<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 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. 55 [X]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 57 [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 November 28, 1995
pursuant to paragraph (a) of Rule 485 or such earlier date as the Commission may
determine.
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.
The Registrant has filed a Declaration pursuant to Rule 24f-2. On September
28, 1994, Registrant filed its "Notice" as required by that Rule for the series
of the Registrant with the fiscal year end of July 31, 1994, on October 17, 1994
filed its "Notice" for the series of the Registrant with the fiscal year end of
August 31, 1994 and on November 18, 1994 filed its "Notice" for the series of
the Registrant with the fiscal year end of September 30, 1994.
California Tax Free Portfolio has also executed this Registration
Statement.
================================================================================
<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
Part A -- The Prospectuses of:
EV Classic California Municipals Fund
EV Marathon California Municipals Fund
EV Traditional California Municipals Fund
Part B -- The Statements of Additional Information of:
EV Classic California Municipals Fund
EV Marathon California Municipals Fund
EV Traditional California Municipals Fund
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>
EATON VANCE MUNICIPALS TRUST
EV CLASSIC CALIFORNIA MUNICIPALS FUND
EV MARATHON CALIFORNIA MUNICIPALS FUND
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
<TABLE>
<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 Fund's Financial Highlights; Performance
Information
4. ...................... General Description of Registrant The Fund's Investment Objective; How the Fund
and the Portfolio Invest their Assets;
Organization of the Fund and the Portfolio
5. ...................... Management of the Fund Management of the Fund and the Portfolio
5A....................... Management's Discussion of Fund Not Applicable
Performance
6. ...................... Capital Stock and Other Securities Organization of the Fund and the Portfolio;
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/Service Plan
(Traditional only); The Eaton Vance
Exchange Privilege; Eaton Vance Shareholder
Services; Statement of Intention and Escrow
Agreement
8. ...................... Redemption or Repurchase How to Redeem Fund Shares
9. ...................... Pending Legal Proceedings Not Applicable
PART B
ITEM NO. ITEM CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
------ -------- ---------------------------------------------
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
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/Service Plan (Traditional
only); Custodian; Independent Certified
Public Accountants
17. ...................... Brokerage Allocation and Other Portfolio Security Transactions
Practices
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
only); Distribution Plan/Service Plan
(Traditional only)
20. ...................... Tax Status Taxes; Tax Equivalent Yield Table
21. ...................... Underwriters Principal Underwriter
22. ...................... Calculation of Performance Data Investment Performance
23. ...................... Financial Statements Financial Statements
</TABLE>
<PAGE>
EATON VANCE MUNICIPALS TRUST
EV CLASSIC CALIFORNIA MUNICIPALS FUND
SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 1, 1995
1. Effective September 29, 1995, EV Classic California Municipals Fund was
reorganized and became a series of Eaton Vance Municipals Trust, a business
trust organized under the laws of the Commonwealth of Massachusetts. Prior to
the reorganization, the Fund had been a series of Eaton Vance Investment
Trust, which is also a Massachusetts business trust. Except for the fact that
the Fund is now a series of Eaton Vance Municipals Trust, shares of the Fund
represent the same interest in the Fund's assets, are of the same class, are
subject to the same terms and conditions, fees and expenses and confer the
same rights as when the Fund was a series of Eaton Vance Investment Trust.
2. The Trustees of the Fund and the Portfolio have amended the nonfundamental
investment policy governing call options to read "neither the Fund nor the
Portfolio may 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". THE FOLLOWING DISCLOSURE IS
ADDED TO THE SECTION "HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS":
The Portfolio may purchase instruments that give the Portfolio the
option to purchase a municipal obligation when and if issued. 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.
3. THE FOLLOWING IS ADDED TO THE FIRST PARAGRAPH UNDER "PERFORMANCE
INFORMATION":
The Fund may quote total return for the period prior to the Fund's
commencement of operations which would reflect the Portfolio's total
return (and that of its predecessor) adjusted to reflect any applicable
Fund sales charge.
4. THE FOLLOWING PARAGRAPH REPLACES THE PARAGRAPH UNDER THE CAPTION "EATON
VANCE SHAREHOLDER SERVICES -- REINVESTMENT PRIVILEGE":
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED
SHARES MAY REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES
PAID ON THE REPURCHASED OR REDEEMED 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 THE 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 the Fund (or by the Fund's Transfer Agent). 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.
<PAGE>
5. THE FOLLOWING TABLE REPLACES THE TABLE UNDER "THE FUND'S FINANCIAL
HIGHLIGHTS" ON PAGE THREE OF THE PROSPECTUS:
SIX
MONTHS YEAR
ENDED ENDED YEAR
MARCH 31, SEPTEMBER ENDED
1995 30, MARCH 31,
(UNAUDITED) 1994* 1994**
----------- -------- ---------
NET ASSET VALUE, beginning of period $ 9.080 $ 9.340 $10.000
------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.228 $ 0.227 $ 0.140
Net realized and unrealized gain (loss) on
investments 0.198 (0.224) (0.635)
------- ------- -------
Total income (loss) from operations $ 0.426 $ 0.003 $(0.495)
------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.228) $(0.227) $(0.140)
In excess of net investment income (0.011) (0.036) (0.025)
In excess of net realized gain on
investments (0.017) -- --
------- ------- -------
Total distributions $(0.256) $(0.263) $(0.165)
------- ------- -------
NET ASSET VALUE, end of period $ 9.250 $ 9.080 $ 9.340
======= ======= =======
TOTAL RETURN(2) 4.86% 0.03% (5.16%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $ 2,893 $ 2,893 $ 2,095
Ratio of net expenses to average net
assets 1.72%+ 1.73%+ 1.64%+
Ratio of net investment income to average
net assets 5.19%+ 4.89%+ 4.17%+
For the above periods, the operating expenses of the Fund reflect an
allocation of expenses to 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 $ 0.146 $ 0.120 $ 0.123
======= ======= =======
RATIOS (As a percentage of average daily net
assets):
Expenses(1) 3.58%+ 4.03%+ 2.15%+
Net investment income 3.33%+ 2.59%+ 3.66%+
*For the six months ended September 30, 1994. The Fund changed its fiscal
year end from March 31, to September 30, effective September 30, 1994.
**For the period from the start of business, December 3, 1993 to March 31,
1994.
+Computed on an annualized basis.
(1) Includes the Fund's share of California 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 not
computed on an annualized basis.
THE DATE OF THE ATTACHED PROSPECTUS IS CHANGED TO OCTOBER 1, 1995. ALL
REFERENCES IN THE PROSPECTUS TO EATON VANCE INVESTMENT TRUST OR THE TRUST ARE
DEFINED TO MEAN EATON VANCE MUNICIPALS TRUST.
October 1, 1995 C-CAPS
<PAGE>
EV CLASSIC CALIFORNIA MUNICIPALS FUND
EV CLASSIC CALIFORNIA MUNICIPALS FUND (THE "FUND") IS A MUTUAL FUND SEEKING
TO PROVIDE CURRENT INCOME EXEMPT FROM BOTH THE REGULAR FEDERAL INCOME TAX AND
THE CALIFORNIA PERSONAL INCOME TAX. THE FUND INVESTS ITS ASSETS IN CALIFORNIA
TAX FREE PORTFOLIO (THE "PORTFOLIO"), A 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 INVESTMENT TRUST
(THE "TRUST").
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Fund involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A Statement
of Additional Information dated February 1, 1995 for the Fund, 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., 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>
<CAPTION>
Page Page
<S> <C> <C> <C>
Shareholder and Fund Expenses ................... 2 How to Buy Fund Shares ...................... 20
The Fund's Financial Highlights ................. 3 How to Redeem Fund Shares ................... 21
The Fund's Investment Objective ................. 4 Reports to Shareholders ..................... 22
How the Fund and the Portfolio Invest their The Lifetime Investing Account/Distribution
Assets ........................................ 4 Options ................................... 22
Organization of the Fund and the Portfolio ...... 12 The Eaton Vance Exchange Privilege .......... 24
Management of the Fund and the Portfolio ........ 14 Eaton Vance Shareholder Services ............ 24
Distribution Plan ............................... 16 Distributions and Taxes ..................... 25
Valuing Fund Shares ............................. 19 Performance Information ..................... 26
------------------------------------------------------------------------------------------------------------
PROSPECTUS DATED FEBRUARY 1, 1995
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER AND FUND EXPENSES <F1>
--------------------------------------------------------------------------------
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)<F2> 1.00%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
Investment Adviser Fee <F3> 0.50%
Rule 12b-1 Distribution (and Service) Fees 1.00
Other Expenses 0.20
----
Total Operating Expenses 1.70%
====
<CAPTION>
1 YEAR 3 YEARS
EXAMPLE ------ -------
<S> <C> <C>
An investor would pay the following expenses on a
$1,000 investment, assuming (a) 5% annual return
and (b) redemption at the end of each period: $17 $54
An investor would pay the following expenses
on the same investment, assuming (a) 5%
return and (b) no redemptions: $27 $54
<FN>
Notes:
<F1> The purpose of the above table and Example is to summarize the aggregate
expenses of the Fund and the Portfolio and to assist investors in
understanding the various costs and expenses that investors in the Fund
will bear directly or indirectly. The Trustees of the Trust believe that
over time the aggregate per share expenses of the Fund and the Portfolio
should be approximately equal to the per share expenses which the Fund
would incur if the Trust retained the services of an investment adviser and
the assets of the Fund were invested directly in the type of securities
being held by the Portfolio. Since the Fund does not yet have a sufficient
operating history, the percentages indicated as Annual Fund and Allocated
Portfolio Operating Expenses and the amounts included in the Example are
based on both the Fund's and Portfolio's projected fees and expenses for
the current fiscal year ending September 30, 1995. The table and Example
should not be considered a representation of past or future expenses and
actual expenses may be greater or less than those shown. 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", "Management of the Fund and the Portfolio" and "How to Redeem
Fund Shares." Because the Fund makes payments under its Distribution Plan
adopted under Rule 12b-1, a long-term shareholder 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 Plan." 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".
<F2> The contingent deferred sales charge will be imposed on the redemption of
shares purchased on or after January 30, 1995. 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."
<F3> The Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on gross income, as set forth in the fee
schedule on page 15.
</TABLE>
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The following information should be read in conjunction with the financial
statements included in the Statement of Additional Information, all of which has
been so included 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 Principal Underwriter.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31,
1994<F2> 1994<F1>
---- ----
<S> <C> <C>
NET ASSET VALUE, beginning of period ................. $ 9.340 $10.000
------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income .............................. $ 0.227 $ 0.140
Net realized and unrealized loss on investments .... (0.224) (0.635)
------- -------
Total income (loss) from operations ............ $ 0.003 $(0.495)
------- -------
LESS DISTRIBUTIONS:
From net investment income ......................... $(0.227) $(0.140)
In excess of net investment income ................. (0.036) (0.025)
------- -------
Total distributions ............................ $(0.263) $(0.165)
------- -------
NET ASSET VALUE, end of period ....................... $ 9.080 $ 9.340
======= =======
TOTAL RETURN<F5> ..................................... 0.03% (5.16%)
RATIOS/SUPPLEMENTAL DATA<F6>
Net Assets, end of period (000 omitted) ............ $ 2,893 $ 2,095
Ratio of net expenses to average net assets<F4> .... 1.73%<F3> 1.64%<F3>
Ratio of net investment income to average net assets 4.89%<F3> 4.17%<F3>
<FN>
<F6> For the period ended September 30, 1994 and the period from the start of
business, December 3, 1993, to March 31, 1994, the operating expenses of
the Fund reflect an allocation of expenses to the Administrator. Had such
action not been taken, net investment income per share and the ratios would
have been as follows:
</FN>
NET INVESTMENT INCOME PER SHARE .................. $ 0.120 $ 0.123
RATIOS (As a percentage of average net assets):
Expenses<F4> ................................... 4.03%<F3> 2.15%<F3>
Net investment income .......................... 2.59%<F3> 3.66%<F3>
<FN>
<F1> For the period from the start of business, December 3, 1993 to March 31,
1994.
<F2> For the six months ended September 30, 1994.
<F3> Computed on an annualized basis.
<F4> Includes the Fund's share of California Tax Free Portfolio's allocated
expenses.
<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.
</FN>
</TABLE>
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE CURRENT INCOME EXEMPT FROM BOTH
THE REGULAR FEDERAL INCOME TAX AND THE CALIFORNIA PERSONAL INCOME TAX. The Fund
seeks to meet its investment objective by investing its assets in the California
Tax Free Portfolio (the "Portfolio"), a separate registered investment company
which invests primarily in a diversified portfolio of California obligations (as
defined 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.
