trustee or Director of other members of the Eaton Vance organization,
owns approximately 13% of the stock of IBT. Management believes that such
ownership does not create an affiliated person relationship between the Fund
or Portfolio and IBT under the Investment Company Act of 1940. For the custody
fees that the Portfolio and the Fund paid to IBT, see "Fees and Expenses" in
the Fund's Part II.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's 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 Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence, are a
return of principal. Income dividends and capital gains distributions in
connection with withdrawal 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.
To use this service, at least $5,000 in cash or shares at the public
offering price (i.e., net asset value) will have to be deposited with the
Transfer Agent. 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
The net asset value of the shares of the Fund is determined by IBT (as
agent and custodian for the Fund) in the manner described under "Valuing Fund
Shares" in the Fund's current Prospectus. The net asset value of the Portfolio
is also computed by IBT (as agent and custodian for the Portfolio) by
subtracting the liabilities of the Portfolio from the value of its total
assets. 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 transation prices for most municipal obligations held
by the Portfolio, and such obligations, including those purchaed on a when-
issued basis, will normally be valued on the basis of valuations furnished by
a pricing service. The pricing services 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 Portfolio. Other assets
are valued at fair value using methods determined in good faith by the
Trustees of the Portfolio. The Fund and the Portfolio will be closed for
business and will not price their respective shares or interests on the
following business holidays: New Year's Day, Presidents' Day, Good Friday (a
New York Stock Exchange holiday), Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying
the net asset value of the Portfolio by the percentage, determined on the
prior Portfolio Business Day, which represented that investor's share of the
aggregate interests in the Portfolio on such prior day. Any additions or
withdrawals for the current Portfolio Business Day will then be recorded. The
investor's percentage of the aggregate interest in the Portfolio will then be
recomputed as a percentage equal to a fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of the Portfolio
Valuation Time on the prior Portfolio Business Day plus or minus, as the case
may be, the amount of any additions to or withdrawals from the investor's
investment in the Portfolio on the current Portfolio Business Day and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the Portfolio Valuation Time on the prior Portfolio Business Day plus or
minus, as the case may be, the amount of the net additions to or withdrawals
from the aggregate investment in the Portfolio on the current Portfolio
Business Day by all investors in the Portfolio. The percentage so determined
will then be applied to determine the value of the investor's interest in the
Portfolio for the current Portfolio Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the result. The
calculation assumes that all distributions are reinvested at net asset value
on the reinvestment dates during the period, a complete redemption of the
investment and the deduction of the contingent deferred sales charge at the
end of the period. For further information concerning the total return of the
Fund, see "Performance Information" in the Fund's Part II.
Yield is computed pursuant to a standardized formula by dividing its net
investment income per share earned during a recent thirty-day period by the
maximum offering price (net asset value) 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 held by the
Portfolio based on prescribed methods, reduced by accrued Fund expenses for
the period with the resulting number being divided by the average daily number
of Fund shares outstanding and entitled to receive dividends during the
period. This yield figure does not reflect the deduction of any contingent
deferred sales charge which are imposed upon certain redemptions at the rates
set forth under "How to Redeem Fund Shares" in the Fund's current Prospectus.
A taxable-equivalent yield is computed by using the tax-exempt yield figure
and dividing by 1 minus a stated rate. For the yield and taxable equivalent
yield of the Fund, see "Performance Information" in the Fund's Part II.
The Fund may also publish the distribution rate and/or the effective
distribution rate. The Fund's distribution rate is computed by dividing the
most recent monthly distribution per share annualized, by the current net
asset value per share. The Fund's effective distribution rate is computed by
dividing the distribution rate by the ratio (the days in a year divided by the
accrual days of the monthly period) used to annualize the most recent monthly
distribution and reinvesting the resulting amount for a full year on the basis
of such ratio. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed
reinvestment. Investor's should note that the Fund's yield is calculated using
a standardized formula, the income component of which is computed from the
yields to maturity of all debt obligations held by the Portfolio based on
prescribed methods (with all purchases and sales of securities during such
period included in the income calculation on a settlement date basis), whereas
the distribution rate is based on the Fund's last monthly distribution which
tends to be relatively stable and may be more or less than the amount of net
investment income and short-term capital gain actually earned by the Fund
during the month. See "Distributions and Taxes" in the Fund's current
Prospectus. For the Fund's distribution rate and effective distribution rate,
see "Performance Information" in the Fund's Part II.
The Fund's total return may be compared to relevant indicies, 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. The Fund's
performance may differ from that of other investors in the Portfolio,
including other investment companies.
The Fund may provide investors with information on municipal bond
investing, which may include comparative performance information, evaluations
of Fund performance, charts and/or illustrations prepared by independent
sources (such as Lipper Analytical Services Inc., CDA/Wiesenberger or
Morningstar, Inc.). The Fund may also refer in investor publications to Tax
Freedom Day, as computed by the Tax Foundation, Washington, DC 20005, to help
illustrate the value of tax free investing, as well as other tax-related
information.
Information, charts and illustrations relating to inflation and the
effects of inflation on the dollar may be included in advertisements and other
material furnished to present and prospective shareholders. For example, after
10 years, the purchasing power of $25,000 would shrink to $16,621, $14,968,
$13,465 and $12,100, if the annual rates of inflation during such period were
4%, 5%, 6% and 7%, respectively. (To calculate the purchasing power, the value
at the end of each year is reduced by the above inflation rates for 10
consecutive years.)
Information about portfolio allocation and holdings of the Portfolio 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 Portfolio's bond holdings on such date.
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, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and in materials furnished to present
and prospective shareholders may include statements or illustrations relating
to the appropriateness of types of securities and/or mutual funds which may be
employed to meet specific financial goals, such as (1) funding retirement, (2)
paying for children's education, and (3) financially supporting aging parents.
These three financial goals may be referred to in such advertisements or
materials as the "Triple Squeeze."
For additional information, charts and illustrations relating to the
Fund's investment performance, see "Performance Information" in the Fund's
Part II.
TAXES
See "Distributions and Taxes" in the Fund's current Prospectus.
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
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the Fund
intends to satisfy certain requirements relating to sources of its income and
diversification of its assets and to distribute its net investment income
(including tax-exempt income) and net realized capital gains in accordance
with the timing requirements imposed by the Code, so as to avoid any Federal
income or excise tax on the Fund. The Fund so qualified for its fiscal year
ended September 30, 1995 (see the Notes to the Financial Statements
incorporated by reference in this Statement of Additional Information).
Because the Fund invests its assets in the Portfolio, the Portfolio normally
must satisfy the applicable source of income and diversification requirements
in order for the Fund to satisfy them. The Portfolio will allocate at least
annually among its investors, including the Fund, each investor's distributive
share of the Portfolio's net taxable (if any) and tax-exempt investment
income, net realized capital gains, and any other items of income, gain, loss,
deduction or credit. For purposes of applying the requirements of the Code
regarding qualification as a RIC, the Fund will be deemed (i) to own its
proportionate share of each of the assets of the Portfolio and (ii) to be
entitled to the gross income of the Portfolio attributable to such share.
In order to avoid federal excise tax, 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 the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year
period ending on October 31 of such year, after reduction by any available
capital loss carryforwards, and 100% of any 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 and the Portfolio is
treated as a partnership for Massachusetts and federal tax purposes, neither
the Fund nor the Portfolio is liable for any income, corporate excise or
franchise tax in the Commonwealth of Massachusetts.
The Portfolio'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 to interests
in the Portfolio and, in order to enable the Fund to distribute its
proportionate share of this income and avoid a tax payable by the Fund, the
Portfolio may be required to liquidate portfolio securities that it might
otherwise have continued to hold in order to generate cash that the Fund may
withdraw from the Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
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 the tax-exempt interest
income allocated to it by the Portfolio 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. For purposes
of applying this 50% requirement, the Fund will be deemed to own its
proportionate share of each of the assets of the Portfolio, and the Portfolio
currently intends to invest its assets in a manner such that the Fund can meet
this 50% requirement. Interest on certain municipal obligations is treated as
a tax preference item for purposes of the federal alternative minimum tax.
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 Portfolio and the value of the securities held by the Portfolio may be
affected.
In the course of managing its investments, the Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when-
issued securities and options and futures transactions. The Portfolio may also
realize taxable income from certain short-term taxable obligations, securities
loans, a portion of original issue discount with respect to certain stripped
municipal obligations or their stripped coupons, and certain realized accrued
market discount. Any distributions by the Fund of its share of such capital
gains (after reduction by any capital loss carryforwards) 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 Portfolio and allocated to the Fund. Certain distributions of the Fund
declared in October, November or December and paid the following January will
be taxed to shareholders as if received on December 31 of the year in which
they are declared.
The Portfolio'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 Portfolio on the last business day of each taxable year will be marked to
market (i.e., treated as if closed out on such day), and any resulting gain or
loss will generally be treated as 60% long-term and 40% short-term capital
gain or loss. Certain positions held by the Portfolio that substantially
diminish the Portfolio's risk of loss with respect to other positions in its
portfolio may constitute "straddles," which are subject to tax rules that may
cause deferral of Portfolio losses, adjustments in the holding period of
Portfolio securities and conversion of short-term into long-term capital
losses. The Portfolio may have to limit its activities in options and futures
contracts in order to enable the Fund to maintain its qualification as a RIC.
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 treated as a long-term capital
loss to the extent of any distribution of net long-term capital gains with
respect to such shares. Any loss realized on the sale or exchange of shares
which have been held for tax purposes for 6 months or less (or such shorter
period as may be prescribed by Treasury regulations) will be disallowed to the
extent the shareholder has received tax-exempt interest with respect to such
shares. In addition, a loss realized on a redemption of Fund shares will be
disallowed to the extent the shareholder acquired other Fund shares 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
and certain required certifications, as well as shareholders with respect to
whom the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on 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 treaty. 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
the shareholder is engaged in a trade or business in the United States, is
present in the United States for a sufficient period of time during a taxable
year to be treated as a U.S. resident, or fails to provide any required
certifications regarding status as a non-resident alien investor. Foreign
shareholders should consult their tax advisers regarding the U.S. and foreign
tax consequences of an investment in 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 or foreign tax consequences
of investing in the Fund.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as
principal in selling shares of the Fund. The expenses of printing copies of
prospectuses used to offer shares to financial service 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 is borne by the Fund. In addition, the Fund
makes payments to the Principal Underwriter pursuant to its Distribution Plan
as described in the Fund's current 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 its Trustees who are not interested persons of the
Trust and who have no direct or indirect financial interest in the operation
of the Fund's 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 voting securities of the Fund or on six months'
notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold. The Fund 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 Fund will exceed the amounts paid therefor by the Fund. For the amount
paid by the Fund to the Principal Underwriter for acting as repurchase agent,
see "Fees and Expenses" in the Fund's Part II.
DISTRIBUTION PLAN
The Distribution Plan (the "Plan") is described in the prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the
sales charge rule of the National Association of Securities Dealers, Inc. (the
"NASD Rule"). The purpose of the Plan is to compensate the Principal
Underwriter for its distribution services and facilities provided to the Fund
by paying the Principal Underwriter sales commissions and a separate
distribution fee in connection with sales of Fund shares. The following
supplements the discussion of the Plan contained in the Fund's Prospectus.
The amount payable by the Fund to the Principal Underwriter pursuant to
the Plan as sales commissions and distribution fees with respect to each day
will be accrued on such day as a liability of the Fund and will accordingly
reduce the Fund's net assets 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 Fund's net assets on such day. The level of
the Fund's net assets changes each day and depends upon the amount of sales
and redemptions of Fund shares, the changes in the value of the investments
made by its corresponding Portfolio, the expenses of the Fund and of its
corresponding Portfolio accrued and allocated to the Fund on such day, income
on portfolio investments of its corresponding Portfolio accrued and allocated
to the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of
the Fund or reduce the Fund's 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 Fund will receive all contingent deferred sales
charges 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. Contingent deferred sales charges and accrued
amounts will be paid by the Fund to the Principal Underwriter whenever there
exist Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low
level of early redemptions of Fund shares resulting in the imposition of
contingent deferred sales charges will tend to increase the time during which
there will exist Uncovered Distribution Charges of the Principal Underwriter.
Conversely, periods with a low level of sales of Fund shares accompanied by a
high level of early redemptions of Fund shares resulting in the imposition of
contingent deferred sales charges will tend to reduce the time during which
there will exist Uncovered Distribution Charges of the Principal Underwriter.
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 Plan since its inception. Payments theretofore paid or
payable under the Plan by the Fund to the Principal Underwriter and contingent
deferred sales charges 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 Fund 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 Fund
shares upon which a contingent deferred sales charge will be imposed, the
level and timing of redemptions of Fund shares upon which no contingent
deferred sales charge will be imposed (including redemptions involving
exchanges of Fund shares for shares of another fund in the Eaton Vance
Marathon Group of Funds which result in a reduction of Uncovered Distribution
Charges), changes in the level of the net assets of the Fund, and changes in
the interest rate used in the calculation of the distribution fee under the
Plan.
As currently implemented by the Trustees, the Fund's Plan authorizes
payments of sales commissions and distribution fees to the Principal
Underwriter and service fees to the Principal Underwriter and Authorized Firms
which may be equivalent, on an aggregate basis during any fiscal year of the
Fund, to .95% of the Fund's average daily net assets for such year. For the
sales commission and service fee payments made by the Fund and the outstanding
Uncovered Distribution Charges of the Principal Underwriter, see "Fees and
Expenses -- Distribution Plan" in the Fund's Part II. The Fund 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 BMR by the Portfolio)
resulting from sale of Fund shares and through amounts paid to the Principal
Underwriter, including contingent deferred sales charges 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 contingent deferred
sales charges have exceeded the total expenses theretofore incurred by such
organization in distributing 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 Fund.
The Plan provides that it shall continue in effect for so long as such
continuance is approved at least annually by the vote of both a majority of
(i) the Trustees of the Trust who are not interested persons of the Trust and
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 a vote of a majority of the Rule 12b-1 Trustees or by a vote of a
majority of the outstanding voting securities of the Fund. The provisions of
the Plan relating to payments of sales commissions and distribution fees to
the Principal Underwriter are also included in the Distribution Agreement
between the Trust on behalf of the Fund and the Principal Underwriter. Under
the Plan the President or a Vice President of the Trust shall provide to the
Trustees for their review, and the Trustees shall review at least quarterly, 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 Fund, and all material amendments of the Plan must also be approved by
the Trustees as required by Rule 12b-1. So long as the Plan is in effect, the
selection and nomination of the Trustees who are not interested persons of the
Trust shall be committed to the discretion of the Trustees who are not such
interested persons.
The Trustees believe that the Plan will be a significant factor in the
growth of the Fund's assets, resulting in increased investment flexibility and
advantages which will benefit the Fund and its 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 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 have determined that in their
judgment there is a reasonable likelihood that the Plan will benefit the Fund
and its shareholders.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other
accounts managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or
(when a disclosed commission is being charged) at reasonably competitive
commission rates. In seeking such execution, BMR will use its 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, including State obligations,
purchased and sold by the Portfolio are generally traded in the over-the-
counter market on a net basis (i.e., without commission) through broker-
dealers and banks acting for their own account rather than as brokers, or
otherwise involve transactions directly with the issuer of such obligations.
Such firms attempt to profit from such transactions by buying at the bid price
and selling at the higher asked price of the market for such obligations, and
the difference between the bid and asked price is customarily referred to as
the spread. The Portfolio may also purchase municipal obligations from
underwriters, the cost of which may include undisclosed fees and concessions
to the underwriters. While it is anticipated that the Portfolio will not pay
significant brokerage commissions in connection with such portfolio security
transactions, on occasion it may be necessary or appropriate to purchase or
sell a security through a broker on an agency basis, in which case the
Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the
Portfolio may receive a commission which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if BMR determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided. This determination may be made on the basis of either that
particular transaction or on the basis of overall responsibilities which BMR
and its affiliates have for accounts over which they exercise investment
discretion. In making any such determination, BMR will not attempt to place a
specific dollar value on the brokerage and research services provided or to
determine what portion of the commission should be related to such services.
Brokerage and research services may include advice as to the value of
securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts; effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement); and the
"Research Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers
and from third parties with which such broker-dealers have arrangements.
Consistent with this practice, BMR receives Research Services from many
broker-dealer firms with which BMR places the Portfolio transactions and from
third parties with which these broker-dealers have arrangements. These
Research Services include such matters as general economic and market reviews,
industry and company reviews, evaluations of securities and portfolio
strategies and transactions and recommendations as to the purchase and sale of
securities and other portfolio transactions, financial, industry and trade
publications, news and information services, pricing and quotation equipment
and services, and research oriented computer hardware, software, data bases
and services. Any particular Research Service obtained through a broker-dealer
may be used by BMR in connection with client accounts other than those
accounts which pay commissions to such broker-dealer. Any such Research
Service may be broadly useful and of value to BMR in rendering investment
advisory services to all or a significant portion of its clients, or may be
relevant and useful for the management of only one client's account or of a
few clients' accounts, or may be useful for the management of merely a segment
of certain clients' accounts, regardless of whether any such account or
accounts paid commissions to the broker-dealer through which such Research
Service was obtained. The advisory fee paid by the Portfolio is not reduced
because BMR receives such Research Services. BMR evaluates the nature and
quality of the various Research Services obtained through broker-dealer firms
and attempts to allocate sufficient commissions to such firms to ensure the
continued receipt of Research Services which BMR believes are useful or of
value to it in rendering investment advisory services to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at
reasonably competitive spreads or commission rates, BMR is authorized to
consider as a factor in the selection of any firm with whom portfolio orders
may be placed the fact that such firm has sold or is selling shares of the
Fund or of other investment companies sponsored by BMR or Eaton Vance. This
policy is not inconsistent with a rule of the National Association of
Securities Dealers, Inc., which rule provides that no firm which is a member
of the Association shall favor or disfavor the distribution of shares of any
particular investment company or group of investment companies on the basis of
brokerage commissions received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate equitably portfolio security transactions among
the Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or sell
securities by the Portfolio and one or more of such other accounts
simultaneously. In making such allocations, the main factors to be considered
are the respective investment objectives of the Portfolio and such other
accounts, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment by the Portfolio and such
accounts, the size of investment commitments generally held by the Portfolio
and such accounts and the opinions of the persons responsible for recommending
investments to the Portfolio and such accounts. While this procedure could
have a detrimental effect on the price or amount of the securities available
to the Portfolio from time to time, it is the opinion of the Trustees of the
Trust and the Portfolio that the benefits available from the BMR organization
outweigh any disadvantage that may arise from exposure to simultaneous
transactions. For the brokerage commissions paid by the Portfolio on portfolio
transactions, see "Fees and Expenses" in the Fund's Part II.
OTHER INFORMATION
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" and "EV" in other connections and for other purposes. The Trust,
which is a Massachusetts business trust established in 1985, was originally
called Eaton Vance High Yield Municipals Trust. The Trust changed its name to
Eaton Vance Municipals Trust on January 7, 1991.
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 shareholders' 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 Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him
from that office either by a written declaration filed with the Trust's
custodian or by votes cast at a meeting called for that purpose. The By-laws
further provide that under certain circumstances the shareholders may call a
meeting to remove a Trustee and that the Trust is required to provide
assistance in communication with shareholders about such a meeting.
The Trust's 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 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 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.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed
from office either by declaration in writing filed with the custodian of the
assets of the Trust or by votes cast in person or by proxy at a meeting called
for the purpose.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action
of the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with
the Portfolio's custodian or by votes cast at a meeting called for that
purpose. The Declaration of Trust further provides that under certain
circumstances the investors may call a meeting to remove a Trustee and that
the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
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
Portfolio 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, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities
and Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference
into this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing.
Registrant incorporates by reference the audited financial information for
the Fund's and Portfolio's for the fiscal year ended September 30, 1995 as
previously filed electronically with the Securities and Exchange Commission
(Accession No. 0000950135-95-002502).
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risk appear somewhat larger than the Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
- --------------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this 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 Portfolio's fiscal year end.
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will
be designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors
effecting the liquidity of the borrower and short term cyclical elements are
critical in short term ratings, while other factors of major importance in
bond risk, long term secular trends for example, may be less important over
the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol
to reflect such characteristics as payment upon periodic demand rather than
fixed maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be
limited to the external liquidity with no or limited legal recourse to the
issuer in the event the demand is not met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of 365 days.
Issuers (or supporting institutions) rated PRIME-1 or P-1 have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness
to pay interest and repay principal. The B rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied BB or
BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
p: The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk
of default upon failure of such completion. The investor should exercise his
own judgment with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is insured
by the Federal Deposit Insurance Corp. and interest is adequately
collateralized. In the case of certificates of deposit, the letter "L"
indicates that the deposit, combined with other deposits being held in the
same right and capacity, will be honored for principal and accrued pre-default
interest up to the federal insurance limits within 30 days after closing of
the insured institution or, in the event that the deposit is assumed by a
successor insured institution, upon maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues determined
to possess very strong characteristics will be given a plus(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3: Speculative capacity to pay principal and interest.
COMMERCIAL PAPER
Standard & Poor's commercial paper ratings are a current assessments of the
likelihood of timely payment of debts considered short-term in the relevant
market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period had not expired, unless S&P believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified that could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the
addition of a plus or minus sign to indicate the relative position of a credit
within the rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very 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 could cause these securities to be rated
below investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the
issuer's ability to make interest and principal payments.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON CALIFORNIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax in the form of an investment exempt from
California State personal income taxes. The Fund currently seeks to achieve
its investment objective by investing its assets in the California Municipals
Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain California considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in California issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of California issuers. Neither the Trust nor the
Portfolio has independently verified this information.
CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS
LIMITATION ON TAXES. Certain California municipal obligations may be
obligations of issuers which rely in whole or in part, directly or indirectly,
on ad valorem property taxes as a source of revenue. The taxing powers of
California local governments and districts are limited by Article XIII A of
the California Constitution, enacted by the voters in 1978 and commonly known
as "Proposition 13." Briefly, Article XIII A limits to 1% of full cash value
the rate of ad valorem property taxes on real property and generally restricts
the reassessment of property to 2% per year, except upon new construction or
change of ownership (subject to a number of exemptions). Taxing entities may,
however, raise ad valorem taxes above the 1% limit to pay debt service on
certain voter-approved bonded indebtedness.
Under Article XIII A, the basic 1% ad valorem tax levy is applied against
the assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been filed challenging the acquisition-based
assessment system of Proposition 13. The U.S. Supreme Court recently heard one
of these lawsuits, and on June 18, 1992 announced a decision upholding
Proposition 13.
Article XIII A prohibits local governments from raising revenues through
ad valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." A
California Supreme Court decision, however, allowed the levy, without voter
approval, of "general taxes" which were not dedicated to a specific use. In
response to these decisions, the voters of the State in 1986 adopted an
initiative statute which imposed significant new limits on the ability of
local entities to raise or levy general taxes, except by receiving majority
local voter approval. Significant elements of this initiative, "Proposition
62," have been overturned in recent court cases. An initiative proposed to re-
enact the provisions of Proposition 62 as a constitutional amendment was
defeated by the voters in November 1990, but such a proposal may be renewed in
the future.
APPROPRIATIONS LIMITS. The State and its local governments are subject to an
annual "appropriations limit" imposed by Article XIII B of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Proposition 98 and 111 in 1988 and 1990, respectively. Article XIII B
prohibits the State or any covered local government from spending
"appropriations subject to limitation" in excess of the appropriations limit
imposed. "Appropriations subject to limitation" are authorizations to spend
"proceeds of taxes," which consist of tax revenues and certain other funds,
including proceeds from regulatory licenses, user charges or other fees, to
the extent that such proceeds exceed the cost of providing the product or
service, but "proceeds of taxes" exclude most State subventions to local
governments. No limit is imposed on appropriations of funds which are not
"proceeds of taxes," such as reasonable user charges or fees, and certain
other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIII B appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of post-
1989 increases in gasoline taxes and vehicle weight fees, and (5)
appropriations made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such
adjustments were liberalized by Proposition 111 to follow more closely growth
in the State's economy. "Excess" revenues are measured over a two-year cycle.
Local governments, must return any excess to taxpayers by rate reductions.
With more liberal annual adjustment factors since 1988, and depressed revenues
since 1990 because of the recession, few governments are currently operating
near their spending limits, but this condition may change over time. Local
governments may by voter approval exceed their spending limit for up to four
years.
Because of the complex nature of Articles XIII A and XIII B of the
California Constitution, the ambiguities and possible inconsistencies in their
terms, and the impossibility of predicting future appropriations or changes in
population and cost of living, and the probability of continuing legal
challenges, it is not currently possible to determine fully the impact of
Article XIII A or Article XIII B on California municipal obligations or on the
ability of the State or local governments to pay debt service on such
obligations. It is not presently possible to predict the outcome of any
pending litigation with respect to the ultimate scope, impact or
constitutionality of either Article XIII A or Article XIII B, or the impact of
any such determinations upon State agencies or local governments, or upon
their ability to pay debt service on their obligations. Future initiatives or
legislative changes in laws or the California Constitution may also affect
the ability of the State or local issuers to repay their obligations.
OBLIGATIONS OF THE STATE OF CALIFORNIA
As of April 1, 1995, the State had approximately $19.2 billion of general
obligation bonds outstanding, and $3.3 billion remained authorized but
unissued. In addition, at June 30, 1994, the State had lease-purchase
obligations, payable from the State's general fund, of approximately $6.0
billion with authorized but unissued lease purchase debt of $1.3 billion. The
State's outstanding general obligation bond debt has gradually risen in recent
years: from approximately $15.9 billion in 1991-92 to approximately $19.2
billion in 1994-95. Of the State's outstanding general obligation debt,
approximately 22% is presently self-liquidating (for which program revenues
are anticipated to be sufficient to reimburse the general fund for debt
service payments). Three general obligation bond propositions, totalling $3.7
billion, were approved by voters in 1992. The State has paid the principal of
and interest on its general obligation bonds, lease-purchase debt and short-
term obligations when due.
As of the date of this Statement of Additional Information, general
obligation bonds issued by the State of California are rated A1, A, A by
Moody's, S&P and Fitch, respectively. Starting in 1991 and continuing through
the middle of 1994, there has been a relatively steady deterioration in the
State's general obligation bond rating. On July 15, 1994, all three of the
rating agencies rating the State's long-term debt lowered their ratings of the
State's general obligation bonds. Moody's lowered its rating from "AA" to
"A1," S&P lowered its rating from "A+" to "A" and termed its outlook as
"stable," and Fitch lowered its rating from "AA" to "A." An explanation of
such actions may be obtained only from the respective rating agencies. Future
deterioration in the State's fiscal condition could result in additional
downgrades by the rating agencies.
RECENT FINANCIAL RESULTS
Since the start of the 1990-91 Fiscal Year, the State has faced the worst
economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), exports and financial services, among
others, have all been severely affected. Job losses have been the worst of any
post-war recession and continued through the end of 1993. Following Department
of Finance projections that non-farm employment levels would be stable in
1994, employment grew 3% between November 1993 and November 1994. However,
unemployment was well above the national average through 1994.
The recession has seriously affected State tax revenues, which basically
mirror economic conditions. It has also caused increased expenditures for
health and welfare programs. The State has also been facing a structural
imbalance in its budget with the largest programs supported by the General
Fund -- K-12 schools and community colleges, health and welfare, and
corrections -- growing at rates higher than the growth rates for the principal
revenue sources of the General Fund. As a result, the State has experienced
recurring budget deficits. The State Controller reports that expenditures
exceeded revenues for four of the five fiscal years ending with 1991-92, and
were essentially equal in 1992-93. By June 30, 1993, according to the
Department of Finance, the State's Special Fund for Economic Uncertainties had
a deficit, on a budget basis, of approximately $2.8 billion. The 1993-94
Budget Act incorporated a Deficit Retirement Plan to repay this deficit over
two fiscal years. The original budget for 1993-94 reflected revenues which
exceeded expenditures by approximately $2.0 billion. As a result of the
continuing recession, the excess of revenues over expenditures for the fiscal
year was only about $522 million. Thus the accumulated budget deficit at June
30, 1994 was approximately $2.0 billion, and the deficit will not be retired
by June 30, 1995 as planned.
The accumulated budget deficits over the past several years, together with
expenditures for school funding which have not been reflected in the budget,
and reduction of available internal borrowable funds, have combined to
significantly deplete the State's cash resources to pay its ongoing expenses.
In order to meet its cash needs, the State has had to rely for several years
on a series of external borrowings, including borrowings past the end of a
fiscal year.
The 1994-95 Budget Act is projected to have $41.9 billion of General Fund
revenues and transfers and $40.0 billion of budget expenditures. In addition,
the 1994-95 Budget Act anticipates deferring retirement of about $1 billion of
the accumulated budget deficit to the 1995-96 Fiscal Year when it is intended
to be fully retired by June 30, 1996.
1993-94 BUDGET. The 1993-94 budget represented the third consecutive year
of extremely difficult budget choices for the State, in view of the continuing
recession. The budget act, signed on June 30, 1993, provided for General Fund
expenditures of $38.5 billion, a 6.3% decline from the prior year. Revenues
were projected at $40.6 billion, about $400 million below the prior year. To
bring the budget into balance, the budget act and related legislation provided
for transfer of $2.6 billion of local property taxes to school districts, thus
relieving State support obligations; reductions in health and welfare
expenditures; reductions in support for higher education institutions; a two-
year suspension of the renters' tax credit; and miscellaneous cuts in general
government spending and certain one-time and accounting adjustments. There
were no general State tax increases, but a 0.5% temporary State sales tax
scheduled to expire on June 30 was extended for six months, and dedicated to
support local government public safety costs.
Revenues for 1993-94 were $800 million lower than original projections and
expenditures were $780 million higher as a result of higher health and
welfare caseloads, lower property taxes and lower than anticipated federal
government payments for immigration-related costs.
1994-95 BUDGET. The 1994-95 fiscal year represents the fourth consecutive
year the Governor and Legislature were faced with a very difficult budget
environment to produce a balanced budget. Many program cuts and budgetary
adjustments have already been made in the last three years. The Budget
recognized that the accumulated deficit could not be repaid in one year, and
proposed a two-year solution. The budget projects operating surpluses for the
budget for both 1994-95 and 1995-96, and lead to the elimination of the
accumulated budget deficit, estimated at about $2.0 billion at June 30, 1994,
by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projects
revenues and transfers of $41.9 billion, $2.1 billion higher than revenues in
1993-94. This reflects the Administration's forecast of an improving economy.
The Budget Act projects the effective receipt of about $770 million from the
Federal Government, $360 million of which is to reimburse the State's costs
for immigrant-related expenses and the balance is attributable to federal
subventions thus reducing State expenditures. Little or none of this money is
now expected to be received. The Legislature took no action on a proposal in
the January Governor's Budget to undertake an expansion of the transfer of
certain programs to counties, which would also have transferred to counties
0.5% of the State's current sales tax. The Budget Act projects Special Fund
revenues of $12.1 billion, a decrease of 2.4% from 1993-94 estimated revenues.
The Governor's 1995-96 Budget proposal of January, 1995 included an upward
revision of General Fund revenues to $42.4 billion for the 1994-95 fiscal
year.
The 1994-95 Budget Act projects General Fund expenditures of $40.9
billion, an increase of $1.6 billion over 1993-94. The Budget Act also
projects Special Fund expenditures of $13.7 billion, a 5.4% increase over
1993-94 estimated expenditures. Although, the 1994-95 Budget Act contains no
tax increases, under legislation enacted for the 1993-94 Budget, the renters'
tax credit was suspended for two years (1993 and 1994). A ballot proposition
to permanently restore the renters' tax credit after this year failed at the
June, 1994 election. The Legislature enacted a further one-year suspension of
the renters' tax credit, for 1995, saving about $390 million in the 1995-96
Fiscal Year. The 1994-95 Budget assumes that the State will use a cash flow
borrowing program in 1994-95 which combines one-year notes and certain
warrants. Issuance of the warrants allows the State to defer repayment of
approximately $1.0 billion of its accumulated budget deficit into the 1995-96
Fiscal Year. The Budget Adjustment Law, enacted along with the 1994-95 Budget
Act is designed to ensure that the warrants will be repaid in the 1995-96
Fiscal Year. The State's severe financial difficulties for the current budget
year will result in continued pressure upon almost all local governments,
particularly school districts and counties which depend on State aid. Despite
efforts in recent years to increase taxes and reduce governmental
expenditures, there can be no assurance that the State will not face budget
gaps in the future.
PROPOSED 1995-96 BUDGET. On January 10, 1995, the Governor presented his
proposed fiscal year 1995-96 Budget. This budget projects total General Fund
revenues and transfers of $42.5 billion, and expenditures of $41.7 billion, to
complete the elimination of the accumulated budget deficits from earlier
years. However, this proposal leaves no cushion, as the projected budget
reserve at June 30, 1996 would be only about $92 million. While proposing
increases in funding for schools, universities and corrections, the Governor
proposes further cuts in welfare programs, and a continuation of the
"realignment" of functions with counties which would save the State about $240
million. The Governor also expects about $800 million in new federal aid for
the State's costs of incarcerating and educating illegal immigrants. The
Budget proposal also does not account for possible additional costs if the
State loses its appeals on lawsuits which are currently pending concerning
such matters as school funding and pension payments, but these appeals could
take several years to resolve. Part of the Governor's proposal also is a 15%
cut in personal income and corporate taxes, to be phased in over three years,
starting with calendar year 1996 (which would have only a small impact on
1995-96 income).
LEGAL PROCEEDINGS
The State is involved in certain legal proceedings (described in the
State's recent financial statements) that, if decided against the State, may
require the State to make significant future expenditures or may substantially
impair revenues.
ECONOMY
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of over 31 million represents
12.3% of the total United States population and grew by 27% in the 1980s.
Total personal income in the State, at an estimated $683 billion in 1993,
accounts for about 13% of all personal income in the nation.
Reports issued by the State Department of Finance and the Commission on
State Finance indicate that the State's economy is recovering from its worst
recession since the 1930s. The largest job losses have been in Southern
California, led by declines in the aerospace and construction industries.
Weakness statewide occurred in manufacturing, construction, services and
trade. Additional military base closures will have further adverse effects on
the State's economy later in the decade. California's unemployment rate was
7.9% in April, 1995, a significant improvement over the previous year's level
of 9.3% but still above the national rate of 5.8%.
OTHER CONSIDERATIONS
On December 7, 1994, Orange County, California (the "County"), together
with its pooled investment fund (the "Fund") filed for protection under
Chapter 9 of the Federal Bankruptcy Code, after reports that the Fund had
suffered significant market losses in its investments which caused a liquidity
crisis for the Fund and the County. More than 180 other public entities, most
but not all located in the County, were also depositors in the Fund. As of
December 13, 1994, the County estimated the Fund's loss at about $2 billion,
or 27% of its initial deposits of around $7.4 billion. These losses could
increase as the County sells investments to restructure the Fund, or if
interest rates rise. Many of the entities which kept moneys in the Fund,
including the County, are facing cash flow difficulties because of the
bankruptcy filing and may be required to reduce programs or capital projects.
The County and some of these entities have, and others may in the future,
default in payment of their obligations. Moody's and S&P have suspended,
reduced to below investment grade levels, or placed on "Credit Watch" various
securities of the County and the entities participating in the Fund. As of
December 1994, the Portfolio did not hold any direct obligations of the
County. However, the Portfolio did hold bonds of some of the governmental
units that had money invested with the County; the impact of the loss of
access to these funds, the loss of expected investment earnings and the
potential loss of some of the principal invested is not known at this point.
There can be no assurances that these holdings will maintain their current
ratings and/or liquidity in the market.
Although the State of California has no obligation with respect to any
obligations or securities of the County or any of the other participating
entities, under existing legal precedents, the State may be obligated to
ensure that school districts have sufficient funds to operate. Longer term,
this financial crisis could have an adverse impact on the economic recovery
that has only recently taken hold in Southern California.
In early June, 1995, Orange County filed a proposal with the bankruptcy
court that would require holders of the County's short-term notes to wait a
year before being repaid. The existence of this proposal and its adoption
could disrupt the market for short-term debt in California and possibly drive
up the State's borrowing costs.
The repayment of industrial development securities and other obligations
secured by real property may be affected by California laws limiting
foreclosure rights of creditors. Securities backed by healthcare and hospital
revenues may be affected by changes in State regulations governing cost
reimbursements to health care providers under Medi-Cal (the State's Medicaid
program), including risks related to the policy of awarding exclusive
contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment
project area after the start of redevelopment activity. In the event that
assessed values in the redevelopment project area decline (e.g., because of a
major natural disaster such as an earthquake), or there is a deemphasis or
reallocation of property taxes by legislation or initiative, the tax increment
revenue may be insufficient to make principal and interest payments on these
bonds. Both Moody's and S&P suspended ratings on California tax allocation
bonds after the enactment of Articles XIII A and XIII B, and only resumed such
ratings on a selective basis.
Proposition 87, approved by California voters in 1988, required that all
revenues produced by a tax rate increase go directly to the taxing entity
which increased such tax rate to repay the entity's general obligation
indebtedness. As a result, redevelopment agencies (which, typically, are the
issuers of tax allocation securities) no longer receive an increase in tax
increment when taxes on property in the project area are increased to repay
voter-approved bonded indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and
principal on their obligations remains unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Legislation has been or
may be introduced which would modify existing taxes or other revenue-raising
measures or which either would further limit or, alternatively, would increase
the abilities of state and local governments to impose new taxes or increase
existing taxes. It is not presently possible to predict the extent to which
any such legislation will be enacted. Nor is it presently possible to
determine the impact of any such legislation on California municipal
obligations in which the Portfolio may invest, future allocations of state
revenues to local governments or the abilities of state or local governments
to pay the interest on, or repay the principal of, such California municipal
obligations.
Certain California obligations may be payable solely from the revenues of
health care institutions. Such revenues may be negatively affected by efforts
of the state and of private health plans and insurers to contract with such
institutions for fixed, discounted payments for services to Medicaid and
insurance beneficiaries. Such California obligations may be insured by the
state. In the event of a default by the health care institution, the state has
the option of issuing replacement debentures payable from a reserve fund.
However, this reserve fund has been found to be underfunded in a study
conducted in 1986 and is subject to reappropriation by the California
Legislature for other purposes.
Certain California obligations may be secured by real estate mortgages or
deeds of trust. California has several statutory provisions that may limit the
remedies of secured creditors, such as issuers of California obligations. A
creditor's right to obtain a deficiency judgment is barred when a foreclosure
is accomplished through a nonjudicial trustee's sale. A secured creditor is
also required to exhaust its real property security by foreclosure before
bringing a personal action against the debtor. Any deficiency judgment
following a judicial sale of foreclosed property is limited to the excess of
the outstanding debt over the fair value of the property at the time of sale,
even if the actual bids at such sale were lower than such value. Finally, the
debtor has the right to redeem the foreclosed property from any judicial
foreclosure sale that could result in a deficiency judgment.
Due to certain limitations on a creditor's private powers of sale after
foreclosure, the effective minimum period for foreclosing on a mortgage could
exceed seven months after the initial default. Such delays in collections
could disrupt the flow of revenues to an issuer for the payment of debt
service on California obligations secured by real estate mortgages. In some
cases, the nonjudicial sale of property by an issuer could be precluded as a
violation of constitutional due process.
Under California's anti-deficiency law, there is no personal recourse
against a mortgagor of a single family residence purchased with a loan secured
by a mortgage. California law also limits the charges that may be imposed with
respect to voluntary mortgage prepayments. These provisions could affect the
flow of revenues available for debt service to the issuers of California
obligations secured by single family home mortgages.
Substantially all of California is within an active geologic region
subject to major seismic activity. Any California municipal obligation in the
Portfolio could be affected by an interruption of revenues because of damaged
facilities, or, consequently, income tax deduction for casualty losses or
property tax assessment reductions. Compensatory financial assistance could be
constrained by the inability of (i) an issuer to have obtained earthquake
insurance coverage at reasonable rates; (ii) an insurer to perform on its
contracts of insurance in the event of widespread losses; or (iii) the Federal
or State government to appropriate sufficient funds within their respective
budget limitations.
On January 17, 1994, an earthquake struck Los Angeles causing significant
damage to public and private structures and facilities. Although some
individuals and businesses suffered losses totaling in the billions of
dollars, the overall effect of the earthquake on the regional and State
economy is not expected to be serious.
The State has shifted responsibility for certain health and welfare
programs and provided the counties with increased taxing powers to cover their
costs. While the State expects that the increased taxes will be sufficient to
cover increased costs, there can be no assurance that this will be the case.
If the increased costs are not covered by the increased taxes, the counties
will be responsible to fund the difference. Any added expenditures in excess
of increased revenues and subsequent adverse effect upon county finances would
likely have a negative impact upon individual county and local bond prices.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $410,762,918.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees of $2,121,262 (equivalent to 0.50% of the Portfolio's average daily net
assets for such year). For the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $3,644,215 (equivalent to 0.46% of the
Portfolio's average daily net assets for such year). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $2,024,390
(equivalent to 0.46% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained
Eaton Vance as its investment adviser. For the period from October 1, 1992 to
February 1, 1993, the Fund paid Eaton Vance advisory fees of $792,392
(equivalent to 0.47% (annualized) of the Fund's average net assets for the
period). For the fiscal year ended September 30, 1992, the Fund paid Eaton
Vance advisory fees of $1,581,742 (equivalent to 0.47% of the Fund's average
net assets for such fiscal year).
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's shareholders and by the Board of
Trustees of the Trust, as required by Rule 12b-1. During the fiscal year ended
September 30, 1995, the Principal Underwriter paid sales commissions of
$694,877 to Authorized Firms on sales of Fund shares. During the same period,
the Fund made sales commission payments under the Plan to the Principal
Underwriter aggregating $3,089,717, which amount reduced Uncovered
Distribution Charges. During such period, contingent deferred sales charges
aggregating approximately $9,798,948 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $7,451,654 (which amount was equivalent to 2.0% of
the Fund's net assets on such date). During the fiscal year ended September
30, 1995, the Fund paid service fee payments under the Plan aggregating
$784,766, of which $777,417 was paid to Authorized Firms and the balance of
which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $4,017.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $25,540
and the Portfolio paid IBT $187,581.
BROKERAGE
For the fiscal years ended September 30, 1995 and 1994, and for the period
from the start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio, and
of the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight .......... $672 $3,690(2) $135,000(4)
Samuel L. Hayes, III ...... 648 3,659(3) 150,000(5)
Norton H. Reamer .......... 632 3,633 135,000
John L. Thorndike ......... 641 3,748 140,000
Jack L. Treynor ........... 693 3,841 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,237 of deferred compensation.
(3) Includes $1,178 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Cynthia J. Clemson (32) has served as a Vice President of the
Portfolio since February 1, 1996. Ms. Clemson has been a Vice President of BMR
and Eaton Vance since 1993 and an employee of Eaton Vance since 1985. Ms.
Clemson is an officer of various investment companies managed by Eaton Vance
or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund covering the life of the
Fund from December 19, 1985 through September 30, 1995 and for the five- and
one-year periods ended September 30, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE BEFORE VALUE AFTER
DEDUCTING THE DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ----------- ----------- ------------- --------------- ------------ ------------ ------------- ------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 12/19/85* $1,000 $1,825.16 $1,825.16 82.52% 6.34% 82.52% 6.34%
5 Years
Ended
9/30/95*** 9/30/90 $1,000 $1,369.11 $1,349.44 36.91% 6.47% 34.94% 6.16%
1 Year
Ended
9/30/95 9/30/94 $1,000 $1,082.97 $1,032.97 8.30% 8.30% 3.30% 3.30%
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.
- ----------
* Investment operations began on December 19, 1985.
** No contingent deferred sales charge is imposed on certain redemptions. See the Fund's current Prospectus.
*** If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.61%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.61% would be 7.42%,
assuming a combined federal and State tax rate of 37.90%.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 15, 1995) was 4.99%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 5.11%.