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 ASSETS DURING PERIODS OF NORMAL MARKET CONDITIONS) IN
DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF THE STATE OF CALIFORNIA AND ITS
POLITICAL SUBDIVISIONS, THE INTEREST ON WHICH IS EXEMPT FROM BOTH THE REGULAR
FEDERAL INCOME TAX AND THE CALIFORNIA PERSONAL INCOME TAX ("CALIFORNIA
OBLIGATIONS"). The foregoing policy is a fundamental policy which may not be
changed unless authorized by a vote of the shareholders of the Fund. The
Portfolio seeks to achieve its investment objective by investing primarily
(i.e., at least 80% of its assets during periods of normal market conditions) in
debt obligations issued by or on behalf of the State of California and its
political subdivisions, the interest on which is exempt from regular Federal
income tax, is not a tax preference item under the Federal alternative minimum
tax and is exempt from the California personal income tax. The foregoing policy
is a fundamental policy of the Portfolio which may not be changed unless
authorized by a vote of the investors in the Portfolio.
At least 75% 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 Fitch Investors
Service, Inc. ("Fitch")) or, if unrated, determined by the Investment Adviser to
be of at least investment grade quality. California 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.
The Portfolio may invest up to 25% of its net assets in California obligations
rated below investment grade (but not lower than B by Moody's, S&P or Fitch) and
unrated California obligations considered to be of comparable quality by the
Investment Adviser. 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 "Credit Quality--Risks." For a description of municipal
obligation ratings, see the Fund's Statement of Additional Information.
CALIFORNIA OBLIGATIONS. California obligations include bonds, notes and
commercial paper issued by a municipality for a wide variety of both public and
private purposes. 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 and construction loan 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.
Construction loan notes are short-term obligations that will be retired with the
proceeds of long-term mortgage financing. Under normal market conditions, the
Portfolio will invest at least 65% of its total assets in obligations issued by
California or its political subdivisions.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from the regular Federal income tax applicable to individuals (and
corporations), 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 his liability for the Federal alternative minimum tax;
as at September 30, 1994, the Portfolio had 12.7% of its net assets invested in
such private activity bonds. The Portfolio may not invest more than 20% of its
assets in these obligations and obligations that pay interest subject to regular
Federal income tax and/or California personal income taxes. 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 applicable to corporations (to
the extent not already included in alternative minimum taxable income as income
attributable to private activity bonds).
The Omnibus Budget Reconciliation Act of 1993 changed the federal income
tax treatment of 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 from taxable capital gain to taxable 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. The Portfolio may
acquire municipal obligations at a market discount from time to time, and the
Fund's distributions will (when so required) include taxable income reflecting
the realization of such accrued discount by the Portfolio and its allocation to
the Fund.
MATURITY. It is expected that the Portfolio will normally contain substantial
amounts of long-term California obligations with maturities of ten years or more
because such long-term obligations generally produce higher income than
short-term obligations. Such long-term obligations are more susceptible to
market fluctuations resulting from changes in interest rates than shorter term
obligations. Since the Portfolio's objective is to provide current income, the
Portfolio will invest in California obligations with an emphasis on income and
not on stability of the Portfolio's net asset value. The average maturity of the
Portfolio's holdings may vary (generally between 15 and 30 years) depending on
anticipated market conditions.
Although the Portfolio will normally attempt to invest substantially all of
its assets in California obligations, the Portfolio may, under normal market
conditions, invest up to 20% of its assets in short-term obligations the
interest on which is subject to regular Federal income tax, Federal alternative
minimum tax and/or California personal income taxes. Such short- term taxable
obligations may include, but are not limited to, certificates of deposit,
commercial paper, short-term notes and obligations issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities. During periods of
adverse market conditions, the Portfolio may temporarily invest more than 20% of
its assets in such short-term taxable obligations, which will be rated no lower
than investment grade.
DIVERSIFIED STATUS. The Portfolio is a "diversified" investment company under
the Investment Company Act of 1940 (the "1940 Act"). This means that with
respect to 75% of its total assets (1) the Portfolio may not invest more than 5%
of its total assets in the securities of any one issuer (except U.S. Government
obligations) and (2) the Portfolio may not own more than 10% of the outstanding
voting securities of any one issuer. Since California obligations are not voting
securities, there is no limit on the percentage of a single issuer's obligations
which the Portfolio may own so long as it does not invest more than 5% of its
total assets in the securities of that issuer. Consequently, the Portfolio may
invest in a greater percentage of the outstanding securities of a single issuer
than would an investment company which invests in voting securities. There is no
diversification requirement with respect to the remaining 25% of the Portfolio's
total assets, so that all of such assets may be invested in the securities of
any one issuer. Because of the relatively small number of issues of California
obligations, the Portfolio is likely to invest a greater percentage of its
assets in the securities of a single issuer than is an investment company which
invests in a broad range of municipal obligations. To the extent that the
Portfolio is less diversified than that of other investment companies, it may 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.
CONCENTRATION. The Portfolio may invest 25% or more of its assets in California
obligations of the same type, including without limitation the following:
general obligations of the State of California 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 issuers. For example, health
care-related issuers are susceptible to medical reimbursement policies and
national or 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.
CONCENTRATION IN CALIFORNIA ISSUES -- RISKS. Because the Portfolio will
ordinarily invest 80% or more of its assets in California obligations, it is
more susceptible to factors affecting California issuers than is a comparable
municipal bond fund not concentrated in the obligations of issuers located in a
single state.
California has experienced severe economic and fiscal stress over the past
four years. The recession that began in the U.S. in 1990 marked the start of the
deepest recession in California since the Great Depression. 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.
California's economic weakness has continued into 1994; unemployment was 7.7% in
November, compared to a U.S. rate of 5.6%.
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 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 that proposal was rejected by California voters in
June 1994. The Governor subsequently announced that funds earmarked for other
projects would be used for earthquake relief.
On December 7, 1994, Orange County, California (the "County"), together
with its pooled investment fund (the "Fund") filed for protection under Chapter
9 of the Federal Bankruptcy Code, after reports that the Fund had suffered
significant market losses in its investments caused a liquidity crisis for the
Fund and the County. More than 180 other public entities, most but not all
located in the County, were also depositors in the Fund. As of December 13,
1994, the County estimated the Fund's loss at about $2 billion, or 27% of its
initial deposits of around $7.4 billion. These losses could increase as the
County sells investments to restructure the Fund, or if interest rates rise.
Many of the entities which kept moneys in the Fund, including the County, are
facing cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. The County and some of these
entities have, and others may in the future, default in payment of their
obligations. Moody's and S&P have suspended, reduced to below investment grade
levels, or placed on "Credit Watch" various securities of the County and the
entities participating in the Fund. As of December 1994, the Portfolio did not
hold any direct obligations of the County. However, the Portfolio did hold bonds
of some of the governmental units that had money invested with the County; the
impact of the loss of access to these funds, the loss of expected investment
earnings and the potential loss of some of the principal invested is not known
at this point. There can be no assurances that these holdings will maintain
their current ratings and/or liquidity in the market.
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 of the date of this Prospectus, 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. There can be no assurance that the economic conditions on which
these ratings are based will continue or that particular bond issues may not be
adversely affected by changes in economic, political or other conditions.
California's political subdivisions may have different ratings which are
unrelated to those of the State.
The Portfolio may invest in obligations of the governments of Puerto Rico,
the U.S. Virgin Islands and Guam to the extent that these obligations are exempt
from California personal income taxes. The Portfolio will not invest more than
5% of its net assets in the obligations of each of the U.S. Virgin Islands and
Guam, and under normal circumstances the Portfolio will not invest in the
aggregate more than 20% of its assets in obligations of the Territories. The
Portfolio may be adversely affected by local political and economic conditions
and developments within Puerto Rico affecting the issuers of such obligations.
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 1992,
1993 and 1994. 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 August, 1994 was approximately 14.5%.
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. Currently, S&P rates Puerto Rico general obligation
debt A, while Moody's rates it Baa1; these ratings have been in place since 1956
and 1976, respectively. The reliance on nonrecurring revenues and economic
weakness led S&P to change their outlook from stable to negative.
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 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 OF 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 OBJECTIVE WHICH AN INVESTOR
CONSIDERED APPROPRIATE AT THE TIME THE INVESTOR BECAME A SHAREHOLDER IN
THE FUND.
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 entered into by a state or local government 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 asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to acquire
property and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. 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 purposes of the Portfolio's 15% limitation on investing 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 ongoing basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS. The Portfolio may invest in zero coupon bonds, which are debt
obligations that do not require the periodic payment of interest and are issued
at a significant discount from their face value. Such bonds experience greater
volatility in market value due to changes in interest rates than debt
obligations that provide for regular payments of interest. The Portfolio will
accrue income on such bonds for tax and accounting purposes in accordance with
applicable law, the Fund's proportionate share of which income is distributable
to shareholders. Because no cash is received at the time such income is accrued,
the Portfolio may be required to liquidate other portfolio securities to
generate cash that the Fund may withdraw from the Portfolio to satisfy the
Fund's distribution obligations.
INVERSE FLOATERS. The Portfolio may invest in various types of derivative
municipal securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse floaters").
Derivatives are securities that provide for payments based on or derived from
the performance of an underlying asset, index or other economic benchmark. An
investment in derivative instruments, such as inverse floaters, may involve
greater risk than an investment in a fixed rate bond. Because changes in the
interest rate on the other security or index inversely affect the residual
interest paid on the inverse floater, the value of an inverse floater is
generally more volatile than that of a fixed rate bond. Inverse floaters have
interest rate adjustment formulas which generally reduce or, in the extreme,
eliminate the interest paid to the Portfolio when short-term interest rates
rise, and increase the interest paid to the Portfolio when short-term interest
rates fall. Inverse floaters have varying degrees of liquidity, and the market
for these securities is new and relatively volatile. These securities tend to
underperform the market for fixed rate bonds in a rising interest rate
environment, but tend to outperform the market for fixed rate bonds when
interest rates decline. Shifts in long-term interest rates may alter this
tendency, however. 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.
CREDIT QUALITY-RISKS. Many California obligations offering the current income
sought by the Portfolio are in the lowest investment grade category (Baa or
BBB), lower categories or may be unrated. As indicated above, the 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 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 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 and comparable
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
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.
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.
MARKET CONDITIONS. The management of the Portfolio believes that, in general,
the secondary market for California 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. No established resale market exists for certain of the
California 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 Portfolio's ability to sell or
dispose of such securities. Also, valuation of such obligations may be more
difficult.
NET ASSET VALUE FLUCTUATION. The net asset value 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 existing portfolio security holdings can be
expected to decline. Therefore, an investment in shares of the Fund will not
constitute a complete investment program.
SHORT-TERM TRADING. The Portfolio may sell 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 California obligations or changes in
the investment objectives of investors. Such trading may be expected to increase
portfolio turnover rate 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. The 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 the Portfolio agreed to pay for them. The Portfolio will not
accrue income in respect of a when-issued security prior to its stated delivery
date. The Portfolio will maintain in a segregated account sufficient assets to
cover its outstanding purchase obligations.
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.
FUTURES AND OPTIONS TRANSACTIONS. To hedge against changes in interest rates,
the Portfolio may purchase and sell various kinds of futures contracts, and
purchase and write call and put options on futures contracts. The Portfolio may
also enter into closing purchase and sale transactions with respect to such
contracts and options. The futures contracts may be based on various debt
securities (such as U.S. Government securities), securities indices and other
financial instruments and indices. The Portfolio would engage in futures and
related options transactions for bona fide hedging or non-hedging purposes as
defined in regulations of the Commodity Futures Trading Commission. The
Portfolio will engage in such transactions for non-hedging purposes only in
order to enhance total return by using a futures position as a lower cost
substitute for a securities position that the Portfolio is otherwise authorized
to enter into.