See the Tax Equivalent Yield Table in this Part II concerning applicable
tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 13.14% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below shows the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the 1995 regular federal income tax
rates and California State income tax laws and tax rates applicable for 1994.
<TABLE>
<CAPTION>
A FEDERAL AND CALIFORNIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- CA STATE --------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------ ----------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 34.70 6.13 6.89 7.66 8.42 9.19 9.95 10.72
$ 56,551 - $117,950 $ 94,251 - $143,600 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27
$117,951 - $256,500 $143,601 - $256,500 43.04 7.02 7.90 8.78 9.66 10.53 11.41 12.29
Over $256,500 Over $256,500 46.24 7.44 8.37 9.30 10.23 11.16 12.09 13.02
* Net amount subject to federal and California personal income tax after deductions and exemptions.
+ The combined federal and California tax brackets are calculated using the highest California State rate applicable at the
upper portion of these brackets and assume that taxpayers deduct California State income taxes paid on their federal income
tax returns. An investor with taxable income within these brackets may have a lower combined tax rate than the combined rate
shown. Investors who do not itemize deductions on their federal income tax return will have a higher combined bracket and
higher taxable equivalent yield than those indicated above.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including California State income taxes)
for taxpayers with adjusted gross income in excess of $114,700. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $114,700 and joint
filers with adjusted gross income in excess of $172,050. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above. The applicable federal tax rates within the brackets
are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Marathon California
Municipals 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 and
California personal income taxes, 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 except for
California personal income taxes. It should also be noted that the interest
earned on certain "private activity bonds" issued after August 7, 1986, while
exempt from the regular federal income tax, is treated as a tax preference
item which could subject the recipient to or increase the recipient's
liability for the federal alternative minimum tax. The illustrations assume
that the federal alternative minimum tax is not applicable and do not take
into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult their tax adviser for
additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON FLORIDA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax in the form of an investment exempt from
Florida intangibles tax. The Fund currently seeks to achieve its investment
objective by investing its assets in the Florida Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Florida considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Florida issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Florida issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Florida is characterized by rapid population growth and substantial
capital needs which are being funded through more frequent debt issuance and
pay-as-you-go financing. The State of Florida operates on the basis of a
fiscal biennium for its appropriations and expenditures and is
constitutionally bound to maintain a balanced budget. The State's financial
operations are considerably different than most other states because, under
the State's constitution, there is no state income tax. A constitutional
amendment would therefore be necessary to impose an income tax. Only seven
states currently do not impose income taxes upon their residents. The lack of
an income tax exposes total State tax collections to considerably more
volatility than would otherwise be the case and, in the event of an economic
downswing, could affect the State's ability to pay principal and interest in a
timely manner.
The 1992-1993 Florida budget authorized $11.862 billion in General Fund
spending, an increase of 6.5% from the final 1991-1992 level. New taxes,
including a 0.5 mill ($0.50 per $1,000 of valuation) increase in the
intangible personal property tax, were expected to produce an additional
$378.2 million in revenue to fund school and prison construction. Other tax
changes included a 1% sales tax increase on taxable purchases of
telecommunications and electric services, an increase in documentary stamp
taxes, and the inclusion of several previously exempt services for the sales
tax. Revenue collections were $200 million over initial estimates, with $170
million due to normal economic activity and $30 million attributed to
rebuilding after Hurricane Andrew. Combined general revenue fund and working
capital unencumbered reserves increased to $441.4 million, or 3.7% of
expenditures.
Non-recurring revenue from rebuilding efforts following Hurricane Andrew
was $220 million in 1993-94 and is estimated to be $159 million in 1994-95. In
1993-94, $190 million was transferred to a hurricane relief trust fund and
$159 million is budgeted to be transferred in 1994-95.
In 1993, the Florida state constitution was amended to limit the annual
growth in the assessed valuation of residential property. This amendment
could, over time, constrain the growth in property taxes, a major revenue
source for local governments. The amendment restricts annual increases in
assessed valuation to the lesser of 3% or the Consumer Price Index. The
amendment applies only to residential properties eligible for the homestead
exemption and does not affect the valuation of rental, commercial, or
industrial properties. When sold, residential property would be reassessed at
market value. While no immediate ratings implications are expected, the
amendment could have a negative impact on the financial performance of local
governments over time and lead to ratings revisions which may have a negative
impact on the prices of affected bonds.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $712,203,136.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees of $3,433,489 (equivalent to 0.47% of the Portfolio's average daily net
assets for such year). For the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $3,644,215 (equivalent to 0.46% of the
Portfolio's average daily net assets for such year). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $2,024,390
(equivalent to 0.46% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained
Eaton Vance as its investment adviser. For the period from October 1, 1992 to
February 1, 1993, the Fund paid Eaton Vance advisory fees of $792,392
(equivalent to 0.47% (annualized) of the Fund's average net assets for the
period). For the fiscal year ended September 30, 1992, the Fund paid Eaton
Vance advisory fees of $1,581,742 (equivalent to 0.47% of the Fund's average
net assets for such fiscal year).
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's shareholders and by the Board of
Trustees of the Trust, as required by Rule 12b-1. During the fiscal year ended
September 30, 1995, the Principal Underwriter paid sales commissions of
$1,145,098 to Authorized Firms on sales of Fund shares. During the same
period, the Fund made sales commission payments under the Plan to the
Principal Underwriter aggregating $5,426,132, which amount reduced Uncovered
Distribution Charges. During such period, contingent deferred sales charges
aggregating approximately $3,811,000 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $22,542,000 (which amount was equivalent to 3.2% of
the Fund's net assets on such date). During the fiscal year ended September
30, 1995, the Fund paid service fee payments under the Plan aggregating
$1,003,129, of which $996,641 was paid to Authorized Firms and the balance of
which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $6,832.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid no fee to IBT.
For the fiscal year ended September 30, 1995, the Portfolio paid IBT $10,722.
BROKERAGE
For the fiscal years ended September 30, 1995 and 1994, and for the period
from the start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio, and
of the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight .......... $672 $4,291(2) $135,000(4)
Samuel L. Hayes, III ...... 648 4,239(3) 150,000(5)
Norton H. Reamer .......... 632 4,200 135,000
John L. Thorndike ......... 641 4,322 140,000
Jack L. Treynor ........... 693 4,464 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,439 of deferred compensation.
(3) Includes $1,333 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund covering the life of the
Fund from August 28, 1990 through September 30, 1995 and for the five- and
one-year periods ended September 30, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE BEFORE VALUE AFTER
DEDUCTING THE DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ----------- ----------- ------------- --------------- ------------ ------------ ------------- ------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 8/28/90* $1,000 $1,478.92 $1,468.92 47.89% 7.97% 46.89% 7.83%
5 Years
Ended
9/30/95*** 9/30/90 $1,000 $1,480.39 $1,460.39 48.04% 8.15% 46.04% 7.85%
1 Year
Ended
9/30/95 9/30/94 $1,000 $1,098.98 $1,048.98 9.90% 9.90% 4.90% 4.90%
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.
- ----------
* Investment operations began on August 28, 1990.
** No contingent deferred sales charge is imposed on certain redemptions. See the Fund's current Prospectus.
*** If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.49%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.49% would be 6.51%,
assuming a federal tax rate of 31%.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 15, 1995) was 4.80%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.91%.
See the Tax Equivalent Yield Table in this Part II concerning applicable
tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 16.3% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from Eaton Vance Florida Tax Free Fund to EV Marathon Florida
Tax Free Fund on February 1, 1994 and to EV Marathon Florida Municipals Fund
on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The tables below give the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and the Florida intangibles tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
YOU ARE IN
IF THE TAXABLE INCOME ON OR THE TAXABLE INCOME ON THIS FEDERAL IN YOUR BRACKET, A TAX-FREE YIELD OF
YOUR SINGLE RETURN IS* YOUR JOINT RETURN IS* BRACKET 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------ -------------------------- ------------- --------------------------------------------------------
EQUALS THAT OF A TAXABLE INVESTMENT YIELDING
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $23,350 Up to $39,000 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 56,551-$117,950 $ 94,251-$143,600 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$117,951-$256,500 $143,601-$256,500 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $256,500 Over $256,500 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
<CAPTION>
IF THE TAXABLE INCOME ON OR THE TAXABLE INCOME ON
YOUR SINGLE RETURN IS* YOUR JOINT RETURN IS* 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------ -------------------------- -----------------------------------------------------------------
TAX EQUIVALENT YIELD REFLECTING EXEMPTION FROM INTANGIBLES TAX:**
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $23,350 Up to $39,000 4.95% 5.54% 6.13% 6.71% 7.30% 7.89% 8.48%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 5.85 6.54 7.23 7.93 8.62 9.31 10.01
$ 56,551-$117,950 $ 94,251-$143,600 6.10 6.83 7.55 8.27 9.00 9.72 10.44
$117,951-$256,500 $143,601-$256,500 6.58 7.36 8.14 8.92 9.70 10.48 11.26
Over $256,500 Over $256,500 6.97 7.80 8.62 9.45 10.28 11.10 11.93
* Net amount subject to federal personal income tax after deductions and exemptions.
** A Florida intangibles tax on personal property of $2.00 per $1,000 is generally imposed after exemptions on the value of
stocks, bonds, other evidences of indebtedness and mutual fund shares. An example of the effect of the Florida intangibles
tax on the tax brackets of Florida taxpayers is as follows. A $10,000 investment subject to the tax would require payment of
$20 annually in intangibles taxes. If the investment yielded 5.5% annually or $550, the intangibles tax as a percentage of
income would be $20/$550 or 3.64%. If a taxpayer were in the 36% federal income tax bracket, assuming the intangibles taxes
were deducted as an itemized deduction on the federal return, the taxpayer would be on a combined federal and Florida state
tax bracket of 38.33% [36% + (1 - .36) X 3.64%] with respect to such investment. A Florida taxpayer whose intangible personal
property is exempt or partially exempt from tax due to the availability of exemptions will have a lower taxable equivalent
yield than indicated above.
</TABLE>
Note: The 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 $114,700. The tax brackets also do not show
the effects of phaseout of personal exemptions for single and joint filers
with adjusted gross incomes in excess of $114,700 and $172,050. 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 EV Marathon Florida
Municipals 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 the Florida intangibles tax, state or local
taxes, if any, payable on Fund distributions to individuals who are not
Florida residents, or intangibles taxes, if any, imposed under the laws of
other states. It should also be noted that the interest earned on certain
"private activity bonds" issued after August 7, 1986, while exempt from the
regular federal income tax, is treated as a tax preference item which could
subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult their tax adviser for
additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON MASSACHUSETTS
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and Massachusetts state personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the Massachusetts Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Massachusetts considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Massachusetts issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of Massachusetts issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Beginning in 1989, the Commonwealth's economy slowed significantly. Most
of the employment growth during this period was experienced in the services
and trade sectors of the economy, while the manufacturing sector continues to
suffer employment losses. Like most other industrial states, Massachusetts has
seen a shift in employment from manufacturing to more technology and service-
based industries. Per capita personal income growth has slowed, after several
years during which the per capita personal income growth rate in Massachusetts
was among the highest in the nation. Between 1992 and 1993, per capita
personal income in Massachusetts increased 3.7% as compared to 3.5% for the
nation as a whole. The unemployment rate for the Commonwealth fell from 6.7%
in October 1993 to 6.4% for October 1994. The national unemployment rate for
October 1994 was 5.8% little changed from 5.9% in September 1994.
In January 1992, the Governor submitted his fiscal year 1993 budget of
$13.9 billion, which was 3.1% higher than fiscal year 1992's state spending
level. Annual budgeted revenues increased from fiscal 1992 to fiscal 1993 by
approximately 7.1% and are projected to increase by approximately 5.6% in
fiscal 1994. Annual budgeted expenditures increased by approximately 9.5% in
fiscal 1993 and are estimated to increase by 6.9% in fiscal 1994. Fiscal 1993
ended with a positive fund balance of $562.5 million, including $309.5 million
in the Budget Stabilization Fund. Fiscal 1994 preliminary financial results
for the three main operating funds (General, Highway and Local Aid) show a
small $18 million surplus. The total fund balance for the three funds is $581
million, with $377 million earmarked for the Budget Stabilization Fund.
The $16.364 billion fiscal 1995 budget is tightly balanced, with tax
revenue growth reasonably estimated at 5.9% from fiscal 1994's level. The
budget includes increased state aid for localities and additional spending for
education reform and water/sewer rate relief.
The Commonwealth faces significant additional costs due to a June ruling
by the state supreme judicial court. The court ruled that the Commonwealth has
failed in its constitutional obligation to provide equal education.
Massachusetts anticipates spending an additional $1.2 billion over three years
on school reform. The fiscal 1994 budget includes an increase in school aid of
$175 million. The bulk of the $1.2 billion in increased aid will occur in
fiscal 1995 and 1996. After the fiscal 1994 budget was adopted, the governor
announced a $207 million tax relief package. The package includes a 4.3 cent
gas tax reduction to offset the federal gas tax increase, a reduction to 5.85%
from the 5.95% income tax rate and other deductions for elderly homeowners and
lower income taxpayers. This package proposed by the Governor is waiting
legislative discussion. The Governor has also proposed a $672 million
convention center megaplex Additionally, major infrastructure projects are
anticipated over the next decade with the federal government assuming
responsibility for approximately 90% of the $5 billion cost. The projects
include the depression of the central artery which traverses the City of
Boston and the construction of a third harbor tunnel linking downtown Boston
to Logan Airport.
The fiscal viability of the Commonwealth's authorities and Municipalities
is inextricably linked to that of the Commonwealth. The Commonwealth
guarantees the debt of several authorities, most notably the Massachusetts Bay
Transportation Authority and the University of Massachusetts Building
Authority. Their ratings are based on this guarantee and can be expected to
move in tandem. Several other authorities are funded in part or in whole by
the Commonwealth and their debt ratings may be adversely affected by a
negative change in those of the Commonwealth.
Massachusetts' municipal governments are constrained in their ability to
increase local revenues by an initiative passed in 1980, "Proposition 2 1/2".
Proposition 2 1/2 limits the amount of property taxes that can be levied in a
fiscal year to the lower of 2.5% of fair value or 102.5% of the previous
year's levy unless overridden by a majority of local voters. Proposition 2 1/2
also limits the amount the municipality can be charged by certain government
entities such as counties. While Proposition 2 1/2 is not a constitutional
question and can therefore be amended or abolished by the legislature, no
significant challenge has been raised since it took effect. Increased revenues
received by the state and passed on to local governments during the 1980's
ameliorated the effect of this initiative and made local governments in
Massachusetts more dependent on state aid than those in other states.
Therefore, the recent fiscal problems encountered by the state have amplified
the economic and fiscal problems encountered by cities and towns throughout
the Commonwealth. A continuation of the Commonwealth's fiscal problems
resulting in further local aid reductions could, in the absence of overrides,
result in payment defaults by local cities and towns and/or ratings downgrades
resulting in an erosion of their market value.
FEES AND EXPENSES
INVESTMENT ADVISER
As at September 30, 1995, the Portfolio had net assets of $302,170,247.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees of $1,383,407 (equivalent to 0.46% of the Portfolio's average daily net
assets for such year). For the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $1,397,963 (equivalent to 0.46% of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $735,829
(equivalent to 0.45% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred substantially all of
its assets to the Portfolio in exchange for an interest in the Portfolio), the
Fund retained Eaton Vance as its investment adviser. For the period from
October 1, 1992, to February 1, 1993, the Fund paid Eaton Vance advisory fees
of $267,752 (equivalent to 0.44% (annualized) of the Fund's average net assets
for such period). For the fiscal year ended September 30, 1992, the Fund paid
Eaton Vance advisory fees of $394,889 (equivalent to 0.40% (annualized) of the
Fund's average net assets for such fiscal year).
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's shareholders and by the Board of
Trustees of the Trust, as required by Rule 12b-1. During the fiscal year ended
September 30, 1995, the Principal Underwriter paid sales commissions of
$562,459 to Authorized Firms on sales of Fund shares. During the same period,
the Fund made sales commission payments under the Plan to the Principal
Underwriter aggregating $2,151,557, which amount reduced Uncovered
Distribution Charges. During such period, contingent deferred sales charges
aggregating approximately $2,478,723 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $9,990,955 (which amount was equivalent to 3.0% of
the Fund's net assets on such date). During the fiscal year ended September
30, 1995, the Fund paid service fee payments under the Plan aggregating
$405,201, of which $403,162 was paid to Authorized Firms and the balance of
which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $3,157.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $22,931
and the Portfolio paid IBT $135,884.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 1994, and for the period from the start of business, February 1,
1993, to the fiscal year ended September 30, 1993, the Portfolio paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight .......... $672 $3,188(2) $135,000(4)
Samuel L. Hayes, III ...... 648 3,172(3) 150,000(5)
Norton H. Reamer .......... 632 3,160 135,000
John L. Thorndike ......... 641 3,268 140,000
Jack L. Treynor ........... 693 3,325 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,069 of deferred compensation.
(3) Includes $962 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
PERFORMANCE INFORMATION
The tables below indicate the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund covering the life of the
Fund from April 18, 1991 through September 30, 1995 and for the one year
period ended September 30, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE BEFORE VALUE AFTER
DEDUCTING THE DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ----------- ----------- ------------- --------------- ------------ ------------ ------------- ------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund*** 4/18/91* $1,000 $1,346.76 $1,326.76 34.68% 6.90% 32.68% 6.54%
1 Year
Ended
9/30/95 9/30/94 $1,000 $1,083.80 $1,033.80 -8.38% -8.38% -3.38% -3.38%
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.
- ----------
* Investment operations began on April 18, 1991.
** No contingent deferred sales charge is imposed on certain redemptions. See the Fund's current Prospectus.
*** If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.78%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.78% would be 7.87%,
assuming a combined federal and State tax rate of 39.28%.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 15, 1995) was 4.87%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.98%.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 9.88 of the outstanding
shares, which were held on behalf of its customers who are the beneficial
owners of such shares, and as to which it had voting power under certain
limited circumstances. To the knowledge of the Trust, no other person owned of
record or beneficially 5% or more of the Fund's outstanding shares as of such
date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from Eaton Vance Massachusetts Tax Free Fund to EV Marathon
Massachusetts Tax Free Fund on February 1, 1994. The Fund changed its name
from EV Marathon Massachusetts Tax Free Fund to EV Marathon Massachusetts
Municipals Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Massachusetts state income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND MASSACHUSETS STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- MA STATE --------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------ ----------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 25.20% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69% 9.36%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 36.64 6.31 7.10 7.89 8.68 9.47 10.26 11.05
$ 56,551 - $117,950 $ 94,251 - $143,600 39.28 6.59 7.41 8.23 9.06 9.88 10.70 11.53
$117,951 - $256,500 $143,601 - $256,500 43.68 7.10 7.99 8.88 9.77 10.65 11.54 12.43
Over $256,500 Over $256,500 46.85 7.53 8.47 9.41 10.35 11.29 12.23 13.17
* Net amount subject to federal and Massachusetts personal income tax after deductions and exemptions.
+ The combined tax rates include a Massachusetts tax rate of 12% applicable to taxable bond interest and dividends, and assume
that Massachusetts taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions on
their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those indicated
above.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Massachusetts state income
taxes) for taxpayers with Adjusted Gross Income in excess of $114,700. The tax
brackets also do not show the effects of phase out of personal exemptions for
single filers with Adjusted Gross Income in excess of $114,700 and joint
filers with Adjusted Gross Income in excess of $172,050. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above. The applicable federal tax rates within the brackets
are 15%, 28%, 31%, 36%, and 39.6%, over the same ranges of income.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Marathon
Massachusetts Municipals 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 and Massachusetts personal income taxes, 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
except for Massachusetts personal income taxes. It should also be noted that
the interest earned on certain "private activity" Massachusetts obligations
issued after August 7, 1986, while exempt from the regular federal income tax,
is treated as a tax preference item which could subject the recipient to the
federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult with their tax adviser for
additional information. See the Tax Equivalent Yield Table in this Part II
concerning applicable tax rates and income brackets.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON MISSISSIPPI MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Mississippi State personal income taxes.
The Fund currently seeks to achieve its investment objective by investing its
assets in the Mississippi Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Mississippi considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Mississippi issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of Mississippi issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Funding of the various State operations is derived principally from the
General Fund revenues and Special Fund receipts. For the fiscal year ending
June 30, 1993, $4.14 billion in revenue was collected by the Special Fund. The
major sources of such revenue being $2.19 billion from Federal grants-in-aid,
including $1.39 billion for public health and welfare and $345.6 million for
public education. Funding for the General Fund is derived principally from
revenues generated by income, corporate, excise and sales taxes as well as
profits from the wholesale sales of alcoholic beverages, interest earned on
investments, proceeds from sales of various supplies and services, and
licensing fees. As of fiscal year ending June 30, 1994, the State derived
42.3% of total revenue from sales taxes, 26.5% from individual income taxes
and 9.1% from corporate income taxes. Sales taxes, the largest source of
revenue for the General Fund, can be adversely affected by downturns in the
economy. In an effort to increase sales tax collections, the Legislature has
increased the State sales tax from 6% to 7% effective June 1, 1992. The
General Fund had an ending fund balance of $166 million for 1994. In the event
revenues fall below the amounts projected during the budgeting phase, the
Department of Finance Administration has the authority to reduce allocations
to agencies and restrict a particular agency's monthly allotment if it appears
that that agency may deplete its appropriations prior to the close of the
fiscal year. Even with budgetary controls in place, the State has experienced
cash flow problems in prior years.
The following cases which have been reviewed by the Attorney General's
office purport to be a representative sampling of the most significant cases
in which the State is the defendant and wherein the State's financial
resources may be materially adversely affected: (1) an action against the
State and certain public officials challenging the constitutionality of the
statewide system of public education; (2) An action against the State
regarding the conditions in its penal institutions; and (3) A suit against the
Mississippi State Tax Commission alleging improper taxation against multi-
state corporations.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $28,992,960. For
the fiscal year ended September 30, 1995, absent a fee reduction, the Portfolio
would have paid BMR advisory fees of $65,442 (equivalent to 0.22% of the
Portfolio's average daily net assets for such year). To enhance the net income
of the Portfolio, BMR made a reduction of its advisory fee in the amount of
$36,759. For the fiscal year ended September 30, 1994, absent a fee reduction,
the Portfolio would have paid BMR advisory fees of $45,841 (equivalent to 0.19%
of the Portfolio's average daily net assets for such year). To enhance the net
income of the Portfolio, BMR made a reduction of the full amount of its advisory
fee and BMR was allocated a portion of expenses related to the operation of the
Portfolio in the amount of $19,780. For the period from the Portfolio's start of
business, June 11, 1993, to the fiscal year ended September 30, 1993, absent a
fee reduction, the Portfolio would have paid BMR advisory fees of $2,303
(equivalent to 0.14% (annualized) of the Portfolio's average daily net assets
for such period). To enhance the net income of the Portfolio, BMR made a
reduction of the full amount of its advisory fee and BMR was allocated a portion
of the expenses related to the operation of the Portfolio in the amount of
$1,810. The Portfolio's Investment Advisory Agreement with BMR is dated June 7,
1993 and remains in effect until February 28, 1996. The Agreement may be
continued as described under "Investment Adviser and Administrator" in Part I of
this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended September 30, 1994, $42,290 of the Fund's operating expenses were
allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended September 30, 1995, the Principal Underwriter
paid sales commissions of $125,233 to Authorized Firms on sales of Fund
shares. During the same period, the Fund made sales commission payments under
the Plan to the Principal Underwriter aggregating $201,593, which amount
reduced Uncovered Distribution Charges. During such period, contingent
deferred sales charges aggregating approximately $152,000 were imposed on
early redeeming shareholders and paid to the Principal Underwriter to reduce
Uncovered Distribution Charges. As at September 30, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under
the Plan amounted to approximately $1,215,000 (which amount was equivalent to
4.5% of the Fund's net assets on such date). During the fiscal year ended
September 30, 1995, the Fund paid service fee payments under the Plan
aggregating $29,072, of which $29,044 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $320 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $3,707 and
the Portfolio paid IBT $9,679.
BROKERAGE
For the fiscal years ended September 30, 1995 and 1994, and for the period
from the start of business, June 11, 1993, to the fiscal year ended September
30, 1993, the Portfolio paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio, and
of the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight .......... $34 $336(2) $135,000(4)
Samuel L. Hayes, III ...... 32 324(3) 150,000(5)
Norton H. Reamer .......... 32 316 135,000
John L. Thorndike ......... 32 321 140,000
Jack L. Treynor ........... 35 346 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $113 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Cynthia J. Clemson (32) is a Vice President of the Portfolio. Ms.
Clemson has served as a Vice President of the Portfolio since June 19, 1995.
Ms. Clemson has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1985. Ms. Clemson is an officer of various
investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund covering the life of the
Fund from June 11, 1993 through September 30, 1995 and for the one year period
ended September 30, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE BEFORE VALUE AFTER
DEDUCTING THE DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ----------- ----------- ------------- --------------- ------------ ------------ ------------- ------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund*** 6/11/93* $1,000 $1,065.75 $1,027.83 6.58% 2.79% 2.78% 1.20%
1 Year
Ended
9/30/95*** 9/30/94 $1,000 $1,094.02 $1,044.02 9.40% 9.40% 4.40% 4.40%
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.
- ----------
* Investment operations began on June 11, 1993.
** No contingent deferred sales charge is imposed on certain redemptions. See the Fund's current Prospectus.
*** If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.71%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.71% would be 7.19%,
assuming a combined federal and State tax rate of 34.45%. If a portion of the
Portfolio's expenses had not been allocated to the Investment Adviser, the
Fund would have had a lower yield.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 15, 1995) was 4.70%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.81%. If a portion of the Portfolio's
expenses had not been allocated to the Investment Adviser, the Fund would have
had a lower distribution rate and effective distribution rate.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 28.5% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from Eaton Vance Mississippi Tax Free Fund to EV Marathon
Mississippi Tax Free Fund on December 21, 1993 and to EV Marathon Mississippi
Municipals Fund on December 8, 1995.
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Mississippi State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND MISSISSIPPI STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- MS STATE -----------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------ ----------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 19.25% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 31.60 5.85 6.58 7.31 8.04 8.77 9.50 10.23
$ 56,551-$117,950 $ 94,251-$143,600 34.45 6.10 6.86 7.63 8.39 9.15 9.92 10.68
$117,951-$256,500 $143,601-$256,500 39.20 6.58 7.40 8.22 9.05 9.87 10.69 11.51
Over $256,500 Over $256,500 42.62 6.97 7.84 8.71 9.59 10.46 11.33 12.20
* Net amount subject to federal and Mississippi personal income tax after deductions and exemptions.
+ The first tax bracket is calculated using the highest Mississippi tax rate within the bracket. Taxpayers with taxable income
within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax
rates assume that Mississippi taxes are itemized deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than
those indicated above. The applicable federal tax rates within the brackets are 15%, 28%, 31%, 36%, and 39.6%, over the same
ranges of income. The assumed Mississippi State income tax rate is 5%.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Mississippi State income
taxes) for taxpayers with adjusted gross income in excess of $114,700. The tax
brackets also do not show the effects of phase out of personal exemptions for
single filers with adjusted gross income in excess of $114,700 and joint
filers with adjusted gross income in excess of $172,050. 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 EV Marathon
Mississippi Municipals 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 and
Mississippi personal income taxes, 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 except for
Mississippi personal income taxes. It should also be noted that the interest
earned on certain "private activity" Mississippi obligations issued after
August 7, 1986, while exempt from the regular federal income tax, is treated
as a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits
that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult their tax adviser for
additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON NEW YORK MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and New York City and New York State personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the New York Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain New York considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in New York issuers. Such information supplements the information
in the Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of New
York issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The recession lasted longer in New York and the State's economic recovery
has lagged behind the nation's. Although the State has added approximately
185,000 jobs since November 1992, employment growth in the State has been
below the national average primarily due to significant cutbacks in the
computer, manufacturing, defense and banking industries. New York's economy is
expected to continue to expand modestly during 1995 with a pronounced slow-
down during the course of the year. The unemployment rate for the State for
1995 is projected to be 6.4%, compared to the national rate of 5.6%. New York
City's unemployment rate was 8.1% in June 1995, down from 8.5% a year earlier.
For the fiscal year 1991-92, the State incurred an operating deficit in
the General Fund of $575 million, which, after a $44 million withdrawal from
the Tax Stabilization Reserve Fund, was financed through the public issuance
of $531 million of 1992 Deficit Notes on March 30, 1992.
In the 1992-1993 fiscal year, the State began the process of financial
reform closing the fiscal year with fund surpluses totalling $738 million. The
1992-1993 fiscal year marked the first time in four years that the State did
not have to issue deficit notes to close a budget gap.
The 1993-1994 fiscal year ended with combined fund balances of $1.539
billion due to an improving national economy, State employment growth, better
than projected tax collections and disbursements that were below projections.
The 1994-1995 fiscal year, which included tax reductions of $476 million,
closed with the General Fund in balance and positive fund balances of $157
million and $1 million in the Tax Stabilization Reserve Fund and the
Contingency Reserve Fund, respectively. Tax revenues for the fiscal year fell
short of original projections by $1.16 billion, the shortfall being offset by
disbursements which were lower than projected and planned spending reductions.
The 1995-1996 fiscal year budget, adopted in June 1995, includes a planned
three-year 20% reduction in the State's personal income tax and is the first
budget in over 50 years which projects a decline in General Fund disbursements
and spending on State operations. The 1995-1996 State Financial Plan, based on
the enacted budget, includes gap-closing actions to offset a previously
projected budget gap of $5 billion, the largest in the State's history. Such
gap-closing actions include, among others, substantial reductions in social
and medical entitlement programs, reductions in State services and capital
programs and increased lottery revenues. There can be no assurance that
additional gap-closing measures will not be required and there is no assurance
that any such measures will enable the State to achieve a balanced budget for
its 1995-1996 fiscal year.
In 1994 and 1995, the State legislature passed a proposed constitutional
amendment on debt reform. The proposed amendment would permit the State to
issue non-voter approved revenue bonds secured by a pledge of certain tax
receipts, up to a cap equal to 5% of State personal income. If approved by the
voters in November 1995, such amendment would become effective January 1,
1996.
During the past several years, the State has been forced to borrow on a
seasonal basis due to cash flow timing problems. In June, 1990, the Local
Government Assistance Corporation ("LGAC") was formed as a public benefit
corporation for the purpose of issuing long term obligations designed to
eliminate this need. The legislation which created the LGAC specified that the
obligations will be amortized over no more than 30 years and put a $4.7
billion dollar cap, net of LGAC proceeds, on the seasonal borrowing program.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of
$4.7 billion completing the program. This cap may be exceeded in cases where
the Governor and the legislature have certified the need for additional
borrowing and have devised a method for reducing it back to the cap no later
than the fourth fiscal year after the limit is exceeded. If this cap were to
be exceeded, it could result in action by the rating agencies which could
adversely affect prices of bonds held by the Portfolio.
In 1975, New York City encountered severe financial difficulties which
impaired and continues to impair the borrowing ability of the City. For each
of the 1981 through 1994 fiscal years, the City achieved balanced operating
results as reported in accordance with generally accepted accounting
principles. Pursuant to the laws of the State, the City prepares a four-year
annual financial plan, which is reviewed and revised on a quarterly basis and
which includes the City's capital, revenue and expense projections and
outlines proposed gap-closing programs for years with projected budget gaps.
The City implemented various actions to close budget gaps of $3.3 billion,
$2.1 billion and $3.5 billion for the 1992, 1994 and 1995 fiscal years,
respectively. Such actions included, among others, tax increases, service and
personnel reductions, productivity savings, debt refinancings, asset sales and
cost savings related to employee benefits. For the 1996 fiscal year, the City
has projected a budget gap of $3.1 billion and has proposed to implement
various gap-closing actions to balance the 1996 fiscal year budget including,
among others, substantial reductions in entitlement programs, service and
personnel reductions, cost saving initiatives related to labor and pension
costs and increases in certain lease and fee payments due the City. The City
currently projects budget gaps of $888 million, $1.459 billion and $1.484
billion for its 1997, 1998 and 1999 fiscal years, respectively. The City's
gap-closing plans for the 1997 through 1999 fiscal years include reductions in
City agency expenditures and cost saving actions related to entitlement
programs and procurement. There can be no assurance that additional gap-
closing measures will not be required, the implementation of which could
adversely affect the City's economic base, and there is no assurance that such
measures will enable the City to achieve a balanced budget, as required by
State law, for any of the 1996 through 1999 fiscal years. The fiscal health of
New York City, which is the largest issuer of municipal bonds in the country
and a leading international commercial center, exerts a significant influence
upon the fiscal health and bond values of issues throughout the State. Bond
values of the Municipal Assistance Corporation, the State of New York, the New
York Local Government Assistance Corporation, the New York State Dormitory
Authority -- City University, the New York City Municipal Water Finance
Authority and The Metropolitan Transportation Authority would be particularly
affected by serious financial difficulties encountered by New York City. The
Portfolio could be expected to hold bonds issued by many, if not all of these
issuers, at any given time.
Moody's rates the City's general obligation bonds "Baa1" and Fitch rates
such bonds "A-". On July 10, 1995, S&P revised downward its rating on City
general obligation bonds from A- to BBB+. S&P stated that the downgrade was
a reflection of the City's inability to eliminate a structural budget
imbalance due to persistent softness in the City's economy, weak job growth, a
trend of using nonrecurring budget devices, optimistic projections of State
and federal aid and high levels of debt service. There is no assurance that
such ratings will continue for any given period of time or that they will not
be revised downward or withdrawn entirely. Any such downward revision or
withdrawal could have an adverse effect on obligations held by the Portfolio.
The State's economic and fiscal viability are mutually and intricately
tied to those of its authorities and localities, which make up the major
portion of State bond issuance. Any serious financial difficulties encountered
by these entities, including their inability to access capital markets, would
have a significant, adverse effect upon the value of bonds issued elsewhere
within the State and thus upon the value of the interests in the Portfolio.
State plans to reduce aid to local cities and towns may have a negative impact
on municipal finances and ratings throughout the State. Such ratings changes
could erode the value of their bonds and/or lead to defaults.
The State either guarantees or supports lease-purchase agreements or
contractual obligations, financing arrangements or through moral obligation
provisions, a large amount of Authority indebtedness. While debt service is
normally paid out of revenues generated by the projects of the Authorities,
the State has, from time to time, had to appropriate amounts to enable the
Authorities to meet their financial obligations and, in some cases, to prevent
default. Certain authorities continue to show financial weakness due to the
economy.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $652,736,309.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees of $3,031,508 (equivalent to 0.47% of the Portfolio's average daily net
assets for such year). For the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $3,073,565 (equivalent to 0.46% of the
Portfolio's average daily net assets for such year). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $1,755,148
(equivalent to 0.46% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained
Eaton Vance as its investment adviser. For the period from October 1, 1992 to
February 1, 1993, the Fund paid Eaton Vance advisory fees of $703,166
(equivalent to 0.47% (annualized) of the Fund's average daily net assets for
such period).
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's shareholders and by the Board of
Trustees of the Trust, as required by Rule 12b-1. During the fiscal year ended
September 30, 1995, the Principal Underwriter paid sales commissions of
$1,368,182 to Authorized Firms on sales of Fund shares. During the same
period, the Fund made sales commission payments under the Plan to the
Principal Underwriter aggregating $4,758,869, which amount reduced Uncovered
Distribution Charges. During such period, contingent deferred sales charges
aggregating approximately $2,387,002 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $19,716,000 (which amount was equivalent to 3.1% of
the Fund's net assets on such date). During the fiscal year ended September
30, 1995, the Fund paid service fee payments under the Plan aggregating
$912,719, of which $910,803 was paid to Authorized Firms and the balance of
which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $5,045.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $500 and
the Portfolio paid IBT $221,548.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 1994 and for the period from the start of business, February 1,
1993, to the fiscal year ended September 30, 1993, the Portfolio paid no
brokerage commissions on portfolio transactions. For the period from October
1, 1992, to February 1, 1993 (when the Fund transferred its assets to the
Portfolio), the Fund paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Fund or the Portfolio.) During the fiscal year ended September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight .......... $672 $4,093(2) $135,000(4)
Samuel L. Hayes, III ...... 648 4,048(3) 150,000(5)
Norton H. Reamer .......... 632 4,013 135,000
John L. Thorndike ......... 641 4,133 140,000
Jack L. Treynor ........... 693 4,257 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,373 of deferred compensation.
(3) Includes $1,302 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Nicole Anderes (34) has served as a Vice President of the
Portfolio since June 19, 1995. Ms. Anderes has been a Vice President of BMR
and Eaton Vance since 1994, and is an officer of various investment companies
managed by Eaton Vance or BMR. Prior to joining Eaton Vance, Ms. Anderes was
Vice President and portfolio manager, Lazard Freres Asset Management (1992-
1994) and Vice President and Manager -- Municipal Research, Roosevelt & Cross
(1978-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average total return on a
hypothetical investment of $1,000 in the Fund covering the life of the Fund
from August 30, 1990 through September 30, 1995 and for the one- and five-year
periods ended September 30, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING THE DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ----------- ----------- ------------- --------------- ------------ ------------ ------------- ------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 8/30/90* $1,000 $1,499.10 $1,489.10 49.91% 8.28% 48.91% 8.14%
5 Years
Ended
9/30/95 9/30/90 $1,000 $1,506.65 $1,486.65 50.67% 8.53% 48.67% 8.24%
1 Year
Ended
9/30/95 9/30/94 $1,000 $1,092.30 $1,042.30 9.23% 9.23% 4.23% 4.23%
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.
- ----------
* Investment operations began on August 30, 1990.
** No contingent deferred sales charge is imposed on certain redemptions. See the Fund's current Prospectus.
***If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.42%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.42% would be 7.28%,
assuming a combined Federal and State tax rate of 39.32%.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 15, 1995) was 4.87%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.98%.
Investors should consult with their tax advisers for additional
information about the Fund's performance. See the Tax Equivalent Yield Table
in this Part II for information concerning applicable tax rates and income
brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 13.5% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from Eaton Vance New York Tax Free Fund to EV Marathon New
York Tax Free Fund on February 1, 1994 and to EV Marathon New York Municipals
Fund on December 8, 1995.
TAX EQUIVALENT YIELD TABLES
The table below shows the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and New York State and New York City income tax laws in effect for 1995.
<TABLE>
<CAPTION>
COMBINED
FEDERAL,
SINGLE RETURN JOINT RETURN NY STATE A FEDERAL, NEW YORK STATE AND NEW YORK CITY TAX EXEMPT YIELD OF:
- ------------------- ------------------- AND NY CITY -------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------------------------- ---------------- -------------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 25.19% 5.35% 6.01% 6.68% 7.35% 8.02% 8.69% 9.36%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 36.64 6.31 7.10 7.89 8.68 9.47 10.26 11.05
$ 56,551 - $117,950 $ 94,251 - $143,600 39.32 6.59 7.42 8.24 9.06 9.89 10.71 11.54
$117,951 - $256,500 $143,601 - $256,500 43.71 7.11 7.99 8.88 9.77 10.66 11.55 12.44
Over $256,500 Over $256,500 46.88 7.53 8.47 9.41 10.35 11.29 12.24 13.18
* Net amount subject to federal, New York State and New York City personal income tax (including New York City personal income
tax surcharges) after deductions and exemptions.
+ The combined tax rate for the two lowest Federal income brackets are calculated using the highest State rate (7.59375%
effective annualized State tax rate based on a rate of 7.875% for the first 3 months of the 1995 tax year and 7.5% for the
remaining 9 months) and the highest City rate applicable at the upper portion of that bracket. Therefore, an investor with
taxable income below the highest dollar amount in the two lowest brackets may have a lower combined tax rate than the
combined rate shown for that bracket. The applicable State and City rates are at their maximum (7.59375% and 4.457%,
respectively) throughout all other brackets.
</TABLE>
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular federal income
tax and New York State income tax laws in effect for 1995. It gives the
approximate yield a taxable security must earn at various income brackets to
produce after-tax yields equivalent to those of tax exempt bonds yielding from
4% to 7%.
<TABLE>
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL AND NEW YORK STATE TAX EXEMPT YIELD OF:
- ------------------- ------------------- NY STATE -------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------------------------- ---------------- -------------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 21.45% 5.09% 5.73% 6.37% 7.00% 7.64% 8.28% 8.91%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.47 6.01 6.76 7.52 8.27 9.02 9.77 10.52
$ 56,551 - $117,950 $ 94,251 - $143,600 36.24 6.27 7.06 7.84 8.63 9.41 10.19 10.98
$117,951 - $256,500 $143,601 - $256,500 40.86 6.76 7.61 8.45 9.30 10.15 10.99 11.84
Over $256,500 Over $256,500 44.19 7.17 8.06 8.96 9.85 10.75 11.65 12.54
* Net amount subject to federal and New York State and personal income tax after deductions and exemptions.
+ The combined tax rate for the lowest federal income brackets shown in the left column is calculated using the highest State
rate (7.59375% effective annualized State tax rate based on a rate of 7.875% for the first 3 months of the 1995 tax year and
7.5% for the remaining 9 months) applicable at the upper portion of that bracket. Therefore, an investor with taxable income
below the highest dollar amount in the lowest bracket may have a lower combined tax rate than the combined rate shown for
that bracket. The applicable State rate is the maximum rate, 7.59375%, throughout all other brackets.
</TABLE>
Note: Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield. The applicable federal tax rates within
each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%, over the
same ranges of income. The combined tax brackets are based on the highest New
York State and/or New York City income tax rates within each bracket. No
assurance can be given that EV Marathon New York Municipals 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 and New York State and New York City personal
income taxes, 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 except for New York State and New York City
personal income taxes. It should also be noted that the interest earned on
certain "private activity bonds" issued after August 7, 1986, while exempt
from the regular federal income tax, is treated as a tax preference item which
could subject the recipient to the federal alternative minimum tax.
The above-indicated combined federal and New York State/City income brackets
assume State and City taxes are itemized deductions and do not take into
account the effect of a reduction in the deductibility of itemized deductions
(including New York State and City Income Taxes) for taxpayers with adjusted
gross income in excess of $114,700, nor do they reflect phaseout of personal
exemptions for single and joint filers with adjusted gross income in excess of
$114,700 and $172,050, respectively. The effective combined tax brackets and
equivalent taxable yields of taxpayers who do not itemize or who are subject
to such limitations will be higher than those indicated above. In addition,
investors who do not itemize deductions on their federal income tax returns
will have higher combined brackets and equivalent taxable yields than
indicated above. The illustrations assume that the federal alternative minimum
tax is not applicable and do not take into account any tax credit that may be
available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON OHIO MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Ohio State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Ohio Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Ohio considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Ohio issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of Ohio
issuers. Neither the Trust nor the Portfolio has independently verified this
information.
During the 1980's, Ohio's economy underperformed the nation's. The State's
economic performance was reflected in below average earnings growth, declining
per capita personal income as a percentage of the U.S. and unemployment rates
consistently above the national unemployment rates. Ohio's economic base was
cyclical in nature due to its reliance on durable goods manufacturing of
steel, rubber products and household appliances though largely concentrated in
motor vehicles and equipment manufacturing. Unemployment fell from 7.3% to
6.6% between March 1993 and March 1994. Ohio is more reliant on manufacturing
jobs, 22% of all jobs, than is the U.S. as a whole (17%).
The State of Ohio operates on the basis of a fiscal biennium for its
appropriations and expenditures. The State is effectively prohibited by law
from ending a fiscal year or a biennium in a deficit position. The Governor
has the power to order State agencies to operate within the State's means. The
State carries out most of its operations through the General Revenue Fund
("GRF") which receives general State revenues not otherwise dedicated. GRF
revenues are derived mainly from personal income and sales taxes and corporate
franchise taxes. State GRF figures generally show a pattern related to
national economic conditions, evident in growth and depletion of its GRF
ending fund balances, with the June 30 (end of fiscal year) GRF fund balance
reduced during less favorable national economic periods and increased during
more favorable economic periods.
The general appropriations act for the 1994-95 biennium was signed by the
Governor on July 1, 1993. This act appropriated $30.7 billion for GRF
purposes. Appropriations for the first fiscal year of the biennium were
approximately 9.2% above those for fiscal year 1993 while those for the second
year were approximately 6.6% higher than those for fiscal year 1994. These
additional appropriations were mainly for increased costs in most State
financed programs such as education, Medicaid, mental health and corrections.
During the 1991-1993 biennium, the national economic downturn required a $200
million transfer from the Budget Stabilization Fund to the GRF. As fiscal year
1992 progressed, reduced tax collections led to a revenue shortfall. This, in
combination with additional expenditures produced a budget deficit. The State
addressed this deficit through a combination of budget cuts, tax payment
accelerations and a depletion of the Budget Stabilization Fund. A projected
fiscal year 1993 gap of $520 million was covered through a combination of tax
increases and a reduction in appropriations. The fiscal year 1994 budget was
balanced, and the State's GRF had an ending fund balance of $560 million.
Local school districts in Ohio receive a major portion of their operating
monies from State subsidies, but are dependent upon local taxes for
significant portions of their budgets. School districts may submit for voter
approval income taxes on the district income of individuals and estates. To
date, this income tax has been approved in 107 of the State's 600+ local
school districts. A small number of local school districts have in any year
required emergency advances from the State under a prior program in order to
avoid year-end deficits. Forty-four school districts borrowed $68.6 million in
fiscal year 1992 and 27 districts borrowed $94.5 million in 1993, including
Cleveland which borrowed $75 million. Twenty-eight districts borrowed $41.1
million in fiscal year 1994. Schools were affected by budget-balancing
expenditure reductions discussed above.
Litigation, similar to that in other states is pending questioning the
constitutionality of Ohio's system of school funding. A trial court recently
concluded that aspects of the system (including basic operating assistance)
are unconstitutional, and ordered the State to provide for and fund a system
complying with the Ohio Constitution. The State has appealed. At this time, it
is not possible to determine either the outcome or the financial burden which
an unfavorable decision would have on either the State's or the local school
districts' financial health.
Resolutions have been introduced in both houses of the General Assembly
that would submit at the November 1995 election constitutional amendments
relating to State debt. One amendment would authorize, among other things, the
issuance of State general obligation debt for a variety of purposes and
without additional vote of the people to the extent that debt service on all
State general obligation debt and GRF-supported obligations would not exceed
5% of the preceding fiscal year's GRF expenditures. It cannot be predicted
whether any of the proposed amendments will in fact be submitted, or, if
submitted, approved by the electors.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $319,016,648.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees of $1,463,895 (equivalent to 0.46% of the Portfolio's average daily net
assets for such year). For the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $1,454,208 (equivalent to 0.45% of the
Portfolio's average daily net assets for such year). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $750,672
(equivalent to 0.44% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained
Eaton Vance as its investment adviser. For the period from October 1, 1992 to
February 1, 1993, the Fund paid Eaton Vance advisory fees of $265,268
(equivalent to 0.43% (annualized) of the Fund's average daily net assets for
such period).
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's shareholders and by the Board of
Trustees of the Trust, as required by Rule 12b-1. During the fiscal year ended
September 30, 1995, the Principal Underwriter paid sales commissions of
$605,459 to Authorized Firms on sales of Fund shares. During the same period,
the Fund made sales commission payments under the Plan to the Principal
Underwriter aggregating $2,361,964, which amount reduced Uncovered
Distribution Charges. During such period, contingent deferred sales charges
aggregating approximately $1,199,665 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $10,953,000 (which amount was equivalent to 3.5% of
the Fund's net assets on such date). During the fiscal year ended September
30, 1995, the Fund made service fee payments under the Plan aggregating
$439,292, of which $436,243 was paid to Authorized Firms and the balance of
which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $3,410.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $20,136
and the Portfolio paid IBT $157,716.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 1994 and for the period from the start of business, February 1,
1993, to the fiscal year ended September 30, 1993, the Portfolio paid no
brokerage commissions on portfolio transactions. For the period from October
1, 1992, to February 1, 1993 (when the Fund transferred its assets to the
Portfolio), the Fund paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Fund or the Portfolio.) During the fiscal year ended September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight ........... $672 $3,287(2) $135,000(4)
Samuel L. Hayes, III ....... 648 3,270(3) 150,000(5)
Norton H. Reamer ........... 632 3,254 135,000
John L. Thorndike .......... 641 3,364 140,000
Jack L. Treynor ............ 693 3,426 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,102 of deferred compensation.
(3) Includes $1,054 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund covering the life of the
Fund from April 18, 1991 through September 30, 1995 and for the one-year
period ended September 30, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING THE DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ----------- ----------- ------------- --------------- ------------ ------------ ------------- ------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 4/18/91* $1,000 $1,363.98 $1,343.98 36.40% 7.21% 34.40% 6.85%
1 Year
Ended
9/30/95 9/30/94 $1,000 $1,097.39 $1,047.39 9.74% 9.74% 4.74% 4.74%
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.
- ----------
* Investment operations began on April 18, 1991.
** No contingent deferred sales charge is imposed on certain redemptions. See the Fund's current Prospectus..
***If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.53%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.53% would be 7.05%,
assuming a combined federal and State tax rate of 35.76%.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 15, 1995) was 4.61%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.71%.
Investors should consult with their tax advisers for more information
about the Fund's performance. See the Tax Equivalent Yield Table in this Part
II for information concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 20.9% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
TAXES
In the opinion of special tax counsel to the Fund, Squire, Sanders &
Dempsey, under Ohio law, provided that the Fund continues to qualify as a
regulated investment company under the Code and that at all times at least 50%
of the value of the total assets of the Fund consists of obligations issued by
or on behalf of Ohio, political subdivisions thereof or agencies or
instrumentalities of Ohio or its political subdivisions ("Ohio Obligations"),
or similar obligations of other states or their subdivisions (a fund
satisfying such requirements being referred to herein as an "Ohio fund"), (i)
dividends paid by the Fund will be exempt from the Ohio personal income tax
and any municipal or school district income taxes in Ohio to the extent such
dividends are properly attributable to interest on Ohio Obligations, and (2)
distributions of "capital gain dividends," as defined in the Internal Revenue
Code, which are properly attributable to the Fund's capital gains on the sale
or other disposition of Ohio Obligations, will not be subject to the Ohio
personal income tax or municipal or school district income taxes in Ohio.
Other distributions from the Fund will generally not be exempt from the Ohio
personal income tax or municipal or school district income taxes in Ohio.
Provided the Fund qualifies as an Ohio fund, (1) distributions from the
Fund will be excluded from the net income base of the Ohio corporation
franchise tax to the extent that such distributions are excludable from gross
income for Federal income tax purposes or are properly attributable to
interest on Ohio Obligations, and (2) distributions which are derived from the
Fund's capital gains on the sale or other disposition of Ohio Obligations,
also will be excluded from the net income base of the Ohio corporation
franchise tax. However, shares of the Fund will not be excluded from the tax
base for purposes of computing such tax on the net worth basis.
Distributions by the Fund properly attributable to interest on obligations
of the United States or the governments of Puerto Rico, the Virgin Islands or
Guam or their authorities or municipalities are exempt from the Ohio personal
income tax and municipal and school district income taxes in Ohio, and are
excluded from the net income base of the Ohio corporate franchise tax to the
same extent that such interest would be so exempt or excluded if the
obligations were held directly by the shareholders.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from Eaton Vance Ohio Tax Free Fund to EV Marathon Ohio Tax
Free Fund on February 1, 1994 and to EV Marathon Ohio Municipals Fund on
December 8, 1995.
TAX EQUIVALENT YIELD TABLE
The table below shows the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Ohio State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL AND OHIO STATE TAX EXEMPT YIELD OF:
- ------------------- ------------------- OHIO STATE -------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------------------------- ---------------- -------------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 18.79% 4.93% 5.54% 6.16% 6.77% 7.39% 8.00% 8.62%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.28 5.91 6.64 7.38 8.12 8.86 9.60 10.34
$ 56,551 - $117,950 $ 94,251 - $143,600 35.76 6.23 7.01 7.78 8.56 9.34 10.12 10.90
$117,951 - $256,500 $143,601 - $256,500 40.80 6.76 7.60 8.45 9.29 10.14 10.98 11.82
Over $256,500 Over $256,500 44.13 7.16 8.05 8.95 9.84 10.74 11.63 12.53
* Net amount subject to federal and Ohio personal income tax after deductions and exemptions.
+ The combined tax rates for the tax brackets shown in the left hand columns are calculated using the highest Ohio State rate
applicable at the upper portion of these brackets and assume that taxpayers deduct Ohio State income taxes paid on their
federal income tax returns. Investors who do not itemize deductions on their federal income tax return will have a higher
combined bracket and higher taxable equivalent yield than those indicated above.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Ohio State income taxes) for
taxpayers with adjusted gross income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $114,700 and joint filers with
adjusted gross income in excess of $172,050. 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. The applicable federal tax rates within each of these
combined brackets are 15%, 28%, 31%, 36% and 39.6% over the same ranges of
income. The combined brackets are based on the highest or average of highest
Ohio State income tax rates for single and joint taxpayers within the
brackets. No assurance can be given that EV Marathon Ohio Municipals 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 and Ohio personal income taxes, 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 except for Ohio personal income taxes. It should also be noted
that the interest earned on certain "private activity" Ohio obligations issued
after August 7, 1986, while exempt from the regular federal income tax, is
treated as a tax preference item which could subject the recipient to the
federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON RHODE ISLAND
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and Rhode Island State personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the Rhode Island Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Rhode Island considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Rhode Island issuers. Such information supplements the
Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of Rhode
Island issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The economic slowdown beginning in 1989 resulted in significant State
budget constraints. Declining State revenues, combined with increased demand
for certain governmental services, such as public assistance, have occurred as
a result of the difficult general economic conditions. State law requires that
the State end each year with a balanced budget and does not permit a deficit
to continue into the next fiscal year. In response to this legal mandate and
overall budgetary pressures, the State has undertaken a variety of strong
financial management controls and initiatives, including reducing
expenditures, improving revenue estimating procedures and increasing taxes.
The fiscal 1991 Appropriations Act limited appropriations in fiscal year
1992 to 99.5% of General Fund revenues, with the limitation increasing to
99.0%, 98.5% and 98.0% for fiscal years 1993, 1994, and 1995 and thereafter,
respectively. The remaining balance is to be deposited into the Budget Revenue
and Cash Stabilization Fund, provided that the total reserve fund balance is
capped at 3% of General Fund revenues. The 1992 Appropriations Act as enacted,
suspended those provisions for fiscal year 1992, but provided that any
revenues received in excess of the amount estimated shall be deposited in the
Budget Reserve and Cash Stabilization Fund, up to 1/2% of general revenues.
The 1992 General Assembly approved placing spending limits on the ballot as a
constitutional requirement. On November 3, 1992, the voters approved the
constitutional provisions limiting State appropriations to 98% of estimated
revenues.
The State's fiscal year 1992 opened with a small surplus but by October
1991, a general revenue shortfall of at least $63.1 million was projected by
the Revenue Estimating Conference. At that time, the State Budget Office also
projected "deficiency" spending of as much as $42 million. The fiscal 1992
revenue projections were further impaired by the lowering of federal
withholding rates in 1991, because the State's income tax rates are tied to
federal rates. As a result of approximately $140 million in federal
"disproportionate share" reimbursements, the State was able to balance the
1992 budget and ended fiscal year 1992 with a small surplus, after $8.5
million was transferred to the Budget Reserve and Cash Stabilization Account.
The 1993 fiscal year budget contained a number of revenue raising components,
including a temporary 32% "piggyback" personal income tax rate for federal
liability greater than $15,000, initiating video lottery games at two existing
gambling sites, levying new health care provider assessments on nursing homes
and certain outpatient care facilities (but not hospitals), and increasing
estimated "disproportionate share" reimbursements, a substantial portion of
which is expected to be one-time. In 1993, the State recorded an $8.4 million
operating surplus, boosting the undesignated General Fund balance to $8.7
million. Combined with budget stabilization reserves, the State ended fiscal
1993 with $32 million in available monies (equal to 1.4% of expenditures).
Fiscal 1994 revenue estimates were $14 million above the enacted budget.
Unaudited expenditures in excess of revised revenues are, however, expected to
yield a $2.9 million drawdown of balances to $5.8 million. The 1995 budget
includes budgeted reserves of $46.5 million (equal to 3% of fiscal 1995
expenditures).
The collapse of Rhode Island Share and Indemnity Corporation, a private
insurer ("RISDIC"), at the end of December 1990 precipitated the closure on
January 1, 1991 of financial institutions with total deposit liabilities of
approximately $1.7 billion. The resulting banking crisis presented risks of
short-term dislocation in many parts of the State which the State sought to
address through the creation of the Rhode Island Depositors Economic
Protection Corporation ("DEPCO"). Through DEPCO, the State's efforts to
address the crisis were directed at minimizing the larger economic risks as
well as alleviating the social costs from the potential loss of personal
savings for many individual depositors. By the end of 1992, substantially all
of the frozen deposits had been repaid or otherwise made available to the
affected depositors through the reopening, sale or liquidation of the closed
institutions. Over the next 20 years, DEPCO is also obligated to pay former
depositors approximately $54 million. The necessary steps to resolve the
crisis, including the property management and disposition programs to be
conducted by DEPCO in its efforts to meet the cash requirements for depositor
repayments, are under way. To facilitate the sale of certain institutions and
the payout of frozen deposits, DEPCO incurred approximately $456.5 million of
special obligation bonds. As a result of a recent refinancing to take
advantage of favorable interest rates, there are currently approximately
$475.8 million of special obligation bonds outstanding. Receipts from .6% of
the State's sales and use tax rate are dedicated to a special revenue fund to
be used for repayment of the special obligation bonds. In addition, DEPCO has
outstanding approximately $130 million of general obligation bonds, which it
expects will be repaid primarily out of the proceeds from liquidating assets
acquired from certain of the failed institutions.
The State's budget difficulties, together with the banking crisis and the
issuance of the DEPCO debt, contributed to a lowering of the State's credit
rating in 1992 to A-1 by Moody's Investors Services, Inc. and AA- "with a
stable outlook" from Standard & Poor's Ratings Group. The State reportedly
ranks fourth among all states in per capita tax-supported debt load.
Below the level of State government, Rhode Island is divided into 39
cities and towns which exercise the functions of local general government. As
provided in the State Constitution, municipalities have the right of self
government in all local matters by adopting a "home rule" charter. Every city
or town, however, has the power to levy, assess and collect taxes, or borrow
money, only as specifically authorized by the General Assembly. Legislation
enacted in 1985 limits tax levy or rate increases by municipalities to an
increase no greater than 5 1/2% over the previous year. However tax levy or
rate increases of greater than 5 1/2% are permitted in the event that debt
service costs on present and future general obligation debt increase at a rate
greater than 5 1/2%. This limitation may also be exceeded in the event of loss
of non-property tax revenue, or when an emergency situation arises and is
certified by the State Auditor General. In addition, State statutes require
every city and town to adopt a balanced budget for each fiscal year. Local
governments rely principally upon general real and tangible personal property
taxes and automobile excise taxes for provision of revenue.
In recent years, Rhode Island has relieved its cities and towns from a
portion of the costs of major public expenditures through the assumption of
costs and services by the State. However, the economic downturn affecting the
State's revenue base necessitated a reduction in aid by the State in fiscal
year 1991. Under the fiscal year 1993 budget, State aid to municipalities is
slated to be $379.9 million, representing a net increase over fiscal year 1992
of $34.5 million.
The largest category of State aid to cities and towns involves assistance
programs for school operations and school buildings. Such aid has been
approximately 90% of total State aid over the last two years. The general
school aid program, which amounted to $268.7 million in 1990 and $295.2
million in 1991, reimburses communities on the basis of the relationship
between the number of students and the property wealth of the community and
its personal income. Communities are guaranteed a minimum reimbursement of 15
percent of eligible expenditures of the second prior year for fiscal year 1993
and 9 percent thereafter. The fiscal 1993 budget modified formulas related to
the disbursement of funds under the major education aid programs. Under the
modifications, greater aid would be distributed to those communities with less
property wealth. The Governor's fiscal year 1994 budget proposal would further
modify the allocation formula with the result that 21 communities would
receive less State assistance in fiscal year 1994 than they were allocated in
fiscal year 1993. In addition to school aid, the State provides a general
revenue sharing program for local governments which is intended for direct
property tax relief and incorporates a distribution formula based upon
relative population, tax effort and personal income of each municipality. In
addition, the State provides municipal aid programs which include
reimbursement to local governments for their cost of carrying out certain
State mandates. For fiscal year 1992, $6.0 million was appropriated. No funds
were appropriated for fiscal year 1993. However, the 1991 General Assembly
passed legislation that provides that commencing in the fiscal year 1994,
municipalities will receive 1% of total State tax revenues.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $42,905,967. For
the fiscal year ended September 30, 1995, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $100,476 (equivalent to 0.25%
of the Portfolio's average daily net assets for such year). To enhance the net
income of the Portfolio, BMR made a reduction of its advisory fee in the
amount of $50,721. For the fiscal year ended September 30, 1994, absent a fee
reduction, the Portfolio would have paid BMR advisory fees of $63,773
(equivalent to 0.21% of the Portfolio's average daily net assets for such
year). To enhance the net income of the Portfolio, BMR made a reduction of the
full amount of its advisory fee. For the period from the Portfolio's start of
business, June 11, 1993, to the fiscal year ended September 30, 1993, absent a
fee reduction, the Portfolio would have paid BMR advisory fees of $4,206
(equivalent to 0.15% (annualized) of the Portfolio's average daily net assets
for such period). To enhance the net income of the Portfolio, BMR made a
reduction of the full amount of its advisory fee, and BMR was allocated
expenses related to the operation of the Portfolio in the amount of $3,373.
The Portfolio's Investment Advisory Agreement with BMR is dated June 7, 1993
and remains in effect until February 28, 1996. The Agreement may be continued
as described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended September 30, 1994 and for the period from the start of business,
June 11, 1993, to the fiscal year ended September 30, 1993, $44,682 and
$9,554, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's initial shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, as required by Rule 12b-1. During the
fiscal year ended September 30, 1995, the Principal Underwriter paid sales
commissions of $272,745 to Authorized Firms on sales of Fund shares. During
the same period, the Fund made sales commission payments under the Plan to the
Principal Underwriter aggregating $277,108, which amount reduced Uncovered
Distribution Charges. During such period, contingent deferred sales charges
aggregating approximately $101,252 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $1,771,000 (which amount was equivalent to 4.4% of
the Fund's net assets on such date). During the fiscal year ended September
30, 1995, the Fund made service fee payments under the Plan aggregating
$31,227, of which $31,117 was paid to Authorized Firms and the balance of
which was paid by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $392.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $2,812 and
the Portfolio paid IBT $25,652.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 1994 and for the period from the start of business, June 11,
1993, to the fiscal year ended September 30, 1993, the Portfolio paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Fund or the Portfolio.) During the fiscal year ended September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight ........... $34 $336(2) $135,000(4)
Samuel L. Hayes, III ....... 32 324(3) 150,000(5)
Norton H. Reamer ........... 32 316 135,000
John L. Thorndike .......... 32 321 140,000
Jack L. Treynor ............ 35 346 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $113 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Nicole Anderes (34) has served as a Vice President of the
Portfolio since June 19, 1995. Ms. Anderes has been a Vice President of BMR
and Eaton Vance since 1994, and is an officer of various investment companies
managed by Eaton Vance or BMR. Prior to joining Eaton Vance, Ms. Anderes was
Vice President and portfolio manager, Lazard Freres Asset Management (1992-
1994) and Vice President and Manager -- Municipal Research, Roosevelt & Cross
(1978-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund covering the life of the
Fund from June 11, 1993 through September 30, 1995 and for the one-year period
ended September 30, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE BEFORE VALUE AFTER
DEDUCTING THE DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ----------- ----------- ------------- --------------- ------------ ------------ ------------- ------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 6/11/93* $1,000 $1,060.02 $1,022.42 6.00% 2.56% 2.24% 0.96%
1 Year
Ended
9/30/95*** 9/30/94 $1,000 $1,089.35 $1,039.35 8.93% 8.93% 3.93% 3.93%
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.
- ----------
* Investment operations began on June 11, 1993.
** No contingent deferred sales charge is imposed on certain redemptions. See the Fund's current Prospectus.
***If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.56%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.56% would be 7.22%,
assuming a combined federal and State tax rate of 36.88%. If a portion of the
Portfolio's expenses had not been allocated to the Investment Adviser the Fund
would have had a lower yield.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 15, 1995) was 4.91%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 5.03%. If a portion of the Portfolio's
expenses had not been allocated to the Investment Adviser the Fund would have
had a lower distribution rate and effective distribution rate.
Investors should consult with their tax advisers for more information
about the Fund's performance. See the Tax Equivalent Yield Table in this Part
II for information concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 26.5% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from Eaton Vance Rhode Island Tax Free Fund to EV Marathon
Rhode Island Tax Free Fund on December 21, 1993 and to EV Marathon Rhode
Island Municipals Fund on December 8, 1995.
TAX EQUIVALENT YIELD TABLE
The table below shows the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Rhode Island State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND RHODE ISLAND STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- --------------------- RI STATE -----------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------ ----------------- -----------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 18.51% 4.91% 5.52% 6.14% 6.75% 7.36% 7.98% 8.59%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.54 6.02 6.77 7.52 8.28 9.03 9.78 10.53
$ 56,551 - $117,950 $ 94,251 - $143,600 36.88 6.34 7.13 7.92 8.71 9.51 10.30 11.09
$117,951 - $256,500 $143,601 - $256,500 42.34 6.94 7.80 8.67 9.54 10.41 11.27 12.14
Over $256,500 Over $256,500 46.18 7.43 8.36 9.29 10.22 11.15 12.08 13.01
* Net amount subject to federal and Rhode Island personal income tax after deductions and exemptions.
+ The combined tax rates assume a Rhode Island rate of 27.5% of federal income tax liability and that Rhode Island taxes are
itemized deductions for federal income tax purposes. Investors who do not itemize deductions on their federal income tax
return will have a higher combined bracket and higher taxable equivalent yield than those indicated above.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Rhode Island State income
taxes) for taxpayers with adjusted gross income in excess of $114,700. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $114,700 and joint
filers with adjusted gross income in excess of $172,050. 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. The applicable federal tax rates within each of these
combined brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of
income. The assumed Rhode Island State income tax rates within these combined
brackets are 4.125%, 7.7%, 8.525%, 9.9% and 10.89%, respectively. The stated
Rhode Island tax rate is actually 27.5% of the federal income tax. The 4.125%,
7.7%, 8.525%, 9.9% and 10.89% rates have been restated to reflect a tax rate
on taxable income as opposed to a tax rate on federal income tax as follows:
15% X 27.5% = 4.125%, 28% X 27.5% = 7.7%, 31% X 27.5% = 8.525%, 36% x 27.5% =
9.9% and 39.6% x 27.5% = 10.89%. No assurance can be given that EV Marathon
Rhode Island Municipals 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 and Rhode
Island personal income taxes, 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 except for Rhode
Island personal income taxes. It should also be noted that the interest earned
on certain "private activity bonds" issued after August 7, 1986, while exempt
from the regular federal income tax, is treated as a tax preference item
which could subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON WEST VIRGINIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and West Virginia state personal income taxes.
The Fund currently seeks to achieve its investment objective by investing its
assets in the West Virginia Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain West Virginia considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in West Virginia issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of West Virginia issuers. Neither the Trust nor the Portfolio has
independently verified this information.
The economy of the State is based primarily on manufacturing, mining and
tourism. Major manufacturing sectors include chemicals and primary metals. The
State is the second leading coal producing state and the leading coal exporting
state in the nation. The State is also one of the leading oil and gas producing
states east of the Mississippi. Technological advancements have reduced the size
of employment in the coal industry. The majority of the job creation in the
State has occurred in the service sector. The State has taken steps to foster
growth in this sector as well as other non-resource related industries.
Based on a 1990 task force report indicating potential fiscal problems for
the State, the State took a number of actions designed to eliminate the
projected deficit, including revenue enhancement measures, such as changes to
the Consumer Sales and Service tax, and reductions in State spending. The
Governor imposed a 5% spending cut on most state agencies during fiscal year
1993 to ensure balanced operations to offset the negative impact of a weaker
than expected economic recovery. West Virginia generated a $44 million surplus
on fiscal 1993. The 1994 budget was constructed with limited expenditure growth,
but was based on aggressive revenue growth.
The Business and Occupation Tax, the Personal Income Tax, the Consumer Sales
and Service Tax, the Severance Tax, the Corporate Net Income Tax and the
Business Franchise Tax together provided over 89.9% of the revenue for the
General Revenue Fund in the fiscal year ended June 30, 1992. The amounts
collected pursuant to the business registration, cigarette, insurance,
telecommunications, inheritance, other taxes, liquor profits and racing fees
constitute the remainder of the General Revenue Fund, but individually did not
account for more than 2.9% of total revenues.
The federal programs administered in West Virginia are a substantial part of
the operation of State government. Historically, federal grants have either been
part of an ongoing program, limited to a specific project or structured to
institute immediate state action. In all cases, they become due either
temporarily or permanently and are a significant feature of State services and
the budget process.
FEES AND EXPENSES
INVESTMENT ADVISER
As at September 30, 1995, the Portfolio had net assets of $40,835,061. For
the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory fees
of $98,033 (equivalent to 0.24% of the Portfolio's average daily net assets for
such year). For the fiscal year ended September 30, 1994, BMR would have earned,
absent a fee reduction, advisory fees of $82,158 (equivalent to 0.23% of the
Portfolio's average daily net assets for such period). To enhance the net income
of the Portfolio, BMR made a reduction of the full amount of its advisory fee.
For the period from the Portfolio's start of business, June 11, 1993, to the
fiscal year ended September 30, 1993, the Portfolio would have paid BMR, absent
a fee reduction, advisory fees of $6,768 (equivalent to 0.15% (annualized) of
the Portfolio's average daily net assets for such period). To enhance the net
income of the Portfolio, BMR made a reduction of its advisory fee in the amount
of $6,768, and BMR was allocated a portion of the expenses related to the
operation of the Portfolio in the amount of $2,559. The Portfolio's Investment
Advisory Agreement with BMR is dated June 7, 1993 and remains in effect until
February 28, 1996. The Agreement may be continued as described under "Investment
Adviser and Administrator" in Part I of this Statement of Additional
Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended September 30, 1994, $49,009 of the Fund's operating expenses were
allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, as required by Rule 12b-1. During the fiscal year ended September
30, 1995, the Principal Underwriter paid sales commissions of $110,291 to
Authorized Firms on sales of Fund shares. During the same period, the Fund made
sales commission payments under the Plan to the Principal Underwriter
aggregating $288,509, which amount reduced Uncovered Distribution Charges.
During such period, contingent deferred sales charges aggregating approximately
$186,987 were imposed on early redeeming shareholders and paid to the Principal
Underwriter to reduce Uncovered Distribution Charges. As at September 30, 1995,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $1,689,681 (which amount was
equivalent to 4.0% of the Fund's net assets on such date). During the fiscal
year ended September 30, 1995, the Fund paid service fee payments under the Plan
aggregating $47,846, of which $47,826 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $407.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $4,580. and
the Portfolio paid IBT $19,975.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 1994, and for the period from the start of business, June 11,
1993, to the fiscal year ended September 30, 1993, the Portfolio paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended September 30, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and the funds in the
Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight .......... $34 $336(2) $135,000(4)
Samuel L. Hayes, III ...... 32 324(3) 150,000(5)
Norton H. Reamer .......... 32 316 135,000
John L. Thorndike ......... 32 321 140,000
Jack L. Treynor ........... 35 346 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $113 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
Timothy T. Browse (36) has served as a Vice President of the Portfolio since it
commenced operations. Mr. Browse has been a Vice President of BMR and Eaton
Vance since 1993 and an employee of Eaton Vance since 1992. Mr. Browse is an
officer of various investment companies managed by Eaton Vance or BMR. Prior to
joining Eaton Vance, Mr. Browse was a Municipal Bond Trader -- Fidelity
Management & Research Company (1987-1992).
PERFORMANCE INFORMATION
The tables below indicate the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from June 11, 1993 through September 30, 1995 and for the one year period ended
September 30, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE
BEFORE VALUE AFTER
DEDUCTING DEDUCTING TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE THE DEDUCTING DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES CHARGE SALES CHARGE<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F2> --------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ------------ ----------- --------------- --------------- -------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund<F3> 6/11/93<F1> $1,000 $1,067.76 $1,029.76 6.78% 2.88% 2.98% 1.28%
1 Year
Ended
9/30/95<F3> 9/30/94 $1,000 $1,093.90 $1,043.90 9.39% 9.39% 4.39% 4.39%
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.
- ----------
<FN>
<F1> Investment operations began on June 11, 1993.
<F2> No contingent deferred sales charge is imposed on certain redemptions. See the Fund's current Prospectus.
<F3> If a portion of the Portfolio's and the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.61%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.61% would be 7.15%,
assuming a combined federal and State tax rate of 35.49%. If a portion of the
Portfolio's and the Fund's expenses had not been allocated to the Investment
Adviser and the Administrator, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on September 30, 1995 and based on
the Fund's monthly distribution paid September 15, 1995) was 4.75%, and the
Fund's effective distribution rate (calculated on the same date and based on the
same monthly distribution) was 4.85%. If a portion of the Portfolio's and the
Fund's expenses had not been allocated to the Investment Adviser and the
Administrator, the Fund would have had a lower distribution rate and effective
distribution rate.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As at October
31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 19.99% of the outstanding
shares, which were held on behalf of its customers who are the beneficial owners
of such shares, and as to which it had voting power under certain limited
circumstances. To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from Eaton Vance West Virginia Tax Free Fund to EV Marathon West Virginia
Tax Free Fund on December 21, 1993. The Fund changed its name from EV Marathon
West Virginia Tax Free Fund to EV Marathon West Virginia Municipals Fund on
December 8, 1995.
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
West Virginia state income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND WEST VIRGINIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------ -------------------- WV STATE --------------------------------------------------------------------
(TAXABLE INCOME<F1>) TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 18.83% 4.93% 5.54% 6.16% 6.78% 7.39% 8.01% 8.62%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.68 5.94 6.68 7.43 8.17 8.91 9.66 10.40
$ 56,551 - $117,950 $ 94,251 - $143,600 35.49 6.20 6.98 7.75 8.53 9.30 10.08 10.85
$117,951 - $256,500 $143,601 - $256,500 40.16 6.68 7.52 8.36 9.19 10.03 10.86 11.70
Over $256,500 Over $256,500 43.53 7.08 7.97 8.85 9.74 10.62 11.51 12.40
<FN>
<F1> Net amount subject to federal and West Virginia personal income tax after deductions and exemptions.
<F2> The combined tax rate for the two lowest federal income brackets are calculated using the highest West Virginia tax rate
within the bracket. Taxpayers with taxable income within this bracket may have a lower combined bracket and taxable equivalent
yield than indicated above. The combined tax rates assume that West Virginia taxes are itemized deductions for federal income
tax purposes. Investors who do not itemize deductions on their federal income tax return will have a higher combined bracket
and higher taxable equivalent yield than those indicated above. The state
rate is at its maximum (6.5%) throughout all other brackets.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including West Virginia state income
taxes) for taxpayers with adjusted gross income in excess of $114,700. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $114,700 and joint filers
with adjusted gross income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above. The applicable federal tax rates within the brackets are 15%, 28%, 31%,
36%, and 39.6%, over the same ranges of income.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Marathon West
Virginia Municipals 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 and West Virginia
personal income taxes, 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 except for West Virginia personal
income taxes. It should also be noted that the interest earned on certain
"private activity bonds" issued after August 7, 1986, while exempt from the
regular federal income tax and the West Virginia personal income tax, is treated
as a tax preference item which could subject the recipient to the federal
alternative minimum tax and the West Virginia minimum tax. The illustrations
assume that the federal alternative minimum tax and the West Virginia minimum
tax are not applicable and do not take into account any tax credit that may be
available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above. Investors should consult with their tax adviser for additional
information. See the Tax Equivalent Yield Table in this Part II concerning
applicable tax rates and income brackets.
<PAGE>
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
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
Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV MARATHON
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
M-TFC2/1SAI
STATEMENT OF
ADDITIONAL
INFORMATION
FEBRUARY 1, 1996
<PAGE>
- -----------------------------------------------
o EV MARATHON CALIFORNIA
MUNICIPALS FUND
o EV MARATHON FLORIDA
MUNICIPALS FUND
o EV MARATHON
MASSACHUSETTS
MUNICIPALS FUND
o EV MARATHON MISSISSIPPI
MUNICIPALS FUND
o EV MARATHON NEW YORK
MUNICIPALS FUND
o EV MARATHON OHIO
MUNICIPALS FUND
o EV MARATHON RHODE ISLAND
MUNICIPALS FUND
O EV MARATHON WEST VIRGINIA
MUNICIPALS FUND
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1996
EV TRADITIONAL MUNICIPAL FUNDS
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
EV TRADITIONAL FLORIDA MUNICIPALS FUND
EV TRADITIONAL NEW YORK MUNICIPALS FUND
24 Federal Street
Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund") and
certain other series of Eaton Vance Municipals Trust (the "Trust"). As
described in the Prospectus, each Fund invests its assets in a separate
registered investment company (a "Portfolio") with the same investment
objective and policies as the Fund. Each Fund's Part II (a "Part II") provides
information solely about a Fund and its corresponding Portfolio. Where
appropriate Part I cross-references to the relevant sections of Part II.
TABLE OF CONTENTS
Page
PART I
Additional Information about Investment Policies ............... 1
Investment Restrictions ........................................ 7
Trustees and Officers .......................................... 9
Investment Adviser and Administrator ........................... 10
Custodian ...................................................... 13
Services for Accumulation ...................................... 13
Service for Withdrawal ......................................... 14
Determination of Net Asset Value ............................... 14
Investment Performance ......................................... 15
Taxes .......................................................... 16
Principal Underwriter .......................................... 18
Service Plan ................................................... 19
Portfolio Security Transactions ................................ 19
Other Information .............................................. 21
Independent Certified Public Accountants ....................... 22
Financial Statements ........................................... 22
Appendix ....................................................... 23
PART II
EV Traditional California Municipals Fund ...................... a-1
EV Traditional Florida Municipals Fund ......................... b-1
EV Traditional New York Municipals Fund ........................ c-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in
this Statement of Additional Information regarding another Fund because the
Funds use this combined Statement of Additional Information. The Trustees of
the Trust have considered this factor in approving the use of a combined
Statement of Additional Information.
THIS COMBINED 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 FEBRUARY 1, 1996, AS SUPPLEMENTED
FROM TIME TO TIME. THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION 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>
STATEMENT OF ADDITIONAL INFORMATION
PART I
The following information relates generally to the Fund, certain other
series of the Trust and the Portfolio. Capitalized terms used in this
Statement of Additional Information and not otherwise defined have the
meanings given them in the Fund's Prospectus. The Fund is subject to the same
investment policies as those of the Portfolio. The Fund currently seeks to
achieve its objective by investing in the Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations 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 on
which is exempt from federal income taxes and is not a tax preference item for
purposes of the federal alternative minimum tax: (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 obligation, the Portfolio will generally rely on an opinion of
the issuer's counsel (when available) 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 federal alternative minimum tax. 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 federal alternative minimum tax as applied to corporations (to
the extent not already included in alternative minimum taxable income as
income attributable to private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary
market after April 30, 1993 is taxable as ordinary income. A long-term debt
obligation is generally treated as acquired at a market discount if the
secondary market purchase price is less than (i) the stated principal amount
payable at maturity, in the case of an obligation that does 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 minimus
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
bonds issued by a state or local authority for capital projects are normally
secured by annual lease rental payments from the state or locality to the
authority sufficient to cover debt service on the authority's obligations.
Such payments are usually subject to annual appropriations by the state or
locality.
Industrial development and pollution control bonds are in most cases
revenue bonds and are generally not secured by the taxing power of the
municipality, but are usually secured by the revenues derived by the authority
from payments of the industrial user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants
or similar rights covering equity securities. Such warrants or rights may be
held indefinitely, but if exercised, the Portfolio 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 person or entity to
pay when due principal of and interest on a municipal obligation may be
materially affected. There have been recent instances of defaults and
bankruptcies involving municipal obligations which were not foreseen by the
financial and investment communities. The Portfolio will take whatever action
it considers appropriate in the event of anticipated financial difficulties,
default or bankruptcy of either the issuer of any municipal obligation or of
the underlying source of funds for debt service. Such action may include
retaining the services of various persons or firms (including affiliates of
Boston Management and Research (the "Investment Adviser")) to evaluate or
protect any real estate, facilities or other assets securing any such
obligation or acquired by the Portfolio as a result of any such event, and the
Portfolio may also manage (or engage other persons to manage) or otherwise
deal with any real estate, facilities or other assets so acquired. The
Portfolio anticipates that real estate consulting and management services may
be required with respect to properties securing various municipal obligations
in its portfolio or subsequently acquired by the Portfolio. The Portfolio will
incur additional expenditures in taking protective action with respect to
portfolio obligations in default and assets securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment,
general money market conditions, general conditions of the municipal bond
market, size of a particular offering, maturity of the obligation and rating
of the issue. The ratings of Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P") and Fitch Investors Service, Inc.
("Fitch") represent their opinions as to the quality of the municipal
obligations which they undertake to rate. It should be emphasized, however,
that ratings are based on judgment and are not absolute standards of quality.
Consequently, municipal obligations with the same maturity, coupon and rating
may have different yields while obligations of the same maturity and coupon
with different ratings may have the same yield. In addition, the market price
of such obligations will normally fluctuate with changes in interest rates,
and therefore the net asset value of the Portfolio will be affected by such
changes.
RISKS OF CONCENTRATION
Municipal Obligations. For a discussion of the risks associated with the
Portfolio's policy of concentrating its investments in particular issuers of
municipal obligations, see "Risks of Concentration" in the Fund's Part II.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or
more of its total assets in municipal obligations of the same type. There
could be economic, business or political developments which might affect all
municipal obligations of the same type. In particular, investments in the
industrial revenue bonds listed above 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
increase of hospital charges.
Electric utilities face problems in financing large construction programs
in an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear
facilities), difficulty in obtaining fuel at reasonable prices, and in
achieving timely and adequate rate relief from regulatory commissions, effects
of energy conservation and limitations on the capacity of the capital market
to absorb utility debt.
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.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the
Fund's investment policies as set forth in the Prospectus, the Portfolio may
invest in the obligations of Puerto Rico, the U.S. Virgin Islands and Guam
(the "Territories"). Accordingly, the Portfolio may be adversely affected by
local political and economic conditions and developments within the
Territories affecting the issuers of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. The three largest sectors of the economy (as a percentage of
employment) are services (47%), government (22%) and manufacturing (16.4%).
These three sectors represent 39%, 11% and 39%, respectively, of the gross
domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five
years. The North American Free Trade Agreement ("NAFTA"), which became
effective January 1, 1994, could lead to the loss of Puerto Rico's lower
salaried or labor intensive jobs to Mexico. The June, 1995 unemployment rate
was 13.9%.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the
states in its relationship with the federal government. Most federal taxes,
except those such as social security taxes that are imposed by mutual consent,
are not levied in Puerto Rico. However, in conjunction with the 1993 U.S.
budget plan, Section 936 of the Internal Revenue Code was amended and provided
for two alternative limitations to the Section 936 credit. The first option
will limit the credit against such income to 40% of the credit allowable under
current law, with a five year phase-in period starting at 60% of the allowable
credit. The second option is a wage and depreciation based credit. The
reduction of the tax benefits to those U.S. companies with operations in
Puerto Rico may lead to slower growth in the future. There can be no assurance
that these modifications will not lead to a weakened economy, a lower rating
on Puerto Rico's debt or lower prices for Puerto Rican bonds that may be held
by the Portfolio.
Puerto Rico's financial reporting was first conformed to generally
accepted accounting principles in fiscal 1990. Nonrecurring revenues have been
used frequently to balance recent years' budgets. In November, 1993 Puerto
Ricans voted on whether they wished to retain their Commonwealth status,
become a state or establish an independent nation. Puerto Ricans voted to
retain Commonwealth status, leaving intact the current relationship with the
federal government. There can be no assurance that the statehood issue will
not be brought to a vote in the future. A successful statehood vote in Puerto
Rico would then require ratification by the U.S. Congress.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. The economy is heavily reliant on the tourism industry, with roughly 43%
of non-agricultural employment in tourist-related trade and services. The
tourism industry is economically sensitive and would likely be adversely
affected by a recession in either the United States or Europe. In September
1995, St. Thomas was hit by a hurricane and sustained extensive damage. The
longer term impact on the tourism industry is not yet known. There can be no
assurances that the market for USVI bonds will not be affected.
An important component of the USVI revenue base is the federal excise tax
on rum exports. Tax revenues rebated by the federal government to the USVI
provide the primary security of many outstanding USVI bonds. Since more than
90% of the rum distilled in the USVI is distilled at one plant, any
interruption in its operations (as occurred after Hurricane Hugo in 1989)
would adversely affect these revenues. Consequently, there can be no assurance
that rum exports to the United States and the rebate of tax revenues to the
USVI will continue at their present levels. The preferential tariff treatment
the USVI rum industry currently enjoys could be reduced under NAFTA. Increased
competition from Mexican rum producers could reduce USVI rum imported to the
U.S., decreasing excise tax revenues generated. The USVI experienced a budget
deficit in 1989 due to wage settlements with the unionized government
employees. A deficit was also experienced in 1990 due to Hurricane Hugo. The
USVI recorded a small surplus in fiscal year 1991. At the end of fiscal 1992,
the last year for which results are available, the USVI had an unreserved
General Fund deficit of approximately $8.31 million, or approximately 2.1% of
expenditures. In order to close a forecasted fiscal 1994 revenue gap of $45.6
million, the Department of Finance has proposed several tax increases and fund
transfers. There is currently no rated, unenhanced Virgin Islands debt
outstanding (although there is unrated debt outstanding).
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast
of Tokyo. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. Guam
is expected to benefit from the closure of the Subic Bay Naval Base and the
Clark Air Force Base in the Philippines. The Naval Air Station, one of several
U.S. military facilities on the island, has been slated for closure by the
Defense Base Closure and Realignment Committee; however, the administration
plans to use these facilities to expand the island's commercial airport. Guam
is also heavily reliant on tourists, particularly the Japanese. For 1994, the
financial position of Guam was weakened as it incurred an unaudited General
Fund operating deficit. The administration has taken steps to improve its
financial position; however, there are no guarantees that an improvement will
be realized. Guam's general obligation debt is rated Baa by Moody's.
MUNICIPAL LEASES
The Portfolio 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 muncipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities
for the purpose of such limitation. In determining the liquidity of municipal
lease obligations, 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 Portfolio. In the event the Portfolio 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 Portfolio (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 Portfolio or a third party subsequent to the obligation's
original issuance (which may not be reflected in the obligation's market
value. In either event, such insurance may provide that in the event of non-
payment of interest or principal when due with respect to an insured
obligation, the insurer is not required to make such payment until a specified
time has lapsed (which may be 30 days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In
evaluating the credit quality of a particular issue, whether rated or unrated,
the Investment Adviser will normally take into consideration, among other
things, the financial resources of the issuer (or, as appropriate, of the
underlying source of funds for debt service), its sensitivity to economic
conditions and trends, any operating history of and the community support for
the facility financed by the issue, the ability of the issuer's management and
regulatory matters. The Investment Adviser will attempt to reduce the risks of
investing in 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.