The Portfolio may not purchase or sell futures contracts or purchase or
sell related options, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of margin deposits on the
Portfolio's outstanding positions in futures and related options and the amount
of premiums paid for outstanding positions in options on futures would exceed 5%
of the market value of the Portfolio's net assets. There are no other percentage
limitations on the Portfolio's transactions on future contracts or options on
futures, except that at least 80% of the Portfolio's net assets will be invested
in California obligations. These transactions involve brokerage costs, require
margin deposits and, in the case of futures contracts and options requiring the
Portfolio to purchase securities, require the Portfolio to segregate liquid high
grade debt securities in an amount equal to the underlying value of such
contracts and options. In addition, while transactions in futures contracts and
options on futures may reduce certain risks, such transactions themselves
involve (1) liquidity risk that contractual positions cannot be easily closed
out in the event of market changes, (2) correlation risk that changes in the
value of hedging positions may not match the market fluctuations intended to be
hedged (especially given that the only futures contracts currently available to
hedge California obligations are futures on various U.S. Government securities
and on municipal securities indices), (3) market risk that an incorrect
prediction by the Investment Adviser of interest rates may cause the Portfolio
to perform less well than if such positions had not been entered into, and (4)
skills different from those needed to select portfolio securities. Distributions
by the Fund from any net income or gains realized on the Portfolio's
transactions in futures and options on futures will be taxable.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
--------------------------------------------------------------------------------
THE FUND IS A DIVERSIFIED SERIES OF EATON VANCE INVESTMENT TRUST (THE "TRUST"),
A BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION
OF TRUST DATED OCTOBER 23, 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 Fund) it is known as a "series company". Each share represents an
equal proportionate beneficial interest in the Fund. When issued and
outstanding, the 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. Upon liquidation of the Fund, shareholders are entitled to share
pro rata 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 IS 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.
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 different 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 also 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 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
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. Any such change
of the investment objective of the Fund or the Portfolio 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 the Fund,
those shares may be subject to a contingent deferred sales charge, as described
in "How to Redeem Fund Shares." 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 all 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 funds investing in the Portfolio may be adversely
affected by the actions of larger funds investing in the Portfolio. For example,
if a large fund withdraws from the Portfolio, the remaining funds 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 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 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 actions 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. 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
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ---------------- ------ -----
1 up to $500 million ...................... 0.300% 3.00%
2 $500 million but less than $1 billion ... 0.275% 2.75%
3 $1 billion but less than $1.5 billion ... 0.250% 2.50%
4 $1.5 billion but less than $2 billion ... 0.225% 2.25%
5 $2 billion but less than $3 billion ..... 0.200% 2.00%
6 $3 billion and over ..................... 0.175% 1.75%
As at September 30, 1994, the Portfolio had net assets of $445,131,401. For
the six month period ended September 30, 1994, the Portfolio paid BMR advisory
fees equivalent to 0.50% (annualized) of the Portfolio's average daily net
assets for such period. For the period from the start of business, May 3, 1993,
to March 31, 1994, the Portfolio paid BMR advisory fees equivalent to 0.49%
(annualized) of the Portfolio's average daily net assets for such period.
BMR also furnishes for the use of the Portfolio office space and all
necessary office facilities, equipment and personnel for servicing the
investments of the Portfolio. The Portfolio is responsible for the payment of
all expenses other than those expressly stated to be payable by BMR under the
investment advisory agreement.
Robert B. MacIntosh has acted as the portfolio manager since the Portfolio
commenced operations. Mr. MacIntosh has been a Vice President of Eaton Vance
since 1991 and of BMR since 1992. Prior to joining Eaton Vance, he was a
Portfolio Manager at Fidelity Management & Research Company (1986-1991).
Municipal obligations, including California obligations, are normally
traded on a net basis (without commission) through broker-dealers and banks
acting for their own account. Such firms attempt to profit from such
transactions by buying at the bid price and selling at the higher asked price of
the market, and the difference is customarily referred to as the spread. In
selecting firms which will execute portfolio transactions, BMR judges their
professional ability and quality of service and uses its best efforts to obtain
execution at prices which are advantageous to the Portfolio and at reasonably
competitive spreads. Subject to the foregoing, BMR may consider sales of shares
of the Fund or of other investment companies sponsored by BMR or Eaton Vance as
a factor in the selection of firms to execute portfolio transactions.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly-held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Trust has retained the services of Eaton Vance to act as Administrator
of the Fund. 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 the Fund's 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 receives no
compensation. The Trustees 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. Such costs and
expenses to be borne by the Portfolio and the Fund, as the case may be, include,
without limitation; custody and transfer agency fees and expenses, including
those for determining net asset value and keeping accounting books and records;
expenses of pricing and valuation services; the cost of share certificates;
membership dues in investment company organizations; expenses of acquiring,
holding and disposing of securities and other investments; fees and expenses of
registering under the securities laws and the governmental fees; expenses of
reporting to shareholders and investors; proxy statements and other expenses of
shareholders' or investors' meetings; insurance premiums; printing and mailing
expenses; interest, taxes and corporate fees; legal and accounting expenses;
compensation and expenses of Trustees not affiliated with BMR or Eaton Vance;
and investment advisory fees, and, if any, administrative services fees. The
Portfolio and the Fund will also each bear expenses incurred in connection with
litigation in which the Portfolio or the Fund, as the case may be, is a party
and any legal obligation to indemnify its respective officers and Trustees with
respect thereto.
DISTRIBUTION PLAN
--------------------------------------------------------------------------------
THE FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(THE "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940.
Rule 12b-1 permits a mutual fund, such as the 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. The Plan is also subject to and complies
with the sales charge rule of the National Association of Securities Dealers,
Inc. (the "NASD Rule"). The Plan is described in the Statement of Additional
Information, and the following is a brief description of the salient features of
the Plan. The 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) the Fund will pay the Principal
Underwriter amounts representing (i) sales commissions equal to 6.25% of the
amount received by the Fund for each share sold and (ii) distribution fees
calculated by applying the rate of 1% over the prime rate then reported in The
Wall Street Journal to the outstanding balance of Uncovered Distribution Charges
(as described below) of the Principal Underwriter. On sales 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
the 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 .75% 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.
<PAGE>
THE NASD RULE REQUIRES THE FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO THE PRINCIPAL UNDERWRITER TO AN AMOUNT NOT
EXCEEDING .75% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR.
Accordingly, the 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. The 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 the Plan less all contingent
deferred sales charges therefore paid to the Principal Underwriter. The Eaton
Vance organization may be considered to have realized a profit under the Plan if
at any point in time the aggregate amounts of all payments made to the Principal
Underwriter 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.
The amount payable by the Fund to the Principal Underwriter pursuant to the
Plan 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 a liability under such
accounting principles have not been satisfied.
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. The Plan continues in effect through and including April 28, 1995,
and shall continue in effect indefinitely thereafter for so long as such
continuance is approved at least annually by the vote of both a majority of (i)
the 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
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.
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.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid to the Principal Underwriter during any fiscal year, a
high level of sales of Fund shares during the initial years of the Fund's
operations would cause a large portion of the sales commission 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 the Plan over an
extended period would result in the incurrence and payment of increased
distribution fees under the Plan. For 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, the Fund paid or accrued sales commissions
under the Plan aggregating $9,528 and $3,747, respectively. As at September 30,
1994 and March 31, 1994 the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$273,000 and $206,000, respectively (which amount was equivalent to 9.4% and
9.83%, respectively, of the Fund's net assets on such day).
THE PLAN ALSO AUTHORIZES THE FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The
Trustees have initially implemented the Plan by authorizing the Fund to make
monthly service fee payments to the Principal Underwriter in amounts not
expected to exceed .25% of the Fund's average daily net assets for any fiscal
year. The Fund accrues the service fee daily at the rate of 1/365 of .25% of the
Fund's net assets. The Principal Underwriter will make monthly service fee
payments to Authorized Firms in amounts anticipated to be equivalent to .25%,
annualized, of the assets maintained in the Fund by their customers. On sales
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 .25%, annualized, of the assets maintained in the 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 .25% of the purchase price of the shares sold by such
Firm, and (b) monthly service fees approximately equivalent to 1/12 of .25% of
the value of shares sold by such Firm and remaining outstanding for at least one
year. As permitted by the NASD Rule, all service fee payments made by the Fund
and the Principal Underwriter are made for personal services and/or the
maintenance of shareholder accounts. Service fees paid to the Principal
Underwriter and Authorized Firms are separate and distinct from the sales
commissions and distribution fees payable by the 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 six month period ended
September 30, 1994 and the period from the start of business, December 3, 1993,
to the fiscal year ended March 31, 1994, the Fund paid or accrued service fees
under the Plan equivalent to 0.25% (annualized) of the Fund's average daily net
assets for such period.
The Plan as currently implemented by the Trustees authorizes payments of
sales commissions, distribution fees and service fees to the Principal
Underwriter which may be equivalent, on an aggregate basis during any fiscal
year of the Fund, to 1% of the Fund's average daily net assets for such year.
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 and service fees at the time of sale, it is anticipated that the
Eaton Vance organization will profit by reason of the operation of the Plan
through increases in the Fund's assets (thereby increasing the advisory fees
payable to BMR by the Portfolio) resulting from sale of Fund shares and through
amounts paid under the Plan to the Principal Underwriter and contingent deferred
sales charges paid to the Principal Underwriter.
<PAGE>
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 the 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 are expected to sell significant amounts of shares.
In addition, the Principal Underwriter may from time to time increase or
decrease the sales commissions payable to Authorized Firms.
The 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 Fund's management intends to consider all relevant factors,
including without limitation the size of the 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. The 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, the Fund is not contractually obligated to continue the 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
--------------------------------------------------------------------------------
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 substantially all of 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).
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 share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
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. California 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. Eaton Vance Corp. owns
77.3% of the outstanding stock of IBT, the Fund's and the Portfolio's custodian.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING
THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE.
<PAGE>
HOW TO BUY FUND SHARES
--------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of the Fund through Authorized Firms
at the net asset value per share of the Fund next determined after an order is
effective. The Fund may suspend the offering of shares at any time and may
refuse an order for the purchase of shares.
An initial investment in the 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 Fund's Transfer Agent (the "Transfer Agent") as follows:
The Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104.
The $1,000 minimum initial investment is waived for Bank Draft Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services" below.
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 current price for such securities but does not
guarantee the best price available. 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 California Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Classic California Municipals Fund
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, 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.
<PAGE>
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 THE SHAREHOLDER SERVICES
GROUP, INC., 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 Fund share 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 The
Shareholder Services Group, Inc. 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
The Shareholder Services Group, Inc., 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 applicable contingent deferred sales charges described below and
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.
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 Fund's 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, 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 by the 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.
<PAGE>
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. 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; i.e., 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 equal to 1% of the net asset value of redeemed shares.
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, its affiliates, 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, 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 Plan."
REPORTS TO SHAREHOLDERS
--------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the 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 income tax and California tax
returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
--------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., 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, the shareholder will receive a statement showing
complete details of any transaction and the current share balance in the
account. THE LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE
ADDITIONAL INVESTMENTS BY SENDING A CHECK FOR $50 OR MORE to The Shareholder
Services Group, Inc.
<PAGE>
Any questions concerning a shareholder's account or services available may
be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to The Shareholder Services Group, Inc., 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, The Shareholder Services Group, Inc.,
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 the 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
the 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 BY SENDING A CHECK FOR $50 OR MORE.
<PAGE>
THE EATON VANCE EXCHANGE PRIVILEGE
--------------------------------------------------------------------------------
Shares of the Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance Classic Group of Funds and, when publicly available,
Eaton Vance Money Market Fund (availability expected on or about April 3, 1995),
which are distributed with a contingent deferred sales charge, on the basis of
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 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.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult The Shareholder Services Group, Inc. for
additional information concerning the exchange privilege. Applications and
prospectuses of the 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 other funds in the Eaton Vance Classic Group of Funds and Eaton
Vance Money Market Fund (when available) may be exchanged for Fund shares at 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 The Shareholder Services Group, Inc.
provided the investor has not disclaimed in writing the use of the privilege. To
effect such exchanges, call The Shareholder Services Group, Inc. 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 The Shareholder
Services Group, Inc. 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.
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 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 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 The Shareholder Services Group, Inc., 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 DRAFT INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of $50
or more may be made through the shareholder's checking account via bank draft
each month or quarter. The $1,000 minimum initial investment and small account
redemption policy are waived for these accounts.
WITHDRAWAL PLAN: You can draw on your 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 THE FUND,
provided that the reinvestment is effected within 30 days after such repurchase
or redemption. 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 (or by the Fund's Transfer Agent).
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 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 twenty-second day of each month or the next
business day thereafter. The Fund anticipates that for tax purposes the entire
distribution, whether paid in cash or additional shares of the Fund, will
constitute tax-exempt income to its 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 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 (if any) 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 will be distributed at least once a year, usually in
December.
<PAGE>
In order to qualify as a regulated investment company under the Internal
Revenue Code (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 attributable 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 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 (see page 5). 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.