See "Portfolio of Investments" in the "Financial Statements" incorporated
by reference into this Statement of Additional Information with respect to any
defaulted obligations held by the Portfolio.
SHORT-TERM TRADING
The Portfolio 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 Portfolio believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment
quality of particular issues or the general movement of interest rates, such
as changes in the overall demand for or supply of various types of 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
Portfolio anticipates that its annual portfolio turnover rate will generally
not exceed 100% (excluding turnover of securities having a maturity of one
year or less).
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
Portfolio's commitment and are subject to certain conditions such as the
issuance of satisfactory legal opinions. The Portfolio may also purchase
securities on a when-issued basis pursuant to refunding contracts in
connection with the refinancing of an issuer's outstanding indebtedness.
Refunding contracts generally require the issuer to sell and the Portfolio to
buy such securities on a settlement date that could be several months or
several years in the future.
The Portfolio will make commitments to purchase when-issued securities
only with the intention of actually acquiring the securities, but may sell
such securities before the settlement date if it is deemed advisable as a
matter of investment strategy. The payment obligation and the interest rate
that will be received on the securities are fixed at the time the Portfolio
enters into the purchase commitment. The Portfolio's custodian will segregate
cash or high grade liquid debt securities in a separate account of the
Portfolio in an amount at least equal to the when-issued commitments. If the
value of the securities placed in the separate account declines, additional
cash or high grade liquid debt securities will be placed in the account on a
daily basis so that the value of the account will at least equal the amount of
the Portfolio's when-issued commitments. When the Portfolio commits to
purchase a security on a when-issued basis it records the transaction and
reflects the value of the security in determining its net asset value.
Securities purchased on a when-issued basis and the securities held by the
Portfolio are subject to changes in value based upon the perception of the
creditworthiness of the issuer and changes in the level of interest rates
(i.e. appreciation when interest rates decline and depreciation when interest
rates rise). Therefore, to the extent that the Portfolio remains substantially
fully invested at the same time that it has purchased securities on a when-
issued basis, there will be greater fluctuations in the Portfolio's net asset
value than if it solely set aside cash to pay for when-issued securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified
intervals (weekly, monthly, semi-annually, etc.). The revised rates are
usually set at the issuer's discretion, in which case the investor normally
enjoys the right to "put" the security back to the issuer or his agent. Rate
revisions may alternatively be determined by formula or in some other
contractual fashion. Variable rate obligations normally provide that the
holder can demand payment of the obligation on short notice at par with
accrued interest and are frequently secured by letters of credit or other
credit support arrangements provided by banks. To the extent that such letters
of credit or other arrangements constitute an unconditional guarantee of the
issuer's obligations, a bank may be treated as the issuer of a security for
the purpose of complying with the diversification requirements set forth in
Section 5(b) of the Investment Company Act of 1940 and Rule 5b-2 thereunder.
The Portfolio would anticipate using these obligations as cash equivalents
pending longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier.
Also, some bonds may have "put" or "demand" features that allow early
redemption by the bondholder. Interest income generated by certain bonds
having demand features may not qualify as tax-exempt interest. 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 Portfolio may retain the
bond if interest rates decline. By acquiring these kinds of obligations the
Portfolio obtains the contractual right to require the issuer of the security
or some other person (other than a broker or dealer) to purchase the security
at an agreed upon price, which right is contained in the obligation itself
rather than in a separate agreement with the seller or some other person.
Because this right is assignable with the security, which is readily
marketable and valued in the customary manner, the Portfolio will not assign
any separate value to such right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller of
the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price.
The Portfolio intends to limit this type of transaction to institutions (such
as banks or securities dealers) which the Investment Adviser believes present
minimal 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 Portfolio or that selling institutions will be willing to
permit the Portfolio 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 Portfolio does not expect to
assign any value to any separate put option which may be acquired to
facilitate portfolio liquidity, inasmuch as the value (if any) of the put will
be reflected in the value assigned to the associated security; any put
acquired for hedging purposes would be valued in good faith under methods or
procedures established by the Trustees of the Portfolio after consideration of
all relevant factors, including its expiration date, the price volatility of
the associated security, the difference between the market price of the
associated security and the exercise price of the put, the creditworthiness of
the issuer of the put and the market prices of comparable put options.
Interest income generated by certain bonds having put features may not qualify
as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by
collateral in cash, cash equivalents or U.S. Government securities held by the
Portfolio'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 Portfolio 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 Portfolio will continue to receive
the equivalent of the interest paid by the issuer on the securities loaned and
will also receive a fee, or all or a portion of the interest on investment of
the collateral, if any. However, the Portfolio may pay lending fees to such
borrowers. The Portfolio would not have the right to vote any securities
having voting rights during the existence of the loan, but would call the loan
in anticipation of an important vote to be taken among holders of the
securities or the giving or withholding of their consent on a material matter
affecting the investment. As with other extensions of credit there are risks
of delay in recovery or even loss of rights in the securities loaned if the
borrower of the securities fails financially. However, the loans will be made
only to organizations deemed by the Portfolio's management to be of good
standing and when, in the judgment of the Portfolio's management, the
consideration which can be earned from securities loans of this type justifies
the attendant risk. Distributions by the Fund of any income realized by the
Portfolio from securities loans will be taxable. If the management of the
Portfolio decides to make securities loans, it is intended that the value of
the securities loaned would not exceed 30% of the Portfolio's total assets.
The Portfolio has no present intention of engaging in securities lending.
FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects
to purchase). To hedge against changes in rates, the Portfolio may enter into
(i) futures contracts for the purchase or sale of debt securities, (ii)
futures contracts on securities indices and (iii) futures contracts on other
financial instruments and indices. All futures contracts entered into by the
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States or
foreign exchange or board of trade.
The Portfolio will engage in futures and related options transactions only
for bona fide hedging purposes as defined in or permitted by CFTC regulations.
The Portfolio 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 Portfolio or which it expects to
purchase. The Portfolio's futures transactions will be entered into for
traditional hedging purposes -- that is, futures contracts will be sold to
protect against a decline in the price of securities that the Portfolio owns,
or futures contracts will be purchased to protect the Portfolio against an
increase in the price of securities it intends to purchase. As evidence of
this hedging intent, the Portfolio expects that on 75% or more of the
occasions on which it takes a long futures (or option) position (involving the
purchase of futures contracts), the Portfolio will have purchased, or will be
in the process of purchasing, equivalent amounts of related securities in the
cash market at the time when the futures (or option) position is closed out.
However, in particular cases, when it is economically advantageous for the
Portfolio to do so, a long futures position may be terminated (or an option
may expire) without the corresponding purchase of securities. The Portfolio
will engage in transactions in futures and related options contracts only to
the extent such transactions are consistent with the requirements of the
Internal Revenue Code for maintaining qualification of the Fund as a regulated
investment company for federal income tax purposes (see "Taxes").
The Portfolio will be required, in connection with transactions in futures
contracts and the writing of options on futures, to make margin deposits,
which will be held by the Portfolio's custodian for the benefit of the futures
commission merchant through whom the Portfolio engages in such futures and
options transactions. Cash or liquid high grade debt securities required to be
segregated in connection with a "long" futures position taken by the Portfolio
will also be held by the custodian in a segregated account and will be marked
to market daily.
PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but
it is anticipated that the annual turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A
100% annual turnover rate would occur, for example, if all the securities held
by the Portfolio were replaced once in a period of one year. A high turnover
rate (100% or more) necessarily involves greater expenses to the Portfolio.
The Portfolio engages in portfolio trading (including short-term trading) if
it believes that a transaction including all costs will help in achieving its
investment objective.
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 Statement of Additional Information means the lesser of (a) 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 (b) more than 50% of the shares of the Fund. Accordingly, the Fund
may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(2) 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;
(3) 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;
(4) Purchase or sell real estate, (including limited partnership interests
in real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest
or deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) 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.
Notwithstanding the investment policies and restrictions of the Fund; the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund;
such restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio, which as used in this
Statement of Additional Information means the lesser of (a) 67% of the
outstanding voting securities of the Portfolio present or represented by proxy
at a meeting if the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented at the meeting or (b)
more than 50% of the outstanding voting securities of the Portfolio. The term
"voting securities" as used in this paragraph has the same meaning as in the
Investment Company Act of 1940 (the "1940 Act"). Whenever the Trust is
requested to vote on a change in the fundamental investment restrictions of
the Portfolio (or the Portfolio's 80% investment policy with respect to State
obligations described in the Fund's current Prospectus), the Trust will hold a
meeting of Fund shareholders and will cast its vote as instructed by the
shareholders.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. As a matter of
nonfundamental policy, the Fund and the Portfolio will not: (a) engage in
options, futures or forward transactions if more than 5% of its net assets, as
measured by the aggregate of the premiums paid by the Fund or the Portfolio,
would be so invested; (b) make short sales of securities or maintain a short
position, unless at all times when a short 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; (c) invest more than
15% of net assets in investments which are not readily marketable, including
restricted securities and repurchase agreements maturing in more than seven
days. Restricted securities for the purposes of this limitation do not include
securities eligible for resale pursuant to Rule 144A under the Securities Act
of 1933 and commercial paper issued pursuant to Section 4(2) of said Act that
the Board of Trustees of the Trust or the Portfolio, or their delegate,
determines to be liquid; (d) 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 the Portfolio or is
a member, officer, director or trustee of any investment adviser of the Trust
or the Portfolio, if after the purchase of the securities of such issuer by
the Fund or the Portfolio one or more of such persons owns beneficially more
than 1/2 of 1% of the 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 (e) purchase oil, gas or other mineral
leases or purchase partnership interests in oil, gas or other mineral
exploration or development programs.
For purposes of the Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligation which is not a general obligation
bond will be made by the Portfolio's Investment Adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interest of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio 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 Portfolio's investment
adviser, Boston Management and Research ("BMR" or the "Investment Adviser"), a
wholly-owned subsidiary of Eaton Vance Management ("Eaton Vance"); of Eaton
Vance's parent, Eaton Vance Corp. ("EVC"); and of BMR's and Eaton Vance's
trustee, Eaton Vance, Inc. ("EV"). Eaton Vance and EV are both wholly-owned
subsidiaries of EVC. Those Trustees who are "interested persons" of the Trust,
the Portfolio, BMR, Eaton Vance, EVC or EV, as defined in the 1940 Act, by
virtue of their affiliation with any one or more of the Trust, the Portfolio,
BMR, Eaton Vance, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT, (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New
England, Inc., since 1983. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (54), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of
EVC and EV. Director, Trustee and officer of various investment companies
managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (60), Trustee
President and Director, United Asset Management Corporation, 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 (69), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (52), President
Vice President of BMR, Eaton Vance and EV. Mr. Fetter was elected a Vice
President of the Trust on December 17, 1990 and President of the Trust and
the Portfolio on December 13, 1993. Officer of various investment companies
managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (38), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments --
Portfolio Manager (1986-1991). Officer of various investment companies
managed by Eaton Vance or BMR. Mr. MacIntosh was elected Vice President of
the Trust on March 22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (64), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of
various investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management
& Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary of
the Trust and the Portfolio on March 27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of BMR, Eaton Vance and EV since February 1993; formerly,
associate attorney at Dechert, Price & Rhoads and Gaston & Snow. Officer of
various investment companies managed by Eaton Vance or BMR. Mr. Woodubury
was elected Assistant Secretary on June 19, 1995.
For additional officers of the Portfolio (if any), see "Additional Officer
Information" in the Fund's Part II.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Fund's
contractual relationship with the Administrator on behalf of the Fund and the
Portfolio's contractual relationship with the Investment Adviser, making
recommendations to the Trustees regarding the compensation of those Trustees
who are not members of the Eaton Vance organization, and making
recommendations to the Trustees regarding candidates to fill vacancies, as and
when they occur, in the ranks of those Trustees who are not "interested
persons" of the Trust, the Portfolio, or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee
of the Board of Trustees of the Trust and of the Portfolio. The Audit
Committee's functions include making recommendations to the Trustees regarding
the selection of the independent certified public accountants, and reviewing
with such accountants and the Treasurer of the Trust and of the Portfolio
matters relative to accounting and auditing practices and procedures,
accounting records, internal accounting controls, and the functions performed
by the custodian and transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio that 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
"Plan"). Under the Plan, an eligible Trustee may elect to have his deferred
fees invested by the Portfolio in the shares of one or more funds in the Eaton
Vance Family of Funds, and the amount paid to the Trustees under the Plan will
be determined based upon the performance of such investments. Deferral of
Trustees' fees in accordance with the Plan will have a negligible effect on
the Portfolio's assets, liabilities, and net income per share, and will not
obligate the Portfolio to retain the services of any Trustee or obligate the
Portfolio to pay any particular level of compensation to the Trustee.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to
investment companies and various individual and institutional clients with
combined assets under management of approximately $16 billion.
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 offers single-state tax-free portfolios in more states than
any other sponsor of mutual funds. There are 30 long-term state portfolios, 5
national portfolios and 12 limited maturity portfolios. A staff of 32 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 $9.1 billion. The following persons manage one or more of the
Eaton Vance tax-free portfolios. For the identity of the Portfolio's portfolio
manager, see the Fund's current Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
David C. Reilly is a Vice President of Eaton Vance and BMR. Mr. Reilly, a
Chartered Financial Analyst, received a B.S. from Skidmore College. He is a
member and former President of the Boston Municipal Analysts Forum. He also
holds memberships in the Boston Securities Analysts Society and the Financial
Analysts Federation.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the
Portfolio investment research, advice and supervision, furnishes an investment
program and determines what securities will be purchased, held or sold by the
Portfolio and what portion, if any, of the Portfolio's assets will be held
uninvested. The Investment Advisory Agreement requires BMR to pay the salaries
and fees of all officers and Trustees of the Portfolio who are members of the
BMR organization and all personnel of BMR performing services relating to
research and investment activities. The Portfolio is responsible for all
expenses not expressly stated to be payable by BMR under the Investment
Advisory Agreement, including, without implied limitation, (i) expenses of
maintaining the Portfolio and continuing its existence, (ii) registration of
the Portfolio under the 1940 Act, (iii) commissions, fees and other expenses
connected with the acquisition, holding and disposition of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale and redemption
of interests in the Portfolio, (viii) expenses of registering and qualifying
the Portfolio and interests in the Portfolio under Federal and state
securities laws and of preparing and printing registration statements or other
offering statements or memoranda for such purposes and for distributing the
same to investors, and fees and expenses of registering and maintaining
registrations of the Portfolio and of the Portfolio's placement agent as
broker-dealer or agent under state securities laws, (ix) expenses of reports
and notices to investors and of meetings of investors and proxy solicitations
therefor, (x) expenses of reports to governmental officers and commissions,
(xi) insurance expenses, (xii) association membership dues, (xiii) fees,
expenses and disbursements of custodians and subcustodians for all services to
the Portfolio (including without limitation safekeeping of funds, securities
and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax
capital account balances), (xiv) fees, expenses and disbursements of transfer
agents, dividend disbursing agents, investor servicing agents and registrars
for all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of
the Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio
who are not members of BMR's organization, and (xviii) such non-recurring
items as may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Portfolio to indemnify its
Trustees, officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under
the Investment Advisory Agreement, see the Fund's current Prospectus. For
additional information about the Investment Advisory Agreement, including the
net assets of the Portfolio and the investment advisory fees that the
Portfolio paid BMR under the Investment Advisory Agreement, see "Fees and
Expenses" in the Fund's Part II.
A commitment may be made to a state securities authority that Eaton Vance
will take certain actions, if necessary, so that the Fund's expenses will not
exceed expense limitation requirements of such state. The commitment may be
amended or rescinded by Eaton Vance in response to changes in the requirements
of the state or for other reasons.
The Investment Advisory Agreement with BMR may be continued indefinitely
so long as such continuance is approved at least annually (i) by the vote of a
majority of the Trustees of the Portfolio who are not interested persons of
the Portfolio or of BMR cast in person at a meeting specifically called for
the purpose of voting on such approval and (ii) by the Board of Trustees of
the Portfolio or by vote of a majority of the outstanding voting securities of
the Portfolio. The Agreement may be terminated at any time without penalty on
sixty (60) days' written notice by the Board of Trustees of either party, or
by vote of the majority of the outstanding voting securities of the Portfolio,
and the Agreement will terminate automatically in the event of its assignment.
The Agreement provides that BMR may render services to others and engage in
other business activities and may permit other fund clients and other
corporations and organizations to use the words "Eaton Vance" or "Boston
Management and Research" in their names. The Agreement also provides that BMR
shall not be liable for any loss incurred in connection with the performance
of its duties, or action taken or omitted under that Agreement, in the absence
of willful misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
thereunder, or for any losses sustained in the acquisition, holding or
disposition of any security or other investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its agreement with the Fund, Eaton Vance has been
engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund. For additional information about the Administrator,
see "Fees and Expenses" in the Fund's Part II.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro
rata share of registration of the Trust under the 1940 Act, (iii) commissions,
fees and other expenses connected with the purchase or sale of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase
and redemption of shares, (viii) expenses of registering and qualifying the
Fund and its shares under federal and state securities laws and of preparing
and printing prospectuses for such purposes and for distributing the same to
shareholders and investors, and fees and expenses of registering and
maintaining registrations of the Fund and of the Fund's principal underwriter,
if any, as broker-dealer or agent under state securities laws, (ix) expenses
of reports and notices to shareholders and of meetings of shareholders and
proxy solicitations therefor, (x) expenses of reports to governmental officers
and commissions, (xi) insurance expenses, (xii) association membership dues,
(xiii) fees, expenses and disbursements of custodians and subcustodians for
all services to the Fund (including without limitation safekeeping of funds,
securities and other investments, keeping of books and accounts and
determination of net asset values), (xiv) fees, expenses and disbursements of
transfer agents, dividend disbursing agents, shareholder servicing agents and
registrars for all services to the Fund, (xv) expenses for servicing
shareholder accounts, (xvi) any direct charges to shareholders approved by the
Trustees of the Trust, (xvii) compensation and expenses of Trustees of the
Trust who are not members of the Eaton Vance organization, and (xviii) such
non-recurring items as may arise, including expenses incurred in connection
with litigation, proceedings and claims and the obligation of the Trust to
indemnify its Trustees and officers with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier
Gardner, James B. Hawkes and Benjamin A. Rowland, Jr. The Directors of EVC
consist of the same persons and John G. L. Cabot and Ralph Z. Sorenson. Mr.
Clay is chairman and Mr. Gardner is president and chief executive officer of
EVC, BMR, Eaton Vance and EV. All of the issued and outstanding shares of
Eaton Vance and EV are owned by EVC. All of the issued and outstanding shares
of BMR are owned by Eaton Vance. All shares of the outstanding Voting Common
Stock of EVC are deposited in a Voting Trust which expires on December 31,
1996, the Voting Trustees of which are Messrs. Clay, Brigham, Gardner, Hawkes
and Rowland. The Voting Trustees have unrestricted voting rights for the
election of Directors of EVC. All of the outstanding voting trust receipts
issued under said Voting Trust are owned by certain of the officers of BMR and
Eaton Vance who are also officers and Directors of EVC and EV. As of October
31, 1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively, of
such voting trust receipts. Messrs. Hawkes and Otis are officers or Trustees
of the Trust and the Portfolio and are members of the EVC, BMR, Eaton Vance
and EV organizations. Messrs. Browse, Fetter, MacIntosh, Metzold, Murphy,
O'Connor, Reilly and Woodbury and Ms. Anderes, Ms. Clemson and Ms. Sanders,
are officers of the Trust and/or the Portfolio and are also members of the
BMR, Eaton Vance and EV organizations. BMR will receive the fees paid under
the Investment Advisory Agreement.
EVC owns all of the stock of Energex Energy Corp., which engages in oil
and gas operations. In addition, Eaton Vance owns all the stock of Northeast
Properties, Inc., which is engaged in real estate investment, consulting and
management. EVC owns all the stock of Fulcrum Management, Inc., and MinVen
Inc., which are engaged in the development of precious metal properties. EVC
also owns 21% of the Class A shares of Lloyd George Management (B.V.I.)
Limited, a registered investment adviser. EVC, BMR, Eaton Vance and EV may
also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's opinion
that the terms and conditions of such transactions were not and will not be
influenced by existing or potential custodial or other relationships between
the Fund or the Portfolio and such banks.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts acts as custodian for the Fund and the Portfolio. IBT has the
custody of all cash and securities representing the Fund's interest in the
Portfolio, has custody of all the Portfolio's assets, maintains the general
ledger of the Portfolio and the Fund and computes the daily net asset value of
interests in the Portfolio and the 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 Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Fund and the Portfolio. IBT
charges custody 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 and Portfolio 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. Landon T. Clay, a Director of EVC and an
officer, Trustee or Director of other members of the Eaton Vance organization,
owns approximately 13% of the stock of IBT. Management believes that such
ownership does not create an affiliated person relationship between the Fund
or the Portfolio and IBT under the Investment Company Act of 1940. For the
custody fees that the Portfolio and the Fund paid to IBT, see "Fees and
Expenses" in the Fund's Part II.
SERVICES FOR ACCUMULATION
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 $50,000 or more of Fund shares and shares of the other
continuously offered open-end funds listed under "The Eaton Vance Exchange
Privilege" in the current Prospectus of the Fund 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 shareholder 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 Fund Shares" in the Fund's
current 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 Fund 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 shareholder owns in
his account(s) in the Fund and in the other continuously offered open-end
funds listed under "The Eaton Vance Exchange Privilege" in the current
Prospectus of the Fund for which Eaton Vance acts as investment adviser or
administrator at the time of purchase. The sales charge on the shares being
purchased will then be at the rate applicable to the aggregate. For example,
if the shareholder owned shares valued at $30,000 in EV Traditional California
Municipals Fund, and purchased an additional $20,000 of Fund shares, the sales
charge for the $20,000 purchase would be at the rate of 2.75% of the offering
price (2.83% of the net amount invested) which is the rate applicable to
single transactions of $50,000. For sales charges on quantity purchases, see
"How to Buy Fund Shares" in the Fund's current 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 level.
For any such discount to be made available, at the time of purchase a
purchaser or his or her financial service firm ("Authorized Firm") must
provide Eaton Vance Distributors, Inc. (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
By a standard agreement, the Fund's 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 Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence, are a
return of principal. Income dividends and capital gain 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.
To use this service, at least $5,000 in cash or shares at the public
offering price, (i.e., net asset value plus the applicable sales charge) will
have to be deposited with the Transfer Agent. The maintenance of a withdrawal
plan concurrently with purchases of additional Fund shares would be
disadvantageous because of the sales charge included in such purchases. 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
The net asset value of the shares of the Fund is determined by IBT (as
agent and custodian for the Fund) in the manner described under "Valuing Fund
Shares" in the Fund's current Prospectus. The net asset value of the Portfolio
is also computed by IBT (as agent and custodian for the Portfolio) by
subtracting the liabilities of the Portfolio from the value of its total
assets. Inasmuch as the market for municipal obligations is a dealer market
with no central trading location or continuous quotation system, it is not
feasible to obtain last transaction prices for most municipal obligations held
by the Portfolio, and such obligations, including those purchased on a when-
issued basis, will normally be valued on the basis of valuations furnished by
a pricing service. The pricing service uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities, various relationships between securities, and yield to
maturity in determining value. Taxable obligations for which price quotations
are readily available normally will be valued at the mean between the latest
available bid and asked prices. 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 Portfolio. Other assets
are valued at fair value using methods determined in good faith by the
Trustees of the Portfolio. The Fund and the Portfolio will be closed for
business and will not price their respective shares or interests on the
following business holidays: New Year's Day, President's Day, Good Friday (a
New York Stock Exchange holiday), Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying
the net asset value of the Portfolio by the percentage, determined on the
prior Portfolio Business Day, which represented that investor's share of the
aggregate interests in the Portfolio on such prior day. Any additions or
withdrawals for the current Portfolio Business Day will then be recorded. The
investor's percentage of the aggregate interest in the Portfolio will then be
recomputed as a percentage equal to a fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of the Portfolio
Valuation Time on the prior Portfolio Business Day plus or minus, as the case
may be, the amount of any additions to or withdrawals from the investor's
investment in the Portfolio on the current Portfolio Business Day and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the Portfolio Valuation Time on the prior Portfolio Business Day plus or
minus, as the case may be, the amount of the net additions to or withdrawals
from the aggregate investment in the Portfolio on the current Portfolio
Business Day by all investors in the Portfolio. The percentage so determined
will then be applied to determine the value of the investor's interest in the
Portfolio for the current Portfolio Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the results. The
calculation assumes the maximum sales charge is deducted from the initial
$1,000 purchase order and that all dividends and distributions are reinvested
at net asset value on the reinvestment dates during the period. For further
information concerning the total return of the Fund, see "Performance
Information" in the Fund's Part II.
Yield is computed pursuant to a standardized formula by dividing its net
investment income per share earned during a recent thirty-day period by the
maximum offering price (which includes the maximum sales charge) 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 held by the Portfolio based on prescribed methods, reduced by
accrued Fund expenses for the period, with the resulting number being divided
by the average daily number of Fund shares outstanding and entitled to receive
dividends during the period. Yield calculations assume a maximum sales charge
equal to 3.75% of the public offering price. Actual yield may be affected by
variations in sales charges on investments. A taxable-equivalent yield is
computed by using the tax-exempt yield figure and dividing by 1 minus a stated
rate. For the yield and taxable equivalent yield of the Fund, see "Performance
Information" in the Fund's Part II.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the
most recent monthly distribution per share annualized, by the current maximum
offering price per share. The Fund's effective distribution rate is computed
by dividing the distribution rate by the ratio (the days in a year divided by
the accrual days of the monthly period) used to annualize the most recent
monthly distribution and reinvesting the resulting amount for a full year on
the basis of such ratio. The effective distribution rate will be higher than
the distribution rate because of the compounding effect of the assumed
reinvestment. Investors should note that the Fund's yield is calculated using
a standardized formula, the income component of which is computed from the
yields to maturity of all debt obligations held by the Portfolio based on
prescribed methods (with all purchases and sales of securities during such
period included in the income calculation on a settlement date basis), whereas
the distribution rate is based on the Fund's last monthly distribution which
tends to be relatively stable and may be more or less than the amount of net
investment income and short-term capital gain actually earned by the Fund
during the month (see "Distributions and Taxes" in the Fund's current
Prospectus). For the Fund's distribution rate and effective distribution rate,
see "Performance Information" in the Fund's Part II.
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. The Fund's
performance may differ from that of other investors in the Portfolio,
including the other investment companies.
The Fund may provide investors with information on municipal bond
investing, which may include comparative performance information, evaluations
of Fund performance, charts and/or illustrations prepared by independent
sources (such as Lipper Analytical Services Inc., CDA/Wiesenberger or
Morningstar, Inc.). The Fund may also refer in investor publications to Tax
Freedom Day, as computed by the Tax Foundation, Washington, DC 20005, to help
illustrate the value of tax free investing, as well as other tax-related
information.
Information, charts and illustrations relating to inflation and the
effects of inflation on the dollar may be included in advertisements and other
material furnished to present and prospective shareholders. For example, after
10 years, the purchasing power of $25,000 would shrink to $16,621, $14,968,
$13,465 and $12,100, if the annual rates of inflation during such period were
4%, 5%, 6% and 7%, respectively. (To calculate the purchasing power, the value
at the end of each year is reduced by the above inflation rates for 10
consecutive years.)
Information about portfolio allocation and holdings of the Portfolio 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 Portfolio's bond holdings on such date.
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, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and in materials furnished to present
and prospective shareholders may include statements or illustrations relating
to the appropriateness of types of securities and/or mutual funds which may be
employed to meet specific financial goals, such as (1) funding retirement, (2)
paying for children's education, and (3) financially supporting aging parents.
These three financial goals may be referred to in such advertisements or
materials as the "Triple Squeeze."
For additional information, charts and illustrations relating to the
Fund's investment performance, see "Performance Information" in the Fund's
Part II.
TAXES
See "Distributions and Taxes" in the Fund's current Prospectus.
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
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the Fund
intends to satisfy certain requirements relating to sources of its income and
diversification of its assets and to distribute its net investment income
(including tax-exempt income) and net realized capital gains (after reduction
by any available capital loss carryforwards) in accordance with the timing
requirements imposed by the Code, so as to avoid any federal income or excise
tax on the Fund. The Fund so qualified for its fiscal year ended September 30,
1995 (see the Notes to the Financial Statements incorporated by reference in
this Statement of Additional Information). Because the Fund invests its assets
in the Portfolio, the Portfolio normally must satisfy the applicable source of
income and diversification requirements in order for the Fund to satisfy them.
The Portfolio will allocate at least annually among its investors, including
the Fund, each investor's distributive share of the Portfolio's net taxable
(if any) and tax-exempt investment income, net realized capital gains, and any
other items of income, gain, loss, deduction or credit. For purposes of
applying the requirements of the Code regarding qualification as a RIC, the
Fund will be deemed (i) to own its proportionate share of each of the assets
of the Portfolio and (ii) to be entitled to the gross income of the Portfolio
attributable to such share.
In order to avoid federal excise tax, 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 the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year
period ending on October 31 of such year, after reduction by any available
capital loss carryforwards, and 100% of any 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 and the Portfolio is
treated as a partnership for Massachusetts and federal tax purposes, neither
the Fund nor the Portfolio is liable for any income, corporate excise or
franchise tax in the Commonwealth of Massachusetts.
The Portfolio'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 to interests
in the Portfolio and, in order to enable the Fund to distribute its
proportionate share of this income and avoid a tax payable by the Fund, the
Portfolio may be required to liquidate portfolio securities that it might
otherwise have continued to hold in order to generate cash that the Fund may
withdraw from the Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
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 the tax-exempt interest
income allocated to it by the Portfolio 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. For purposes
of applying this 50% requirement, the Fund will be deemed to own its
proportionate share of each of the assets of the Portfolio, and the Portfolio
currently intends to invest its assets in a manner such that the Fund can meet
this 50% requirement. Interest on certain municipal obligations is treated as
a tax preference item for purposes of the federal alternative minimum tax.
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 Portfolio and the value of the securities held by the Portfolio may be
affected.
In the course of managing its investments, the Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when-
issued securities and options and futures transactions. The Portfolio may also
realize taxable income from certain short-term taxable obligations, securities
loans, a portion of original issue discount with respect to certain stripped
municipal obligations or their stripped coupons, and certain realized accrued
market discount. Any distributions by the Fund of its share of such capital
gains (after reduction by any capital loss carryforwards) 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 Portfolio and allocated to the Fund. Certain distributions of the Fund
declared in October, November or December and paid the following January will
be taxed to shareholders as if received on December 31 of the year in which
they are declared.
The Portfolio'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 Portfolio on the last business day of each taxable year will be marked to
market (i.e., treated as if closed out on such day), and any resulting gain or
loss will generally be treated as 60% long-term and 40% short-term capital
gain or loss. Certain positions held by the Portfolio that substantially
diminish the Portfolio's risk of loss with respect to other positions in its
portfolio may constitute "straddles," which are subject to tax rules that may
cause deferral of Portfolio losses, adjustments in the holding period of
Portfolio securities and conversion of short-term into long-term capital
losses. The Portfolio may have to limit its activities in options and futures
contracts in order to enable the Fund to maintain its qualification as a RIC.
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 treated as a long-term capital
loss to the extent of any distribution of net long-term capital gains with
respect to such shares. Any loss realized on the sale or exchange of shares
which have been held for tax purposes for 6 months or less (or such shorter
period as may be prescribed by Treasury regulations) will be disallowed to the
extent the shareholder has received tax-exempt interest with respect to such
shares. In addition, a loss realized on a redemption of Fund shares will be
disallowed to the extent the shareholder acquired other Fund shares 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
and certain required certifications, as well as shareholders with respect to
whom the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on 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 treaty. 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
the shareholder is engaged in a trade or business in the United States, is
present in the United States for a sufficient period of time during a taxable
year to be treated as a U.S. resident, or fails to provide any required
certifications regarding status as a non-resident alien investor. Foreign
shareholders should consult their tax advisers regarding the U.S. and foreign
tax consequences of an investment in 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 or foreign tax consequences
of investing in the Fund.
PRINCIPAL UNDERWRITER
Shares of the Fund may be continuously purchased at the public offering
price through certain Authorized Firms which have agreements with the
Principal Underwriter. The Principal Underwriter is a wholly-owned subsidiary
of Eaton Vance.
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 Fund's current Prospectus (see "How to Buy Fund
Shares"). Such table is applicable to purchases of the Fund alone or in
combination with purchases of the other funds offered by the Principal
Underwriter, made at a single time by (i) an individual, or an individual, his
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 Fund shares,
alone or in combination with purchases of any of the other funds offered by
the Principal Underwriter, through one dealer aggregating $50,000 or more made
by any of the persons enumerated above within a thirteen-month period starting
with the first purchase pursuant to a written Statement of Intention, in the
form provided by the Principal Underwriter, which includes provisions for a
price adjustment depending upon the amount actually purchased within such
period (a purchase not made pursuant to such Statement may be included
thereunder if the Statement is filed within 90 days of such purchase); or (2)
purchases of the Fund 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 Fund may issue
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 Fund. Normally no sales charges
will be paid in connection with an exchange of Fund shares for the assets of
such investment company. Shares may be sold at net asset value to any officer,
director, trustee, general partner or employee of the Fund, the Portfolio 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
chilldren. 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 Trust reserves the right to suspend or limit the offering of shares of
the Fund to the public at any time.
The Principal Underwriter acts as principal in selling shares of the Fund
under the Distribution Agreement with the Trust on behalf of the Fund. 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 its Trustees who are not interested persons of
the Principal Underwriter or the Trust), may be terminated on six months'
notice by either party and is automatically terminated upon assignment. The
Principal Underwriter distributes Fund 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. See "How to Buy Fund Shares" for the discount allowed to
Authorized Firms on the sale of Fund shares. 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. For the
amount of sales charges for sales of Fund shares paid to the Principal
Underwriter (and Authorized Firms), see "Fees and Expenses" in the Fund's Part
II.
The Fund 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 Fund will
exceed the amounts paid therefor by the Fund. For the amount paid by the Fund
to the Principal Underwriter for acting as repurchase agent, see "Fees and
Expenses" in the Fund's Part II of this Statement of Additional Information.
SERVICE PLAN
The Trust on behalf of the Fund has adopted a Service Plan (the "Plan")
designed to meet the requirements of Rule 12b-1 (the "Rule") under the 1940
Act and the service fee requirements of the revised sales charge rule of the
National Association of Securities Dealers, Inc. (Management believes service
fee payments are not distribution expenses governed by the Rule, but has
chosen to have the Plan approved as if the Rule were applicable.) The
following supplements the discussion of the Plan contained in the Fund's
Prospectus.
The Plan remains in effect through April 28, 1996, and from year to year
thereafter, provided such continuance is approved by a vote of both a majority
of (i) those Trustees who are not interested persons of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "Rule 12b-1 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 Rule 12b-1 Trustees or by a vote of a majority of the outstanding
voting securities of the Fund. Pursuant to such Rule, the Plan has been
approved by the Fund's initial sole shareholder (Eaton Vance) and by the Board
of Trustees of the Trust, including the Rule 12b-1 Trustees.
Under the Plan, the President or a Vice President of the Trust shall
provide to the Trustees for their review, and the Trustees shall review at
least quarterly, 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 shareholders of the Fund, and all material amendments of the Plan must
also be approved by the Trustees of the Trust as prescribed by the Rule. So
long as the Plan is in effect, the selection and nomination of Trustees who
are not interested persons of the Trust shall be committed to the discretion
of the Trustees who are not such interested persons. The Trustees have
determined that in their judgment there is a reasonable likelihood that the
Plan will benefit the Fund and its shareholders. For the service fees paid by
the Fund under the Plan, see "Fees and Expenses" in the Fund's Part II.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other
accounts managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or
(when a disclosed commission is being charged) at reasonably competitive
commission rates. In seeking such execution, BMR will use its 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, including State obligations,
purchased and sold by the Portfolio are generally traded in the over-the-
counter market on a net basis (i.e., without commission) through broker-
dealers and banks acting for their own account rather than as brokers, or
otherwise involve transactions directly with the issuer of such obligations.
Such firms attempt to profit from such transactions by buying at the bid price
and selling at the higher asked price of the market for such obligations, and
the difference between the bid and asked price is customarily referred to as
the spread. The Portfolio may also purchase municipal obligations from
underwriters, the cost of which may include undisclosed fees and concessions
to the underwriters. While it is anticipated that the Portfolio will not pay
significant brokerage commissions in connection with such portfolio security
transactions, on occasion it may be necessary or appropriate to purchase or
sell a security through a broker on an agency basis, in which case the
Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the
Portfolio may receive a commission which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if BMR determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided. This determination may be made on the basis of either that
particular transaction or on the basis of overall responsibilities which BMR
and its affiliates have for accounts over which they exercise investment
discretion. In making any such determination, BMR will not attempt to place a
specific dollar value on the brokerage and research services provided or to
determine what portion of the commission should be related to such services.
Brokerage and research services may include advice as to the value of
securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts; effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement); and the
"Research Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers
and from third parties with which such broker-dealers have arrangements.
Consistent with this practice, BMR receives Research Services from many
broker-dealer firms with which BMR places the Portfolio transactions and from
third parties with which these broker-dealers have arrangements. These
Research Services include such matters as general economic and market reviews,
industry and company reviews, evaluations of securities and portfolio
strategies and transactions and recommendations as to the purchase and sale of
securities and other portfolio transactions, financial, industry and trade
publications, news and information services, pricing and quotation equipment
and services, and research oriented computer hardware, software, data bases
and services. Any particular Research Service obtained through a broker-dealer
may be used by BMR in connection with client accounts other than those
accounts which pay commissions to such broker-dealer. Any such Research
Service may be broadly useful and of value to BMR in rendering investment
advisory services to all or a significant portion of its clients, or may be
relevant and useful for the management of only one client's account or of a
few clients' accounts, or may be useful for the management of merely a segment
of certain clients' accounts, regardless of whether any such account or
accounts paid commissions to the broker-dealer through which such Research
Service was obtained. The advisory fee paid by the Portfolio is not reduced
because BMR receives such Research Services. BMR evaluates the nature and
quality of the various Research Services obtained through broker-dealer firms
and attempts to allocate sufficient commissions to such firms to ensure the
continued receipt of Research Services which BMR believes are useful or of
value to it in rendering investment advisory services to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at
reasonably competitive spreads or commission rates, BMR is authorized to
consider as a factor in the selection of any firm with whom portfolio orders
may be placed the fact that such firm has sold or is selling shares of the
Fund or of other investment companies sponsored by BMR or Eaton Vance. This
policy is not inconsistent with a rule of the National Association of
Securities Dealers, Inc., which rule provides that no firm which is a member
of the Association shall favor or disfavor the distribution of shares of any
particular investment company or group of investment companies on the basis of
brokerage commissions received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate equitably portfolio security transactions among
the Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or sell
securities by the Portfolio and one or more of such other accounts
simultaneously. In making such allocations, the main factors to be considered
are the respective investment objectives of the Portfolio and such other
accounts, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment by the Portfolio and such
accounts, the size of investment commitments generally held by the Portfolio
and such accounts and the opinions of the persons responsible for recommending
investments to the Portfolio and such accounts. While this procedure could
have a detrimental effect on the price or amount of the securities available
to the Portfolio from time to time, it is the opinion of the Trustees of the
Trust and the Portfolio that the benefits available from the BMR organization
outweigh any disadvantage that may arise from exposure to simultaneous
transactions. For the brokerage commissions paid by the Portfolio on portfolio
transactions, see "Fees and Expenses" in the Fund's Part II.
OTHER INFORMATION
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" and "EV" in other connections and for other purposes. The Trust,
which is a Massachusetts business trust established in 1985, was originally
called Eaton Vance High Yield Municipals Trust. The Trust changed its name to
Eaton Vance Municipals Trust on January 7, 1991.
The Trust is organized as a Massachusetts business trust. 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
shareholders' 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 Trust's by-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him
from that office either by a written declaration filed with the Trust's
custodian or by votes cast at a meeting called for that purpose. The by-laws
further provide that under certain circumstances the shareholders may call a
meeting to remove a Trustee and that the Trust is required to provide
assistance in communication with shareholders about such a meeting.
The Trust's 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 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 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.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed
from office either by declaration in writing filed with the custodian of the
assets of the Trust or by votes cast in person or by proxy at a meeting called
for the purpose.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action
of the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with
the Portfolio's custodian or by votes cast at a meeting called for that
purpose. The Declaration of Trust further provides that under certain
circumstances the investors may call a meeting to remove a Trustee and that
the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
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
Portfolio 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, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities
and Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference
into this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. A copy of the Annual
Report accompanies this Statement of Additional Information.
Registrant incorporates by reference the audited financial information for
the Fund's and Portfolio's for the fiscal year ended September 30, 1995 as
previously filed electronically with the Securities and Exchange Commission
(Accession No. 0000950135-95-002528).
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risk appear somewhat larger than the Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will
be designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors
effecting the liquidity of the borrower and short term cyclical elements are
critical in short term ratings, while other factors of major importance in
bond risk, long term secular trends for example, may be less important over
the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol
to reflect such characteristics as payment upon periodic demand rather than
fixed maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be
limited to the external liquidity with no or limited legal recourse to the
issuer in the event the demand is not met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of 365 days.
Issuers (or supporting institutions) rated PRIME-1 or P-1 have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness
to pay interest and repay principal. The B rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied BB or
BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
P: The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk
of default upon failure of such completion. The investor should exercise his
own judgment with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is insured
by the Federal Deposit Insurance Corp. and interest is adequately
collateralized. In the case of certificates of deposit, the letter "L"
indicates that the deposit, combined with other deposits being held in the
same right and capacity, will be honored for principal and accrued pre-default
interest up to the federal insurance limits within 30 days after closing of
the insured institution or, in the event that the deposit is assumed by a
successor insured institution, upon maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a plus(+)
designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3: Speculative capacity to pay principal and interest.
COMMERCIAL PAPER
Standard & Poor's commercial paper ratings are a current assessments of the
likelihood of timely payment of debts considered short-term in the relevant
market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period had not expired, unless S&P believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F- 1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified that could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within
the rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very 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 could cause these securities to be rated
below investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the
issuer's ability to make interest and principal payments.
- ----------
+ 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 Portfolio's fiscal year end.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL CALIFORNIA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax in the form of an investment
exempt from California State personal income taxes. The Fund currently seeks
to meet its investment objective by investing its assets in the California
Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain California considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in California issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of California issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Constitutional Limitations on Taxes and Appropriations Limitation on Taxes.
Certain California municipal obligations may be obligations of issuers which
rely in whole or in part, directly or indirectly, on ad valorem property taxes
as a source of revenue. The taxing powers of California local governments and
districts are limited by Article XIII A of the California Constitution, enacted
by the voters in 1978 and commonly known as "Proposition 13." Briefly, Article
XIII A limits to 1% of full cash value the rate of ad valorem property taxes on
real property and generally restricts the reassessment of property to 2% per
year, except upon new construction or change of ownership (subject to a number
of exemptions). Taxing entities may, however, raise ad valorem taxes above the
1% limit to pay debt service on certain voter-approved bonded indebtedness.
Under Article XIII A, the basic 1% ad valorem tax levy is applied against
the assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been filed challenging the acquisition-based
assessment system of Proposition 13. The U.S. Supreme Court recently heard one
of these lawsuits, and on June 18, 1992 announced a decision upholding
Proposition 13.
Article XIII A prohibits local governments from raising revenues through
ad valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." A
California Supreme Court decision, however, allowed the levy, without voter
approval, of "general taxes" which were not dedicated to a specific use. In
response to these decisions, the voters of the State in 1986 adopted an
initiative statute which imposed significant new limits on the ability of
local entities to raise or levy general taxes, except by receiving majority
local voter approval. Significant elements of this initiative, "Proposition
62," have been overturned in recent court cases. An initiative proposed to re-
enact the provisions of Proposition 62 as a constitutional amendment was
defeated by the voters in November 1990, but such a proposal may be renewed in
the future.
Appropriations Limits. The State and its local governments are subject to an
annual "appropriations limit" imposed by Article XIII B of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Proposition 98 and 111 in 1988 and 1990, respectively. Article XIII B
prohibits the State or any covered local government from spending
"appropriations subject to limitation" in excess of the appropriations limit
imposed. "Appropriations subject to limitation" are authorizations to spend
"proceeds of taxes," which consist of tax revenues and certain other funds,
including proceeds from regulatory licenses, user charges or other fees, to
the extent that such proceeds exceed the cost of providing the product or
service, but "proceeds of taxes" exclude most State subventions to local
governments. No limit is imposed on appropriations of funds which are not
"proceeds of taxes," such as reasonable user charges or fees, and certain
other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIII B appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of post-
1989 increases in gasoline taxes and vehicle weight fees, and (5)
appropriations made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such
adjustments were liberalized by Proposition 111 to follow more closely growth
in the State's economy. "Excess" revenues are measured over a two-year cycle.
Local governments, must return any excess to taxpayers by rate reductions.
With more liberal annual adjustment factors since 1988, and depressed revenues
since 1990 because of the recession, few governments are currently operating
near their spending limits, but this condition may change over time. Local
governments may by voter approval exceed their spending limit for up to four
years.
Because of the complex nature of Articles XIII A and XIII B of the
California Constitution, the ambiguities and possible inconsistencies in their
terms, and the impossibility of predicting future appropriations or changes in
population and cost of living, and the probability of continuing legal
challenges, it is not currently possible to determine fully the impact of
Article XIII A or Article XIII B on California municipal obligations or on the
ability of the State or local governments to pay debt service on such
obligations. It is not presently possible to predict the outcome of any
pending litigation with respect to the ultimate scope, impact or
constitutionality of either Article XIII A or Article XIII B, or the impact of
any such determinations upon State agencies or local governments, or upon
their ability to pay debt service on their obligations. Future initiatives or
legislative changes in laws or the California Constitution may also affect
the ability of the State or local issuers to repay their obligations.
Obligations of the State of California
As of April 1, 1995, the State had approximately $19.2 billion of general
obligation bonds outstanding, and $3.3 billion remained authorized but
unissued. In addition, at June 30, 1994, the State had lease-purchase
obligations, payable from the State's general fund, of approximately $6.0
billion with authorized but unissued lease purchase debt of $1.3 billion. The
State's outstanding general obligation bond debt has gradually risen in recent
years: from approximately $15.9 billion in 1991-92 to approximately $19.2
billion in 1994-95. Of the State's outstanding general obligation debt,
approximately 22% is presently self-liquidating (for which program revenues
are anticipated to be sufficient to reimburse the general fund for debt
service payments). Three general obligation bond propositions, totalling $3.7
billion, were approved by voters in 1992. The State has paid the principal of
and interest on its general obligation bonds, lease-purchase debt and short-
term obligations when due.
As of the date of this Statement of Additional Information, general
obligation bonds issued by the State of California are rated A1, A, A by
Moody's, S&P and Fitch, respectively. Starting in 1991 and continuing through
the middle of 1994, there has been a relatively steady deterioration in the
State's general obligation bond rating. On July 15, 1994, all three of the
rating agencies rating the State's long-term debt lowered their ratings of the
State's general obligation bonds. Moody's lowered its rating from "AA" to "A1,"
S&P lowered its rating from "A+" to "A" and termed its outlook as "stable," and
Fitch lowered its rating from "AA" to "A." An explanation of such actions may be
obtained only from the respective rating agencies. Future deterioration in the
State's fiscal condition could result in additional downgrades by the rating
agencies.
Recent Financial Results
Since the start of the 1990-91 Fiscal Year, the State has faced the worst
economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), exports and financial services, among
others, have all been severely affected. Job losses have been the worst of any
post-war recession and continued through the end of 1993. Following Department
of Finance projections that non-farm employment levels would be stable in
1994, employment grew 3% between November 1993 and November 1994. However,
unemployment was well above the national average through 1994.
The recession has seriously affected State tax revenues, which basically
mirror economic conditions. It has also caused increased expenditures for
health and welfare programs. The State has also been facing a structural
imbalance in its budget with the largest programs supported by the General
Fund -- K-12 schools and community colleges, health and welfare, and
corrections -- growing at rates higher than the growth rates for the principal
revenue sources of the General Fund. As a result, the State has experienced
recurring budget deficits. The State Controller reports that expenditures
exceeded revenues for four of the five fiscal years ending with 1991-92, and
were essentially equal in 1992-93. By June 30, 1993, according to the
Department of Finance, the State's Special Fund for Economic Uncertainties had
a deficit, on a budget basis, of approximately $2.8 billion. The 1993-94
Budget Act incorporated a Deficit Retirement Plan to repay this deficit over
two fiscal years. The original budget for 1993-94 reflected revenues which
exceeded expenditures by approximately $2.0 billion. As a result of the
continuing recession, the excess of revenues over expenditures for the fiscal
year was only about $522 million. Thus the accumulated budget deficit at June
30, 1994 was approximately $2.0 billion, and the deficit will not be retired
by June 30, 1995 as planned.
The accumulated budget deficits over the past several years, together with
expenditures for school funding which have not been reflected in the budget,
and reduction of available internal borrowable funds, have combined to
significantly deplete the State's cash resources to pay its ongoing expenses.
In order to meet its cash needs, the State has had to rely for several years
on a series of external borrowings, including borrowings past the end of a
fiscal year.
The 1994-95 Budget Act is projected to have $41.9 billion of General Fund
revenues and transfers and $40.0 billion of budget expenditures. In addition,
the 1994-95 Budget Act anticipates deferring retirement of about $1 billion of
the accumulated budget deficit to the 1995-96 Fiscal Year when it is intended
to be fully retired by June 30, 1996.
1993-94 Budget. The 1993-94 budget represented the third consecutive year
of extremely difficult budget choices for the State, in view of the continuing
recession. The budget act, signed on June 30, 1993, provided for General Fund
expenditures of $38.5 billion, a 6.3% decline from the prior year. Revenues
were projected at $40.6 billion, about $400 million below the prior year. To
bring the budget into balance, the budget act and related legislation provided
for transfer of $2.6 billion of local property taxes to school districts, thus
relieving State support obligations; reductions in health and welfare
expenditures; reductions in support for higher education institutions; a two-
year suspension of the renters' tax credit; and miscellaneous cuts in general
government spending and certain one-time and accounting adjustments. There
were no general State tax increases, but a 0.5% temporary State sales tax
scheduled to expire on June 30 was extended for six months, and dedicated to
support local government public safety costs.
Revenues for 1993-94 were $800 million lower than original projections and
expenditures were $780 million higher as a result of higher health and
welfare caseloads, lower property taxes and lower than anticipated federal
government payments for immigration-related costs.
1994-95 Budget. The 1994-95 fiscal year represents the fourth consecutive
year the Governor and Legislature were faced with a very difficult budget
environment to produce a balanced budget. Many program cuts and budgetary
adjustments have already been made in the last three years. The Budget
recognized that the accumulated deficit could not be repaid in one year, and
proposed a two-year solution. The budget projects operating surpluses for the
budget for both 1994-95 and 1995-96, and lead to the elimination of the
accumulated budget deficit, estimated at about $2.0 billion at June 30, 1994,
by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projects
revenues and transfers of $41.9 billion, $2.1 billion higher than revenues in
1993-94. This reflects the Administration's forecast of an improving economy.
The Budget Act projects the effective receipt of about $770 million from the
Federal Government, $360 million of which is to reimburse the State's costs
for immigrant-related expenses and the balance is attributable to federal
subventions thus reducing State expenditures. Little or none of this money is
now expected to be received. The Legislature took no action on a proposal in
the January Governor's Budget to undertake an expansion of the transfer of
certain programs to counties, which would also have transferred to counties
0.5% of the State's current sales tax. The Budget Act projects Special Fund
revenues of $12.1 billion, a decrease of 2.4% from 1993-94 estimated revenues.
The Governor's 1995-96 Budget proposal of January, 1995 included an upward
revision of General Fund revenues to $42.4 billion for the 1994-95 fiscal
year.
The 1994-95 Budget Act projects General Fund expenditures of $40.9
billion, an increase of $1.6 billion over 1993-94. The Budget Act also
projects Special Fund expenditures of $13.7 billion, a 5.4% increase over
1993-94 estimated expenditures. Although, the 1994-95 Budget Act contains no
tax increases, under legislation enacted for the 1993-94 Budget, the renters'
tax credit was suspended for two years (1993 and 1994). A ballot proposition
to permanently restore the renters' tax credit after this year failed at the
June, 1994 election. The Legislature enacted a further one-year suspension of
the renters' tax credit, for 1995, saving about $390 million in the 1995-96
Fiscal Year. The 1994-95 Budget assumes that the State will use a cash flow
borrowing program in 1994-95 which combines one-year notes and certain
warrants. Issuance of the warrants allows the State to defer repayment of
approximately $1.0 billion of its accumulated budget deficit into the 1995-96
Fiscal Year. The Budget Adjustment Law, enacted along with the 1994-95 Budget
Act is designed to ensure that the warrants will be repaid in the 1995-96
Fiscal Year. The State's severe financial difficulties for the current budget
year will result in continued pressure upon almost all local governments,
particularly school districts and counties which depend on State aid. Despite
efforts in recent years to increase taxes and reduce governmental
expenditures, there can be no assurance that the State will not face budget
gaps in the future.
Proposed 1995-96 Budget. On January 10, 1995, the Governor presented his
proposed fiscal year 1995-96 Budget. This budget projects total General Fund
revenues and transfers of $42.5 billion, and expenditures of $41.7 billion, to
complete the elimination of the accumulated budget deficits from earlier
years. However, this proposal leaves no cushion, as the projected budget
reserve at June 30, 1996 would be only about $92 million. While proposing
increases in funding for schools, universities and corrections, the Governor
proposes further cuts in welfare programs, and a continuation of the
"realignment" of functions with counties which would save the State about $240
million. The Governor also expects about $800 million in new federal aid for
the State's costs of incarcerating and educating illegal immigrants. The
Budget proposal also does not account for possible additional costs if the
State loses its appeals on lawsuits which are currently pending concerning
such matters as school funding and pension payments, but these appeals could
take several years to resolve. Part of the Governor's proposal also is a 15%
cut in personal income and corporate taxes, to be phased in over three years,
starting with calendar year 1996 (which would have only a small impact on
1995-96 income).
Legal Proceedings
The State is involved in certain legal proceedings (described in the
State's recent financial statements) that, if decided against the State, may
require the State to make significant future expenditures or may substantially
impair revenues.
Economy
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of over 31 million represents
12.3% of the total United States population and grew by 27% in the 1980s.
Total personal income in the State, at an estimated $683 billion in 1993,
accounts for about 13% of all personal income in the nation.
Reports issued by the State Department of Finance and the Commission on
State Finance indicate that the State's economy is recovering from its worst
recession since the 1930s. The largest job losses have been in Southern
California, led by declines in the aerospace and construction industries.
Weakness statewide occurred in manufacturing, construction, services and
trade. Additional military base closures will have further adverse effects on
the State's economy later in the decade. California's unemployment rate was
7.9% in April, 1995, a significant improvement over the previous year's level
of 9.3% but still above the national rate of 5.8%.
Other Considerations
On December 7, 1994, Orange County, California (the "County"), together
with its pooled investment fund (the "Fund") filed for protection under
Chapter 9 of the Federal Bankruptcy Code, after reports that the Fund had
suffered significant market losses in its investments which caused a liquidity
crisis for the Fund and the County. More than 180 other public entities, most
but not all located in the County, were also depositors in the Fund. As of
December 13, 1994, the County estimated the Fund's loss at about $2 billion,
or 27% of its initial deposits of around $7.4 billion. These losses could
increase as the County sells investments to restructure the Fund, or if
interest rates rise. Many of the entities which kept moneys in the Fund,
including the County, are facing cash flow difficulties because of the
bankruptcy filing and may be required to reduce programs or capital projects.
The County and some of these entities have, and others may in the future,
default in payment of their obligations. Moody's and S&P have suspended,
reduced to below investment grade levels, or placed on "Credit Watch" various
securities of the County and the entities participating in the Fund. As of
December 1994, the Portfolio did not hold any direct obligations of the
County. However, the Portfolio did hold bonds of some of the governmental
units that had money invested with the County; the impact of the loss of
access to these funds, the loss of expected investment earnings and the
potential loss of some of the principal invested is not known at this point.
There can be no assurances that these holdings will maintain their current
ratings and/or liquidity in the market.
Although the State of California has no obligation with respect to any
obligations or securities of the County or any of the other participating
entities, under existing legal precedents, the State may be obligated to
ensure that school districts have sufficient funds to operate. Longer term,
this financial crisis could have an adverse impact on the economic recovery
that has only recently taken hold in Southern California.
In early June, 1995, Orange County filed a proposal with the bankruptcy
court that would require holders of the County's short-term notes to wait a
year before being repaid. The existence of this proposal and its adoption
could disrupt the market for short-term debt in California and possibly drive
up the State's borrowing costs.
The repayment of industrial development securities and other obligations
secured by real property may be affected by California laws limiting
foreclosure rights of creditors. Securities backed by healthcare and hospital
revenues may be affected by changes in State regulations governing cost
reimbursements to health care providers under Medi-Cal (the State's Medicaid
program), including risks related to the policy of awarding exclusive
contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment
project area after the start of redevelopment activity. In the event that
assessed values in the redevelopment project area decline (e.g., because of a
major natural disaster such as an earthquake), or there is a deemphasis or
reallocation of property taxes by legislation or initiative, the tax increment
revenue may be insufficient to make principal and interest payments on these
bonds. Both Moody's and S&P suspended ratings on California tax allocation
bonds after the enactment of Articles XIII A and XIII B, and only resumed such
ratings on a selective basis.
Proposition 87, approved by California voters in 1988, required that all
revenues produced by a tax rate increase go directly to the taxing entity
which increased such tax rate to repay the entity's general obligation
indebtedness. As a result, redevelopment agencies (which, typically, are the
issuers of tax allocation securities) no longer receive an increase in tax
increment when taxes on property in the project area are increased to repay
voter-approved bonded indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and
principal on their obligations remains unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Legislation has been or
may be introduced which would modify existing taxes or other revenue-raising
measures or which either would further limit or, alternatively, would increase
the abilities of state and local governments to impose new taxes or increase
existing taxes. It is not presently possible to predict the extent to which
any such legislation will be enacted. Nor is it presently possible to
determine the impact of any such legislation on California municipal
obligations in which the Portfolio may invest, future allocations of state
revenues to local governments or the abilities of state or local governments
to pay the interest on, or repay the principal of, such California municipal
obligations.
Certain California obligations may be payable solely from the revenues of
health care institutions. Such revenues may be negatively affected by efforts
of the state and of private health plans and insurers to contract with such
institutions for fixed, discounted payments for services to Medicaid and
insurance beneficiaries. Such California obligations may be insured by the
state. In the event of a default by the health care institution, the state has
the option of issuing replacement debentures payable from a reserve fund.
However, this reserve fund has been found to be underfunded in a study
conducted in 1986 and is subject to reappropriation by the California
Legislature for other purposes.
Certain California obligations may be secured by real estate mortgages or
deeds of trust. California has several statutory provisions that may limit the
remedies of secured creditors, such as issuers of California obligations. A
creditor's right to obtain a deficiency judgment is barred when a foreclosure
is accomplished through a nonjudicial trustee's sale. A secured creditor is
also required to exhaust its real property security by foreclosure before
bringing a personal action against the debtor. Any deficiency judgment
following a judicial sale of foreclosed property is limited to the excess of
the outstanding debt over the fair value of the property at the time of sale,
even if the actual bids at such sale were lower than such value. Finally, the
debtor has the right to redeem the foreclosed property from any judicial
foreclosure sale that could result in a deficiency judgment.
Due to certain limitations on a creditor's private powers of sale after
foreclosure, the effective minimum period for foreclosing on a mortgage could
exceed seven months after the initial default. Such delays in collections
could disrupt the flow of revenues to an issuer for the payment of debt
service on California obligations secured by real estate mortgages. In some
cases, the nonjudicial sale of property by an issuer could be precluded as a
violation of constitutional due process.
Under California's anti-deficiency law, there is no personal recourse
against a mortgagor of a single family residence purchased with a loan secured
by a mortgage. California law also limits the charges that may be imposed with
respect to voluntary mortgage prepayments. These provisions could affect the
flow of revenues available for debt service to the issuers of California
obligations secured by single family home mortgages.
Substantially all of California is within an active geologic region
subject to major seismic activity. Any California municipal obligation in the
Portfolio could be affected by an interruption of revenues because of damaged
facilities, or, consequently, income tax deduction for casualty losses or
property tax assessment reductions. Compensatory financial assistance could be
constrained by the inability of (i) an issuer to have obtained earthquake
insurance coverage at reasonable rates; (ii) an insurer to perform on its
contracts of insurance in the event of widespread losses; or (iii) the Federal
or State government to appropriate sufficient funds within their respective
budget limitations.
On January 17, 1994, an earthquake struck Los Angeles causing significant
damage to public and private structures and facilities. Although some
individuals and businesses suffered losses totaling in the billions of
dollars, the overall effect of the earthquake on the regional and State
economy is not expected to be serious.
The State has shifted responsibility for certain health and welfare
programs and provided the counties with increased taxing powers to cover their
costs. While the State expects that the increased taxes will be sufficient to
cover increased costs, there can be no assurance that this will be the case.
If the increased costs are not covered by the increased taxes, the counties
will be responsible to fund the difference. Any added expenditures in excess
of increased revenues and subsequent adverse effect upon county finances would
likely have a negative impact upon individual county and local bond prices.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $410,762,918.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees of $2,121,262 (equivalent to 0.50% of the Portfolio's average daily net
assets for such year). For the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $3,644,215 (equivalent to 0.46% of the
Portfolio's average daily net assets for such year). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $2,024,390
(equivalent to 0.46% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended September 30, 1995 and for the period from the start of business,
April 5, 1994, to the fiscal year ended September 30, 1994, $18,478 and
$5,625, respectively, of the Fund's operating expenses were allocated to the
Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 and may be
continued as described under "Service Plan" in Part I of this Statement of
Additional Information. The Trustees have initially implemented the Plan by
authorizing the Fund to make quarterly service fee payments to the Principal
Underwriter and Authorized Firms in amounts not expected to exceed .20% of the
Fund's average daily net assets for any fiscal year based on the value of Fund
shares sold by such persons and remaining outstanding for at least twelve
months. During the fiscal year ended September 30, 1995, the Fund made no
service fee payments under the Plan. The Fund began accruing for its service
fee payments during the quarter ended June 30, 1995.
PRINCIPAL UNDERWRITER
The total sales charges for sale of shares of the Fund for the fiscal year
ended September 30, 1995 was $48,718, all of which was paid to Authorized
Firms.
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $7.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $3,417 and
the Portfolio paid IBT $187,581.
BROKERAGE
For the fiscal years ended September 30, 1995 and 1994, and for the period
from the start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio, and
of the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight ............ $0 $3,690(2) $135,000(4)
Samuel L. Hayes, III ........ 0 3,659(3) 150,000(5)
Norton H. Reamer ............ 0 3,633 135,000
John L. Thorndike ........... 0 3,748 140,000
Jack L. Treynor ............. 0 3,841 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,237 of deferred compensation.
(3) Includes $1,178 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Cynthia J. Clemson (32) has served as a Vice President of the
Portfolio since February 1, 1996. Ms. Clemson has been a Vice President of BMR
and Eaton Vance since 1993 and an employee of Eaton Vance since 1985. Ms.
Clemson is an officer of various investment companies managed by Eaton Vance
or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from December 19, 1985
through September 30, 1995 and for the five and one year periods ended
September 30, 1995. The total return for the period prior to the Fund's
commencement of operations on April 5, 1994 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
sales charge. The total return for such prior period has not been adjusted to
reflect the Fund's distribution fees and certain other expenses.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ------------------------------ ------------------------------
PERIOD DATE INVESTMENT<F1> ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F2> 12/19/85 $962.68 $1,803.67 87.36% 6.62% 80.37% 6.21%
5 Years Ended
9/30/95<F2> 9/30/90 $962.79 $1,353.21 40.54% 7.03% 35.32% 6.22%
1 Year Ended
9/30/95<F2> 9/30/94 $962.81 $1,058.55 9.94% 9.94% 5.86% 5.86%
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.
<FN>
- ----------
<F1> Initial investment less the current maximum sales charge of 3.75%.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 5.47%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 5.47% would be 8.81%,
assuming a combined federal and State tax rate of 37.90%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 29, 1995) was 5.72%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 5.87%. If a portion of the Fund's expenses
had not been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
See the Tax Equivalent Yield Table in this Part II concerning applicable
tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 30.48% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. In addition, as of such date, the following
shareholders owned beneficially and of record the percentage of outstanding
shares of the Fund indicated after their name: Wheat First Securities Inc.,
Glen Allen, VA (25.07%) and Liz Thompson, Healdsburg, CA (8.49%). To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table shows below the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the 1995 regular federal income
tax rates and California State income tax laws and tax rates applicable for
1994.
<TABLE>
<CAPTION>
A FEDERAL AND CALIFORNIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------- ------------------- CA STATE ------------------------------------------------
(TAXABLE INCOME<F1>) TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ----------------------------------------- -------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 34.70 6.13 6.89 7.66 8.42 9.19 9.95 10.72
$ 56,551 - $117,950 $ 94,251 - $143,600 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27
$117,951 - $256,500 $143,601 - $256,500 43.04 7.02 7.90 8.78 9.66 10.53 11.41 12.29
Over $256,500 Over $256,500 46.24 7.44 8.37 9.30 10.23 11.16 12.09 13.02
<FN>
<F1> Net amount subject to federal and California personal income tax after deductions and exemptions.
<F2> The combined federal and California tax brackets are calculated using the highest California State rate applicable at the
upper portion of these brackets and assume that taxpayers deduct California State income taxes paid on their federal income
tax returns. An investor with taxable income within these brackets may have a lower combined tax rate than the combined rate
shown. Investors who do not itemize deductions on their federal income tax return will have a higher combined bracket and
higher taxable equivalent yield than those indicated above.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including California State income taxes)
for taxpayers with adjusted gross income in excess of $114,700. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $114,700 and joint
filers with adjusted gross income in excess of $172,050. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above. The applicable federal tax rates within the brackets
are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Traditional
California Municipals 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 and
California personal income taxes, 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 except for
California personal income taxes. It should also be noted that the interest
earned on certain "private activity bonds" issued after August 7, 1986, while
exempt from the regular federal income tax, is treated as a tax preference
item which could subject the recipient to or increase the recipient's
liability for the federal alternative minimum tax. The illustrations assume
that the federal alternative minimum tax is not applicable and do not take
into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult their tax adviser for
additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL FLORIDA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax in the form of an investment exempt from
Florida intangibles tax. The Fund currently seeks to meet its investment
objective by investing its assets in the Florida Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Florida considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Florida issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Florida issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Florida is characterized by rapid population growth and substantial
capital needs which are being funded through more frequent debt issuance and
pay-as-you-go financing. The State of Florida operates on the basis of a
fiscal biennium for its appropriations and expenditures and is
constitutionally bound to maintain a balanced budget. The State's financial
operations are considerably different than most other states because, under
the State's constitution, there is no state income tax. A constitutional
amendment would therefore be necessary to impose an income tax. Only seven
states currently do not impose income taxes upon their residents. The lack of
an income tax exposes total State tax collections to considerably more
volatility than would otherwise be the case and, in the event of an economic
downswing, could affect the State's ability to pay principal and interest in a
timely manner.
The 1992-1993 Florida budget authorized $11.862 billion in General Fund
spending, an increase of 6.5% from the final 1991-1992 level. New taxes,
including a 0.5 mill ($0.50 per $1,000 of valuation) increase in the
intangible personal property tax, were expected to produce an additional
$378.2 million in revenue to fund school and prison construction. Other tax
changes included a 1% sales tax increase on taxable purchases of
telecommunications and electric services, an increase in documentary stamp
taxes, and the inclusion of several previously exempt services for the sales
tax. Revenue collections were $200 million over initial estimates, with $170
million due to normal economic activity and $30 million attributed to
rebuilding after Hurricane Andrew. Combined general revenue fund and working
capital unencumbered reserves increased to $441.4 million, or 3.7% of
expenditures.
Non-recurring revenue from rebuilding efforts following Hurricane Andrew
was $220 million in 1993-94 and is estimated to be $159 million in 1994-95. In
1993-94, $190 million was transferred to a hurricane relief trust fund and
$159 million is budgeted to be transferred in 1994-95.
In 1993, the Florida state constitution was amended to limit the annual
growth in the assessed valuation of residential property. This amendment
could, over time, constrain the growth in property taxes, a major revenue
source for local governments. The amendment restricts annual increases in
assessed valuation to the lesser of 3% or the Consumer Price Index. The
amendment applies only to residential properties eligible for the homestead
exemption and does not affect the valuation of rental, commercial, or
industrial properties. When sold, residential property would be reassessed at
market value. While no immediate ratings implications are expected, the
amendment could have a negative impact on the financial performance of local
governments over time and lead to ratings revisions which may have a negative
impact on the prices of affected bonds.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $712,203,136.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees of $3,433,489 (equivalent to 0.47% of the Portfolio's average daily net
assets for such year). For the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $3,644,215 (equivalent to 0.46% of the
Portfolio's average daily net assets for such year). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $2,024,390
(equivalent to 0.46% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended September 30, 1995 and for the period from the start of business,
April 5, 1994, to the fiscal year ended September 30, 1994, $18,478 and
$5,625, respectively, of the Fund's operating expenses were allocated to the
Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 and may be
continued as described under "Service Plan" in Part I of this Statement of
Additional Information. The Trustees have initially implemented the Plan by
authorizing the Fund to make quarterly service fee payments to the Principal
Underwriter and Authorized Firms in amounts not expected to exceed .20% of the
Fund's average daily net assets for any fiscal year based on the value of Fund
shares sold by such persons and remaining outstanding for at least twelve
months. During the fiscal year ended September 30, 1995, the Fund made no
service fee payments under the Plan. The Fund began accruing for its service
fee payments during the quarter ended June 30, 1995.
PRINCIPAL UNDERWRITER
The total sales charges for sale of shares of the Fund for the fiscal year
ended September 30, 1995 was $71,781, all of which was paid to Authorized
Firms.
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $17.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $2,948 and
the Portfolio paid IBT $10,722.
BROKERAGE
For the fiscal years ended September 30, 1995 and 1994, and for the period
from the start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio, and
of the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight .......... $0 $4,291(2) $135,000(4)
Samuel L. Hayes, III ...... 0 4,239(3) 150,000(5)
Norton H. Reamer .......... 0 4,200 135,000
John L. Thorndike ......... 0 4,322 140,000
Jack L. Treynor ........... 0 4,464 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,439 of deferred compensation.
(3) Includes $1,333 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from August 28, 1990
through September 30, 1995 and for the five and one year periods ended
September 30, 1995. The total return for the period prior to the Fund's
commencement of operations on April 5, 1994 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
sales charge. The total return for such prior period has not been adjusted to
reflect the Fund's distribution fees and certain other expenses.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ------------------------------ ----------------------------
PERIOD DATE INVESTMENT<F1> ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F2> 8/28/90 $962.16 $1,434.64 49.11% 8.15% 43.46% 7.33%
5 Years Ended 9/30/95<F2> 9/30/90 $962.15 $1,436.07 49.26% 8.32% 43.61% 7.49%
1 Year Ended 9/30/95<F2> 9/30/94 $962.53 $1,064.12 10.59% 10.59% 6.44% 6.44%
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.
- ----------
<FN>
<F1> Initial investment less the current maximum sales charge of 3.75%.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.90%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.90% would be 7.10%,
assuming a federal tax rate of 31%. If a portion of the Fund's expenses had
not been allocated to the Administrator, the Fund would have had a lower
yield.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 29, 1995) was 5.48%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 5.62%. If a portion of the Fund's expenses
had not been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
See the Tax Equivalent Yield Table in this Part II concerning applicable
tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, BHC Securities, Inc., Philadelphia, PA and Smith
Barney, Inc., New York, NY, were the record owners of approximately 7.0% and
6.4%, respectively, of the outstanding shares which were held on behalf of
their customers who are beneficial owners of such shares, and as to which they
have voting power under certain limited circumstances. To the knowledge of the
Trust, no other person owned of record or beneficially 5% or more of the
Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Traditional Florida Tax Free Fund to EV Traditional
Florida Municipals Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The tables below give the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and the Florida intangibles tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
You are in In your bracket, a tax-free yield of
If the taxable income on Or the taxable income on this federal
your single return is<F1> your joint return is<F1> bracket 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------ -------------------------- -------------- -----------------------------------------------------------
equals that of a taxable investment yielding
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $23,350 Up to $39,000 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 56,551-$117,950 $ 94,251-$143,600 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$117,951-$256,500 $143,601-$256,500 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $256,500 Over $256,500 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
<CAPTION>
If the taxable income on Or the taxable income on
your single return is<F1> your joint return is<F1> 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------ -------------------------- ----------------------------------------------------------------------
tax equivalent yield reflecting exemption from intangibles tax:<F2>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $23,350 Up to $39,000 4.95% 5.54% 6.13% 6.71% 7.30% 7.89% 8.48%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 5.85 6.54 7.23 7.93 8.62 9.31 10.01
$ 56,551-$117,950 $ 94,251-$143,600 6.10 6.83 7.55 8.27 9.00 9.72 10.44
$117,951-$256,500 $143,601-$256,500 6.58 7.36 8.14 8.92 9.70 10.48 11.26
Over $256,500 Over $256,500 6.97 7.80 8.62 9.45 10.28 11.10 11.93
<FN>
<F1> Net amount subject to federal personal income tax after deductions and exemptions.
<F2> A Florida intangibles tax on personal property of $2.00 per $1,000 is generally imposed after exemptions on the value of
stocks, bonds, other evidences of indebtedness and mutual fund shares. An example of the effect of the Florida intangibles
tax on the tax brackets of Florida taxpayers is as follows. A $10,000 investment subject to the tax would require payment of
$20 annually in intangibles taxes. If the investment yielded 5.5% annually or $550, the intangibles tax as a percentage of
income would be $20/$500 or 3.64%. If a taxpayer were in the 36% federal income tax bracket, assuming the intangibles taxes
were deducted as an itemized deduction on the federal return, the taxpayer would be on a combined federal and Florida State
tax bracket of 38.33% [36% + (1 - .36) X 3.64%] with respect to such investment. A Florida taxpayer whose intangible personal
property is exempt or partially exempt from tax due to the availability of exemptions will have a lower taxable equivalent
yield than indicated above.
</TABLE>
Note: The 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 $114,700. The tax brackets also do not show
the effects of phaseout of personal exemptions for single and joint filers
with adjusted gross incomes in excess of $114,700 and $172,050. 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 EV Traditional Florida
Municipals 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 the Florida intangibles tax, state or local
taxes, if any, payable on Fund distributions to individuals who are not
Florida residents, or intangibles taxes, if any, imposed under the laws of
other states. It should also be noted that the interest earned on certain
"private activity bonds" issued after August 7, 1986, while exempt from the
regular federal income tax is treated as a tax preference item which could
subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult their tax adviser for
additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL NEW YORK MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and New York State and New York City personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the New York Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain New York considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in New York issuers. Such information supplements the information
in the Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of New
York issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The recession lasted longer in New York and the State's economic recovery
has lagged behind the nation's. Although the State has added approximately
185,000 jobs since November 1992, employment growth in the State has been
below the national average primarily due to significant cutbacks in the
computer, manufacturing, defense and banking industries. New York's economy is
expected to continue to expand modestly during 1995 with a pronounced slow-
down during the course of the year. The unemployment rate for the State for
1995 is projected to be 6.4%, compared to the national rate of 5.6%. New York
City's unemployment rate was 8.1% in June 1995, down from 8.5% a year earlier.
For the fiscal year 1991-92, the State incurred an operating deficit in
the General Fund of $575 million, which, after a $44 million withdrawal from
the Tax Stabilization Reserve Fund, was financed through the public issuance
of $531 million of 1992 Deficit Notes on March 30, 1992.
In the 1992-1993 fiscal year, the State began the process of financial
reform closing the fiscal year with fund surpluses totalling $738 million. The
1992-1993 fiscal year marked the first time in four years that the State did
not have to issue deficit notes to close a budget gap.
The 1993-1994 fiscal year ended with combined fund balances of $1.539
billion due to an improving national economy, State employment growth, better
than projected tax collections and disbursements that were below projections.
The 1994-1995 fiscal year, which included tax reductions of $476 million,
closed with the General Fund in balance and positive fund balances of $157
million and $1 million in the Tax Stabilization Reserve Fund and the
Contingency Reserve Fund, respectively. Tax revenues for the fiscal year fell
short of original projections by $1.16 billion, the shortfall being offset by
disbursements which were lower than projected and planned spending reductions.
The 1995-1996 fiscal year budget, adopted in June 1995, includes a planned
three-year 20% reduction in the State's personal income tax and is the first
budget in over 50 years which projects a decline in General Fund disbursements
and spending on State operations. The 1995-1996 State Financial Plan, based on
the enacted budget, includes gap-closing actions to offset a previously
projected budget gap of $5 billion, the largest in the State's history. Such
gap-closing actions include, among others, substantial reductions in social
and medical entitlement programs, reductions in State services and capital
programs and increased lottery revenues. There can be no assurance that
additional gap-closing measures will not be required and there is no assurance
that any such measures will enable the State to achieve a balanced budget for
its 1995-1996 fiscal year.
In 1994 and 1995, the State legislature passed a proposed constitutional
amendment on debt reform. The proposed amendment would permit the State to
issue non-voter approved revenue bonds secured by a pledge of certain tax
receipts, up to a cap equal to 5% of State personal income. If approved by the
voters in November 1995, such amendment would become effective January 1,
1996.
During the past several years, the State has been forced to borrow on a
seasonal basis due to cash flow timing problems. In June, 1990, the Local
Government Assistance Corporation ("LGAC") was formed as a public benefit
corporation for the purpose of issuing long term obligations designed to
eliminate this need. The legislation which created the LGAC specified that the
obligations will be amortized over no more than 30 years and put a $4.7
billion dollar cap, net of LGAC proceeds, on the seasonal borrowing program.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of
$4.7 billion completing the program. This cap may be exceeded in cases where
the Governor and the legislature have certified the need for additional
borrowing and have devised a method for reducing it back to the cap no later
than the fourth fiscal year after the limit is exceeded. If this cap were to
be exceeded, it could result in action by the rating agencies which could
adversely affect prices of bonds held by the Portfolio.
In 1975, New York City encountered severe financial difficulties which
impaired and continues to impair the borrowing ability of the City. For each
of the 1981 through 1994 fiscal years, the City achieved balanced operating
results as reported in accordance with generally accepted accounting
principles. Pursuant to the laws of the State, the City prepares a four-year
annual financial plan, which is reviewed and revised on a quarterly basis and
which includes the City's capital, revenue and expense projections and
outlines proposed gap-closing programs for years with projected budget gaps.
The City implemented various actions to close budget gaps of $3.3 billion,
$2.1 billion and $3.5 billion for the 1992, 1994 and 1995 fiscal years,
respectively. Such actions included, among others, tax increases, service and
personnel reductions, productivity savings, debt refinancings, asset sales and
cost savings related to employee benefits. For the 1996 fiscal year, the City
has projected a budget gap of $3.1 billion and has proposed to implement
various gap-closing actions to balance the 1996 fiscal year budget including,
among others, substantial reductions in entitlement programs, service and
personnel reductions, cost saving initiatives related to labor and pension
costs and increases in certain lease and fee payments due the City. The City
currently projects budget gaps of $888 million, $1.459 billion and $1.484
billion for its 1997, 1998 and 1999 fiscal years, respectively. The City's
gap-closing plans for the 1997 through 1999 fiscal years include reductions in
City agency expenditures and cost saving actions related to entitlement
programs and procurement. There can be no assurance that additional gap-
closing measures will not be required, the implementation of which could
adversely affect the City's economic base, and there is no assurance that such
measures will enable the City to achieve a balanced budget, as required by
State law, for any of the 1996 through 1999 fiscal years. The fiscal health of
New York City, which is the largest issuer of municipal bonds in the country
and a leading international commercial center, exerts a significant influence
upon the fiscal health and bond values of issues throughout the State. Bond
values of the Municipal Assistance Corporation, the State of New York, the New
York Local Government Assistance Corporation, the New York State Dormitory
Authority -- City University, the New York City Municipal Water Finance
Authority and The Metropolitan Transportation Authority would be particularly
affected by serious financial difficulties encountered by New York City. The
Portfolio could be expected to hold bonds issued by many, if not all of these
issuers, at any given time.
Moody's rates the City's general obligation bonds "Baa1" and Fitch rates
such bonds "A-". On July 10, 1995, S&P revised downward its rating on City
general obligation bonds from A- to BBB+. S&P stated that the downgrade was a
reflection of the City's inability to eliminate a structural budget imbalance
due to persistent softness in the City's economy, weak job growth, a trend of
using nonrecurring budget devices, optimistic projections of State and federal
aid and high levels of debt service. There is no assurance that such ratings
will continue for any given period of time or that they will not be revised
downward or withdrawn entirely. Any such downward revision or withdrawal could
have an adverse effect on obligations held by the Portfolio.
The State's economic and fiscal viability are mutually and intricately
tied to those of its authorities and localities, which make up the major
portion of State bond issuance. Any serious financial difficulties encountered
by these entities, including their inability to access capital markets, would
have a significant, adverse effect upon the value of bonds issued elsewhere
within the State and thus upon the value of the interests in the Portfolio.
State plans to reduce aid to local cities and towns may have a negative impact
on municipal finances and ratings throughout the State. Such ratings changes
could erode the value of their bonds and/or lead to defaults.
The State either guarantees or supports lease-purchase agreements or
contractual obligations, financing arrangements or through moral obligation
provisions, a large amount of Authority indebtedness. While debt service is
normally paid out of revenues generated by the projects of the Authorities,
the State has, from time to time, had to appropriate amounts to enable the
Authorities to meet their financial obligations and, in some cases, to prevent
default. Certain authorities continue to show financial weakness due to the
economy.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $652,736,309.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees of $3,031,508 (equivalent to 0.47% of the Portfolio's average daily net
assets for such year). For the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $3,073,565 (equivalent to 0.46% of the
Portfolio's average daily net assets for such year). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $1,755,148
(equivalent to 0.46% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended September 30, 1995 and for the period from the start of business,
April 15, 1994, to the fiscal year ended September 30, 1994, $20,316 and
$5,466, respectively, of the Fund's operating expenses were allocated to the
Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 and may be
continued as described under "Service Plan" in Part I of this Statement of
Additional Information. During the fiscal year ended September 30, 1995, the
Fund made no service fee payments under the Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sale of shares of the Fund for the fiscal year
ended September 30, 1995 was $115,728, all of which was received by Authorized
Firms.
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $47.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995 the Fund paid IBT $1,509 and
the Portfolio paid IBT $221,548.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 1994 and for the period from the start of business, February 1,
1993, to the fiscal year ended September 30, 1993, the Portfolio paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Fund or the Portfolio.) During the fiscal year ended September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight ....... $0 $4,093(2) $135,000(4)
Samuel L. Hayes, III ... 0 4,048(3) 150,000(5)
Norton H. Reamer ....... 0 4,013 135,000
John L. Thorndike ...... 0 4,133 140,000
Jack L. Treynor ......... 0 4,257 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,373 of deferred compensation.
(3) Includes $1,302 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Nicole Anderes (34) has served as a Vice President of the
Portfolio since June 19, 1995. Ms. Anderes has been a Vice President of BMR
and Eaton Vance since 1994, and is an officer of various investment companies
managed by Eaton Vance or BMR. Prior to joining Eaton Vance, Ms. Anderes was
Vice President and portfolio manager, Lazard Freres Asset Management (1992-
1994) and Vice President and Manager -- Municipal Research, Roosevelt & Cross
(1978-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from August 30, 1990
through September 30, 1995 and for the one- and five-year periods ended
September 30, 1995. The total return for the period prior to the Fund's
commencement of operations on April 15, 1994 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
sales charge. The total return for such prior period has not been adjusted to
reflect the Fund's distribution fees and certain other expenses.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
VALUE OF VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ------------------------------ ----------------------------
PERIOD DATE INVESTMENT<F1> ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F2> 8/30/90 $962.59 $1,459.27 51.59% 8.52% 45.93% 7.71%
5 Years Ended 9/30/95<F2> 9/30/90 $962.73 $1,466.78 52.35% 8.77% 46.68% 7.95%
1 Year Ended 9/30/95<F2> 9/30/94 $962.60 $1,061.91 10.32% 10.32% 6.19% 6.19%
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.
- ----------
<F1> Initial investment less the current maximum sales charge of 3.75%.
<F2> If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 5.17%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 5.17% would be 8.52%,
assuming a combined federal and State tax rate of 39.32%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 30, 1995) was 5.69%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 5.84%. If a portion of the Fund's expenses
had not been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
Investors should consult with their tax advisers for more information
about the Fund's performance. See the Tax Equivalent Yield Table in this Part
II for information concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL, was the record owner of approximately 6.3% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. In addition, as of the same date the following
shareholders owned of record the percentages of outstanding shares of the Fund
indicated after their names: BHC Securities, Inc., Trade House Account,
Philadelphia, PA 19103 (13.9%); and Prudential Securities FBO Sylvia DeBettini
Sichel, New York, NY 10028-0809 (6.9%). To the knowledge of the Trust, no
other person owned of record or beneficially 5% or more of the Fund's
outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Traditional New York Tax Free Fund to EV Traditional
New York Municipals Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLES
The table below shows the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and New York State and New York City income tax laws in effect for 1995.
<TABLE>
<CAPTION>
COMBINED
SINGLE FEDERAL,
RETURN JOINT RETURN NY STATE A FEDERAL, NEW YORK STATE AND NEW YORK CITY TAX EXEMPT YIELD OF:
- -------- ---------------------- AND NY CITY ----------------------------------------------------------------
(TAXABLE INCOME<F1>) TAX BRACKET<F2> 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------------------------- ----------------- ----------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 25.19% 5.35% 6.01% 6.68% 7.35% 8.02% 8.69% 9.36%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 36.64 6.31 7.10 7.89 8.68 9.47 10.26 11.05
$ 56,551 - $117,950 $ 94,251 - $143,600 39.32 6.59 7.42 8.24 9.06 9.89 10.71 11.54
$117,951 - $256,500 $143,601 - $256,500 43.71 7.11 7.99 8.88 9.77 10.66 11.55 12.44
Over $256,500 Over $256,500 46.88 7.53 8.47 9.41 10.35 11.29 12.24 13.18
<F1> Net amount subject to federal, New York State and New York City personal income tax (including New York City personal income
tax surcharges) after deductions and exemptions.
<F2> The combined tax rate for the two lowest federal income brackets are calculated using the highest State rate (7.59375%
effective annualized State tax rate based on a rate of 7.875% for the first 3 months of the 1995 tax year and 7.5% for the
remaining 9 months) and the highest City rate applicable at the upper portion of that bracket. Therefore, an investor with
taxable income below the highest dollar amount in the two lowest brackets may have a lower combined tax rate than the
combined rate shown for that bracket. The applicable State and City rates are at their maximum (7.59375% and 4.457%,
respectively) throughout all other brackets.