California law provides that dividends paid by the Fund and designated by
the 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 California obligations, provided that at least 50% of
the assets of the 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.
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 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 1 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
average annual total return calculation assumes a complete redemption of the
investment and the deduction of any contingent deferred sales charge at the end
of the period. The Fund may also publish annual and cumulative total return
figures from time to time.
Performance figures published by the Fund which do not include the effect
of any applicable contingent deferred sales charge would be reduced if it were
included.
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.
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.
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 or the Portfolio are paid by Eaton
Vance, the Fund's performance will be higher.
<PAGE>
INVESTMENT ADVISER OF
CALIFORNIA TAX FREE PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EV CLASSIC
CALIFORNIA MUNICIPALS FUND
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
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV Classic
California Municipals Fund
24 Federal Street
Boston, MA 02110
C-CAP
[LOGO]
EV Classic
California Municipals
Fund
Prospectus
February 1, 1995
<PAGE>
EATON VANCE MUNICIPALS TRUST
EV MARATHON CALIFORNIA MUNICIPALS FUND
SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 1, 1995
1. Effective September 29, 1995, EV Marathon California Municipals Fund was
reorganized and became a series of Eaton Vance Municipals Trust, a business
trust organized under the laws of the Commonwealth of Massachusetts. Prior to
the reorganization, the Fund had been a series of Eaton Vance Investment
Trust, which is also a Massachusetts business trust. Except for the fact that
the Fund is now a series of Eaton Vance Municipals Trust, shares of the Fund
represent the same interest in the Fund's assets, are of the same class, are
subject to the same terms and conditions, fees and expenses and confer the
same rights as when the Fund was a series of Eaton Vance Investment Trust.
2. The Trustees of the Fund and the Portfolio have amended the nonfundamental
investment policy governing call options to read "neither the Fund nor the
Portfolio may 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". THE FOLLOWING DISCLOSURE IS
ADDED TO THE SECTION "HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS":
The Portfolio may purchase instruments that give the Portfolio the
option to purchase a municipal obligation when and if issued. 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.
3. THE FOLLOWING PARAGRAPH REPLACES THE PARAGRAPH UNDER THE CAPTION "EATON
VANCE SHAREHOLDER SERVICES -- REINVESTMENT PRIVILEGE":
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED
SHARES MAY REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES
PAID ON THE REPURCHASED OR REDEEMED 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 THE 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 the Fund (or by the Fund's Transfer Agent). 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.
<PAGE>
4. THE FOLLOWING TABLE REPLACES THE TABLE UNDER "THE FUND'S FINANCIAL
HIGHLIGHTS" ON PAGE THREE OF THE PROSPECTUS:
<TABLE>
<CAPTION>
Six Months
Ended
March 31, Year Ended Year Ended March 31,
1995 September 30, ----------------------------------
(unaudited) 1994<F1> 1994 1993 1992<F2>
----------- ------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of period $ 9.290 $ 9.560 $10.200 $ 9.850 $10.000
------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.239 $ 0.240 $ 0.480 $ 0.509 $ 0.264
Net realized and unrealized gain (loss)
on investments and financial futures
contracts 0.188 (0.234) (0.395) 0.524 (0.100)
------- ------- ------- ------- -------
Total income (loss) from investment
operations $ 0.427 $ 0.006 $ 0.085 $ 1.033 $ 0.164
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.239) $(0.240) $(0.480) $(0.509) $(0.264)
Commission paid on sale of Fund shares -- -- -- -- --
From net realized gain on investments -- -- (0.153) (0.059) --
In excess of net realized gain on
investments (0.117) -- -- -- --
In excess of net investment income<F5> (0.011) (0.036) (0.092) (0.115) (0.050)
------- ------- ------- ------- -------
Total distributions $(0.367) $(0.276) $(0.725) $(0.683) $(0.314)
------- ------- ------- ------- -------
NET ASSET VALUE, end of period $ 9.350 $ 9.290 $ 9.560 $10.200 $ 9.850
======= ======= ======= ======= =======
TOTAL RETURN<F8> 4.87% 0.06% 0.55% 10.82% 3.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000 omitted) $417,522 $439,591 $463,414 $438,938 $362,597
Ratio of net expenses to average net
assets<F6> 1.66%<F4> 1.63%<F4> 1.67% 1.84% 1.87%<F4>
Ratio of net investment income to
average net assets 5.33%<F4> 5.06%<F4> 4.64% 5.05% 5.28%<F4>
PORTFOLIO TURNOVER RATE<F7> -- -- 5% 139% 65%
<FN>
<F1> For the six months ended September 30, 1994. The Fund changed its fiscal
year end from March 31, to September 30, effective September 30, 1994.
<F2> For the six months ended March 31, 1992. The Fund changed its fiscal year
end from September 30, to March 31, effective March 31, 1992.
<F3> Period from the start of business, December 19, 1985, to September 30,
1986. Certain of the above per share figures for the period ended September
30, 1986 are based on average shares outstanding during the period.
<F4> Computed on an annualized basis.
NOTES:
<F5> Distributions from paid-in-capital for the years ended September 30, 1987,
1988, 1989, 1990, 1991 and March 31, 1992 and 1993 have been restated to
conform with the treatment permitted under current financial reporting
standards.
<F6> Includes the Fund's share of California Tax Free Portfolio's allocated
expenses for each of the six month periods ended March 31, 1995 and
September 30, 1994 and the period from May 3, 1993, to March 31, 1994.
<F7> Portfolio Turnover represents the rate of portfolio activity for the period
while the Fund was making investments directly in securities. The portfolio
turnover rate for the period since the Fund transferred substantially all
of its investable assets to the Portfolio is shown in the Portfolio's
financial statements which are included in the Fund's Annual Report.
<F8> Total return is calculated assuming a purchase at net asset value on the
first day and a sale at net asset value on the last day of each period
reported. Dividends and distributions, if any, are assumed to be reinvested
at the net asset value on the payable date. Total return is not computed on
an annualized basis.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------------
1991 1990 1989 1988 1987 1986<F3>
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of period $ 9.570 $ 9.880 $ 9.810 $ 9.490 $10.480 $10.000
------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.533 $ 0.558 $ 0.580 $ 0.590 $ 0.612 $ 0.609
Net realized and unrealized
gain (loss) on investments
and financial futures
contracts 0.544 (0.203) 0.166 0.417 (0.886) 0.558
------- ------- ------- ------- ------- -------
Total income (loss) from
investment operations $ 1.077 $ 0.355 $ 0.746 $ 1.007 $(0.274) $ 1.167
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.533) $(0.558) $(0.580) $(0.590) $(0.612) $(0.609)
Commission paid on sale of Fund
shares -- -- -- -- -- (0.078)
From net realized gain on investments -- -- -- -- -- --
In excess of net realized gain
on investments -- -- -- -- -- --
In excess of net investment
income<F5> (0.114) (0.107) (0.096) (0.097) (0.104) --
------- ------- ------- ------- ------- -------
Total distributions $(0.647) $(0.665) $(0.676) $(0.687) $(0.716) $(0.687)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of period $10.000 $ 9.570 $ 9.880 $ 9.810 $ 9.490 $10.480
======= ======= ======= ======= ======= =======
TOTAL RETURN<F8> 11.59% 3.63% 7.80% 10.95% (2.93%) 10.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000
omitted) $353,990 $281,723 $260,306 $206,741 $190,774 $105,979
Ratio of net expenses to
average net assets<F6> 1.90% 1.95% 1.97% 1.97% 1.70% 0.08%<F4>
Ratio of net investment income
to average net assets 5.42% 5.65% 5.80% 6.06% 5.82% 7.15%<F4>
PORTFOLIO TURNOVER RATE<F7> 36% 13% 8% 29% 14% 41%
<FN>
<F1> For the six months ended September 30, 1994. The Fund changed its fiscal
year end from March 31, to September 30, effective September 30, 1994.
<F2> For the six months ended March 31, 1992. The Fund changed its fiscal year
end from September 30, to March 31, effective March 31, 1992.
<F3> Period from the start of business, December 19, 1985, to September 30,
1986. Certain of the above per share figures for the period ended September
30, 1986 are based on average shares outstanding during the period.
<F4> Computed on an annualized basis.
NOTES:
<F5> Distributions from paid-in-capital for the years ended September 30, 1987,
1988, 1989, 1990, 1991 and March 31, 1992 and 1993 have been restated to
conform with the treatment permitted under current financial reporting
standards.
<F6> Includes the Fund's share of California Tax Free Portfolio's allocated
expenses for each of the six month periods ended March 31, 1995 and
September 30, 1994 and the period from May 3, 1993, to March 31, 1994.
<F7> Portfolio Turnover represents the rate of portfolio activity for the period
while the Fund was making investments directly in securities. The portfolio
turnover rate for the period since the Fund transferred substantially all
of its investable assets to the Portfolio is shown in the Portfolio's
financial statements which are included in the Fund's Annual Report.
<F8> Total return is calculated assuming a purchase at net asset value on the
first day and a sale at net asset value on the last day of each period
reported. Dividends and distributions, if any, are assumed to be reinvested
at the net asset value on the payable date. Total return is not computed on
an annualized basis.
</TABLE>
THE DATE OF THE ATTACHED PROSPECTUS IS CHANGED TO OCTOBER 1, 1995. ALL
REFERENCES IN THE PROSPECTUS TO EATON VANCE INVESTMENT TRUST OR THE TRUST ARE
DEFINED TO MEAN EATON VANCE MUNICIPALS TRUST.
October 1, 1995 M-CAPS
<PAGE>
EV MARATHON CALIFORNIA MUNICIPALS FUND
EV MARATHON CALIFORNIA MUNICIPALS FUND (THE "FUND") IS A MUTUAL FUND
SEEKING TO PROVIDE CURRENT INCOME EXEMPT FROM BOTH THE REGULAR FEDERAL INCOME
TAX AND THE CALIFORNIA PERSONAL INCOME TAX. THE FUND INVESTS ITS ASSETS IN
CALIFORNIA TAX FREE PORTFOLIO (THE "PORTFOLIO"), A 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
INVESTMENT TRUST (THE "TRUST").
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Fund involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A Statement
of Additional Information dated February 1, 1995 for the Fund, 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., 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>
<CAPTION>
Page Page
<S> <C> <C> <C>
Shareholder and Fund Expenses ................... 2 How to Buy Fund Shares ...................... 19
The Fund's Financial Highlights ................. 3 How to Redeem Fund Shares ................... 20
The Fund's Investment Objective ................. 4 Reports to Shareholders ..................... 22
How the Fund and the Portfolio Invest their The Lifetime Investing Account/Distribution
Assets ........................................ 4 Options ................................... 22
Organization of the Fund and the Portfolio ...... 12 The Eaton Vance Exchange Privilege .......... 24
Management of the Fund and the Portfolio ........ 14 Eaton Vance Shareholder Services ............ 25
Distribution Plan ............................... 16 Distributions and Taxes ..................... 25
Valuing Fund Shares ............................. 19 Performance Information ..................... 27
------------------------------------------------------------------------------------------------------------
PROSPECTUS DATED FEBRUARY 1, 1995
</TABLE>
<PAGE>
SHAREHOLDER AND FUND EXPENSES (1)
--------------------------------------------------------------------------------
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)(2) 5.00%-0%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
Investment Adviser Fee (3) 0.50%
Rule 12b-1 Distribution (and Service) Fees 0.93
Other Expenses 0.20
----
Total Operating Expenses 1.63%
====
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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: $67 $91 $109 $193
An investor would pay the following expenses
on the same investment, assuming (a) 5%
annual return and (b) no redemptions: $17 $51 $ 89 $193
Notes:
(1) The purpose of the above table and Example is to summarize the aggregate
expenses of the Fund and the Portfolio and to assist investors in
understanding the various costs and expenses that investors in the Fund will
bear directly or indirectly. The Trustees of the Trust believe that over
time the aggregate per share expenses of the Fund and the Portfolio should
be approximately equal to the per share expenses which the Fund would incur
if the Trust retained the services of an investment adviser and the assets
of the Fund were invested directly in the type of securities being held by
the Portfolio. The percentages indicated as Annual Fund and Allocated
Portfolio Operating Expenses and the amounts included in the Example are
based on the Fund's and the Portfolio's results for the period from April 1,
1994 to the fiscal year ended September 30, 1994 (annualized). The table and
Example should not be considered a representation of past or future expenses
and actual expenses may be greater or less than those shown. 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", "Management of the Fund and the Portfolio" and "How to Redeem
Fund Shares." Because the Fund makes payments under its Distribution Plan
adopted under Rule 12b-1, a long-term shareholder 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 Plan." 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".