</TABLE>
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular federal income
tax and New York State income tax laws in effect for 1995. It gives the
approximate yield a taxable security must earn at various income brackets to
produce after-tax yields equivalent to those of tax exempt bonds yielding from
4% to 7%.
<TABLE>
<CAPTION>
CPOMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL, NEW YORK STATE AND NEW YORK CITY TAX EXEMPT YIELD OF:
- -------------- ---------------------- NY STATE ----------------------------------------------------------------
(TAXABLE INCOME<F1>) TAX BRACKET<F2> 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------------------------- ----------------- ----------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 21.45% 5.09% 5.73% 6.37% 7.00% 7.64% 8.28% 8.91%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.47 6.01 6.76 7.52 8.27 9.02 9.77 10.52
$ 56,551 - $117,950 $ 94,251 - $143,600 36.24 6.27 7.06 7.84 8.63 9.41 10.19 10.98
$117,951 - $256,500 $143,601 - $256,500 40.86 6.76 7.61 8.45 9.30 10.15 10.99 11.84
Over $256,500 Over $256,500 44.19 7.17 8.06 8.96 9.85 10.75 11.65 12.54
<FN>
<F1> Net amount subject to federal and New York State and personal income tax after deductions and exemptions.
<F2> The combined tax rate for the lowest federal income brackets shown in the left column is calculated using the highest State
rate (7.59375% effective annualized State tax rate based on a rate of 7.875% for the first 3 months of the 1995 tax year and
7.5% for the remaining 9 months) applicable at the upper portion of that bracket. Therefore, an investor with taxable income
below the highest dollar amount in the lowest bracket may have a lower combined tax rate than the combined rate shown for
that bracket. The applicable State rate is the maximum rate, 7.59375%, throughout all other brackets.
</TABLE>
Note: Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield. The applicable federal tax rates within
each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%, over the
same ranges of income. The combined tax brackets are based on the highest New
York State and/or New York City income tax rates within each bracket. No
assurance can be given that EV Traditional New York Municipals 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 and New York State and New York City personal
income taxes, 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 except for New York State and New York City
personal income taxes. It should also be noted that the interest earned on
certain "private activity bonds" issued after August 7, 1986, while exempt
from the regular federal income tax, is treated as a tax preference item which
could subject the recipient to the federal alternative minimum tax.
The above-indicated combined federal and New York State/City income brackets
assume State and City taxes are itemized deductions and do not take into
account the effect of a reduction in the deductibility of itemized deductions
(including New York State and City Income Taxes) for taxpayers with adjusted
gross income in excess of $114,700, nor do they reflect phaseout of personal
exemptions for single and joint filers with adjusted gross income in excess of
$114,700 and $172,050, respectively. The effective combined tax brackets and
equivalent taxable yields of taxpayers who do not itemize or who are subject
to such limitations will be higher than those indicated above. In addition,
investors who do not itemize deductions on their federal income tax returns
will have higher combined brackets and equivalent taxable yields than
indicated above. The illustrations assume that the federal alternative minimum
tax is not applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
[logo]
EATON VANCE
- -------------------
MUTUAL FUNDS
EV TRADITIONAL
MUNICIPAL
FUNDS
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 1996
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
EV TRADITIONAL FLORIDA MUNICIPALS FUND
EV TRADITIONAL NEW YORK MUNICIPALS FUND
EV TRADITIONAL
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
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, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
T-C2/1SAI
<PAGE>
Part B
Information Required in a Statement of Additional Information
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1996
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
- --------------------------------------------------------------------------------
TABLE OF CONTENTS Page
Investment Objective and Policies ............................... 2
Investment Restrictions ......................................... 13
Trustees and Officers ........................................... 16
Control Persons and Principal Holders of Securities ............. 18
Investment Adviser and Administrator ............................ 18
Custodian ....................................................... 22
Service for Withdrawal .......................................... 22
Determination of Net Asset Value ................................ 23
Investment Performance .......................................... 23
Taxes ........................................................... 28
Principal Underwriter ........................................... 30
Portfolio Security Transactions ................................. 31
Other Information ............................................... 33
Independent Certified Public Accountants ........................ 34
Financial Statements ............................................ 34
Tax Equivalent Yield Table ...................................... 35
Appendix ........................................................ 36
- --------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE PROSPECTUS OF MASSACHUSETTS MUNICIPAL BOND PORTFOLIO (THE
"FUND") DATED FEBRUARY 1, 1996, AS SUPPLEMENTED FROM TIME TO TIME. THIS
STATEMENT OF ADDITIONAL INFORMATION 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>
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of Massachusetts Municipal Bond Portfolio (the
"Fund"), a series of Eaton Vance Municipals Trust (the "Trust"), is to provide
current income exempt from regular federal income tax and Massachusetts state
personal income taxes. The Fund seeks to meet its investment objective by
investing its assets in the Massachusetts Tax Free Portfolio (the "Portfolio"),
a separate registered investment company with the same investment objective as
the Fund.
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust changed
its name to Eaton Vance Municipals Trust on January 7, 1991.
MASSACHUSETTS OBLIGATIONS
As used in this Statement of Additional Information, the term
"Massachusetts obligations" refers to debt obligations issued by the
Commonwealth of Massachusetts and its political subdivisions (for example,
counties, cities, towns, districts and authorities) and the governments of
Puerto Rico, the U.S. Virgin Islands and Guam, the interest on which is exempt
from both regular federal income tax and Massachusetts state personal income
taxes. Massachusetts obligations 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 Massachusetts obligations the interest on
which is also 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. A fourth category of obligations
subject to the alternative minimum tax is described in the Prospectus. In
assessing the federal income tax treatment of interest on any such obligation,
the Portfolio 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.
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 bonds issued by a state or local authority
for capital projects are normally secured by annual lease rental payments from
the state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality.
Industrial development and pollution control bonds are in most cases
revenue bonds and are generally not secured by the taxing power of the
municipality, but are usually secured by the revenues derived by the authority
from payments of the industrial user or users.
The Portfolio may on occasion acquire revenue bonds which carry
warrants or similar rights covering equity securities. Such warrants or rights
may be held indefinitely, but if exercised, the Portfolio 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 Massachusetts obligation are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Act, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations. There is also the possibility that as a result of
litigation or other conditions the power or ability of any person or entity to
pay when due principal of and interest on a municipal obligation may be
materially affected. There have been recent instances of defaults and
bankruptcies involving municipal obligations which were not foreseen by the
financial and investment communities. The Portfolio will take whatever action it
considers appropriate in the event of anticipated financial difficulties,
default or bankruptcy of either the issuer of any municipal obligation or of the
underlying source of funds for debt service. Such action may include retaining
the services of various persons or firms (including affiliates of Boston
Management and Research (the "Investment Adviser")) to evaluate or protect any
real estate, facilities or other assets securing any such obligation or acquired
by the Portfolio as a result of any such event, and the Portfolio may also
manage (or engage other persons to manage) or otherwise deal with any real
estate, facilities or other assets so acquired. The Portfolio anticipates that
real estate consulting and management services may be required with respect to
properties securing various municipal obligations in its portfolio or
subsequently acquired by the Portfolio. The Portfolio will incur additional
expenditures in taking protective action with respect to portfolio obligations
in default and assets securing such obligations.
The yields on Massachusetts obligations will be dependent on a variety
of factors, including purposes of issue and source of funds for repayment,
general money market conditions, general conditions of the municipal bond
market, size of a particular offering, maturity of the obligation and rating of
the issue. The ratings of Moody's Investors Service, Inc. ("Moody's"), Standard
& Poor's Ratings Group ("S&P") and Fitch Investors Service, Inc. ("Fitch")
represent their opinions as to the quality of the obligations which they
undertake to rate. It should be emphasized, however, that ratings are based on
judgment and are not absolute standards of quality. Consequently, Massachusetts
obligations with the same maturity, coupon and rating may have different yields
while obligations of the same maturity and coupon with different ratings may
have the same yield. In addition, the market price of such obligations will
normally fluctuate with changes in interest rates, and therefore the net asset
value of the Portfolio will be affected by such changes.
RISKS OF CONCENTRATION
The following information as to certain Massachusetts considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Massachusetts issuers. Such information is derived from sources
that are generally available to investors and is believed to be accurate. Such
information constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of Massachusetts issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Obligations of the Commonwealth of Massachusetts and Political Subdivisions
Thereunder. Beginning in 1989, the Commonwealth's economy slowed significantly.
Most of the employment growth during this period was experienced in the services
and trade sectors of the economy, while the manufacturing sector continues to
suffer employment losses. Like most other industrial states, Massachusetts has
seen a shift in employment from manufacturing to more technology and
service-based industries. Per capita personal income growth has slowed, after
several years during which the per capita personal income growth rate in
Massachusetts was among the highest in the nation. Between 1992 and 1993, per
capita personal income in Massachusetts increased 3.7%, as compared to 3.5% for
the nation as a whole. The unemployment rate for the Commonwealth fell from 6.7%
in October 1993 to 6.4% for October 1994. The national unemployment rate for
October 1994 was 5.8% little changed from 5.9% in September 1994. Like most
other industrial states, Massachusetts has seen a shift in employment from
labor-intensive manufacturing industries to technology and service-based
industries.
In January 1992, the Governor submitted his fiscal year 1993 budget of
$13.9 billion, which was 3.1% higher than fiscal year 1992's state spending
level. Annual budgeted revenues increased from fiscal 1992 to fiscal 1993 by
approximately 7.1% and are projected to increase by approximately 5.6% in fiscal
1994. Annual budgeted expenditures increased by approximately 9.5% in fiscal
1993 and are estimated to increase by 6.9% in fiscal 1994. Fiscal 1993 ended
with a positive fund balance of $562.5 million, including $309.5 million in the
Budget Stabilization Fund. Fiscal 1994 preliminary financial results for the
three main operating funds (General, Highway and Local Aid) show a small $18
million surplus. The total fund balance for the three funds is $581 million,
with $377 million earmarked for the Budget Stabilization Fund.
The $16.364 billion fiscal 1995 budget is tightly balanced, with tax
revenue growth reasonably estimated at 5.9% from fiscal 1994's level. The budget
includes increased state aid for localities and additional spending for
education reform and water/sewer rate relief.
The Commonwealth faces significant additional costs due to a June
ruling by the state supreme judicial court. The court rules that the
Commonwealth has failed in its constitutional obligation to provide equal
education. Massachusetts anticipates spending an additional $1.2 billion over
three years on school reform. The fiscal 1994 budget includes an increase in
school aid of $175 million. The bulk of the $1.2 billion in increased aid will
occur in fiscal 1995 and 1996. After the fiscal 1994 budget was adopted, the
governor announced a $207 million tax relief package. The package includes a 4.3
cent gas tax reduction to offset the federal gas tax increase, a reduction to
5.85% from the 5.95% income tax rate and other deductions for elderly homeowners
and lower income taxpayers. This package proposed by the Governor is waiting
legislative discussion. The Governor has also proposed a $672 million convention
center megaplex. Additionally, major infrastructure projects are anticipated
over the next decade with the federal government assuming responsibility for
approximately 90% of the $5 billion cost. The projects include the depression of
the central artery which traverses the City of Boston and the construction of a
third harbor tunnel linking downtown Boston to Logan Airport.
The fiscal viability of the Commonwealth's authorities and
municipalities is inextricably linked to that of the Commonwealth. The
Commonwealth guarantees the debt of several authorities, most notably the
Massachusetts Bay Transportation Authority and the University of Massachusetts
Building Authority. Their ratings are based on this guarantee and can be
expected to move in tandem. Several other authorities are funded in part or in
whole by the Commonwealth and their debt ratings may be adversely affected by a
negative change in those of the Commonwealth.
Massachusetts' municipal governments are constrained in their ability
to increase local revenues by an initiative passed in 1980, "Proposition 2 1/2".
Proposition 2 1/2 limits the amount of property taxes that can be levied in a
fiscal year to the lower of 2.5% of fair value or 102.5% of the previous year's
levy unless overridden by a majority of local voters. Proposition 2 1/2 also
limits the amount the municipality can be charged by certain government entities
such as counties. While Proposition 2 1/2 is not a constitutional question and
can therefore be amended or abolished by the legislature, no significant
challenge has been raised since it took effect. Increased revenues received by
the state and passed on to local governments during the 1980's ameliorated the
effect of this initiative and made local governments in Massachusetts more
dependent on state aid than those in other states. Therefore, the recent fiscal
problems encountered by the state have amplified the economic and fiscal
problems encountered by cities and towns throughout the Commonwealth. A
continuation of the Commonwealth's fiscal problems resulting in further local
aid reductions could, in the absence of overrides, result in payment defaults by
local cities and towns and/or ratings downgrades resulting in an erosion of
their market value.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the Fund's
investment policies as set forth in the Prospectus, the Portfolio may invest in
the obligations of Puerto Rico, the U.S. Virgin Islands and Guam. Accordingly,
the Portfolio may be adversely affected by local political and economic
conditions and developments within Puerto Rico affecting the issuers of such
obligations.
Puerto Rico has a diversified economy dominated by the manufacturing
and service sectors. Manufacturing is the largest sector in terms of gross
domestic product and is more diversified than during earlier phases of Puerto
Rico's industrial development. The three largest sectors of the economy (as a
percentage of employment) are services (47%), government (22%) and manufacturing
(16.4%). These three sectors represent 39%, 11% and 39%, respectively, of the
gross domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five years.
This decline was broad based among all manufacturing industries. The North
American Free Trade Agreement ("NAFTA"), which became effective January 1, 1994,
could lead to the loss of Puerto Rico's lower salaried or labor intensive jobs
to Mexico. The August, 1994 unemployment rate was 14.5%, down from 18.2% in
August, 1993.
The Commonwealth of Puerto Rico exercises virtually the same control
over its internal affairs as do the fifty states; however, it differs from the
states in its relationship with the Federal government. Most Federal taxes,
except those such as social security taxes that are imposed by mutual consent,
are not levied in Puerto Rico. However, in conjunction with the 1993 U.S. budget
plan, Section 936 of the Internal Revenue Code was amended and provided for two
alternative limitations to the Section 936 credit. The first option will limit
the credit against such income to 40% of the credit allowable under current law,
with a five year phase-in period starting at 60% of the allowable credit. The
second option is a wage and depreciation based credit. The reduction of the tax
benefits to those U.S. companies with operations in Puerto Rico may lead to
slower growth in the future. There can be no assurance that these modifications
will not lead to a weakened economy, a lower rating on Puerto Rico's debt or
lower prices for Puerto Rican bonds that may be held by the Portfolio.
Puerto Rico's financial reporting was first conformed to generally
accepted accounting principles in fiscal 1990. Nonrecurring revenues have been
used frequently to balance recent years' budgets. In November, 1993 Puerto
Ricans voted on whether they wished to retain their Commonwealth status, become
a state or establish an independent nation. The measure was defeated, with 48.5%
voting to remain a Commonwealth, 46% voting for statehood and 4% voting for
independence. Retaining Commonwealth status will leave intact the current
relationship with the Federal government. There can be no assurance that the
statehood issue will not be brought to a vote in the future. A successful
statehood vote in Puerto Rico would then require the U.S. Congress to ratify the
election.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. Population, after reaching a peak of 110,800 in 1985, declined to 101,809
in 1990. The economy is heavily reliant on the tourism industry, with roughly
43% of non-agricultural employment in tourist-related trade and services. As of
April, 1993, unemployment stood at 2.7%. The tourism industry is economically
sensitive and would likely be adversely affected by a recession in either the
United States or Europe.
An important component of the USVI revenue base is the Federal excise
tax on rum exports. Tax revenues rebated by the Federal government to the USVI
provide the primary security of many outstanding USVI bonds. Since more than 90%
of the rum distilled in the USVI is distilled at one plant, any interruption in
its operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. The USVI experienced budget deficits in fiscal
years 1989 and 1990: in 1989 due to wage settlements with the unionized
government employees, and in 1990 as a result of Hurricane Hugo. The USVI
recorded a small surplus in fiscal year 1991. At the end of fiscal 1992, the
last year for which results are available, the USVI had an unreserved General
Fund deficit of approximately $8.31 million, or approximately 2.1% of
expenditures. In order to close a forecasted fiscal 1994 revenue gap of $45.6
million, the Department of Finance has proposed several tax increases and fund
transfers. There is currently no rated, unenhanced Virgin Islands debt
outstanding.
Guam, an unincorporated U.S. territory, is located 1,500 miles
southeast of Tokyo. Population, 133,000 in 1990, up 26% from the 1980 census
level. The U.S. military is a key component of Guam's economy. The Federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. Guam is
expected to benefit from the closure of the Subic Bay Naval Base and the Clark
Air Force Base in the Philippines. The Naval Air Station, one of several U.S.
military facilities on the island, has been slated for closure by the Defense
Base Closure and Realignment Committee; however, the administration plans to use
these facilities to expand the Island's commercial airport. Guam is also heavily
reliant on tourists, particularly the Japanese. Unemployment was 3.2% in 1991.
The financial position of Guam has weakened as the General Fund incurred a
negative position for 1992. Lower than expected revenue collection due to the
economic downturn caused the poor performance. The administration has taken
steps to improve its financial position; however, there are no guarantees that
an improvement will be realized. Guam's general obligation debt is rated Baa by
Moody's.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or more
of its total assets in Massachusetts obligations of the same type. There could
be economic, business or political developments which might affect all
Massachusetts obligations of a similar type. In particular, investments in the
industrial revenue bonds listed above 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 increase
of hospital charges.
Electric utilities face problems in financing large construction
programs in an inflationary period, cost increases and delay occasioned by
safety and environmental considerations (particularly with respect to nuclear
facilities), difficulty in obtaining fuel at reasonable prices, and in achieving
timely and adequate rate relief from regulatory commissions, effects of energy
conservation and limitations on the capacity of the capital market to absorb
utility debt.
Pollution control and other industrial development bonds are issued by
state or local agencies to finance various projects, including those of domestic
steel producers, and may be backed solely by agreements with such companies.
Domestic steel companies are expected to suffer the consequences of such adverse
trends as high labor costs, high foreign imports encouraged by foreign
productivity increases and a strong U.S. dollar, and other cost pressures such
as those imposed by anti-pollution legislation. Domestic steel capacity is being
reduced currently by large-scale plant closings and this period of
rationalization may not end until further legislative protection is provided
through tariff price supports or mandatory import quotas, such as those recently
enacted for certain specialty steel products.
Life care facilities are an alternative form of long-term housing for
the elderly which offer residents the independence of a condominium life style
and, if needed, the comprehensive care of nursing home services. Bonds to
finance these facilities have been issued by various state industrial
development authorities. Since the bonds are normally secured only by the
revenues of each facility and not by state or local government tax payments,
they are subject to a wide variety of risks. Primarily, the projects must
maintain adequate occupancy levels to be able to provide revenues sufficient to
meet debt service payments. Moreover, since a portion of housing, medical care
and other services may be financed by an initial deposit, it is important that
the facility maintain adequate financial reserves to secure estimated actuarial
liabilities. The ability of management to accurately forecast inflationary cost
pressures is an important factor in this process. The facilities may also be
affected adversely by regulatory cost restrictions applied to health care
delivery in general, particularly state regulations or changes in Medicare and
Medicaid payments or qualifications, or restrictions imposed by medical
insurance companies. They may also face competition from alternative health care
or conventional housing facilities in the private or public sector.
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 Massachusetts obligations held by the Portfolio (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
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value. In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment,
analysis and experience in evaluating the quality of Massachusetts obligations.
In evaluating the credit quality of a particular issue, whether rated or
unrated, the Investment Adviser will normally take into consideration, among
other things, the financial resources of the issuer (or, as appropriate, of the
underlying source of funds for debt service), its sensitivity to economic
conditions and trends, any operating history of and the community support for
the facility financed by the issue, the ability of the issuer's management and
regulatory matters. The Investment Adviser will attempt to reduce the risks of
investing in 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.
The Portfolio will also take such action as it considers appropriate in
the event of anticipated financial difficulties, default or bankruptcy of either
the issuer of any such 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 Portfolio as a result of any such event. The Portfolio
anticipates that real estate consulting and management services may be required
with respect to properties securing various municipal obligations in its
portfolio or subsequently acquired by the Portfolio. The Portfolio will incur
additional expenditures in taking protective action with respect to portfolio
obligations in default and assets securing such obligations.
SHORT-TERM TRADING
The Portfolio 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 an another purchased at approximately the same
time to take advantage of what the Portfolio believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment quality
of particular issues or the general movement of interest rates, such as changes
in the overall demand for or supply of various types of 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 Portfolio anticipates
that its annual portfolio turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less.
WHEN ISSUED SECURITIES
New issues of Massachusetts and other types 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 Portfolio's commitment and are subject to certain conditions
such as the issuance of satisfactory legal opinions. The Portfolio may also
purchase securities on a when-issued basis pursuant to refunding contracts in
connection with the refinancing of an issuer's outstanding indebtedness.
Refunding contracts generally require the issuer to sell and the Portfolio to
buy such securities on a settlement date that could be several months or several
years in the future.
The Portfolio will make commitments to purchase when-issued securities
only with the intention of actually acquiring the securities, but may sell such
securities before the settlement date if it is deemed advisable as a matter of
investment strategy. The payment obligation and the interest rate that will be
received on the securities are fixed at the time the Portfolio enters into the
purchase commitment. The Portfolio's custodian will segregate cash or high grade
liquid debt securities in a separate account of the Portfolio in an amount at
least equal to the when-issued commitments. If the value of the securities
placed in the separate account declines, additional cash or high grade liquid
debt securities will be placed in the account on a daily basis so that the value
of the account will at least equal the amount of the Portfolio's when-issued
commitments. When the Portfolio commits to purchase a security on a when-issued
basis it records the transaction and reflects the value of the security in
determining its net asset value. Securities purchased on a when-issued basis and
the securities held by the Portfolio are subject to changes in value based upon
the perception of the creditworthiness of the issuer and changes in the level of
interest rates (i.e. appreciation when interest rates decline and depreciation
when interest rates rise). Therefore, to the extent that the Portfolio remains
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be greater fluctuations in the Portfolio's
net asset value than if it solely set aside cash to pay for when-issued
securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified intervals
(weekly, monthly, semi-annually, etc.). The revised rates are usually set at the
issuer's discretion, in which case the investor normally enjoys the right to
"put" the security back to the issuer or his agent. Rate revisions may
alternatively be determined by formula or in some other contractual fashion.
Variable rate obligations normally provide that the holder can demand payment of
the obligation on short notice at par with accrued interest and are frequently
secured by letters of credit or other credit support arrangements provided by
banks. To the extent that such letters of credit or other arrangements
constitute an unconditional guarantee of the issuer's obligations, a bank may be
treated as the issuer of a security for the purpose of complying with the
diversification requirements set forth in Section 5(b) of the Investment Company
Act of 1940 and Rule 5b-2 thereunder. The Portfolio would anticipate using these
obligations as cash equivalents pending longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier. Also,
some bonds may have "put" or "demand" features that allow early redemption by
the bondholder. Interest income generated by certain bonds having demand
features may not qualify as tax-exempt interest. Longer term fixed-rate bonds
may give the holder a right to request redemption at certain times (often
annually after the lapse of an intermediate term). These bonds are more
defensive than conventional long term bonds (protecting to some degree against a
rise in interest rates) while providing greater opportunity than comparable
intermediate term bonds, since the Portfolio may retain the bond if interest
rates decline. By acquiring these kinds of obligations the Portfolio obtains the
contractual right to require the issuer of the security or some other person
(other than a broker or dealer) to purchase the security at an agreed upon
price, which right is contained in the obligation itself rather than in a
separate agreement with the seller or some other person. Since this right is
assignable with the security, which is readily marketable and valued in the
customary manner, the Portfolio will not assign any separate value to such
right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller
of the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price. The
Portfolio intends to limit this type of transaction to institutions (such as
banks or securities dealers) which the Investment Adviser believes present
minimal 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 Portfolio or that selling institutions will be willing to
permit the Portfolio 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 Portfolio does not expect to assign
any value to any separate put option which may be acquired to facilitate
portfolio liquidity, inasmuch as the value (if any) of the put will be reflected
in the value assigned to the associated security; any put acquired for hedging
purposes would be valued in good faith under methods or procedures established
by the Trustees of the Portfolio after consideration of all relevant factors,
including its expiration date, the price volatility of the associated security,
the difference between the market price of the associated security and the
exercise price of the put, the creditworthiness of the issuer of the put and the
market prices of comparable put options. Interest income generated by certain
bonds having put features may not qualify as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by collateral
in cash, cash equivalents or U.S. Government securities held by the Portfolio's
custodian and maintained on a current basis at an amount at least equal tot he
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 Portfolio 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 Portfolio will continue to receive the equivalent of
the interest paid by the issuer on the securities loaned and will also receive a
fee, or all or a portion of the interest on investment of the collateral, if
any. However, the Portfolio may pay lending fees to such borrowers. The
Portfolio would not have the right to vote any securities having voting rights
during the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovery or even
loss of rights in the securities loaned if the borrower of the securities fails
financially. However, the loans will be made only to organization deemed by the
Portfolio's management to be of good standing and when in the judgment of the
Portfolio's management, the consideration which can be earned from securities
loans of this type justifies the attendant risk. Distributions by the Fund of
any income realized by the Portfolio form securities loans will be taxable. If
the management of the Portfolio decides to make securities loans, it is intended
that the value of the securities loaned would not exceed 30% of the Portfolio's
total assets. The Portfolio has no present intention of engaging in securities
lending.
FUTURES CONTRACTS
A change in the level of interest rats may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects to
purchase). To hedge against changes in rates, the Portfolio may enter into (i)
futures contracts for the purchase or sale of debt securities, (ii) futures
contracts on securities indices and (iii) futures contracts on other financial
instruments and indices. All futures contracts entered into by the Portfolio are
traded on exchanges or boards of trade that are licensed and regulated by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant or brokerage firm which is a member of the relevant
exchange. The Portfolio may purchase and write call and put options on futures
contracts which are traded on a United States or foreign exchange or board of
trade.
The Portfolio will engage in futures and related options transactions
only for bona fide hedging purposes as defined in or permitted by CFTC
regulations. The Portfolio 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 Portfolio or which it expects to
purchase. The Portfolio's futures transactions will be entered into for
traditional hedging purposes -- that is, futures contracts will be sold to
protect against a decline in the price of securities that the Portfolio owns, or
futures contracts will be purchased to protect the Portfolio against an increase
in the price of securities it intends to purchase. As evidence of this hedging
intent, the Portfolio expects that on 75% or more of the occasions on which it
takes a long futures (or option) position (involving the purchase of futures
contracts), the Portfolio will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities in the cash market at the
time when the futures (or option) position is closed out. However, in particular
cases, when it is economically advantageous for the Portfolio to do so, a long
futures position may be terminated (or an option may expire) without the
corresponding purchase of securities. The Portfolio will engage in transactions
in futures and related options contracts only to the extent such transactions
are consistent with the requirements of the Internal Revenue Code for
maintaining qualification of the Fund as a regulated investment company for
federal income tax purposes (see "Taxes").
The Portfolio will be required, in connection with transactions in
futures contracts and the writing of options on futures, to make margin
deposits, which will be held by the Portfolio's custodian for the benefit of the
futures commission merchant through whom the Portfolio engages in such futures
and options transactions. Cash or liquid high grade debt securities required to
be segregated in connection with a "long" futures position taken by the
Portfolio will also be held by the custodian in a segregated account and will be
marked to market daily.
PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate,
but it is anticipated that the annual turnover rate will generally not exceed
100% (excluding turnover of securities having a maturity of one year or less). A
100% annual turnover rate would occur, for example, if all the securities held
by the Portfolio were replaced once in a period of one year. A high turnover
rate (100% or more) necessarily involves greater expenses to the Portfolio. The
Portfolio engages in portfolio trading (including short-term trading) if it
believes that a transaction including all costs will help in achieving its
investment objective.
INVESTMENT RESTRICTIONS
The following investment restrictions 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
Statement of Additional Information means the lesser of (a) 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 (b) more
than 50% of the shares of the Fund. Accordingly, the Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(2) 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;
(3) Underwriter 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;
(4) Purchase or sell real estate, (including limited partnership
interests in real estate, but excluding readily marketable interests in real
estate investment trusts or readily marketable securities of companies which
invest or deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase
or sale of physical commodities; or
(6) 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.
Notwithstanding the investment policies and restrictions of the Fund;
the Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio, which as used in this Statement
of Additional Information means the lesser of (a) 67% of the outstanding voting
securities of the Portfolio present or represented by proxy at a meeting if the
holders of more than 50% of the outstanding voting securities of the Portfolio
are present or represented at the meeting or (b) more than 50% of the
outstanding voting securities of the Portfolio. The term "voting securities" as
used in this paragraph has the same meaning as in the Investment Company Act of
1940 (the "1940 Act"). Whenever the Trust is requested to vote on a change in
the fundamental investment restrictions of the Portfolio (or the Portfolio's 80%
investment policy with respect to Sate obligations described in the Fund's
current Prospectus), the Trust will hold a meeting of Fund shareholders and will
cast its vote as instructed by the shareholders.
The Fund and the Portfolio have adopted the following investment
policies which may be changed by the Trust with respect to the Fund without
approval by the Fund's shareholders or by the Portfolio without approval by the
Fund or its other investors. As a matter of nonfundamental policy, the Fund and
the Portfolio will not: (a) engage in options, futures or forward transactions
if more than 5% of its net assets, as measured by the aggregate of the premiums
paid by the Fund or the Portfolio, would be so invested; (b) make short sales of
securities or maintain a short position, unless at all times when a short
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; (c) invest more than 15% of net assets in investments which are not
readily marketable, including restricted securities and repurchase agreements
maturing in more than seven days. Restricted securities for the purposes of this
limitation do not include securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933 and commercial paper issued pursuant to Section
4(2) of said Act that the Board of Trustees of the Trust or the Portfolio, or
their delegate, determines to be liquid; (d) 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 the Portfolio or is a
member, officer, director or trustee of any investment adviser of the Trust or
the Portfolio, if after the purchase of the securities of such issuer by the
Fund or the Portfolio one or more of such persons owns beneficially more than
1/2 of 1% of the 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 (e) purchase oil, gas or other mineral
leases or purchase partnership interests in oil, gas or other mineral
exploration or development programs.
In order to permit the sale of shares of the Fund, in certain states,
the Fund may make commitments more restrictive than the policies described
above. Should the Fund determine that any such commitment is no longer in the
best interests of the Fund and its shareholders, it will revoke the commitment
by terminating sales of its shares, in the state(s) involved.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio 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 Portfolio's investment
adviser, Boston Management and Research ("BMR"), which is a wholly-owned
subsidiary of Eaton Vance Management ("Eaton Vance"); of Eaton Vance's parent,
Eaton Vance Corp. ("EVC"); and of BMR's and Eaton Vance's trustee, Eaton Vance,
Inc. ("EV"). Eaton Vance and EV are both wholly-owned subsidiaries of EVC. Those
Trustees and officers who are "interested persons" of the Trust, the Portfolio,
BMR, Eaton Vance, EVC or EV, as defined in the 1940 Act, by virtue of their
affiliation with any one or more of the Trust, the Portfolio, BMR, Eaton Vance,
EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed by
Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (54), Trustee and Vice President*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of EVC
and EV. Director, Trustee and officer of various investment companies managed by
Eaton Vance or BMR.
SAMUEL L. HAYES (60), III, 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 Business School, Soldiers Field Road, Boston, Massachusetts
02134
NORTON H. REAMER (60), 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 (69), Trustee
Director, Fiduciary Trust Company. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (52), President
Vice President of BMR, Eaton Vance and EV. Mr. Fetter was elected a Vice
President of the Trust on December 17, 1990 and President of the Trust and the
Portfolio on December 13, 1993. Officer of various investment companies managed
by Eaton Vance or BMR.
ROBERT B. MACINTOSH (38), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments -- Portfolio
Manager (1986-1991). Officer of various investment companies managed by Eaton
Vance or BMR. Mr. MacIntosh was elected Vice President of the Trust on March 22,
1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. THOMAS OTIS (64), Secretary Vice
President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management &
Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary of the
Trust and the Portfolio on March 27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate attorney
at Dechert, Price & Rhoads and Gaston & Snow. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodbury was elected Assistant
Secretary on June 19, 1995.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the
Special Committee of the Board of Trustees of the Trust and of the Portfolio.
The Special Committee's functions include a continuous review of the Fund's
contractual relationship with the administrator and the Portfolio's contractual
relationship with the investment adviser, making recommendations to the Trustees
regarding the compensation of those Trustees who are not members of the Eaton
Vance organization, and making recommendations to the Trustees regarding
candidates to fill vacancies, as and when they occur, in the ranks of those
Trustees who are not interested persons of the Trust, the Portfolio, or the
Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit
Committee of the Board of Trustees of the Trust and of the Portfolio. The Audit
Committee's functions include making recommendations to the Trustees regarding
the selection of the independent certified public accountants, and reviewing
with such accountants and the Treasurer of the Trust and of the Portfolio
matters relative to accounting and auditing practices and procedures, accounting
records, internal accounting controls, and the functions performed by the
custodian and transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio that 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
"Plan"). Under the Plan, an eligible Trustee may elect to have his deferred fees
invested by the Portfolio in the shares of one or more funds in the Eaton Vance
Family of Funds, and the amount paid to the Trustees under the Plan will be
determined based upon the performance of such investments. Deferral of Trustees'
fees in accordance with the Plan will have a negligible effect on the
Portfolio's assets, liabilities, and net income per share, and will not obligate
the Portfolio to retain the services of any Trustee or obligate the Portfolio to
pay any particular level of compensation to the Trustee.
The fees and expenses of those Trustees of the Trust and of the
Portfolio who are not members of the Eaton Vance organization are paid by the
Fund (and the other series of the Trust) and the Portfolio, respectively. During
the fiscal year ended September 30, 1995, the Trustees of the Trust and the
Portfolio earned the following compensation in their capacities as Trustees from
the Fund, the Portfolio and of the funds in the Eaton Vance fund complex:
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX(1)
---- ------------ -------------- -----------------
Donald R. Dwight ......... $34 $3,188(2) $135,000(4)
Samuel L. Hayes .......... 32 3,172(3) 150,000(5)
Norton H. Reamer ......... 32 3,160 135,000
John L. Thorndike ........ 32 3,268 140,000
Jack L. Treynor .......... 35 3,325 140,000
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,069 of deferred compensation.
(3) Includes $962 of deferred compensation.
(4) Includes $35,000 deferred compensation.
(5) Includes $33,750 of deferred compensation.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995 the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995 Mars & Co., Boston, MA, Jupiter & Co., Boston, MA
and Mercury & Co., Boston, MA were the record owners of approximately 34.4%,
16.9% and 5.4%, respectively, of the outstanding shares which were held on
behalf of their customers who are the beneficial owners of such shares, and as
to which they had voting power under certain limited circumstances, and Charles
C. Cunningham, Boston, MA held of record and beneficially owned 11.1% of the
outstanding shares of the Fund. To the knowledge of the Trust, no other person
beneficially owns 5% or more of the Funds' outstanding shares.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an
Investment Advisory Agreement dated October 13, 1992. BMR or Eaton Vance acts as
investment adviser to investment companies and various individual and
institutional clients with combined assets under management of approximately $16
billion.
Eaton Vance, its affiliates and its predecessor companies have been
managing assets of individuals and institutions since 1924 and managing
investment companies since 1931. They maintain a large staff of experienced
fixed-income and equity investment professionals to service the needs of their
clients. The fixed-income division focuses on all kinds of taxable
investment-grade and high-yield securities, tax-exempt investment-grade and
high-yield securities, and U.S. Government securities. The equity division
covers stocks ranging from blue chip to emerging growth companies.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
Federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and the obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto.
The Portfolio pays BMR as compensation under the Investment Advisory
Agreement a monthly fee equal to the aggregate of (a) a daily asset based fee
computed by applying the annual asset rate applicable to that portion of the
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 daily gross income on such day as that portion of the
total daily net assets in the same Category bears to the total daily net assets
on such day) in each Category as indicated below:
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
1 up to $20 million 0.100% 1.00%
2 $20 million but less than $40 million 0.200% 2.00%
3 $40 million but less than $500 million 0.300% 3.00%
4 $500 million but less than $1 billion 0.275% 2.75%
5 $1 billion but less than $1.5 billion 0.250% 2.50%
6 $1.5 billion but less than $2 billion 0.225% 2.25%
7 $2 billion but less than $3 billion 0.200% 2.00%
8 $3 billion and over 0.175% 1.75%
As of September 30, 1995, the Portfolio had net assets of $302,170,247.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees of $1,383,407 (equivalent to 0.46% of the Portfolio's average daily net
assets for such period). For the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $1,397,963 (equivalent to 0.46% of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, BMR earned advisory fees of $735,829 (equivalent to 0.45%
(annualized) of the Portfolio's average daily net assets for such period).
A commitment may be made to a state securities authority that Eaton
Vance will take certain actions, if necessary so that the Fund's expenses will
not exceed expense limitation requirements of such state. The commitment may be
amended or rescinded by Eaton Vance in response to changes in the requirements
of the state or for other reasons.
The Investment Advisory Agreement with BMR remains in effect until
February 28, 1996. It may be continued indefinitely so long as such continuance
is approved at least annually (i) by the vote of a majority of the Trustees of
the Portfolio who are not interested persons of the Portfolio or of BMR cast in
person at a meeting specifically called for the purpose of voting on such
approval and (ii) by the Board of Trustees of the Portfolio or by vote of a
majority of the outstanding voting securities of the Portfolio. The Agreement
may be terminated at any time without penalty on sixty (60) days' written notice
by the Board of Trustees of either party, or by vote of the majority of the
outstanding voting securities of the Portfolio, and the Agreement will terminate
automatically in the event of its assignment. The Agreement provides that BMR
may render services to others and engage in other business activities and may
permit other fund clients and other corporations and organizations to use the
words "Eaton Vance" or "Boston Management and Research" in their names. The
Agreement also provides that BMR shall not be liable for any loss incurred in
connection with the performance of its duties, or action taken or omitted under
that Agreement, in the absence of willful misfeasance, bad faith, gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties thereunder, or for any losses sustained
in the acquisition, holding or disposition of any security or other investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of
the Fund, but receives no compensation for providing administrative services to
the Fund. For the fiscal years ended September 30, 1995 and 1994, $18,261 and
$46,085, respectively, of the Fund's operating expenses were allocated to the
Administrator. As Administrator, Eaton Vance administers the Fund's affairs,
subject to the supervision of the Trustees of the Trust, and shall furnish for
the use of the Fund office space and all necessary office facilities, equipment
and personnel for administering the affairs of the Fund.
The Fund pays all of its own expenses including, without limitation,
(i) expenses of maintaining the Fund and continuing its existence, (ii) its pro
rata share of registration of the Trust under the 1940 Act, (iii) commissions,
fees and other expenses connected with the purchase or sale of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees and officers
with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance. The
Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier Gardner,
James B. Hawkes and Benjamin A. Rowland, Jr. The Directors of EVC consist of the
same persons and John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay is chairman
and Mr. Gardner is president and chief executive officer of EVC, BMR, Eaton
Vance and EV. All of the issued and outstanding shares of Eaton Vance and EV are
owned by EVC. All of the issued and outstanding shares of BMR are owned by Eaton
Vance. All shares of the outstanding Voting Common Stock of EVC are deposited in
a Voting Trust which expires on December 31, 1996, the Voting Trustees of which
are Messrs. Clay, Brigham, Gardner, Hawkes and Rowland. The Voting Trustees have
unrestricted voting rights for the election of Directors of EVC. All of the
outstanding voting trust receipts issued under said Voting Trust are owned by
certain of the officers of BMR and Eaton Vance who are also officers and
Directors of EVC and EV. As of October 31, 1995, Messrs. Clay, Gardner and
Hawkes each owned 24% of such voting trust receipts, and Messrs. Rowland and
Brigham owned 15% and 13%, respectively, of such voting trust receipts. Messrs.
Hawkes and Otis are officers or Trustees of the Trust and the Portfolio and are
members of the EVC, BMR, Eaton Vance and EV organizations. Messrs. Fetter,
MacIntosh, Murphy, O'Connor, Woodbury and Ms. Sanders, are officers of the Trust
and the Portfolio and are also members of the BMR, Eaton Vance and EV
organizations. BMR will receive the fees paid under the Investment Advisory
Agreement.
Eaton Vance owns all of the stock of Energex Corporation, which is
engaged in oil and gas operations. In addition, Eaton Vance owns all the stock
of Northeast Properties, Inc., which is engaged in real estate investment,
consulting and management. EVC owns all the stock of Fulcrum Management, Inc.,
and MinVen Inc., which are engaged in the development of precious metal
properties. EVC also owns 21% of the Class A shares of Lloyd George Management
(B.V.I.) Limited, a registered investment adviser. EVC, BMR, Eaton Vance and EV
may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to
time have transactions with various banks, including the custodian of the Fund
and the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's opinion
that the terms and conditions of such transactions were not and will not be
influenced by existing or potential custodial or other relationships between the
Fund or the Portfolio and such banks.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts acts as custodian for the Fund and the Portfolio. IBT has the
custody of all cash and securities representing the Fund's interest in the
Portfolio, has custody of all the Portfolio's assets, maintains the general
ledger of the Portfolio and the Fund and computes the daily net asset value of
interests in the Portfolio and the 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 Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Fund and the Portfolio. 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 and Portfolio 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. Landon T. Clay, a Director of EVC and an officer, Trustee or
Director of other members of the Eaton Vance organization, owns approximately
13% of the stock of IBT. Management believes that such ownership does not create
an affiliated person relationship between the Fund or the Portfolio and IBT
under the Investment Company Act of 1940. For the fiscal year ended September
30, 1995, the Fund paid IBT $3,285. For the fiscal year ended September 30,
1995, the Portfolio paid IBT $135,884.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's 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 Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence, are a
return of principal. Income dividends and capital gains distributions in
connection with withdrawal 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.
To use this service, at least $5,000 in cash or shares at the public
offering price (i.e., current net asset value) will have to be deposited with
the Transfer Agent. A shareholder may not have a withdrawal plan in effect at
the same time he 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
The net asset value of the shares of the Fund is determined by IBT (as
agent and custodian for the Fund) in the manner described under "Valuing Fund
Shares" in the Fund's current Prospectus. The net asset value of the Portfolio
is also computed by IBT (as agent and custodian for the Portfolio) by
subtracting the liabilities of the Portfolio from the value of its total assets.
Inasmuch as the market for Massachusetts 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 Massachusetts obligations held by the
Portfolio, and such obligations, including those purchased on a when-issued
basis, will normally be valued on the basis of valuations furnished by a pricing
service. The pricing services 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 Portfolio. Other assets are valued at fair
value using methods determined in good faith by the Trustees. The Fund and the
Portfolio will be closed for business and will not price their respective shares
or interests on the following business holidays: New Year's Day, Presidents'
Day, Good Friday (a New York Stock Exchange holiday), Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or
reduce its investment in the Portfolio on each day the New York Stock Exchange
(the "Exchange") is open for trading ("Portfolio Business Day") as of the close
of regular trading on the Exchange (the "Portfolio Valuation Time"). The value
of each investor's interest in the Portfolio will be determined by multiplying
the net asset value of the Portfolio by the percentage, determined on the prior
Portfolio Business Day, which represented that investor's share of the aggregate
interests in the Portfolio on such prior day. Any additions or withdrawals for
the current Portfolio Business Day will then be recorded. The investor's
percentage of the aggregate interest in the Portfolio will then be recomputed as
a percentage equal to the fraction (i) the numerator of which is the value of
such investor's investment in the Portfolio as of the Portfolio Valuation Time
on the prior Portfolio Business Day plus or minus, as the case may be, the
amount of any additions to or withdrawals from the investor's investment in the
Portfolio on the current Portfolio Business Day and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of the Portfolio
Valuation Time on the prior Portfolio Business Day plus or minus, as the case
may be, the amount of the net additions to or withdrawals from the aggregate
investment in the Portfolio on the current Portfolio Business Day by all
investors in the Portfolio. The percentage so determined will then be applied to
determine the value of the investor's interest in the Portfolio for the current
Portfolio Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the results. The
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period, and a complete
redemption of the investment at the end of the period.