(2) 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 in the Eaton Vance Marathon Group of Funds (see "The Eaton
Vance Exchange Privilege").
(3) The Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on gross income, as set forth in the fee
schedule on page 15.
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The following information should be read in conjunction with the financial
statements included in the Statement of Additional Information, all of which has
been so included 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 Principal Underwriter.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED MARCH 31, YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, ---------------------------- ----------------------------------------------------------
1994<F1> 1994 1993 1992<F2> 1991 1990 1989 1988 1987 1986<F3>
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year .. $ 9.560 $ 10.200 $ 9.850 $ 10.000 $ 9.570 $ 9.880 $ 9.810 $ 9.490 $ 10.480 $ 10.000
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income $ 0.240 $ 0.480 $ 0.509 $ 0.264 $ 0.533 $ 0.558 $ 0.580 $ 0.590 $ 0.612 $ 0.609
Net realized and
unrealized gain
(loss) on
investments and
financial
futures contracts (0.234) (0.395) 0.524 (0.100) 0.544 (0.203) 0.166 0.417 (0.886) 0.558
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total income
(loss) from
investment
operations ... $ 0.006 $ 0.085 $ 1.033 $ 0.164 $ 1.077 $ 0.355 $ 0.746 $ 1.007 $ (0.274) $ 1.089
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment
income ........... $ (0.240) $ (0.480) $ (0.509) $ (0.264) $ (0.533) $ (0.558) $ (0.580) $ (0.590) $ (0.612) $ (0.609)
Commission paid on
sale of Fund
shares ........... -- -- -- -- -- -- -- -- -- (0.078)
From net realized
gain on
investments ...... -- (0.153) (0.059) -- -- -- -- -- -- --
In excess of net
investment
income<F5> ....... (0.036) (0.092) (0.115) (0.050) (0.114) (0.107) (0.096) (0.097) (0.104) --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
distributions .. $ (0.276) $ (0.725) $ (0.683) $ (0.314) $ (0.647) $ (0.665) $ (0.676) $ (0.687) $ (0.716) $ (0.609)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, end
of year ............ $ 9.290 $ 9.560 $ 10.200 $ 9.850 $ 10.000 $ 9.570 $ 9.880 $ 9.810 $ 9.490 $ 10.480
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN<F8> ..... 0.06% 0.55% 10.82% 3.29% 11.59% 3.63% 7.80% 10.95% (2.93)% 10.80%
RATIOS/SUPPLEMENTAL
DATA
Net Assets,
end of year
(000 omitted) .... $439,591 $463,414 $438,938 $362,597 $353,990 $281,723 $260,306 $206,741 $190,774 $105,979
Ratio of expenses
to average net
assets<F6> ....... 1.63%<F4> 1.67% 1.84% 1.87%<F4> 1.90% 1.95% 1.97% 1.97% 1.70% 0.08%<F4>
Ratio of net
investment
income to
average net
assets ........... 5.06%<F4> 4.64% 5.05% 5.28%<F4> 5.42% 5.65% 5.80% 6.06% 5.82% 7.15%<F4>
PORTFOLIO TURNOVER
RATE<F7> ........... -- 5% 139% 65% 36% 13% 8% 29% 14% 41%
<FN>
<F1> For the six months ended September 30, 1994.
<F2> For the six months ended March 31, 1992. The Fund changed its fiscal year
end from September 30, to March 31, effective March 31, 1992.
<F3> Period from the start of business, December 19, 1985, to September 30,
1986. Certain of the above per share figures for the period ended September
30, 1986 are based on average shares outstanding during the period.
<F4> Computed on an annualized basis.
NOTES:
<F5> Distributions from paid-in-capital for the years ended September 30, 1987,
1988, 1989, 1990, 1991 and March 31, 1992 and 1993 have been restated to
conform with the treatment permitted under current financial reporting
standards.
<F6> Includes the Fund's share of California Tax Free Portfolio's allocated
expenses for the period ended September 30, 1994 and the period from May 3,
1993, to March 31, 1994.
<F7> Portfolio Turnover represents the rate of portfolio activity for the period
while the Fund was making investments directly in securities. The portfolio
turnover rate for the period since the Fund transferred substantially all
of its investable assets to the Portfolio is shown in the Portfolio's
financial statements which are included in the Fund's Annual Report.
<F8> 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.
</FN>
</TABLE>
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE CURRENT INCOME EXEMPT FROM BOTH
THE REGULAR FEDERAL INCOME TAX AND THE CALIFORNIA PERSONAL INCOME TAX. The Fund
seeks to meet its investment objective by investing its assets in the California
Tax Free Portfolio (the "Portfolio"), a separate registered investment company
which invests primarily in a diversified portfolio of California obligations (as
defined 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.
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 ASSETS DURING PERIODS OF NORMAL MARKET CONDITIONS) IN
DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF THE STATE OF CALIFORNIA AND ITS
POLITICAL SUBDIVISIONS, THE INTEREST ON WHICH IS EXEMPT FROM BOTH THE REGULAR
FEDERAL INCOME TAX AND THE CALIFORNIA PERSONAL INCOME TAX ("CALIFORNIA
OBLIGATIONS"). The foregoing policy is a fundamental policy which may not be
changed unless authorized by a vote of the shareholders of the Fund. The
Portfolio seeks to achieve its investment objective by investing primarily
(i.e., at least 80% of its assets during periods of normal market conditions) in
debt obligations issued by or on behalf of the State of California and its
political subdivisions, the interest on which is exempt from regular Federal
income tax, is not a tax preference item under the Federal alternative minimum
tax and is exempt from the California personal income tax. The foregoing policy
is a fundamental policy of the Portfolio which may not be changed unless
authorized by a vote of the investors in the Portfolio.
At least 75% 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 Fitch Investors
Service, Inc. ("Fitch")) or, if unrated, determined by the Investment Adviser to
be of at least investment grade quality. California 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.
The Portfolio may invest up to 25% of its net assets in California obligations
rated below investment grade (but not lower than B by Moody's, S&P or Fitch) and
unrated California obligations considered to be of comparable quality by the
Investment Adviser. 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 "Credit Quality -- Risks." For a description of
municipal obligation ratings, see the Fund's Statement of Additional
Information.
CALIFORNIA OBLIGATIONS. California obligations include bonds, notes and
commercial paper issued by a municipality for a wide variety of both public and
private purposes. 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 and construction loan 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.
Construction loan notes are short-term obligations that will be retired with the
proceeds of long-term mortgage financing. Under normal market conditions, the
Portfolio will invest at least 65% of its total assets in obligations issued by
California or its political subdivisions.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from the regular Federal income tax applicable to individuals (and
corporations), 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 his liability for the Federal alternative minimum tax;
as at September 30, 1994, the Portfolio had 12.7% of its net assets invested in
such private activity bonds. The Portfolio may not invest more than 20% of its
assets in these obligations and obligations that pay interest subject to regular
Federal income tax and/or California personal income taxes. 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 applicable to corporations (to
the extent not already included in alternative minimum taxable income as income
attributable to private activity bonds).
The Omnibus Budget Reconciliation Act of 1993 changed the federal income
tax treatment of 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 from taxable capital gain to taxable 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. The Portfolio may
acquire municipal obligations at a market discount from time to time, and the
Fund's distributions will (when so required) include taxable income reflecting
the realization of such accrued discount by the Portfolio and its allocation to
the Fund.
MATURITY. It is expected that the Portfolio will normally contain substantial
amounts of long-term California obligations with maturities of ten years or more
because such long-term obligations generally produce higher income than
short-term obligations. Such long-term obligations are more susceptible to
market fluctuations resulting from changes in interest rates than shorter term
obligations. Since the Portfolio's objective is to provide current income, the
Portfolio will invest in California obligations with an emphasis on income and
not on stability of the Portfolio's net asset value. The average maturity of the
Portfolio's holdings may vary (generally between 15 and 30 years) depending on
anticipated market conditions.
Although the Portfolio will normally attempt to invest substantially all of
its assets in California obligations, the Portfolio may, under normal market
conditions, invest up to 20% of its assets in short-term obligations the
interest on which is subject to regular Federal income tax, Federal alternative
minimum tax and/or California personal income taxes. Such short-term taxable
obligations may include, but are not limited to, certificates of deposit,
commercial paper, short-term notes and obligations issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities. During periods of
adverse market conditions, the Portfolio may temporarily invest more than 20% of
its assets in such short-term taxable obligations, which will be rated no lower
than investment grade.
DIVERSIFIED STATUS. The Portfolio is a "diversified" investment company under
the Investment Company Act of 1940 (the "1940 Act"). This means that with
respect to 75% of its total assets (1) the Portfolio may not invest more than 5%
of its total assets in the securities of any one issuer (except U.S. Government
obligations) and (2) the Portfolio may not own more than 10% of the outstanding
voting securities of any one issuer. Since California obligations are not voting
securities, there is no limit on the percentage of a single issuer's obligations
which the Portfolio may own so long as it does not invest more than 5% of its
total assets in the securities of that issuer. Consequently, the Portfolio may
invest in a greater percentage of the outstanding securities of a single issuer
than would an investment company which invests in voting securities. There is no
diversification requirement with respect to the remaining 25% of the Portfolio's
total assets, so that all of such assets may be invested in the securities of
any one issuer. Because of the relatively small number of issues of California
obligations, the Portfolio is likely to invest a greater percentage of its
assets in the securities of a single issuer than is an investment company which
invests in a broad range of municipal obligations. To the extent that the
Portfolio is less diversified than that of other investment companies, it may 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.
CONCENTRATION. The Portfolio may invest 25% or more of its assets in California
obligations of the same type, including without limitation the following:
general obligations of the State of California 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 issuers. For example, health
care-related issuers are susceptible to medical reimbursement policies and
national or 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.
CONCENTRATION IN CALIFORNIA ISSUES -- RISKS. Because the Portfolio will
ordinarily invest 80% or more of its assets in California obligations, it is
more susceptible to factors affecting California issuers than is a comparable
municipal bond fund not concentrated in the obligations of issuers located in a
single state.
California has experienced severe economic and fiscal stress over the past
four years. The recession that began in the U.S. in 1990 marked the start of the
deepest recession in California since the Great Depression. 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.
California's economic weakness has continued into 1994; unemployment was 7.7% in
November, compared to a U.S. rate of 5.6%.
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 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 that proposal was rejected by California voters in
June 1994. The Governor subsequently announced that funds earmarked for other
projects would be used for earthquake relief.
On December 7, 1994, Orange County, California (the "County"), together
with its pooled investment fund (the "Fund") filed for protection under Chapter
9 of the Federal Bankruptcy Code, after reports that the Fund had suffered
significant market losses in its investments caused a liquidity crisis for the
Fund and the County. More than 180 other public entities, most but not all
located in the County, were also depositors in the Fund. As of December 13,
1994, the County estimated the Fund's loss at about $2 billion, or 27% of its
initial deposits of around $7.4 billion. These losses could increase as the
County sells investments to restructure the Fund, or if interest rates rise.
Many of the entities which kept moneys in the Fund, including the County, are
facing cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. The County and some of these
entities have, and others may in the future, default in payment of their
obligations. Moody's and S&P have suspended, reduced to below investment grade
levels, or placed on "Credit Watch" various securities of the County and the
entities participating in the Fund. As of December 1994, the Portfolio did not
hold any direct obligations of the County. However, the Portfolio did hold bonds
of some of the governmental units that had money invested with the County; the
impact of the loss of access to these funds, the loss of expected investment
earnings and the potential loss of some of the principal invested is not known
at this point. There can be no assurances that these holdings will maintain
their current ratings and/or liquidity in the market.
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 of the date of this Prospectus, 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. There can be no assurance that the economic conditions on which
these ratings are based will continue or that particular bond issues may not be
adversely affected by changes in economic, political or other conditions.
California's political subdivisions may have different ratings which are
unrelated to those of the State.
The Portfolio may invest in obligations also include obligations of the
governments of Puerto Rico, the U.S. Virgin Islands and Guam to the extent that
these obligations are exempt from California personal income taxes. The
Portfolio will not invest more than 5% of its net assets in the obligations of
each of the U.S. Virgin Islands and Guam, and under normal circumstances the
Portfolio will not invest in the aggregate more than 20% of its assets in
obligations of the Territories. The Portfolio may be adversely affected by local
political and economic conditions and developments within Puerto Rico affecting
the issuers of such obligations. 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 1992, 1993 and 1994. 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 August,
1994 was approximately 14.5%. 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. Currently, S&P rates Puerto
Rico general obligation debt A, while Moody's rates it Baa1; these ratings have
been in place since 1956 and 1976, respectively. The reliance on nonrecurring
revenues and economic weakness led S&P to change their outlook from stable to
negative.