Yield is computed pursuant to a standardized formula by dividing its
net investment income per share earned during a recent thirty-day period by the
maximum offering price (net asset value) 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 held by the
Portfolio based on prescribed methods, reduced by accrued Fund expenses for the
period with the resulting number being divided by the average daily number of
Fund shares outstanding and entitled to receive dividends during the period. A
taxable-equivalent yield is computed by using the tax-exempt yield figure and
dividing by one minus a stated rate. For the thirty-day period ended September
30, 1995 the yield of the Fund was 5.36%. The yield required of a taxable
security that would produce an after-tax yield equivalent to that earned by the
Fund of 5.36% would be 8.83% assuming a combined federal and Massachusetts tax
rate of 39.28%. If a portion of the Fund's expenses had not been allocated to
the Administrator, the Fund would have had a lower yield.
The Fund may also publish its distribution rate and/or the effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized, by the current net asset value
per share. The Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio used to annualize the most recent monthly
distribution and reinvesting the resulting amount for a full year on the basis
of such ratio. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed reinvestment.
The Fund's yield is calculated using a standardized formula, the income
component of which is computed from the yields to maturity of all debt
obligations held by the Portfolio based on prescribed methods (with all
purchases and sales of securities during such period included in the income
calculation on a settlement date basis), whereas the distribution rate is based
on the Fund's last monthly distribution which tends to be relatively stable and
may be more or less than the amount of net investment income and short-term
capital gain actually earned by the Fund during the month (see "Distributions
and Taxes" in the Fund's current Prospectus). The Fund's distribution rate
(calculated on September 30, 1995 and based on the Fund's monthly distribution
paid September 15, 1995) was 5.63%, and the Fund's effective distribution rate
(calculated on the same date and based on the same monthly distribution) was
5.77%. If a portion of the Fund's expenses had not been allocated to the
Administrator, the Fund would have had a lower distribution rate and effective
distribution rate.
The table below indicate the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from April 18, 1991 through September 30, 1995 and for the one year period ended
September 30, 1995. The total return for the period prior to the Fund's
commencement of operations on June 17, 1993 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
sales charge.
VALUE OF A $1,000 INVESTMENT
Value of
Investment Investment Amount of Investment Total Return
Period Date Investment on 9/30/95 Cumulative Annualized
Life of the Fund* 4/18/91 $1,000 $1,369.57** 36.96** 7.31%**
1 Year Ended
9/30/95 9/30/94 $1,000 $1,093.71** 9.37** 9.37%**
Past performance is not indicative of future results. Investment return and
principal value will fluctuate and shares, when redeemed, may be worth more or
less than their original cost.
- --------------------
* Investment operations began on April 18, 1991.
** If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
The Fund's total return may be compared to the Consumer Price Index and
to the domestic securities indices of the Bond Buyer 25 Revenue Bond Index and
the Lehman Brothers Municipal Bond Index. The Fund's total return and
comparisons with these indices may be used in advertisements and in information
furnished to present or prospective shareholders. The Fund's performance may
differ from that of other investors in the Portfolio, including other investment
companies.
From time to time, evaluations of the Fund's performance made by
independent sources, e.g., Lipper Analytical Services, Inc., CDA/Wiesenberger
and Morningstar, Inc., may be used in advertisements and in information
furnished to present or prospective shareholders.
From time to time, information, charts and illustrations relating to
inflation and the effects of inflation on the dollar may be included in
advertisements and other material furnished to present and prospective
shareholders. For example, after 10 years, the purchasing power of $25,000 would
shrink to $16,621, $14,968, $13,465 and $12,100, if the annual rates of
inflation during such period were 4%, 5%, 6% and 7%, respectively. (To calculate
the purchasing power, the value at the end of each year is reduced by the above
inflation rates for 10 consecutive years.)
From time to time, information about portfolio allocation and holdings
of the Portfolio 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 Portfolio's
bond holdings on such date.
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. 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, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Advertisements and other material furnished to present and prospective
shareholders may also compare the taxable equivalent yield of the Fund to
after-tax yields of certificates of deposits, bank money market deposit accounts
and money market mutual funds over various income tax brackets.
Information used in advertisements and in materials furnished to
present and prospective shareholders may include statements or illustrations
relating to the appropriateness of types of securities and/or mutual funds which
may be employed to meet specific financial goals, such as (1) funding
retirement, (2) paying for children's education, and (3) financially supporting
aging parents. These three financial goals may be referred to in such
advertisements or materials as the "Triple Squeeze."
TAXES
FEDERAL INCOME TAXES
See "Distributions and Taxes" in the Fund's current Prospectus.
Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund has elected to be treated, has qualified, and
intends to qualify each year, as a regulated investment company ("RIC") under
the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the
Fund intends to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute its net investment income
(including tax-exempt income) and net realized capital gains in accordance with
the timing requirements imposed by the Code, so as to avoid any federal income
or excise tax on the Fund. The Fund so qualified for its fiscal year ended
September 30, 1995 (see the Notes to the Financial Statements incorporated by
reference in this Statement of Additional Information). Because the Fund invests
its assets in the Portfolio, the Portfolio normally must satisfy the applicable
source of income and diversification requirements in order for the Fund to
satisfy them. The Portfolio will allocate at least annually among its investors,
including the Fund, each investor's distributive share of the Portfolio's net
taxable (if any) and tax-exempt investment income, net realized capital gains,
and any other items of income, gain, loss, deduction or credit. For purposes of
applying the requirements of the Code regarding qualification as a regulated
investment company, the Fund will be deemed (i) to own its proportionate share
of each of the assets of the Portfolio and (ii) to be entitled to the gross
income of the Portfolio attributable to such share.
In order to avoid federal excise tax, 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 the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, and 100% of any 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 and the Portfolio is treated as a partnership
for Massachusetts and federal tax purposes, neither the Fund nor the Portfolio
is liable for any income, corporate excise or franchise tax in the Commonwealth
of Massachusetts.
The Portfolio'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 to interests in
the Portfolio and, in order to enable the Fund to distribute its proportionate
share of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special
tax issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
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 the tax-exempt interest
income allocated to it by the Portfolio 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. For purposes of
applying this 50% requirement, the Fund will be deemed to own its proportionate
share of each of the assets of the Portfolio, and the Portfolio currently
intends to invest its assets in a manner such that the Fund can meet this 50%
requirement. Interest on certain municipal obligations is treated as a tax
preference item for purposes of the federal alternative minimum tax.
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
Portfolio and the value of the securities held by the Portfolio may be affected.
In the course of managing its investments, the Portfolio may realize
some short-term and long-term capital gains (and/or losses) as a result of
market transactions, including sales of portfolio securities and rights to
when-issued securities and options and futures transactions. The Portfolio may
also realize taxable income from certain short-term taxable obligations,
securities loans, a portion of original issue discount with respect to certain
stripped municipal obligations or their stripped coupons, and certain realized
accrued market discount. Any distributions by the Fund of its share of such
capital gains (after reduction by any capital loss carryforwards) 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 Portfolio and allocated to the Fund. Certain distributions of the
Fund declared in October, November or December and paid the following January
will be taxed to shareholders as if received on December 31 of the year in which
they are declared.
The Portfolio'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
Portfolio on the last business day of each taxable year will be marked to market
(i.e., treated as if closed out on such day), and any resulting gain or loss
will generally be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by the Portfolio that substantially diminish the
Portfolio's risk of loss with respect to other positions in its portfolio may
constitute "straddles," which are subject to tax rules that may cause deferral
of Portfolio losses, adjustments in the holding period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC.
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 treated as a long-term capital
loss to the extent of any distribution of net long-term capital gains with
respect to such shares. Any loss realized on the sale or exchange of shares
which have been held for tax purposes for 6 months or less (or such shorter
period as may be prescribed by Treasury regulations) will be disallowed to the
extent the shareholder has received tax-exempt interest with respect to such
shares. In addition, a loss realized on a redemption of Fund shares will be
disallowed to the extent the shareholder acquired other Fund shares 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
and certain required certifications, as well as shareholders with respect to
whom the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and
other foreign entities generally will be subject to a U.S. withholding tax at a
rate of 30% on 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 treaty. 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 the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in 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 or foreign tax consequences
of investing in the Fund.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as
principal in selling shares of the Fund. The expenses of printing copies of
prospectuses used to offer shares to 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 is borne by the
Fund. The Distribution Agreement is renewable annually by the Trust's Board of
Trustees (including a majority of its Trustees who are not interested persons of
the Trust and who have no direct or indirect financial interest in the operation
of the Distribution Agreement), may be terminated on sixty days' notice either
by such Trustees or by vote of a majority of the outstanding voting securities
of the Fund or on six months' notice by the Principal Underwriter and is
automatically terminated upon assignment. The Principal Underwriter distributes
Fund shares on a "best efforts" basis under which it is required to take and pay
for only such shares as may be sold.
The Trustees of the Trust have determined that shares of the Fund shall
only be available to employees of Eaton Vance Corp. (and its affiliates,
including subsidiaries), clients of Eaton Vance Corp. (and its affiliates,
including subsidiaries) and certain institutional investors. The Fund and/or the
Principal Underwriter reserve the right to permit purchases by other than
affiliates, subsidiaries or clients of Eaton Vance Corp.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other accounts
managed by it.
BMR places the portfolio security transactions of the Portfolio and of
all other accounts managed by it for execution with many firms. BMR uses its
best efforts to obtain execution of portfolio security transactions at prices
which are advantageous to the Portfolio and at reasonably competitive spreads or
(when a disclosed commission is being charged) at reasonably competitive
commission rates. In seeking such execution, BMR will use its 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, including Massachusetts obligations, purchased and sold
by the Portfolio are generally traded in the over-the-counter market on a net
basis (i.e., without commission) through broker-dealers and banks acting for
their own account rather than as brokers, or otherwise involve transactions
directly with the issuer of such obligations. Such firms attempt to profit from
such transactions by buying at the bid price and selling at the higher asked
price of the market for such obligations, and the difference between the bid and
asked price is customarily referred to as the spread. The Portfolio may also
purchase municipal obligations from underwriters, the cost of which may include
undisclosed fees and concessions to the underwriters. While it is anticipated
that the Portfolio will not pay significant brokerage commissions in connection
with such portfolio security transactions, on occasion it may be necessary or
appropriate to purchase or sell a security through a broker on an agency basis,
in which case the Portfolio will incur a brokerage commission. Although spreads
or commissions on portfolio security transactions will, in the judgment of BMR,
be reasonable in relation to the value of the services provided, spreads or
commissions exceeding those which another firm might charge may be paid to firms
who were selected to execute transactions on behalf of the Portfolio and BMR's
other clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934,
a broker or dealer who executes a portfolio transaction on behalf of the
Portfolio may receive a commission which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if BMR determines in good faith that such commission was reasonable
in relation to the value of the brokerage and research services provided. This
determination may be made on the basis of either that particular transaction or
on the basis of overall responsibilities which BMR and its affiliates have for
accounts over which they exercise investment discretion. In making any such
determination, BMR will not attempt to place a specific dollar value on the
brokerage and research services provided or to determine what portion of the
commission should be related to such services. Brokerage and research services
may include advice as to the value of securities, the advisability of investing
in, purchasing, or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts; effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement); and
the "Research Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR receives Research Services from many broker-dealer firms
with which BMR places the Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which BMR
believes are useful or of value to it in rendering investment advisory services
to its clients.
Subject to the requirement that BMR shall use its best efforts to seek
and execute portfolio security transactions at advantageous prices and at
reasonably competitive spreads or commission rates, BMR is authorized to
consider as a factor in the selection of any firm with whom portfolio orders may
be placed the fact that such firm has sold or is selling shares of the Fund or
of other investment companies sponsored by BMR or Eaton Vance. This policy is
not inconsistent with a rule of the National Association of Securities Dealers,
Inc., which rule provides that no firm which is a member of the Association
shall favor or disfavor the distribution of shares of any particular investment
company or group of investment companies on the basis of brokerage commissions
received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio may
also be appropriate for other investment accounts managed by BMR or its
affiliates. BMR will attempt to allocate equitably portfolio security
transactions among the Portfolio and the portfolios of its other investment
accounts purchasing municipal obligations whenever decisions are made to
purchase or sell securities by the Portfolio and one or more of such other
accounts simultaneously. In making such allocations, the main factors to be
considered are the respective investment objectives of the Portfolio and such
other accounts, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment by the Portfolio
and such accounts, the size of investment commitments generally held by the
Portfolio and such accounts and the opinions of the persons responsible for
recommending investments to the Portfolio and such accounts. While this
procedure could have a detrimental effect on the price or amount of the
securities available to the Portfolio from time to time, it is the opinion of
the Trustees of the Trust and the Portfolio that the benefits available from the
BMR organization outweigh any disadvantage that may arise from exposure to
simultaneous transactions. For the fiscal years ended September 30, 1995 and
1994, and for the period from the start of business, February 1, 1993, to the
fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions.
OTHER INFORMATION
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" and "EV" in other connections and for other purposes. The Trust,
which is a Massachusetts business trust established in 1985, was originally
called Eaton Vance High Yield Municipals Trust. The Trust changed its name to
Eaton Vance Municipals Trust on January 7, 1991.
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 shareholders' 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 Trust's By-Laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trusts's custodian or
by votes cast at a meeting called for that purpose. The By-Laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's 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 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 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.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed from
office either by declaration in writing filed with the custodian of the assets
of the Trust or by votes cast in person or by proxy at a meeting called for the
purpose.
In accordance with the Declaration of Trust of the Portfolio, there
will normally be no meetings of the investors for the purpose of electing
Trustees unless and until such time as less than a majority of the Trustees
holding office have been elected by investors. In such an event the Trustees of
the Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
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 Portfolio
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, are
the independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are
included in the Fund's Annual Report to Shareholders, are incorporated by
reference into this Statement of Additional Information and have been so
incorporated in reliance on the report of Deloitte & Touche LLP, independent
certified public accountants, as experts in accounting and auditing.
Registrant incorporates by reference the audited financial information
for the Fund's and the Portfolio's for the fiscal year ended September 30, 1995
as previously filed electronically with the Securities and Exchange Commission
(Accession No. 0000950156-95-000833).
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must
earn at various income brackets to produce after-tax yields equivalent to those
of tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Massachusetts state income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND MASSACHUSETTS STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------- MA STATE ------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET* IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 25.20% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69% 9.36%
$ 23,351- 56,550 $ 39,001- 94,250 36.64 6.31 7.10 7.89 8.68 9.47 10.26 11.05
$ 56,551- 117,950 $ 94,251- 143,600 39.28 6.59 7.41 8.23 9.06 9.88 10.70 11.53
$117,951- 256,500 $143,601- 256,500 43.68 7.10 7.99 8.88 9.77 10.65 11.54 12.43
Over $256,500 Over $256,500 46.85 7.53 8.47 9.41 10.35 11.29 12.23 13.17
- -------------------------------------------------------------------------------------------------------
*Net amount subject to Federal and Massachusetts personal income tax after
deductions and exemptions.
+The combined tax rates include a Massachusetts tax rate of 12% applicable to
taxable bond interest and dividends, and assume that Massachusetts taxes are
itemized deductions for Federal income tax purposes. Investors who do not
itemize deductions on their Federal Income Tax Return will have a higher
combined bracket and higher taxable equivalent yield than those indicated
above. The applicable Federal tax rates within the brackets are 15%, 28%, 31%,
36% and 39.6%, over the same range of income.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Massachusetts State income
taxes) for taxpayers with Adjusted Gross Income in excess of $114,700. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with Adjusted Gross Income in excess of $114,700 and joint filers
with Adjusted Gross Income in excess of $172,050. 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 Massachusetts Municipal
Bond Portfolio will achieve any specific tax exempt yield. While it is expected
that the Portfolio will invest principally in obligations, the interest from
which is exempt from the regular federal income tax and Massachusetts personal
income taxes, other income received by the Portfolio and allocated to the Fund
may be taxable. The table does not take into account state or local taxes, if
any, payable on Fund distributions except for Massachusetts personal income
taxes. It should also be noted that the interest earned on certain "private
activity" Massachusetts obligations 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 alterative minimum tax. The
illustrations assume that the federal alternative minimum tax is not applicable.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above. Investors should consult their tax adviser for additional
information.
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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.
+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 Portfolio's fiscal year end.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
365 days.
Issuers (or supporting institutions) rated PRIME-1 or P-1 have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
p: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
l: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to
other maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market
for its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a
plus(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3: Speculative capacity to pay principal and interest.
COMMERCIAL PAPER
Standard & Poor's commercial paper ratings are a current assessments of the
likelihood of timely payment of debts considered short-term in the relevant
market.
A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree
of safety.
A-1: This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign
designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B: Issues rated B are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
D: Debt rated `D' is in payment default. The `D' rating category is
used when interest payments or principal payments are not made on the
date due, even if the applicable grace period had not expired, unless
S&P believes that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated `AAA'. Because bonds rated in the `AAA' and
`AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated `F-1+'.
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. `DDD'
represents the highest potential for recovery on these bonds, and `D' represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
`F-1+'.
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
`F-1+' and `F-1' categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
<PAGE>
INVESTMENT ADVISER OF MASSACHUSETTS MASSACHUSETTS MUNICIPAL
TAX FREE PORTFOLIO BOND PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF MASSACHUSETTS
MUNICIPAL BOND PORTFOLIO
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 STATEMENT OF
Investors Bank & Trust Company
89 South Street ADDITIONAL INFORMATION
Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group FEBRUARY 1, 1996
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
MASSACHUSETTS MUNICIPAL
BOND PORTFOLIO
24 FEDERAL STREET
BOSTON, MA 02110 MBPSAI
<PAGE>
PART C
OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
INCLUDED IN PART A FOR THE FUNDS LISTED BELOW ARE "FINANCIAL
HIGHLIGHTS" FOR THE PERIOD FROM THE START OF BUSINESS TO THE FISCAL
YEAR ENDED SEPTEMBER 30, 1995:
EV Classic California Municipals Fund (start of business December 3, 1993)
EV Classic Florida Tax Free Fund (start of business December 3, 1993)
EV Classic Massachusetts Tax Free Fund (start of business December 7,
1993)
EV Classic Mississippi Tax Free Fund (start of business December 7, 1993)
EV Classic New York Tax Free Fund (start of business December 6, 1993)
EV Classic Ohio Tax Free Fund (start of business December 7, 1993)
EV Classic Rhode Island Tax Free Fund (start of business December 7, 1993)
EV Classic West Virginia Tax Free Fund (start of business December 13,
1993)
EV Marathon California Municipals Fund (start of business December 19,
1985)
EV Marathon Florida Tax Free Fund (start of business August 28, 1990)
EV Marathon Massachusetts Tax Free Fund (start of business April 18, 1991)
EV Marathon Mississippi Tax Free Fund (start of business June 11, 1993)
EV Marathon New York Tax Free Fund (start of business August 30, 1990)
EV Marathon Ohio Tax Free Fund (start of business April 18, 1991)
EV Marathon Rhode Island Tax Free Fund (start of business June 11, 1993)
EV Marathon West Virginia Tax Free Fund (start of business October 2,
1992)
EV Traditional California Municipals Fund (start of business May 27, 1994)
EV Traditional Florida Tax Free Fund (start of business April 5, 1994)
EV Traditional New York Tax Free Fund (start of business April 15, 1994)
Massachusetts Municipal Bond Portfolio (start of business June 17, 1993)
INCLUDED IN PART B:
INCORPORATED BY REFERENCE TO THE ANNUAL REPORTS FOR THE FUNDS,
EACH DATED SEPTEMBER 30, 1995, FILED ELECTRONICALLY PURSUANT TO
SECTION 30(B)(2) OF THE INVESTMENT COMPANY ACT OF 1940 (ACCES-
SION NO. 0000950135-95-002501 FOR THE CLASSIC FUNDS, ACCESSION
NO. 0000950135-95-002502 FOR THE MARATHON FUNDS, ACCESSION
NO. 0000950135-95-002546 FOR THE TRADITIONAL FUNDS AND ACCESSION
NO. 0000950156-95-000833 FOR MASSACHUSETTS MUNICIPAL BOND PORTFOLIO)
ARE THE FOLLOWING:
</TABLE>
<TABLE>
<CAPTION>
For:
<S> <C>
EV Classic California Municipals Fund EV Marathon California Municipals Fund
EV Classic Florida Tax Free Fund EV Marathon Florida Tax Free Fund
EV Classic Massachusetts Tax Free Fund EV Marathon Massachusetts Tax Free Fund
EV Classic Mississippi Tax Free Fund EV Marathon Mississippi Tax Free Fund
EV Classic New York Tax Free Fund EV Marathon New York Tax Free Fund
EV Classic Ohio Tax Free Fund EV Marathon Ohio Tax Free Fund
EV Classic Rhode Island Tax Free Fund EV Marathon Rhode Island Tax Free Fund
EV Classic West Virginia Tax Free Fund EV Marathon West Virginia Tax Free Fund
<CAPTION>
<S> <C>
EV Traditional California Municipals Fund
EV Traditional Florida Tax Free Fund
EV Traditional New York Tax Free Fund
Massachusetts Municipal Bond Portfolio
</TABLE>
The Financial Statements for the above-referenced Funds for the time
periods set forth in the Funds' Annual Reports dated September 30, 1995
include:
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report
The Financial Statements for the California, Florida, Massachusetts,
Mississippi, New York, Ohio, Rhode Island and West Virginia Tax Free
Portfolios for the time periods set forth in the Funds' Annual Reports
dated September 30, 1995 include:
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements
Independent Auditors' Report
(b) EXHIBITS:
(1)(a) Amended and Restated Declaration of Trust of Eaton Vance Municipals
Trust dated January 11, 1993, filed as Exhibit (1)(a) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
(b) Amendment and Restatement of Establishment and Designation of
Series dated June 19, 1995 filed as Exhibit (1)(b) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
(2)(a) By-Laws as amended October 21, 1987 filed as Exhibit (2)(a) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
(b) Amendment to By-Laws of Eaton Vance Municipals Trust dated December
13, 1993 filed as Exhibit (2)(b) to Post-Effective Amendment No. 55
and incorporated herein by reference.
(3) Not applicable
(4) Not applicable
(5) Not applicable
(6)(a)(1) Amended Distribution Agreement between Eaton Vance Municipals Trust
(on behalf of its Classic series) and Eaton Vance Distributors,
Inc. with attached schedules (including Amended Schedule A dated
September 29, 1995) filed as Exhibit (6)(a)(1) to Post-Effective
Amendment No. 55 and incorporated herein by reference.
(2) Amended Distribution Agreement between Eaton Vance Municipals Trust
(on behalf of its Marathon series) and Eaton Vance Distributors,
Inc. with attached schedules (including Amended Schedule A dated
September 29, 1995) filed as Exhibit (6)(a)(2) to Post-Effective
Amendment No. 55 and incorporated herein by reference.
(3) Amended Distribution Agreement between Eaton Vance Municipals Trust
(on behalf of its Traditional series) and Eaton Vance Distributors,
Inc. with attached schedules (including Amended Schedule A dated
September 29, 1995) filed as Exhibit (6)(a)(3) to Post-Effective
Amendment No. 55 and incorporated herein by reference.
(b) Selling Group Agreement between Eaton Vance Distributors, Inc. and
Authorized Dealers filed as Exhibit (6)(b) to Post-Effective
Amendment No. 59 to the Registration Statement of Eaton Vance
Growth Trust (File Nos. 2-22019, 811-1241) and incorporated herein
by reference.
(c) Schedule of Dealer Discounts and Sales Charges filed as Exhibit
(6)(c) to Post-Effective Amendment No. 59 to the Registration
Statement of Eaton Vance Growth Trust (File Nos. 2-22019, 811-1241)
and incorporated herein by reference.
(7) The Securities and Exchange Commission has granted the Registrant
an exemptive order that permits the Registrant to enter into
deferred compensation arrangements with its independent Trustees.
See in the Matter of Capital Exchange Fund, Inc., Release No.
IC-20671 (November 1, 1994).
(8)(a) Custodian Agreement with Investors Bank & Trust Company dated
October 15, 1992 filed as Exhibit (8) to Post-Effective Amendment
No. 55 and incorporated herein by reference.
(b) Amendment to Custodian Agreement with Investors Bank & Trust
Company dated October 23, 1995 filed as Exhibit (8)(b) to
Post-Effective Amendment No. 57 and incorporated herein by
reference.
(9)(a) Amended Administrative Services Agreement between Eaton Vance
Municipals Trust (on behalf of each of its series) and Eaton Vance
Management with attached schedules (including Amended Schedule A
dated September 29, 1995) filed as Exhibit (9)(a) to Post-Effective
Amendment No. 55 and incorporated herein by reference.
(b) Transfer Agency Agreement dated June 7, 1989 filed as Exhibit 9(d)
to Post- Effective Amendment No. 59 to the Registration Statement
of Eaton Vance Growth Trust (File Nos. 2-22019, 811-1241) and
incorporated herein by reference.
(c) Amendment to Transfer Agency Agreement dated February 1, 1993 filed
as Exhibit 9(e) to Post-Effective Amendment No. 59 to the
Registration Statement of Eaton Vance Growth Trust (File Nos.
2-22019, 811-1241) and incorporated herein by reference.
(10) Opinion of Counsel filed herewith.
(11)(a) Consent of Independent Certified Public Accountants for EV Classic
California Municipals Fund, EV Classic Florida Tax Free Fund, EV
Classic Massachusetts Tax Free Fund, EV Classic Mississippi Tax
Free Fund, EV Classic New York Tax Free Fund, EV Classic Ohio Tax
Free Fund, EV Classic Rhode Island Tax Free Fund and EV Classic
West Virginia Tax Free Fund filed herewith.
(b) Consent of Independent Certified Public Accountants for EV Marathon
California Municipals Fund, EV Marathon Florida Tax Free Fund, EV
Marathon Massachusetts Tax Free Fund, EV Marathon Mississippi Tax
Free Fund, EV Marathon New York Tax Free Fund, EV Marathon Ohio Tax
Free Fund, EV Marathon Rhode Island Tax Free Fund and EV Marathon
West Virginia Tax Free Fund filed herewith.
(c) Consent of Independent Certified Public Accountants for EV
Traditional California Municipals Fund, EV Traditional Florida Tax
Free Fund and EV Traditional New York Tax Free Fund filed herewith.
(d) Consent of Independent Certified Public Accountants for
Massachusetts Municipal Bond Portfolio filed herewith.
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15)(a) Amended Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, for Eaton Vance
Municipals Trust (on behalf of its Classic Series) dated January
27, 1995 with attached schedules (including Amended Schedule A
dated September 29, 1995) filed as Exhibit (15)(a) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
(b) Amended Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, for Eaton Vance
Municipals Trust (on behalf of its Marathon series) dated June 19,
1995 with attached schedules (including Amended Schedule A dated
September 29, 1995) filed as Exhibit (15)(b) to Post-Effective
Amendment No. 55 and incorporated herein by reference.
(c) Amended Service Plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended, for Eaton Vance Municipals Trust
(on behalf of its Traditional series) dated June 19, 1995 with
attached schedules (including Amended Schedule A dated September
29, 1995) filed as Exhibit (15)(c) to Post-Effective Amendment No.
55 and incorporated herein by reference.
(16) Schedules for Computation of Performance Quotations filed herewith.
(17)(a) Power of Attorney for Eaton Vance Municipals Trust dated December
29, 1993 filed as Exhibit (17)(a) to Post-Effective Amendment No.
55 and incorporated herein by reference.
(b) Power of Attorney for Alabama Tax Free Portfolio, Arizona Tax Free
Portfolio, Arkansas Tax Free Portfolio, Colorado Tax Free
Portfolio, Connecticut Tax Free Portfolio, Florida Tax Free
Portfolio, Georgia Tax Free Portfolio, Kentucky Tax Free Portfolio,
Louisiana Tax Free Portfolio, Maryland Tax Free Portfolio,
Massachusetts Tax Free Portfolio, Michigan Tax Free Portfolio,
Minnesota Tax Free Portfolio, Mississippi Tax Free Portfolio,
Missouri Tax Free Portfolio, National Municipals Portfolio, New
Jersey Tax Free Portrfolio, New York Tax Free Portfolio, North
Carolina Tax Free Portfolio, Ohio Tax Free Portfolio, Oregon Tax
Free Portfolio, Pennsylvania Tax Free Portfolio, Rhode Island Tax
Free Portfolio, South Carolina Tax Free Portfolio, Tennessee Tax
Free Portfolio, Texas Tax Free Portfolio, Virginia Tax Free
Portfolio and West Virginia Tax Free Portfolio dated December 29,
1993 filed as Exhibit (17)(b) to Post-Effective Amendment No. 55
and incorporated herein by reference.
(c) Power of Attorney for California Tax Free Portfolio dated June 19,
1995 filed as Exhibit (17)(c) to Post-Effective Amendment No. 55
and incorporated herein by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of beneficial interest as of October 31, 1995
EV Marathon Alabama Tax Free Fund 2,081
EV Classic Alabama Tax Free Fund 75
EV Marathon Arizona Tax Free Fund 3,177
EV Classic Arizona Tax Free Fund 51
EV Marathon Arkansas Tax Free Fund 2,234
EV Classic Arkansas Tax Free Fund 19
EV Marathon California Municipals Fund 7,904
EV Classic California Municipals Fund 37
EV Marathon Colorado Tax Free Fund 1,201
EV Classic Colorado Tax Free Fund 94
EV Marathon Connecticut Tax Free Fund 4,674
EV Classic Connecticut Tax Free Fund 95
EV Marathon Florida Tax Free Fund 14,054
EV Classic Florida Tax Free Fund 61
EV Marathon Georgia Tax Free Fund 2,956
EV Classic Georgia Tax Free Fund 61
EV Marathon Kentucky Tax Free Fund 3,686
EV Classic Kentucky Tax Free Fund 32
EV Marathon Louisiana Tax Free Fund 608
EV Classic Louisiana Tax Free Fund 38
EV Marathon Maryland Tax Free Fund 3,198
EV Classic Maryland Tax Free Fund 48
EV Marathon Massachusetts Tax Free Fund 7,309
EV Classic Massachusetts Tax Free Fund 52
EV Marathon Michigan Tax Free Fund 4,541
EV Classic Michigan Tax Free Fund 50
EV Marathon Minnesota Tax Free Fund 2,703
EV Classic Minnesota Tax Free Fund 84
EV Marathon Mississippi Tax Free Fund 714
EV Classic Mississippi Tax Free Fund 46
EV Marathon Missouri Tax Free Fund 2,788
EV Classic Missouri Tax Free Fund 112
EV Marathon National Municipals Fund 44,965
EV Classic National Municipals Fund 782
EV Marathon New Jersey Tax Free Fund 11,173
EV Classic New Jersey Tax Free Fund 102
EV Marathon New York Tax Free Fund 15,696
EV Classic New York Tax Free Fund 143
EV Marathon North Carolina Tax Free Fund 4,805
EV Classic North Carolina Tax Free Fund 105
EV Marathon Ohio Tax Free Fund 7,908
EV Classic Ohio Tax Free Fund 54
EV Marathon Oregon Tax Free Fund 3,838
EV Classic Oregon Tax Free Fund 51
EV Marathon Pennsylvania Tax Free Fund 14,273
EV Classic Pennsylvania Tax Free Fund 98
EV Marathon Rhode Island Tax Free Fund 849
EV Classic Rhode Island Tax Free Fund 40
EV Marathon South Carolina Tax Free Fund 1,411
EV Classic South Carolina Tax Free Fund 24
EV Marathon Tennessee Tax Free Fund 1,601
EV Classic Tennessee Tax Free Fund 23
EV Marathon Texas Tax Free Fund 461
EV Classic Texas Tax Free Fund 5
EV Marathon Virginia Tax Free Fund 5,120
EV Classic Virginia Tax Free Fund 40
EV Marathon West Virginia Tax Free Fund 1,214
EV Classic West Virginia Tax Free Fund 24
Massachusetts Municipal Bond Portfolio 37
EV Traditional California Municipals Fund 42
EV Traditional Connecticut Tax Free Fund 34
EV Traditional Florida Tax Free Fund 90
EV Traditional National Municipals Fund 593
EV Traditional New Jersey Tax Free Fund 74
EV Traditional New York Tax Free Fund 122
EV Traditional Pennsylvania Tax Free Fund 49
ITEM 27. INDEMNIFICATION
No change from the original filing has been made.
Registrant's Trustees and officers are insured under a standard mutual fund
errors and omissions insurance policy covering incurred by reason of negligent
errors and omissions committed in their capacities as such.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the information set forth under the caption "Investment
Adviser and Administrator" in the Statements of Additional Information, which
information is incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Registrant's principal underwriter, Eaton Vance Distributors, Inc., a
wholly-owned subsidiary of Eaton Vance Management, is the principal
underwriter for each of the mutual funds named below:
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EV Classic Alabama Tax Free Fund EV Classic New York Tax Free Fund
EV Classic Arizona Tax Free Fund EV Classic North Carolina Tax Free Fund
EV Classic Arkansas Tax Free Fund EV Classic Ohio Limited Maturity Tax Free Fund
EV Classic California Limited Maturity EV Classic Ohio Tax Free Fund
Tax Free Fund EV Classic Oregon Tax Free Fund
EV Classic California Municipals Fund EV Classic Pennsylvania Limited Maturity
EV Classic Colorado Tax Free Fund Tax Free Fund
EV Classic Connecticut Limited Maturity EV Classic Pennsylvania Tax Free Fund
Tax Free Fund EV Classic Rhode Island Tax Free Fund
EV Classic Connecticut Tax Free Fund EV Classic Senior Floating-Rate Fund
EV Classic Florida Insured Tax Free Fund EV Classic Strategic Income Fund
EV Classic Florida Limited Maturity EV Classic South Carolina Tax Free Fund
Tax Free Fund EV Classic Special Equities Fund
EV Classic Florida Tax Free Fund EV Classic Stock Fund
EV Classic Georgia Tax Free Fund EV Classic Tennessee Tax Free Fund
EV Classic Government Obligations Fund EV Classic Texas Tax Free Fund
EV Classic Greater China Growth Fund EV Classic Total Return Fund
EV Classic Growth Fund EV Classic Virginia Tax Free Fund
EV Classic Hawaii Tax Free Fund EV Classic West Virginia Tax Free Fund
EV Classic High Income Fund EV Marathon Alabama Tax Free Fund
EV Classic Information Age Fund EV Marathon Arizona Limited Maturity
EV Classic Investors Fund Tax Free Fund
EV Classic Kansas Tax Free Fund EV Marathon Arizona Tax Free Fund
EV Classic Kentucky Tax Free Fund EV Marathon Arkansas Tax Free Fund
EV Classic Louisiana Tax Free Fund EV Marathon California Limited Maturity
EV Classic Maryland Tax Free Fund Tax Free Fund
EV Classic Massachusetts Limited Maturity EV Marathon California Municipals Fund
Tax Free Fund EV Marathon Colorado Tax Free Fund
EV Classic Massachusetts Tax Free Fund EV Marathon Connecticut Limited Maturity
EV Classic Michigan Limited Maturity Tax Free Fund
Tax Free Fund EV Marathon Connecticut Tax Free Fund
EV Classic Michigan Tax Free Fund EV Marathon Emerging Markets Fund
EV Classic Minnesota Tax Free Fund EV Marathon Florida Insured Tax Free Fund
EV Classic Mississippi Tax Free Fund EV Marathon Florida Limited Maturity
EV Classic Missouri Tax Free Fund Tax Free Fund
EV Classic National Limited Maturity Tax Free Fund EV Marathon Florida Tax Free Fund
EV Classic National Municipals Fund EV Marathon Georgia Tax Free Fund
EV Classic New Jersey Limited Maturity EV Marathon Gold & Natural Resources Fund
Tax Free Fund EV Marathon Government Obligations Fund
EV Classic New Jersey Tax Free Fund EV Marathon Greater China Growth Fund
EV Classic New York Limited Maturity EV Marathon Greater India Fund
Tax Free Fund EV Marathon Growth Fund
<PAGE>
EV Marathon Hawaii Tax Free Fund EV Marathon Tennessee Tax Free Fund
EV Marathon High Income Fund EV Marathon Texas Tax Free Fund
EV Marathon High Yield Municipals Fund EV Marathon Total Return Fund
EV Marathon Information Age Fund EV Marathon Virginia Limited Maturity
EV Marathon Investors Fund Tax Free Fund
EV Marathon Kansas Tax Free Fund EV Marathon Virginia Tax Free Fund
EV Marathon Kentucky Tax Free Fund EV Marathon West Virginia Tax Free Fund
EV Marathon Louisiana Tax Free Fund EV Traditional California Municipals Fund
EV Marathon Maryland Tax Free Fund EV Traditional Connecticut Tax Free Fund
EV Marathon Massachusetts Limited Maturity EV Traditional Emerging Markets Fund
Tax Free Fund EV Traditional Florida Insured Tax Free Fund
EV Marathon Massachusetts Tax Free Fund EV Traditional Florida Limited Maturity
EV Marathon Michigan Limited Maturity Tax Free Fund
Tax Free Fund EV Traditional Florida Tax Free Fund
EV Marathon Michigan Tax Free Fund EV Traditional Government Obligations Fund
EV Marathon Minnesota Tax Free Fund EV Traditional Greater China Growth Fund
EV Marathon Mississippi Tax Free Fund EV Traditional Greater India Fund
EV Marathon Missouri Tax Free Fund EV Traditional Growth Fund
EV Marathon National Limited Maturity EV Traditional High Yield Municipals Fund
Tax Free Fund Eaton Vance Income Fund of Boston
EV Marathon National Municipals Fund EV Traditional Information Age Fund
EV Marathon New Jersey Limited Maturity EV Traditional Investors Fund
Tax Free Fund Eaton Vance Municipal Bond Fund L.P.
EV Marathon New Jersey Tax Free Fund EV Traditional National Limited Maturity
EV Marathon New York Limited Maturity Tax Free Fund
Tax Free Fund EV Traditional National Municipals Fund
EV Marathon New York Tax Free Fund EV Traditional New Jersey Tax Free Fund
EV Marathon North Carolina Limited Maturity EV Traditional New York Limited Maturity
Tax Free Fund Tax Free Fund
EV Marathon North Carolina Tax Free Fund EV Traditional New York Tax Free Fund
EV Marathon Ohio Limited Maturity Tax Free Fund EV Traditional Pennsylvania Tax Free Fund
EV Marathon Ohio Tax Free Fund EV Traditional Special Equities Fund
EV Marathon Oregon Tax Free Fund EV Traditional Stock Fund
EV Marathon Pennsylvania Limited Maturity EV Traditional Total Return Fund
Tax Free Fund Eaton Vance Cash Management Fund
EV Marathon Pennsylvania Tax Free Fund Eaton Vance Liquid Assets Trust
EV Marathon Rhode Island Tax Free Fund Eaton Vance Money Market Fund
EV Marathon Strategic Income Fund Eaton Vance Prime Rate Reserves
EV Marathon South Carolina Tax Free Fund Eaton Vance Short-Term Treasury Fund
EV Marathon Special Equities Fund Eaton Vance Tax Free Reserves
EV Marathon Stock Fund Massachusetts Municipal Bond Portfolio
</TABLE>
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICE
BUSINESS ADDRESS WITH PRINCIPAL UNDERWRITER WITH REGISTRANT
------------------ -------------------------- ---------------------
<S> <C> <C>
James B. Hawkes* Vice President and Director Vice President and
Trustee
William M. Steul* Vice President and Director None
Wharton P. Whitaker* President and Director None
Howard D. Barr Vice President None
2750 Royal View Court
Oakland, Michigan
Nancy E. Belza Vice President None
463-1 Buena Vista East
San Francisco, California
Chris Berg Vice President None
45 Windsor Lane
Palm Beach Gardens, Florida
H. Day Brigham, Jr.* Vice President None
Susan W. Bukima Vice President None
106 Princess Street
Alexandria, Virginia
Jeffrey W. Butterfield Vice President None
9378 Mirror Road
Columbus, Indiana
Mark A. Carlson* Vice President None
Jeffrey Chernoff Vice President None
115 Concourse West
Bright Waters, New York
James S. Comforti Vice President None
1859 Crest Drive
Encinitas, California
Mark P. Doman Vice President None
107 Pine Street
Philadelphia, Pennsylvania
Michael A. Foster Vice President None
850 Kelsey Court
Centerville, Ohio
William M. Gillen Vice President None
280 Rea Street
North Andover, Massachusetts
Hugh S. Gilmartin Vice President None
1531-184th Avenue, NE
Bellevue, Washington
Richard E. Houghton* Vice President None
Brian Jacobs* Senior Vice President None
Stephen D. Johnson Vice President None
13340 Providence Lake Drive
Alpharetta, Georgia
Thomas J. Marcello Vice President None
553 Belleville Avenue
Glen Ridge, New Jersey
Timothy D. McCarthy Vice President None
9801 Germantown Pike
Lincoln Woods Apt. 416
Lafayette Hill, Pennsylvania
Morgan C. Mohrman* Senior Vice President None
James A. Naughton* Vice President None
James L. O'Connor* Vice President None
Thomas Otis* Secretary and Clerk Secretary
George D. Owen Vice President None
1911 Wildwood Court
Blue Springs, Missouri
F. Anthony Robinson Vice President None
510 Gravely Hill Road
Wakefield, Rhode Island
Benjamin A. Rowland, Jr.* Vice President, None
Treasurer and Director
John P. Rynne* Vice President None
George V.F. Schwab, Jr. Vice President None
9501 Hampton Oaks Lane
Charlotte, North Carolina
Cornelius J. Sullivan* Vice President None
David M. Thill Vice President None
126 Albert Drive
Lancaster, New York
Chris Volf Vice President None
6517 Thoroughbred Loop
Odessa, Florida
Donald E. Webber* Senior Vice President None
Sue Wilder Vice President None
141 East 89th Street
New York, New York
- ----------
*Address is 24 Federal Street, Boston, MA 02110
</TABLE>
(c) Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder are in the possession and custody of the
Registrant's custodian, Investors Bank & Trust Company, 89 South Street, Boston,
MA 02111 and its transfer agent, First Data Investor Services Group, 53 State
Street, Boston, MA 02104, with the exception of certain corporate documents and
portfolio trading documents which are in the possession and custody, Eaton Vance
Management, 24 Federal Street, Boston, MA 02110. Registrant is informed that all
applicable accounts, books and documents required to be maintained by registered
investment advisers are in the custody and possession of Eaton Vance Management
and Boston Management and Research.
ITEM 31. MANAGEMENT SERVICES
Not applicable
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the latest annual report to shareholders, upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston, and the Commonwealth of
Massachusetts, on the 28th day of November, 1995.
EATON VANCE MUNICIPALS TRUST
By /s/THOMAS J. FETTER
----------------------------------
THOMAS J. FETTER, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/THOMAS J. FETTER Executive Officer) November 28, 1995
- ---------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer November 28, 1995
- ---------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 28, 1995
- ---------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 28, 1995
- ---------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 28, 1995
- ---------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 28, 1995
- ---------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 28, 1995
- ---------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 28, 1995
- ---------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
California Tax Free Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 28th day of
November, 1995.
CALIFORNIA TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/THOMAS J. FETTER Executive Officer) November 28, 1995
- ---------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer November 28, 1995
- ---------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 28, 1995
- ---------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 28, 1995
- ---------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 28, 1995
- ---------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 28, 1995
- ---------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 28, 1995
- ---------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 28, 1995
- ---------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Florida Tax Free Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 28th day of
November, 1995.