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 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 OF 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 OBJECTIVE WHICH AN INVESTOR
CONSIDERED APPROPRIATE AT THE TIME THE INVESTOR BECAME A SHAREHOLDER IN
THE FUND.
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 entered into by a state or local government 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 asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to acquire
property and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. 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 purposes of the Portfolio's 15% limitation on investing 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 ongoing basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS. The Portfolio may invest in zero coupon bonds, which are debt
obligations that do not require the periodic payment of interest and are issued
at a significant discount from their face value. Such bonds experience greater
volatility in market value due to changes in interest rates than debt
obligations that provide for regular payments of interest. The Portfolio will
accrue income on such bonds for tax and accounting purposes in accordance with
applicable law, the Fund's proportionate share of which income is distributable
to shareholders. Because no cash is received at the time such income is accrued,
the Portfolio may be required to liquidate other portfolio securities to
generate cash that the Fund may withdraw from the Portfolio to satisfy the
Fund's distribution obligations.
INVERSE FLOATERS. The Portfolio may invest in various types of derivative
municipal securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse floaters").
Derivatives are securities that provide for payments based on or derived from
the performance of an underlying asset, index or other economic benchmark. An
investment in derivative instruments, such as inverse floaters, may involve
greater risk than an investment in a fixed rate bond. Because changes in the
interest rate on the other security or index inversely affect the residual
interest paid on the inverse floater, the value of an inverse floater is
generally more volatile than that of a fixed rate bond. Inverse floaters have
interest rate adjustment formulas which generally reduce or, in the extreme,
eliminate the interest paid to the Portfolio when short-term interest rates
rise, and increase the interest paid to the Portfolio when short-term interest
rates fall. Inverse floaters have varying degrees of liquidity, and the market
for these securities is new and relatively volatile. These securities tend to
underperform the market for fixed rate bonds in a rising interest rate
environment, but tend to outperform the market for fixed rate bonds when
interest rates decline. Shifts in long-term interest rates may alter this
tendency, however. 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.
CREDIT QUALITY-RISKS. Many California obligations offering the current income
sought by the Portfolio are in the lowest investment grade category (Baa or
BBB), lower categories or may be unrated. As indicated above, the 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 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 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 and comparable
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
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.
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.
MARKET CONDITIONS. The management of the Portfolio believes that, in general,
the secondary market for California 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. No established resale market exists for certain of the
California 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 Portfolio's ability to sell or
dispose of such securities. Also, valuation of such obligations may be more
difficult.
NET ASSET VALUE FLUCTUATION. The net asset value 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 existing portfolio security holdings can be
expected to decline. Therefore, an investment in shares of the Fund will not
constitute a complete investment program.
SHORT-TERM TRADING. The Portfolio may sell 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 California obligations or changes in
the investment objectives of investors. Such trading may be expected to increase
portfolio turnover rate 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. The 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 the Portfolio agreed to pay for them. The Portfolio will not
accrue income in respect of a when-issued security prior to its stated delivery
date. The Portfolio will maintain in a segregated account sufficient assets to
cover its outstanding purchase obligations.
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.
FUTURES AND OPTIONS TRANSACTIONS. To hedge against changes in interest rates,
the Portfolio may purchase and sell various kinds of futures contracts, and
purchase and write call and put options on futures contracts. The Portfolio may
also enter into closing purchase and sale transactions with respect to such
contracts and options. The futures contracts may be based on various debt
securities (such as U.S. Government securities), securities indices and other
financial instruments and indices. The Portfolio would engage in futures and
related options transactions for bona fide hedging or non-hedging purposes as
defined in regulations of the Commodity Futures Trading Commission. The
Portfolio will engage in such transactions for non-hedging purposes only in
order to enhance total return by using a futures position as a lower cost
substitute for a securities position that the Portfolio is otherwise authorized
to enter into.
The Portfolio may not purchase or sell futures contracts or purchase or
sell related options, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of margin deposits on the
Portfolio's outstanding positions in futures and related options and the amount
of premiums paid for outstanding positions in options on futures would exceed 5%
of the market value of the Portfolio's net assets. There are no other percentage
limitations on the Portfolio's transactions on future contracts or options on
futures, except that at least 80% of the Portfolio's net assets will be invested
in California obligations. These transactions involve brokerage costs, require
margin deposits and, in the case of futures contracts and options requiring the
Portfolio to purchase securities, require the Portfolio to segregate liquid high
grade debt securities in an amount equal to the underlying value of such
contracts and options. In addition, while transactions in futures contracts and
options on futures may reduce certain risks, such transactions themselves
involve (1) liquidity risk that contractual positions cannot be easily closed
out in the event of market changes, (2) correlation risk that changes in the
value of hedging positions may not match the market fluctuations intended to be
hedged (especially given that the only futures contracts currently available to
hedge California obligations are futures on various U.S. Government securities
and on municipal securities indices), (3) market risk that an incorrect
prediction by the Investment Adviser of interest rates may cause the Portfolio
to perform less well than if such positions had not been entered into, and (4)
skills different from those needed to select portfolio securities. Distributions
by the Fund from any net income or gains realized on the Portfolio's
transactions in futures and options on futures will be taxable.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
--------------------------------------------------------------------------------
THE FUND IS A DIVERSIFIED SERIES OF EATON VANCE INVESTMENT TRUST (THE "TRUST"),
A BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION
OF TRUST DATED OCTOBER 23, 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 Fund) it is known as a "series company". Each share represents an
equal proportionate beneficial interest in the Fund. When issued and
outstanding, the 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. Upon liquidation of the Fund, shareholders are entitled to share
pro rata 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 IS 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.
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 different 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 also 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 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
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. Any such change
of the investment objective of the Fund or the Portfolio 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 the Fund,
those shares may be subject to a contingent deferred sales charge, as described
in "How to Redeem Fund Shares". 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 all 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 funds investing in the Portfolio may be adversely
affected by the actions of larger funds investing in the Portfolio. For example,
if a large fund withdraws from the Portfolio, the remaining funds 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 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 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 actions 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. 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
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ---------------- ---------- -----------
1 up to $500 million ..................... 0.300% 3.00%
2 $500 million but less than $1 billion .. 0.275% 2.75%
3 $1 billion but less than $1.5 billion .. 0.250% 2.50%
4 $1.5 billion but less than $2 billion .. 0.225% 2.25%
5 $2 billion but less than $3 billion .... 0.200% 2.00%
6 $3 billion and over .................... 0.175% 1.75%
As at September 30, 1994, the Portfolio had net assets of $445,131,401. For
the six month period ended September 30, 1994, the Portfolio paid BMR advisory
fees equivalent to 0.50% (annualized) of the Portfolio's average daily net
assets for such period. For the period from the start of business, May 3, 1993,
to March 31, 1994, the Portfolio paid BMR advisory fees equivalent to 0.49%
(annualized) of the Portfolio's average daily net assets for such period.
BMR also furnishes for the use of the Portfolio office space and all
necessary office facilities, equipment and personnel for servicing the
investments of the Portfolio. The Portfolio is responsible for the payment of
all expenses other than those expressly stated to be payable by BMR under the
investment advisory agreement.
Robert B. MacIntosh has acted as the portfolio manager since the Portfolio
commenced operations. Mr. MacIntosh has been a Vice President of Eaton Vance
since 1991 and of BMR since 1992. Prior to joining Eaton Vance, he was a
Portfolio Manager at Fidelity Management & Research Company (1986-1991).
Municipal obligations, including California obligations, are normally
traded on a net basis (without commission) through broker-dealers and banks
acting for their own account. Such firms attempt to profit from such
transactions by buying at the bid price and selling at the higher asked price of
the market, and the difference is customarily referred to as the spread. In
selecting firms which will execute portfolio transactions, BMR judges their
professional ability and quality of service and uses its best efforts to obtain
execution at prices which are advantageous to the Portfolio and at reasonably
competitive spreads. Subject to the foregoing, BMR may consider sales of shares
of the Fund or of other investment companies sponsored by BMR or Eaton Vance as
a factor in the selection of firms to execute portfolio transactions.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly-held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Trust has retained the services of Eaton Vance to act as Administrator
of the Fund. 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 the Fund's 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 receives no
compensation. The Trustees 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. Such costs and
expenses to be borne by the Portfolio and the Fund, as the case may be, include,
without limitation; custody and transfer agency fees and expenses, including
those for determining net asset value and keeping accounting books and records;
expenses of pricing and valuation services; the cost of share certificates;
membership dues in investment company organizations; expenses of acquiring,
holding and disposing of securities and other investments; fees and expenses of
registering under the securities laws and the governmental fees; expenses of
reporting to shareholders and investors; proxy statements and other expenses of
shareholders' or investors' meetings; insurance premiums; printing and mailing
expenses; interest, taxes and corporate fees; legal and accounting expenses;
compensation and expenses of Trustees not affiliated with BMR or Eaton Vance;
and investment advisory fees, and, if any, administrative services fees. The
Portfolio and the Fund will also each bear expenses incurred in connection with
litigation in which the Portfolio or the Fund, as the case may be, is a party
and any legal obligation to indemnify its respective officers and Trustees with
respect thereto.
DISTRIBUTION PLAN
--------------------------------------------------------------------------------
THE FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(THE "PLAN") PURSUANT TO RULE 12B-1 UNDER THE 1940 ACT. Rule 12b-1 permits a
mutual fund, such as the 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. The Plan is subject to, and complies with, the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The Plan is described in the Statement of Additional Information, and
the following is a brief description of the salient features of the Plan. The
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) the Fund will pay the Principal
Underwriter amounts representing (i) sales commissions equal to 5% of the amount
received by the Fund for each share sold and (ii) distribution fees calculated
by applying the rate of 1% over the prime rate then reported in The Wall Street
Journal to the outstanding balance of Uncovered Distribution Charges (as
described below) of the Principal Underwriter. The 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 the Fund pursuant to the Plan.
THE NASD RULE REQUIRES THE FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO THE PRINCIPAL UNDERWRITER TO AN AMOUNT NOT
EXCEEDING .75% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR.
Accordingly, the 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. The 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 the 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 the 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 dererred 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.
The amount payable to the Principal Underwriter pursuant to the Plan 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 on such day, income on portfolio investments of the Portfolio accrued
and allocated to the Fund on such day, and dividends and distributions declared
by the Fund. 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 a liability under such 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 to the Principal Underwriter whenever there exist Uncovered
Distribution Charges under the Plan.
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. The Plan continues in effect through and including April 28, 1995,
and shall continue in effect indefinitely thereafter for so long as such
continuance is approved at least annually by the vote of both a majority of (i)
the 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.
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.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid to the Principal Underwriter during any fiscal year, a
high level of sales of Fund shares during the initial years of the 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 the Plan over an
extended period would result in the incurrence and payment of increased
distribution fees under the Plan.
For the six month period ended September 30, 1994 and for the year ended
March 31, 1994, the Fund paid sales commissions under the Plan equivalent to an
annualized rate of 0.75% and 0.81%, respectively, of the Fund's average daily
net assets for such year. As at September 30, 1994 and March 31, 1994, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Amended Plan amounted to approximately, $10,134,000 and
$11,357,000, respectively (which amount was equivalent to 2.3% and 2.4%,
respectively, of the Fund's net assets on such day).
THE PLAN ALSO AUTHORIZES THE FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The
Trustees of the Trust have implemented the Plan by authorizing the Fund to pay
service fees to Authorized Firms in amounts not exceeding .25% per annum of the
Fund's average daily net assets based on the value of Fund shares sold by such
Firms and remaining outstanding for at least one year. As permitted by the NASD
Rule, such payments are made for personal services and/or the maintenance of
shareholder accounts. Service fees paid to Authorized Firms are separate and
distinct from the sales commissions and distribution fees payable by the 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 six month period ended September 30, 1994 and year ended March 31, 1994, the
Fund made service fee payments to Authorized Firms in an amount of $404,860 and
$841,670, respectively, the Fund's average daily net assets for such year.
The Plan as currently implemented by the Trustees authorizes payments of
sales commissions and distribution fees to the Principal Underwriter and service
fees to Authorized Firms which may be equivalent, on an aggregate basis during
any fiscal year of the Fund, to 1% of the Fund's average daily net assets for
such year. 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. It is anticipated that the Eaton
Vance organization will profit by reason of the operation of the Plan through
increases in the Fund's assets (thereby increasing the advisory fees payable to
BMR by the Portfolio) resulting from sale of Fund shares and through amounts
paid under the Plan to the Principal Underwriter and contingent deferred sales
charges paid to the Principal Underwriter.
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 the 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 are expected to sell significant amounts of shares.
In addition, the Principal Underwriter may from time to time increase or
decrease the sales commissions payable to Authorized Firms.
The 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 Fund's management intends to consider all relevant factors,
including without limitation the size of the 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. The 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, the Fund is not contractually obligated to continue the 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
--------------------------------------------------------------------------------
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 substantially all of 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).
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 share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
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. California 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. Eaton Vance Corp. owns
77.3% of the outstanding stock of IBT, the Fund's and the Portfolio's custodian.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING
THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE.
HOW TO BUY FUND SHARES
--------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of the Fund through Authorized Firms
at the net asset value per share of the Fund next determined after an order is
effective. The Fund may suspend the offering of shares at any time and may
refuse an order for the purchase of shares.
An initial investment in the 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 Fund's Transfer Agent (the "Transfer Agent") as follows:
The Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104.
The $1,000 minimum initial investment is waived for Bank Draft Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services" below.
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 current price for such securities but does not
guarantee the best price available. 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 California Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon California Municipals Fund
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, 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 THE SHAREHOLDER SERVICES
GROUP, INC., 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 Fund share 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 The
Shareholder Services Group, Inc. 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
The Shareholder Services Group, Inc., 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 (1) applicable contingent deferred sales charges described below
and (2) 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.
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 Fund's 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, 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 by the 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; i.e., 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 DEFERRED
AFTER PURCHASE SALES CHARGE
------------------ -------------------
First ........................ 5%
Second ....................... 5%
Third ........................ 4%
Fourth ....................... 3%
Fifth ........................ 2%
Sixth ........................ 1%
Seventh and following ........ 0%
For shares purchased prior to August 1, 1994, the contingent deferred sales
charge for redemptions within the first year after purchase is 6%. In
calculating the contingent deferred sales charge upon the redemption of Fund
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
Fund shares acquired in the exchange is deemed to have occurred at the time of
the original purchase of exchanged shares. The contingent deferred sales charge
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).
No contingent deferred sales charge will be imposed on shares of the Fund
which have been sold to Eaton Vance, its affiliates, their respective employees
or clients. 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 Plan."
THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CONTINGENT DEFERRED
SALES CHARGE. ASSUME THAT AN INVESTOR PURCHASES $10,000 OF THE 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
--------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the 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 income tax and California tax
returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
--------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., 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, the shareholder will receive a statement showing
complete details of any transaction and the current share balance in the
account. THE LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE
ADDITIONAL INVESTMENTS BY SENDING A CHECK FOR $50 OR MORE to The Shareholder
Services Group, Inc.
Any questions concerning a shareholder's account or services available may
be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to The Shareholder Services Group, Inc., 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, The Shareholder Services Group, Inc.,
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 the 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
the 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 BY SENDING A CHECK FOR $50 OR MORE.
THE EATON VANCE EXCHANGE PRIVILEGE
--------------------------------------------------------------------------------
Shares of the Fund may be exchanged for shares of one or more other funds in the
Eaton Vance Marathon Group of Funds (currently Eaton Vance Equity-Income Trust,
Eaton Vance Liquid Assets Trust (until March 31, 1995), and any EV Marathon
fund, except EV Marathon Short-Term Strategic Income Fund, Eaton Vance Prime
Rate Reserves and any EV Marathon Limited Maturity Fund) which are distributed
with a contingent deferred sales charge, on the basis of 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. Effective March 31, 1995, the EV Marathon Group of Funds will
also include EV Marathon Short-Term Strategic Income Fund, any EV Marathon
Limited Maturity Fund and, when publicly available, Eaton Vance Money Market
Fund (availability expected on or about April 3, 1995).
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.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult The Shareholder Services Group, Inc. for
additional information concerning the exchange privilege. Applications and
prospectuses of the 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 Short-Term 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 Short-Term 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 may be exchanged for Fund shares at 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 The Shareholder Services Group, Inc.
provided the investor has not disclaimed in writing the use of the privilege. To
effect such exchanges, call The Shareholder Services Group, Inc. 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 The Shareholder
Services Group, Inc. 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.
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 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 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 The Shareholder Services Group, Inc., 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 DRAFT INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of $50
or more may be made through the shareholder's checking account via bank draft
each month or quarter. The $1,000 minimum initial investment and small account
redemption policy are waived for these accounts.
WITHDRAWAL PLAN: You can draw on your shareholdings systematically with monthly
or quarterly checks in an aggregate amount that does not exceed annually 12% of
the original account balance. 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 THE FUND,
provided that the reinvestment is effected within 30 days after such repurchase
or redemption. 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 (or by the Fund's Transfer Agent).
To the extent that any shares 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 will not be allowed as a tax. Shareholders
should consult their tax advisers concerning the tax consequences of
reinvestments.
DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, 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 paid in cash or additional shares of the Fund, will
constitute tax-exempt income to its 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 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 (if any) 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 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 (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 attributable 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 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 (see page 5). 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.
California law provides that dividends paid by the Fund and designated by
the 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 California obligations, provided that at least 50% of
the assets of the 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.
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 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 1 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
average annual total return calculation assumes a complete redemption of the
investment and the deduction of any contingent deferred sales charge at the end
of the period. The Fund may also publish annual and cumulative total return
figures from time to time.
The Fund may also 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.
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.
The 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 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 or the Portfolio are paid by Eaton
Vance, the Fund's performance will be higher.
<PAGE>
INVESTMENT ADVISER OF
CALIFORNIA TAX FREE PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EV MARATHON
CALIFORNIA MUNICIPALS FUND
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
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche
125 Summer Street
Boston, MA 02110
EV MARATHON CALIFORNIA
MUNICIPALS FUND
24 FEDERAL STREET
BOSTON, MA 02110
M-CAP
[LOGO]
EV MARATHON
CALIFORNIA
MUNICIPALS FUND
PROSPECTUS
FEBRUARY 1, 1995
<PAGE>
EATON VANCE MUNICIPALS TRUST
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
SUPPLEMENT TO PROSPECTUS DATED NOVEMBER 25, 1994
1. Effective September 29, 1995, EV Traditional California Municipals Fund was
reorganized and became a series of Eaton Vance Municipals Trust, a business
trust organized under the laws of the Commonwealth of Massachusetts. Prior to
the reorganization, the Fund had been a series of Eaton Vance Investment
Trust, which is also a Massachusetts business trust. Except for the fact that
the Fund is now a series of Eaton Vance Municipals Trust, shares of the Fund
represent the same interest in the Fund's assets, are of the same class, are
subject to the same terms and conditions, fees and expenses and confer the
same rights as when the Fund was a series of Eaton Vance Investment Trust.
2. The Trustees of the Fund and the Portfolio have amended the nonfundamental
investment policy governing call options to read "neither the Fund nor the
Portfolio may 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". THE FOLLOWING DISCLOSURE IS
ADDED TO THE SECTION "HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS":
The Portfolio may purchase instruments that give the Portfolio the
option to purchase a municipal obligation when and if issued. 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.
3. THE FOLLOWING IS ADDED TO THE FIRST PARAGRAPH UNDER "PERFORMANCE
INFORMATION":
The Fund may quote total return for the period prior to the Fund's
commencement of operations which would reflect the Portfolio's total
return (and that of its predecessor) adjusted to reflect any applicable
Fund sales charge. 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.
4. THE FOLLOWING PARAGRAPH REPLACES THE PARAGRAPH UNDER THE CAPTION "EATON
VANCE SHAREHOLDER SERVICES -- REINVESTMENT PRIVILEGE":
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED
SHARES MAY REINVEST AT NET ASSET VALUE 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 THE FUND, or, provided that the shares repurchased or redeemed
have been held for at least 60 days, in shares or 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 whose
shares are to be purchased (or by such fund's transfer agent). The
privilege is also available to holders of shares of the other funds
offered subject to an initial sales charge who wish to reinvest such
redemption or repurchase proceeds in shares of the Fund. 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. Special rules may apply to the computation of
gain or loss and to the deduction of loss on a repurchase or redemption
followed by a reinvestment. See "Distributions and Taxes". Shareholders
should consult their tax advisers concerning the tax consequences of
reinvestments.
5. THE FOLLOWING SENTENCE IS ADDED TO "HOW TO BUY FUND SHARES":
Fund shares may be sold at net asset value 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. Shares of the Fund may also be sold at net asset value
to an investor making an investment through an investment adviser,
financial planner, broker or other intermediary that charges a fee for
its servces and has entered into an agreement with the Fund or its
Principal Underwriter. An Authorized Firm may charge a fee in
connection with transactions executed by that Firm.
6. THE FOLLOWING IS ADDED TO "REPORTS TO SHAREHOLDERS":
Consistent with applicable law, duplicate mailings of shareholder
reports and certain other Fund information to shareholders residing at
the same address may be eliminated.
7. IN ADDITION, THE FOLLOWING CHANGES (I-V) APPLY TO FUND SHARES PURCHASED ON
OR AFTER MARCH 27, 1995:
(I) THE SHAREHOLDER TRANSACTION EXPENSES TABLE UNDER "SHAREHOLDER AND
FUND EXPENSES" IS REPLACED BY THE FOLLOWING TABLE:
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 3.75%
Sales Charges Imposed on Reinvested Distributions None
Redemption Fees None
Fees to Exchange Shares None
Contingent Deferred Sales Charges Imposed on Redemptions None
Based on the Shareholder Transaction Expenses shown above and on the
total operating expenses shown in the Prospectus, an investor would pay
expenses $10 less than the expenses for one year and three years shown in
the Example under "Shareholder and Fund Expenses".
(II) THE FIRST PARAGRAPH UNDER "THE EATON VANCE EXCHANGE PRIVILEGE" IS
REPLACED BY THE FOLLOWING PARAGRAPH:
Shares of the 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.
(III) THE SALES CHARGE AND DEALER COMMISSION TABLES UNDER "HOW TO BUY FUND
SHARES" ARE REPLACED BY THE FOLLOWING TABLE:
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%<F1> 0.00%<F1> 0.25%<F2>
<FN>
<F1> Fund shares purchased before March 27, 1995 at net asset value with no
initial sales charge by virtue of the purchase having been in the amount of
$1 million or more may be subject to a contingent deferred sales charge
upon redemption.
<F2> The Principal Underwriter may pay Authorized Firms that initiate and are
responsible for purchases of $1 million or more a commission at an annual
rate of 0.25% of average daily net assets paid quarterly for one year.
</TABLE>
(IV) IN THE DESCRIPTIONS OF THE STATEMENT OF INTENTION AND THE RIGHT OF
ACCUMULATION UNDER "EATON VANCE SHAREHOLDER SERVICES," THE $100,000 AMOUNTS
ARE REPLACED BY $50,000 AMOUNTS.
(V) REFERENCES TO A CONTINGENT DEFERRED SALES CHARGE OR "CDSC" DO NOT
APPLY TO FUND SHARES PURCHASED ON OR AFTER MARCH 27, 1995.
8. THE FOLLOWING TABLE REPLACES THE TABLE UNDER "THE FUND'S FINANCIAL
HIGHLIGHTS" ON PAGE THREE OF THE PROSPECTUS:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, 1995 SEPTEMBER 30,
(UNAUDITED) 1994<F1>
-------------- -------------
<S> <C> <C>
NET ASSET VALUE, beginning of period $ 9.840 $10.000
------- -------
INCOME FROM OPERATIONS:
Net investment income $ 0.301 $ 0.209
Net realized and unrealized gain (loss) on
investments 0.271 (0.158)<F3>
------- -------
Total income from operations $ 0.572 $ 0.051
------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.301) $(0.209)
In excess of net investment income (0.001) (0.002)
------- -------
Total distributions $(0.302) $(0.211)
------- -------
NET ASSET VALUE, end of period $10.110 $ 9.840
======= =======
TOTAL RETURN<F5> 5.98% 0.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $ 3,664 $ 3,101
Ratio of net expenses to average net assets<F4> 0.70%<F2> 0.54%<F2>
Ratio of net investment income to average net
assets 6.14%<F2> 5.60%<F2>
For the six months ended March 31, 1995 and the period from the start of
business, May 27, 1994, to September 30, 1994, the operating expenses of the
Fund reflect an allocation of expenses to 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 $ 0.158
======= =======
RATIOS (As a percentage of average net assets):
Expenses<F4> 1.90%<F2> 1.92%<F2>
Net investment income 4.94%<F2> 4.22%<F2>
<FN>
<F1> For the period from the start of business, May 27, 1994, to September 30,
1994.