FLORIDA TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/THOMAS J. FETTER Executive Officer) November 28, 1995
- ---------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer November 28, 1995
- ---------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 28, 1995
- ---------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 28, 1995
- ---------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 28, 1995
- ---------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 28, 1995
- ---------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 28, 1995
- ---------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 28, 1995
- ---------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Massachusetts Tax Free Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 28th day of
November, 1995.
MASSACHUSETTS TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/THOMAS J. FETTER Executive Officer) November 28, 1995
- ---------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer November 28, 1995
- ---------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 28, 1995
- ---------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 28, 1995
- ---------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 28, 1995
- ---------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 28, 1995
- ---------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 28, 1995
- ---------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 28, 1995
- ---------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Mississippi Tax Free Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 28th day of
November, 1995.
MISSISSIPPI TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/THOMAS J. FETTER Executive Officer) November 28, 1995
- ---------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer November 28, 1995
- ---------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 28, 1995
- ---------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 28, 1995
- ---------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 28, 1995
- ---------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 28, 1995
- ---------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 28, 1995
- ---------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 28, 1995
- ---------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
New York Tax Free Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 28th day of
November, 1995.
NEW YORK TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/THOMAS J. FETTER Executive Officer) November 28, 1995
- ---------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer November 28, 1995
- ---------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 28, 1995
- ---------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 28, 1995
- ---------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 28, 1995
- ---------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 28, 1995
- ---------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 28, 1995
- ---------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 28, 1995
- ---------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Ohio Tax Free Portfolio has duly caused this Amendment to the Registration
Statement on Form N-1A of Eaton Vance Municipals Trust (File No. 33-572) to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Boston and the Commonwealth of Massachusetts on the 28th day of November,
1995.
OHIO TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/THOMAS J. FETTER Executive Officer) November 28, 1995
- ---------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer November 28, 1995
- ---------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 28, 1995
- ---------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 28, 1995
- ---------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 28, 1995
- ---------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 28, 1995
- ---------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 28, 1995
- ---------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 28, 1995
- ---------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Rhode Island Tax Free Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 28th day of
November, 1995.
RHODE ISLAND TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/THOMAS J. FETTER Executive Officer) November 28, 1995
- ---------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer November 28, 1995
- ---------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 28, 1995
- ---------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 28, 1995
- ---------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 28, 1995
- ---------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 28, 1995
- ---------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 28, 1995
- ---------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 28, 1995
- ---------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
West Virgina Tax Free Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 28th day of
November, 1995.
WEST VIRGINIA TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/THOMAS J. FETTER Executive Officer) November 28, 1995
- ---------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer November 28, 1995
- ---------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 28, 1995
- ---------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 28, 1995
- ---------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 28, 1995
- ---------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 28, 1995
- ---------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 28, 1995
- ---------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 28, 1995
- ---------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this amendment to the
Registration Statement pursuant to General Instructions E of Form N-1A.
PAGE IN
SEQUENTIAL
EXHIBIT NUMBERING
NO. DESCRIPTION SYSTEM
- ----------- ----------- -----------
(10) Opinion of Counsel dated November 27, 1995.
(11)(a) Consent of Independent Certified Public Accountants for EV Classic
California Municipals Fund, EV Classic Florida Tax Free Fund, EV
Classic Massachusetts Tax Free Fund, EV Classic Mississippi Tax Free
Fund, EV Classic New York Tax Free Fund, EV Classic Ohio Tax Free
Fund, EV Classic Rhode Island Tax Free Fund and EV Classic West
Virginia Free Fund.
(b) Consent of Independent Certified Public Accountants for EV Marathon
California Municipals Fund, EV Marathon Florida Tax Free Fund, EV
Marathon Massachusetts Tax Free Fund, EV Marathon Mississippi Tax
Free Fund, EV Marathon New York Tax Free Fund, EV Ohio Tax Free
Fund, EV Marathon Rhode Island Tax Free Fund and EV Marathon West
Virginia Tax Free Fund.
(c) Consent of Independent Certified Public Accountants for EV
Traditional California Municipals Fund, EV Traditional Florida Tax
Free Fund and EV Traditional New York Tax Free Fund.
(d) Consent of Independent Certified Public Accountants for
Massachusetts Municipal Bond Portfolio.
(16) Schedules for Computation of Performance Quotations.
EXHIBIT 99.10
Eaton Vance Management
24 Federal Street
Boston, MA 02110
(617) 482-8260
November 27, 1995
Eaton Vance Municipals Trust
24 Federal Street
Boston, MA 02110
Gentlemen:
Eaton Vance Municipals Trust (the "Trust") is a Massachusetts business
trust created under a Declaration of Trust dated September 30, 1985 executed and
delivered in Boston, Massachusetts and currently operating under an Amended and
Restated Declaration of Trust dated January 11, 1993 (the "Declaration of
Trust"). I am of the opinion that all legal requirements have been complied with
in the creation of the Trust, and that said Declaration of Trust is legal and
valid.
The Trustees of the Trust have the powers set forth in the Declaration
of Trust, subject to the terms, provisions and conditions therein provided. As
provided in the Declaration of Trust, the interest of shareholders is divided
into shares of beneficial interest without par value, and the number of shares
that may be issued is unlimited. The Trustees may from time to time issue and
sell or cause to be issued and sold shares for cash or for property. All such
shares, when so issued, shall be fully paid and nonassessable by the Trust.
By votes duly adopted, the Trustees of the Trust have authorized the
issuance of shares of beneficial interest, without par value. The Trust intends
to register under the Securities Act of 1933, as amended, 33,613,047 of its
shares of beneficial interest with Post-Effective Amendment No. 58 to its
Registration Statement on Form N-1A (the "Amendment") with the Securities and
Exchange Commission.
I have examined originals, or copies, certified or otherwise identified
to my satisfaction, of such certificates, records and other documents as I have
deemed necessary or appropriate for the purpose of this opinion, including the
Declaration of Trust and votes adopted by the Trustees. Based upon the
foregoing, and with respect to Massachusetts law (other than the Massachusetts
Uniform Securities Act), only to the extent that Massachusetts law may be
applicable and without reference to the laws of the other several states or of
the United States of America, I am of the opinion that under existing law:
1. The Trust is a trust with transferable shares of beneficial interest
organized in compliance with the laws of The Commonwealth of Massachusetts, and
the Declaration of Trust is legal and valid under the laws of The Commonwealth
of Massachusetts.
2. Shares of beneficial interest registered by the Amendment may be
legally and validly issued in accordance with the Declaration of Trust upon
receipt by the Trust of payment in compliance with the Declaration of Trust and,
when so issued and sold, will be fully paid and nonassessable by the Trust.
I am a member of the Massachusetts and New York bars, and I hereby
consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit thereto.
Very truly yours,
/s/H. Day Brigham, Jr.
________________________________________
H. Day Brigham, Jr., Esq.
Vice President, Eaton Vance Management
HDB/EGW/drb
b:\munit.opn
EXHIBIT (11)(A)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 58 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No. 33-
572) on behalf of EV Classic California Municipals Fund, EV Classic Florida
Tax Free Fund, EV Classic Massachusetts Tax Free Fund, EV Classic Mississippi
Tax Free Fund, EV Classic New York Tax Free Fund, EV Classic Ohio Tax Free
Fund, EV Classic Rhode Island Tax Free Fund and EV Classic West Virginia Tax
Free Fund of our report dated October 27, 1995, relating to EV Classic
California Municipals Fund, EV Classic Florida Tax Free Fund, EV Classic
Massachusetts Tax Free Fund, EV Classic Mississippi Tax Free Fund, EV Classic
New York Tax Free Fund, EV Classic Ohio Tax Free Fund, EV Classic Rhode Island
Tax Free Fund and EV Classic West Virginia Tax Free Fund, and of our report
dated October 27, 1995, relating to California Tax Free Portfolio, Florida Tax
Free Portfolio, Massachusetts Tax Free Portfolio, Mississippi Tax Free
Portfolio, New York Tax Free Portfolio, Ohio Tax Free Portfolio, Rhode Island
Tax Free Portfolio and West Virginia Tax Free Portfolio, which reports are
included in the Annual Report to Shareholders for the year ended September 30,
1995 which is incorporated by reference in the Statement of Additional
Information.
We also consent to the reference to our Firm under the heading "The Funds"
Financial Highlights'' in the Prospectus and under the captions "Independent
Certified Public Accountants" and "Financial Statements" in the Statement of
Additional Information of the Registration Statement.
DELOITTE & TOUCHE LLP
November 28, 1995
Boston, Massachusetts
EXHIBIT (11)(B)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 58 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No. 33-
572) on behalf of EV Marathon California Municipals Fund, EV Marathon Florida
Tax Free Fund, EV Marathon Massachusetts Tax Free Fund, EV Marathon
Mississippi Tax Free Fund, EV Marathon New York Tax Free Fund, EV Marathon
Ohio Tax Free Fund, EV Marathon Rhode Island Tax Free Fund and EV Marathon
West Virginia Tax Free Fund, of our report dated October 27, 1995, relating to
EV Marathon California Municipals Fund, EV Marathon Florida Tax Free Fund, EV
Marathon Massachusetts Tax Free Fund, EV Marathon Mississippi Tax Free Fund,
EV Marathon New York Tax Free Fund, EV Marathon Ohio Tax Free Fund, EV
Marathon Rhode Island Tax Free Fund and EV Marathon West Virginia Tax Free
Fund, and of our report dated October 27, 1995, relating to California Tax
Free Portfolio, Florida Tax Free Portfolio, Massachusetts Tax Free Portfolio,
Mississippi Tax Free Portfolio, New York Tax Free Portfolio, Ohio Tax Free
Portfolio, Rhode Island Tax Free Portfolio and West Virginia Tax Free
Portfolio, which reports are included in the Annual Report to Shareholders for
the year ended September 30, 1995 which is incorporated by reference in the
Statement of Additional Information.
We also consent to the reference to our Firm under the heading "The Funds'
Financial Highlights'' in the Prospectus and under the captions "Independent
Certified Public Accountants" and "Financial Statements" in the Statement of
Additional Information of the Registration Statement.
DELOITTE & TOUCHE LLP
November 28, 1995
Boston, Massachusetts
EXHIBIT (11)(C)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 58 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No. 33-
572) on behalf of EV Traditional California Municipals Fund, EV Traditional
Florida Tax Free Fund and EV Traditional New York Tax Free Fund, of our report
dated October 27, 1995, relating to EV Traditional California Municipals Tax
Free Fund, EV Traditional Florida Tax Free Fund and EV Traditional New York
Tax Free Fund, and of our report dated October 27, 1995, relating to
California Tax Free Portfolio, Florida Tax Free Portfolio and New York Tax
Free Portfolio, which reports are included in the Annual Report to
Shareholders for the year ended September 30, 1995 which is incorporated by
reference in the Statement of Additional Information.
We also consent to the reference to our Firm under the heading "The Funds"
Financial Highlights'' in the Prospectus and under the captions "Independent
Certified Public Accountants" and "Financial Statements" in the Statement of
Additional Information of the Registration Statement.
DELOITTE & TOUCHE LLP
November 28, 1995
Boston, Massachusetts
EXHIBIT (11)(D)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 58 to the
Registration Statement (1933 Act File No. 33-572) of Eaton Vance Municipals
Trust on behalf of Massachusetts Municipal Bond Portfolio of our report dated
October 27, 1995, relating to Massachusetts Municipal Bond Portfolio and of
our report dated October 27, 1995, relating to Massachusetts Tax Free
Portfolio, both of which are incorporated by reference in the Statement of
Additional Information and to the references to us under the heading "The
Fund's Financial Highlights" appearing in the Prospectus, which are part of
such Registration Statement.
DELOITTE & TOUCHE LLP
November 28, 1995
Boston, Massachusetts
<PAGE>
Exhibit 16
INVESTMENT PERFORMANCE -- EV CLASSIC CALIFORNIA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from December 19, 1985 through September 30, 1995 and for the 1 and 5
year periods ended September 30, 1995. Total return for the period prior to the
Fund's commencement of operations is for the Portfolio (or its predecessor)
adjusted for the Fund's sales charge.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/95 ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/19/85 $1,833.06 $1,833.06 83.31% 6.39% 83.31% 6.39%
5 YEARS ENDED
09/30/95 09/30/90 $1,374.89 $1,374.89 37.49% 6.56% 37.49% 6.56%
1 YEAR ENDED
09/30/95 09/30/94 $1,083.18 $1,073.18 8.32% 8.32% 7.32% 7.32%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 4.95% and was calculated by annualizing
the most recent dividend distribution ($0.039153434) and dividing the result by
the current maximum offering price ($9.32).
The effective distribution rate as of 09/30/95 was 5.06% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
EV CLASSIC CALIFORNIA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $14,067
Plus Dividend Income Earned:
------
Equal Gross Income: $14,067
Minus Expenses: $4,264
------
Equal Net Investment Income: $9,803
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 295,106
------
Equal Net Investment Income Earned Per Share: $0.0332
Net Asset Value Per Share 9/30/95: $9.32
30 Day Yield*: 4.32%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.26%
Divided by one minus a tax rate of 37.90%: 0.6210
------
Equal Tax Equivalent Yield***: 6.96%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0332/$9.32)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and California tax rate of 37.90%
<PAGE>
INVESTMENT PERFORMANCE -- EV CLASSIC FLORIDA TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from August 28, 1990 through September 30, 1995 and for the 1 and 5
year periods ended September 30, 1995. Total return for the period prior to the
Fund's commencement of operations is for the Portfolio (or its predecessor)
adjusted for the Fund's sales charge.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/95 ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/28/90 $1,457.27 $1,457.27 45.73% 7.66% 45.73% 7.66%
5 YEARS ENDED
09/30/95 09/30/90 $1,458.76 $1,458.76 45.88% 7.83% 45.88% 7.83%
1 YEAR ENDED
09/30/95 09/30/94 $1,097.21 $1,087.21 9.72% 9.72% 8.72% 8.72%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 4.87% and was calculated by annualizing
the most recent dividend distribution ($0.038643856) and dividing the result by
the current maximum offering price ($9.35).
The effective distribution rate as of 09/30/95 was 4.98% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
EV CLASSIC FLORIDA TAX FREE FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $25,851
Plus Dividend Income Earned:
------
Equal Gross Income: $25,851
Minus Expenses: $6,718
------
Equal Net Investment Income: $19,133
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 563,219
------
Equal Net Investment Income Earned Per Share: $0.0340
Net Asset Value Per Share 9/30/95: $9.35
30 Day Yield*: 4.40%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.38%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0340/$9.35)+1)-1]
** Assuming a tax rate of 31%
<PAGE>
INVESTMENT PERFORMANCE -- EV CLASSIC MASSACHUSETTS TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from April 19, 1991 through September 30, 1995 and for the 1 year
period ended September 30, 1995. Total return for the period prior to the Fund's
commencement of operations is for the Portfolio (or its predecessor) adjusted
for the Fund's sales charge.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/95 ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 04/19/91 $1,343.50 $1,343.50 34.35% 6.84% 34.35% 6.84%
1 YEAR ENDED
09/30/95 09/30/94 $1,084.45 $1,074.45 8.45% 8.45% 7.45% 7.45%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 5.00% and was calculated by annualizing
the most recent dividend distribution ($0.039323314) and dividing the result by
the current maximum offering price ($9.26).
The effective distribution rate as of 09/30/95 was 5.12% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
EV CLASSIC MASSACHUSETTS TAX FREE FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $14,851
Plus Dividend Income Earned:
------
Equal Gross Income: $14,851
Minus Expenses: $3,798
------
Equal Net Investment Income: $11,053
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 309,591
------
Equal Net Investment Income Earned Per Share: $0.0357
Net Asset Value Per Share 9/30/95: $9.26
30 Day Yield*: 4.67%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.77%
Divided by one minus a tax rate of 39.28%: 0.6072
------
Equal Tax Equivalent Yield***: 7.69%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0357/$9.26)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Massachusetts tax rate of 39.28%
<PAGE>
INVESTMENT PERFORMANCE -- EV CLASSIC MISSISSIPPI TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from June 11, 1993 through September 30, 1995 and for the 1 year
period ended September 30, 1995. Total return for the period prior to the Fund's
commencement of operations is for the Portfolio (or its predecessor) adjusted
for the Fund's sales charge.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/95 ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $1,059.75 $1,059.75 5.98% 2.54% 5.98% 2.54%
1 YEAR ENDED
09/30/95 09/30/94 $1,094.67 $1,084.67 9.47% 9.47% 8.47% 8.47%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 4.60% and was calculated by annualizing
the most recent dividend distribution ($0.036350693) and dividing the result by
the current maximum offering price ($9.30).
The effective distribution rate as of 09/30/95 was 4.70% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
EV CLASSIC MISSISSIPPI TAX FREE FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $11,546
Plus Dividend Income Earned:
-------
Equal Gross Income: $11,546
Minus Expenses: $3,566
-------
Equal Net Investment Income: $7,980
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 251,766
------
Equal Net Investment Income Earned Per Share: $0.0317
Net Asset Value Per Share 9/30/95: $9.30
30 Day Yield*: 4.13%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 5.99%
Divided by one minus a tax rate of 34.45%: 0.6555
------
Equal Tax Equivalent Yield***: 6.30%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0317/$9.30)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Mississippi tax rate of 34.45%
<PAGE>
INVESTMENT PERFORMANCE -- EV CLASSIC NEW YORK TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from August 30, 1990 through September 30, 1995 and for the 1 and 5
year periods ended September 30, 1995. Total return for the period prior to the
Fund's commencement of operations is for the Portfolio (or its predecessor)
adjusted for the Fund's sales charge.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/95 ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/30/90 $1,499.06 $1,499.06 49.91% 8.28% 49.91% 8.28%
5 YEARS ENDED
09/30/95 09/30/90 $1,506.55 $1,506.55 50.66% 8.52% 50.66% 8.52%
1 YEAR ENDED
09/30/95 09/30/94 $1,094.48 $1,084.48 9.45% 9.45% 8.45% 8.45%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 4.85% and was calculated by annualizing
the most recent dividend distribution ($0.038813705) and dividing the result by
the current maximum offering price ($9.42).
The effective distribution rate as of 09/30/95 was 4.96% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
EV CLASSIC NEW YORK TAX FREE FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $26,826
Plus Dividend Income Earned:
-------
Equal Gross Income: $26,826
Minus Expenses: $7,286
-------
Equal Net Investment Income: $19,540
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 582,871
-------
Equal Net Investment Income Earned Per Share: $0.0335
Net Asset Value Per Share 9/30/95: $9.42
30 Day Yield*: 4.31%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 6.25%
Divided by one minus a tax rate of 39.32%: 0.6068
-------
Equal Tax Equivalent Yield***: 7.10%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0335/$9.42)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and New York tax rate of 39.32%
<PAGE>
INVESTMENT PERFORMANCE -- EV CLASSIC OHIO TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from April 18, 1991 through September 30, 1995 and for the 1 year
period ended September 30, 1995. Total return for the period prior to the Fund's
commencement of operations is for the Portfolio (or its predecessor) adjusted
for the Fund's sales charge.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/95 ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 04/18/91 $1,346.62 $1,346.62 34.66% 6.90% 34.66% 6.90%
1 YEAR ENDED
09/30/95 09/30/94 $1,096.38 $1,086.38 9.64% 9.64% 8.64% 8.64%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 4.75% and was calculated by annualizing
the most recent dividend distribution ($0.037624669) and dividing the result by
the current maximum offering price ($9.32).
The effective distribution rate as of 09/30/95 was 4.86% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
EV CLASSIC OHIO TAX FREE FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $10,566
Plus Dividend Income Earned:
-------
Equal Gross Income: $10,566
Minus Expenses: $2,519
-------
Equal Net Investment Income: $8,047
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 228,843
-------
Equal Net Investment Income Earned Per Share: $0.0352
Net Asset Value Per Share 9/30/95: $9.32
30 Day Yield*: 4.57%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.62%
Divided by one minus a tax rate of 35.76%: 0.6424
------
Equal Tax Equivalent Yield***: 7.11%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0352/$9.32)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Ohio tax rate of 35.76%
<PAGE>
INVESTMENT PERFORMANCE -- EV CLASSIC RHODE ISLAND TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from June 11, 1993 through September 30, 1995 and for the 1 year
period ended September 30, 1995. Total return for the period prior to the Fund's
commencement of operations is for the Portfolio (or its predecessor) adjusted
for the Fund's sales charge.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/95 ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $1,057.34 $1,057.34 5.73% 2.44% 5.73% 2.44%
1 YEAR ENDED
09/30/95 09/30/94 $1,090.04 $1,080.04 9.00% 9.00% 8.00% 8.00%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 4.82% and was calculated by annualizing
the most recent dividend distribution ($0.037709609) and dividing the result by
the current maximum offering price ($9.21).
The effective distribution rate as of 09/30/95 was 4.93% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
EV CLASSIC RHODE ISLAND TAX FREE FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $15,079
Plus Dividend Income Earned:
-------
Equal Gross Income: $15,079
Minus Expenses: $3,297
-------
Equal Net Investment Income: $11,782
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 336,494
-------
Equal Net Investment Income Earned Per Share: $0.0350
Net Asset Value Per Share 9/30/95: $9.21
30 Day Yield*: 4.61%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.68%
Divided by one minus a tax rate of 36.88%: 0.6312
------
Equal Tax Equivalent Yield***: 7.30%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0350/$9.21)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Rhode Island tax rate of 36.88%
<PAGE>
INVESTMENT PERFORMANCE -- EV CLASSIC WEST VIRGINIA TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from June 11, 1993 through September 30, 1995 and for the 1 year
period ended September 30, 1995. Total return for the period prior to the Fund's
commencement of operations is for the Portfolio (or its predecessor) adjusted
for the Fund's sales charge.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/95 ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $1,059.59 $1,059.59 5.96% 2.54% 5.96% 2.54%
1 YEAR ENDED
09/30/95 09/30/94 $1,093.53 $1,083.53 9.35% 9.35% 8.35% 8.35%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 4.63% and was calculated by annualizing
the most recent dividend distribution ($0.036775362) and dividing the result by
the current maximum offering price ($9.35).
The effective distribution rate as of 09/30/95 was 4.73% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
EV CLASSIC WEST VIRGINIA TAX FREE FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $5,225
Plus Dividend Income Earned:
------
Equal Gross Income: $5,225
Minus Expenses: $1,152
------
Equal Net Investment Income: $4,073
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 112,639
------
Equal Net Investment Income Earned Per Share: $0.0362
Net Asset Value Per Share 9/30/95: $9.35
30 Day Yield*: 4.69%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.80%
Divided by one minus a tax rate of 35.49%: 0.6451
------
Equal Tax Equivalent Yield***: 7.27%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0362/$9.35)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and West Virginia tax rate of 35.49%
<PAGE>
INVESTMENT PERFORMANCE -- EV MARATHON CALIFORNIA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from December 19, 1985 through September 30, 1995 and for the 1 and 5
year periods ended September 30, 1995.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/95 ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/19/85 $1,825.16 $1,825.16 82.52% 6.34% 82.52% 6.34%
5 YEARS ENDED
09/30/95 09/30/90 $1,369.11 $1,349.44 36.91% 6.47% 34.94% 6.16%
1 YEAR ENDED
09/30/95 09/30/94 $1,082.97 $1,032.97 8.30% 8.30% 3.30% 3.30%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 4.99% and was calculated by annualizing
the most recent dividend distribution ($0.039917832) and dividing the result by
the current maximum offering price ($9.41).
The effective distribution rate as of 09/30/95 was 5.11% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
EV MARATHON CALIFORNIA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $2,107,414
Plus Dividend Income Earned:
----------
Equal Gross Income: $2,107,414
Minus Expenses: $565,711
----------
Equal Net Investment Income: $1,541,703
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 43,073,362
----------
Equal Net Investment Income Earned Per Share: $0.0358
Net Asset Value Per Share 9/30/95: $9.41
30 Day Yield*: 4.61%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.68%
Divided by one minus a tax rate of 37.90%: 0.6210
----------
Equal Tax Equivalent Yield***: 7.42%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0358/$9.41)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and California tax rate of 37.90%
<PAGE>
INVESTMENT PERFORMANCE -- EV MARATHON FLORIDA TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from August 28, 1990 through September 30, 1995 and for the 1 and 5
year periods ended September 30, 1995.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/95 ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/28/90 $1,478.92 $1,468.92 47.89% 7.97% 46.89% 7.83%
5 YEARS ENDED
09/30/95 09/30/90 $1,480.39 $1,460.39 48.04% 8.15% 46.04% 7.85%
1 YEAR ENDED
09/30/95 09/30/94 $1,098.98 $1,048.98 9.90% 9.90% 4.90% 4.90%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 4.80% and was calculated by annualizing
the most recent dividend distribution ($0.043739729) and dividing the result by
the current maximum offering price ($10.72).
The effective distribution rate as of 09/30/95 was 4.91% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
EV MARATHON FLORIDA TAX FREE FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $3,483,696
Plus Dividend Income Earned:
----------
Equal Gross Income: $3,483,696
Minus Expenses: $862,559
----------
Equal Net Investment Income: $2,621,137
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 65,921,525
----------
Equal Net Investment Income Earned Per Share: $0.0398
Net Asset Value Per Share 9/30/95: $10.72
30 Day Yield*: 4.49%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.51%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0398/$10.72)+1)-1]
** Assuming a tax rate of 31%
<PAGE>
INVESTMENT PERFORMANCE -- EV MARATHON MASSACHUSETTS TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from April 18, 1991 through September 30, 1995 and for the 1 year
period ended September 30, 1995.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/95 ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 04/18/91 $1,346.76 $1,326.76 34.68% 6.90% 32.68% 6.54%
1 YEAR ENDED
09/30/95 09/30/94 $1,083.80 $1,033.80 8.38% 8.38% 3.38% 3.38%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 4.87% and was calculated by annualizing
the most recent dividend distribution ($0.042465784) and dividing the result by
the current maximum offering price ($10.27).
The effective distribution rate as of 09/30/95 was 4.98% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
EV MARATHON MASSACHUSETTS TAX FREE FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $1,521,243
Plus Dividend Income Earned:
----------
Equal Gross Income: $1,521,243
Minus Expenses: $369,935
----------
Equal Net Investment Income: $1,151,308
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 28,411,342
----------
Equal Net Investment Income Earned Per Share: $0.0405
Net Asset Value Per Share 9/30/95: $10.27
30 Day Yield*: 4.78%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.93%
Divided by one minus a tax rate of 39.28%: 0.6072
----------
Equal Tax Equivalent Yield***: 7.87%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0405/$10.27)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Massachusetts tax rate of 39.28%
<PAGE>
INVESTMENT PERFORMANCE -- EV MARATHON MISSISSIPPI TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from June 11, 1993 through September 30, 1995 and for the 1 year
period ended September 30, 1995.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/95 ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $1,065.75 $1,027.83 6.58% 2.79% 2.78% 1.20%
1 YEAR ENDED
09/30/95 09/30/94 $1,094.02 $1,044.02 9.40% 9.40% 4.40% 4.40%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 4.70% and was calculated by annualizing
the most recent dividend distribution ($0.037879458) and dividing the result by
the current maximum offering price ($9.48).
The effective distribution rate as of 09/30/95 was 4.81% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
EV MARATHON MISSISSIPPI TAX FREE FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $132,897
Plus Dividend Income Earned:
--------
Equal Gross Income: $132,897
Minus Expenses: $29,013
--------
Equal Net Investment Income: $103,884
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 2,818,874
--------
Equal Net Investment Income Earned Per Share: $0.0369
Net Asset Value Per Share 9/30/95: $9.48
30 Day Yield*: 4.71%
Divided by One minus the Tax Rate of 31%: 0.69
--------
Equal Tax Equivalent Yield **: 6.83%
Divided by one minus a tax rate of 34.45%: 0.6555
--------
Equal Tax Equivalent Yield***: 7.19%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0369/$9.48)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Mississippi tax rate of 34.45%
<PAGE>
INVESTMENT PERFORMANCE -- EV MARATHON NEW YORK TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from August 30, 1990 through September 30, 1995 and for the 1 and 5
year periods ended September 30, 1995.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/95 ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/30/90 $1,499.10 $1,489.10 49.91% 8.28% 48.91% 8.14%
5 YEARS ENDED
09/30/95 09/30/90 $1,506.65 $1,486.65 50.67% 8.53% 48.67% 8.24%
1 YEAR ENDED
09/30/95 09/30/94 $1,092.30 $1,042.30 9.23% 9.23% 4.23% 4.23%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 4.87% and was calculated by annualizing
the most recent dividend distribution ($0.044758916) and dividing the result by
the current maximum offering price ($10.83).
The effective distribution rate as of 09/30/95 was 4.98% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
EV MARATHON NEW YORK TAX FREE FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $3,153,562
Plus Dividend Income Earned:
----------
Equal Gross Income: $3,153,562
Minus Expenses: $809,765
----------
Equal Net Investment Income: $2,343,797
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 59,289,015
----------
Equal Net Investment Income Earned Per Share: $0.0395
Net Asset Value Per Share 9/30/95: $10.83
30 Day Yield*: 4.42%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.41%
Divided by one minus a tax rate of 39.32%: 0.6068
----------
Equal Tax Equivalent Yield***: 7.28%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0395/$10.83)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and New York tax rate of 39.32%
<PAGE>
INVESTMENT PERFORMANCE -- EV MARATHON OHIO TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from April 18, 1991 through September 30, 1995 and for
the 1 year period ended September 30, 1995.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/95 ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 04/18/91 $1,363.98 $1,343.98 36.40% 7.21% 34.40% 6.85%
1 YEAR ENDED
09/30/95 09/30/94 $1,097.39 $1,047.39 9.74% 9.74% 4.74% 4.74%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 4.61% and was calculated by annualizing
the most recent dividend distribution ($0.041191808) and dividing the result by
the current maximum offering price ($10.51).
The effective distribution rate as of 09/30/95 was 4.71% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
EV MARATHON OHIO TAX FREE FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $1,590,080
Plus Dividend Income Earned:
----------
Equal Gross Income: $1,590,080
Minus Expenses: $404,370
----------
Equal Net Investment Income: $1,185,710
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 30,168,470
----------
Equal Net Investment Income Earned Per Share: $0.0393
Net Asset Value Per Share 9/30/95: $10.51
30 Day Yield*: 4.53%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.57%
Divided by one minus a tax rate of 35.76%: 0.6424
----------
Equal Tax Equivalent Yield***: 7.05%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0393/$10.51)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Ohio tax rate of 35.76%
<PAGE>
INVESTMENT PERFORMANCE -- EV MARATHON RHODE ISLAND TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from June 11, 1993 through September 30, 1995 and for the 1 year
period ended September 30, 1995.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/95 ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $1,060.02 $1,022.42 6.00% 2.56% 2.24% 0.96%
1 YEAR ENDED
09/30/95 09/30/94 $1,089.35 $1,039.35 8.93% 8.93% 3.93% 3.93%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 4.91% and was calculated by annualizing
the most recent dividend distribution ($0.039238374) and dividing the result by
the current maximum offering price ($9.40).
The effective distribution rate as of 09/30/95 was 5.03% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
EV MARATHON RHODE ISLAND TAX FREE FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $194,390
Plus Dividend Income Earned:
--------
Equal Gross Income: $194,390
Minus Expenses: $45,247
--------
Equal Net Investment Income: $149,143
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 4,212,496
--------
Equal Net Investment Income Earned Per Share: $0.0354
Net Asset Value Per Share 9/30/95: $9.40
30 Day Yield*: 4.56%
Divided by One minus the Tax Rate of 31%: 0.69
--------
Equal Tax Equivalent Yield **: 6.61%
Divided by one minus a tax rate of 36.88%: 0.6312
--------
Equal Tax Equivalent Yield***: 7.22%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0354/$9.40)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Rhode Island tax rate of 36.88%
<PAGE>
INVESTMENT PERFORMANCE -- EV MARATHON WEST VIRGINIA TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from June 11, 1993 through September 30, 1995 and for the 1 year
period ended September 30, 1995.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/95 ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $1,067.76 $1,029.76 6.78% 2.88% 2.98% 1.28%
1 YEAR ENDED
09/30/95 09/30/94 $1,093.90 $1,043.90 9.39% 9.39% 4.39% 4.39%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 4.75% and was calculated by annualizing
the most recent dividend distribution ($0.038304127) and dividing the result by
the current maximum offering price ($9.50).
The effective distribution rate as of 09/30/95 was 4.85% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
EV MARATHON WEST VIRGINIA TAX FREE FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $200,695
Plus Dividend Income Earned:
--------
Equal Gross Income: $200,695
Minus Expenses: $50,096
--------
Equal Net Investment Income: $150,599
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 4,166,900
--------
Equal Net Investment Income Earned Per Share: $0.0361
Net Asset Value Per Share 9/30/95: $9.50
30 Day Yield*: 4.61%
Divided by One minus the Tax Rate of 31%: 0.69
--------
Equal Tax Equivalent Yield **: 6.68%
Divided by one minus a tax rate of 35.49%: 0.6451
--------
Equal Tax Equivalent Yield***: 7.15%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0361/$9.50)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and West Virginia tax rate of 35.49%
<PAGE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from December 19, 1985 through September 30, 1995 and for the 1 and 5
year periods ended September 30, 1995. Total return for the period prior to the
Fund's commencement of operations is for the Portfolio (or its predecessor)
adjusted for the Fund's sales charge.
<TABLE>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/19/85 $962.68 $1,803.67 87.36% 6.62% 80.37% 6.21%
5 YEARS ENDED
09/30/95 09/30/90 $962.79 $1,353.21 40.54% 7.03% 35.32% 6.22%
1 YEAR ENDED
09/30/95 09/30/94 $962.81 $1,058.55 9.94% 9.94% 5.86% 5.86%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated
based on an initial investment of $1,000 less the maximum initial sales
charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based
on an initial investment of $1,000 less maximum initial sales charge of
3.75%.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 5.72% and was calculated by annualizing
the most recent dividend distribution ($0.049726050) and dividing the result by
the current maximum offering price ($10.58).
The effective distribution rate as of 09/30/95 was 5.87% and was calculated by
dividing the distribtion rate by the compounding period (365/30), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/30)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/30))+1] - 1
<PAGE>
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $21,135
Plus Dividend Income Earned:
-------
Equal Gross Income: $21,135
Minus Expenses: $1,909
-------
Equal Net Investment Income: $19,226
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 403,469
-------
Equal Net Investment Income Earned Per Share: $0.0477
Net Asset Value Per Share 9/30/95: $10.58
30 Day Yield*: 5.47%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 7.93%
Divided by one minus a tax rate of 37.90%: 0.6210
-------
Equal Tax Equivalent Yield***: 8.81%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0477/$10.58)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and California tax rate of 37.90%
<PAGE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL FLORIDA TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from August 28, 1990 through September 30, 1995 and for the 1 and 5
year periods ended September 30, 1995. Total return for the period prior to the
Fund's commencement of operations is for the Portfolio (or its predecessor)
adjusted for the Fund's sales charge.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/28/90 $962.16 $1,434.64 49.11% 8.15% 43.46% 7.33%
5 YEARS ENDED
09/30/95 09/30/90 $962.15 $1,436.07 49.26% 8.32% 43.61% 7.49%
1 YEAR ENDED
09/30/95 09/30/94 $962.53 $1,064.42 10.59% 10.59% 6.44% 6.44%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated
based on an initial investment of $1,000 less the maximum initial sales
charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based
on an initial investment of $1,000 less maximum initial sales charge of
3.75%.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 5.48% and was calculated by annualizing
the most recent dividend distribution ($0.048904110) and dividing the result by
the current maximum offering price ($10.86).
The effective distribution rate as of 09/30/95 was 5.62% and was calculated by
dividing the distribtion rate by the compounding period (365/30), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/30)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/30))+1] - 1
<PAGE>
EV TRADITIONAL FLORIDA TAX FREE FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $16,220
Plus Dividend Income Earned:
-------
Equal Gross Income: $16,220
Minus Expenses: $2,321
-------
Equal Net Investment Income: $13,899
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 316,800
-------
Equal Net Investment Income Earned Per Share: $0.0439
Net Asset Value Per Share 9/30/95: $10.86
30 Day Yield*: 4.90%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 7.10%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0439/$10.86)+1)-1]
** Assuming a tax rate of 31%
<PAGE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL NEW YORK TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from August 30, 1990 through September 30, 1995 and for the 1 and 5
year periods ended September 30, 1995. Total return for the period prior to the
Fund's commencement of operations is for the Portfolio (or its predecessor)
adjusted for the Fund's sales charge.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 09/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/30/90 $962.59 $1,459.27 51.59% 8.52% 45.93% 7.71%
5 YEARS ENDED
09/30/95 09/30/90 $962.73 $1,466.78 52.35% 8.77% 46.68% 7.95%
1 YEAR ENDED
09/30/95 09/30/94 $962.60 $1,061.91 10.32% 10.32% 6.19% 6.19%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated
based on an initial investment of $1,000 less the maximum initial sales
charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based
on an initial investment of $1,000 less maximum initial sales charge of
3.75%.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 5.69% and was calculated by annualizing
the most recent dividend distribution ($0.049315080) and dividing the result by
the current maximum offering price ($10.55).
The effective distribution rate as of 09/30/95 was 5.84% and was calculated by
dividing the distribtion rate by the compounding period (365/30), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/30)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/30))+1] - 1
<PAGE>
EV TRADITIONAL NEW YORK TAX FREE FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $20,656
Plus Dividend Income Earned:
-------
Equal Gross Income: $20,656
Minus Expenses: $1,873
-------
Equal Net Investment Income: $18,783
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 417,618
-------
Equal Net Investment Income Earned Per Share: $0.0450
Net Asset Value Per Share 9/30/95: $10.55
30 Day Yield*: 5.17%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 7.49%
Divided by one minus a tax rate of 39.32%: 0.6068
-------
Equal Tax Equivalent Yield***: 8.52%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0450/$10.55)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and New York tax rate of 39.32%
<PAGE>
INVESTMENT PERFORMANCE -- MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from April 18, 1991 through September 30, 1995 and for the 1 year
period ended September 30, 1995. Total return for the period prior to the Fund's
commencement of operations is for the Portfolio (or its predecessor) adjusted
for the Fund's sales charge.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF
INVESTMENT INVESTMENT INVESTMENT TOTAL RETURN
PERIOD DATE ON 09/30/95 CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C>
LIFE OF
FUND 04/18/91 $1,369.57 36.96% 7.31%
1 YEAR ENDED
09/30/95 09/30/94 $1,093.71 9.37% 9.37%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period
P = an initial investment of $1,000
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 09/30/95 was 5.63% and was calculated by annualizing
the most recent dividend distribution ($0.045438374) and dividing the result by
the current maximum offering price ($9.51).
The effective distribution rate as of 09/30/95 was 5.77% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/95:
Interest Income Earned: $34,878
Plus Dividend Income Earned:
-------
Equal Gross Income: $34,878
Minus Expenses: $5,178
-------
Equal Net Investment Income: $29,700
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 707,025
-------
Equal Net Investment Income Earned Per Share: $0.0420
Net Asset Value Per Share 9/30/95: $9.51
30 Day Yield*: 5.36%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 7.77%
Divided by one minus a tax rate of 39.28%: 0.6072
-------
Equal Tax Equivalent Yield***: 8.83%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0420/$9.51)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Massachusetts tax rate of 39.28%
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 64
<NAME> EV CLASSIC CALIFORNIA TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 2682
<INVESTMENTS-AT-VALUE> 2718
<RECEIVABLES> 39
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2766
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6
<TOTAL-LIABILITIES> 6
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2921
<SHARES-COMMON-STOCK> 296
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 7
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (204)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36
<NET-ASSETS> 2760
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 172
<EXPENSES-NET> 30
<NET-INVESTMENT-INCOME> 142
<REALIZED-GAINS-CURRENT> (138)
<APPREC-INCREASE-CURRENT> 204
<NET-CHANGE-FROM-OPS> 208
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (142)
<DISTRIBUTIONS-OF-GAINS> (5)
<DISTRIBUTIONS-OTHER> (3)
<NUMBER-OF-SHARES-SOLD> 87
<NUMBER-OF-SHARES-REDEEMED> 116
<SHARES-REINVESTED> 6
<NET-CHANGE-IN-ASSETS> (133)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 69
<AVERAGE-NET-ASSETS> 3795
<PER-SHARE-NAV-BEGIN> 9.08
<PER-SHARE-NII> .460
<PER-SHARE-GAIN-APPREC> .267
<PER-SHARE-DIVIDEND> (.477)
<PER-SHARE-DISTRIBUTIONS> (.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.32
<EXPENSE-RATIO> 1.67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 31
<NAME> EV CLASSIC FLORIDA TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 5311
<INVESTMENTS-AT-VALUE> 5239
<RECEIVABLES> 24
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5268
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8
<TOTAL-LIABILITIES> 8
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6015
<SHARES-COMMON-STOCK> 562
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 8
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (691)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (72)
<NET-ASSETS> 5260
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 366
<EXPENSES-NET> 62
<NET-INVESTMENT-INCOME> 304
<REALIZED-GAINS-CURRENT> (461)
<APPREC-INCREASE-CURRENT> 629
<NET-CHANGE-FROM-OPS> 472
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (304)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (13)
<NUMBER-OF-SHARES-SOLD> 101
<NUMBER-OF-SHARES-REDEEMED> 453
<SHARES-REINVESTED> 16
<NET-CHANGE-IN-ASSETS> (2802)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 87
<AVERAGE-NET-ASSETS> 6092
<PER-SHARE-NAV-BEGIN> 8.97
<PER-SHARE-NII> .444
<PER-SHARE-GAIN-APPREC> .399
<PER-SHARE-DIVIDEND> (.444)
<PER-SHARE-DISTRIBUTIONS> (.019)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.35
<EXPENSE-RATIO> 1.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 35
<NAME> EV CLASSIC MASSACHUSETTS TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 2701
<INVESTMENTS-AT-VALUE> 2748
<RECEIVABLES> 14
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2768
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5
<TOTAL-LIABILITIES> 5
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3034
<SHARES-COMMON-STOCK> 299
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (319)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 48
<NET-ASSETS> 2763
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 171
<EXPENSES-NET> 28
<NET-INVESTMENT-INCOME> 143
<REALIZED-GAINS-CURRENT> (218)
<APPREC-INCREASE-CURRENT> 242
<NET-CHANGE-FROM-OPS> 167
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (143)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (7)
<NUMBER-OF-SHARES-SOLD> 103
<NUMBER-OF-SHARES-REDEEMED> 233
<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> (979)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 42
<AVERAGE-NET-ASSETS> 2842
<PER-SHARE-NAV-BEGIN> 9.00
<PER-SHARE-NII> .449
<PER-SHARE-GAIN-APPREC> .283
<PER-SHARE-DIVIDEND> (.449)
<PER-SHARE-DISTRIBUTIONS> (.023)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.26
<EXPENSE-RATIO> 1.53
<AVG-DEBT-OUTSTANDING> 0
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<NUMBER> 65
<NAME> EV MARATHON CALIFORNIA MUNICIPAL FUND
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<NAME> EV MARATHON MASSACHUSETTS TAX FREE FUND
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<TABLE> <S> <C>
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<NAME> EV MARATHON OHIO TAX FREE FUND
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<TABLE> <S> <C>
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<NAME> EV MARATHON RHODE ISLAND TAX FREE FUND
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</TABLE>
<TABLE> <S> <C>
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<NUMBER> 28
<NAME> EV MARATHON WEST VIRGINIA TAX FREE FUND
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 66
<NAME> EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 58
<NAME> EV TRADITIONAL FLORIDA TAX FREE FUMD
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<S> <C>
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<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
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<ACCUM-APPREC-OR-DEPREC> 116
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 60
<NAME> EV TRADITIONAL NEW YORK TAX FREE FUND
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<S> <C>
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<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 29
<NAME> MASSACHUSETTS MUNICIPAL BOND FUND
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000892305
<NAME> CALIFORNIA TAX FREE PORTFOLIO
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> FLORIDA TAX FREE PORTFOLIO
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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