<F2> Computed on an annualized basis.
<F3> The per share amount is not in accord with the net realized and unrealized
gains and losses 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.
<F4> Includes the Fund's share of California Tax Free Portfolio's allocated
expenses.
<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 not
computed on an annualized basis.
</TABLE>
THE DATE OF THE ATTACHED PROSPECTUS IS CHANGED TO OCTOBER 1, 1995. ALL
REFERENCES IN THE PROSPECTUS TO EATON VANCE INVESTMENT TRUST OR THE TRUST ARE
DEFINED TO MEAN EATON VANCE MUNICIPALS TRUST.
October 1, 1995 T-CAPS
<PAGE>
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND (THE "FUND") IS A MUTUAL FUND
SEEKING TO PROVIDE CURRENT INCOME EXEMPT FROM BOTH THE REGULAR FEDERAL INCOME
TAX AND THE CALIFORNIA PERSONAL INCOME TAX. THE FUND INVESTS ITS ASSETS IN
CALIFORNIA TAX FREE PORTFOLIO (THE "PORTFOLIO"), A 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
INVESTMENT TRUST (THE "TRUST").
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Fund involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A Statement
of Additional Information dated November 25, 1994 for the Fund, 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., 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 PROS- PECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C> <C>
Shareholder and Fund Expenses ................... 2 How to Redeem Fund Shares ................... 18
The Fund's Financial Highlights ................. 3 Reports to Shareholders ..................... 20
The Fund's Investment Objective ................. 4 The Lifetime Investing Account/Distribution
How the Fund and the Portfolio Invest their Options ................................... 20
Assets ........................................ 4 The Eaton Vance Exchange Privilege .......... 21
Organization of the Fund and the Portfolio ...... 11 Eaton Vance Shareholder Services ............ 22
Management of the Fund and the Portfolio ........ 14 Distributions and Taxes ..................... 23
Service Plan .................................... 15 Performance Information ..................... 24
Valuing Fund Shares ............................. 16 Statement of Intention and Escrow Agreement . 25
How to Buy Fund Shares .......................... 16
</TABLE>
------------------------------------------------------------------------------
PROSPECTUS DATED NOVEMBER 25, 1994
<PAGE>
SHAREHOLDER AND FUND EXPENSES (1)
------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as
a percentage of offering price) 4.75%
Sales Charges Imposed on Reinvested Distributions None
Redemption Fees None
Fees to Exchange Shares None
Contingent Deferred Sales Charges (on purchases of $ 1
million or more) Imposed on Redemptions During the First
Eighteen Months (as a percentage of redemption proceeds
exclusive of all reinvestments and capital appreciation in
the account)(2) 1.00%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
Investment Adviser Fee(3) 0.50%
Rule 12b-1 Fees (Service Plan) 0.05
Other Expenses 0.20
----
Total Operating Expenses 0.75%
====
EXAMPLE 1 YEAR 3 YEARS
------ -------
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:
$55 $70
Notes:
(1) The purpose of the above table and Example is to summarize the aggregate
expenses of the Fund and the Portfolio and to assist investors in
understanding the various costs and expenses that investors in the Fund will
bear directly or indirectly. The Trustees of the Trust believe that over
time the aggregate per share expenses of the Fund and the Portfolio should
be approximately equal to the per share expenses which the Fund would incur
if the Trust retained the services of an investment adviser and the assets
of the Fund were invested directly in the type of securities being held by
the Portfolio. Since the Fund does not yet have a sufficient operating
history, the percentages indicated as Annual Fund and Allocated Portfolio
Operating Expenses and the amounts included in the Example are based on the
Fund's and Portfolio's projected fees and expenses for the current fiscal
year ending September 30, 1995. The table and Example should not be
considered a representation of future expenses since future expenses may be
greater or less than those shown. 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," "Management of
the Fund and the Portfolio", "Service Plan" and "How to Redeem Fund Shares."
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."
(2) If shares of the 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 18 months after the end of the calendar month
in which the purchase was made, a contingent deferred sales charge of 1%
will be imposed on such redemption. See "How to Buy Fund Shares," "How to
Redeem Fund Shares" and "Eaton Vance Shareholder Services."
(3) 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 14.
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------
The following information should be read in conjunction with the financial
statements included in the Statement of Additional Information, all of which has
been so included in reliance upon reports of Deloitte & Touche LLP, independent
certified public accountants, as experts in accounting and auditing. Further
information regarding the performance of the Fund will be 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.
------------------------------------------------------------------------------
FOR THE PERIOD FROM THE START OF BUSINESS, MAY 27, 1994, TO SEPTEMBER 30, 1994
NET ASSET VALUE, beginning of period ........................... $ 10.000
---------
Income from operations:
Net investment income ...................................... $ 0.209
Net realized and unrealized loss on investments ............ (0.158)++
---------
Total income from operations ............................. $ 0.051
---------
LESS DISTRIBUTIONS:
From net investment income ................................. $ (0.209)
In excess of net investment income ......................... (0.002)
---------
Total distributions ...................................... $ (0.211)
---------
NET ASSET VALUE, end of period ................................. $ 9.84
=========
TOTAL RETURN(2) ................................................ 0.50%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period (000 omitted) .................... $ 3,101
Ratio of net expenses to average net assets(1) ............. 0.54%+
Ratio of net investment income to average net assets ....... 5.60%+
* For the period from the start of business, May 27, 1994, to September 30,
1994, the operating expenses of the Fund reflect an allocation of expenses to
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 ................................ $ 0.158
=========
RATIOS (As a percentage of average net assets):
Expenses(1)................................................. 1.92%+
Net investment income ...................................... 4.22%+
+ Computed on an annualized basis.
++ The per share amount is not in accord with the net realized and unrealized
gians and losses 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) Includes the Fund's share of its California 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.
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
------------------------------------------------------------------------------
The Fund's investment objective is to provide current income exempt from both
the regular Federal income tax and the California personal income tax. The Fund
seeks to meet its investment objective by investing its assets in the California
Tax Free Portfolio (the "Portfolio"), a separate registered investment company
which invests primarily in a diversified portfolio of California obligations (as
defined 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.
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 assets during periods of normal market conditions) in
debt obligations issued by or on behalf of the State of California and its
political subdivisions, the interest on which is exempt from both the regular
Federal income tax and the California personal income tax ("California
obligations"). The foregoing policy is a fundamental policy which may not be
changed unless authorized by a vote of the shareholders of the Fund. The
Portfolio seeks to achieve its investment objective by investing primarily
(i.e., at least 80% of its assets during periods of normal market conditions) in
debt obligations issued by or on behalf of the State of California and its
political subdivisions, the interest on which is exempt from regular Federal
income tax, is not a tax preference item under the Federal alternative minimum
tax and is exempt from the California personal income tax. The foregoing policy
is a fundamental policy of the Portfolio which may not be changed unless
authorized by a vote of the investors in the Portfolio.
At least 75% of the Portfolio's net assets will normally be invested in
obligations rated at least investment grade (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. California 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. The
Portfolio may invest up to 25% of its net assets in California obligations rated
below investment grade (but not lower than B by Moody's, S&P or Fitch) and
unrated California obligations considered to be of comparable quality by the
Investment Adviser. Securities rated below BBB or Baa are commonly known as
"junk bonds". See "Credit Quality -- Risks." The Portfolio may retain an
obligation whose rating drops below B after its acquisition if such retention is
considered desirable by the Investment Adviser; provided, however, that the
Portfolio's holdings of obligations rated below investment grade will not exceed
35% of its net assets. For a description of municipal obligation ratings, see
the Fund's Statement of Additional Information.
CALIFORNIA OBLIGATIONS. California obligations include bonds, notes and
commercial paper issued by a municipality for a wide variety of both public and
private purposes. 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 and construction loan 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.
Construction loan notes are short-term obligations that will be retired with the
proceeds of long-term mortgage financing. Under normal market conditions, the
Portfolio will invest at least 65% of its total assets in obligations issued by
California or its political subdivisions.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from the regular Federal income tax applicable to individuals (and
corporations), 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 his liability for the Federal alternative minimum tax;
as at September 30, 1994, the Portfolio had 12.7% of its net assets invested in
such private activity bonds. The Portfolio may not invest more than 20% of its
assets in these obligations and obligations that pay interest subject to regular
Federal income tax and/or California personal income taxes. 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 applicable to corporations.
The Omnibus Budget Reconciliation Act of 1993 changed the federal income tax
treatment of 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 from taxable capital gain to taxable 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. The Portfolio may
acquire municipal obligations at a market discount from time to time, and the
Fund's distributions will (when so required) include taxable income reflecting
the realization of such accrued discount by the Portfolio and its allocation to
the Fund.
MATURITY. It is expected that the Portfolio will normally contain substantial
amounts of long-term California obligations with maturities of ten years or more
because such long-term obligations generally produce higher income than
short-term obligations. Such long-term obligations are more susceptible to
market fluctuations resulting from changes in interest rates than shorter term
obligations. Since the Portfolio's objective is to provide current income, the
Portfolio will invest in California obligations with an emphasis on income and
not on stability of the Portfolio's net asset value. The average maturity of the
Portfolio's holdings may vary (generally between 15 and 30 years) depending on
anticipated market conditions.
Although the Portfolio will normally attempt to invest substantially all of
its assets in California obligations, the Portfolio may, under normal market
conditions, invest up to 20% of its assets in short-term obligations the
interest on which is subject to regular Federal income tax, Federal alternative
minimum tax and/or California personal income taxes. Such short-term taxable
obligations may include, but are not limited to, certificates of deposit,
commercial paper, short-term notes and obligations issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities. During periods of
adverse market conditions, the Portfolio may temporarily invest more than 20% of
its assets in such short-term taxable obligations, which will be rated no lower
than investment grade.
DIVERSIFIED STATUS. The Portfolio is a "diversified" investment company under
the Investment Company Act of 1940. This means that with respect to 75% of its
total assets (1) the Portfolio may not invest more than 5% of its total assets
in the securities of any one issuer (except U.S. Government obligations) and (2)
the Portfolio may not own more than 10% of the outstanding voting securities of
any one issuer. Since California obligations are not voting securities, there is
no limit on the percentage of a single issuer's obligations which the Portfolio
may own so long as it does not invest more than 5% of its total assets in the
securities of that issuer. Consequently, the Portfolio may invest in a greater
percentage of the outstanding securities of a single issuer than would an
investment company which invests in voting securities. As for the remaining 25%
of the Portfolio's total assets not subject to the limitations described above,
there is no diversification requirement with respect to these assets, so that
all of such assets may be invested in the securities of any one issuer. Because
of the relatively small number of issues of California obligations, the
Portfolio is likely to invest a greater percentage of its assets in the
securities of a single issuer than is an investment company which invests in a
broad range of municipal obligations. To the extent that the Portfolio is less
diversified than that of other investment companies, it may 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.
CONCENTRATION. The Portfolio may invest 25% or more of its assets in California
obligations of the same type, including without limitation the following:
general obligations of the State of California 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 issuers. For example, health
care-related issuers are susceptible to medicaid reimbursement policies and
national or 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.
CONCENTRATION IN CALIFORNIA ISSUES -- RISKS. Because the Portfolio will
ordinarily invest 80% or more of its assets in California obligations, it is
more susceptible to factors affecting California issuers than is a comparable
municipal bond fund not concentrated in the obligations of issuers located in a
single state.
California has experienced severe economic and fiscal stress over the past
four years. The recession that began in the U.S. in 1990 marked the start of the
deepest recession in California since the Great Depression. 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.
California's economic weakness has continued into 1994; unemployment was 8.3% in
May, compared to a U.S. rate of 6%.
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
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 that proposal was rejected by California voters in
June 1994. The Governor subsequently announced that funds earmarked for other
projects would be used for earthquake relief.
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 of the date of this Prospectus, 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 A by Moody's, from A+ to A by S&P, and from AA
to A by Fitch. There can be no assurance that the economic conditions on which
these ratings are based will continue or that particular bond issues may not be
adversely affected by changes in economic, political or other conditions.
California obligations also include obligations of the governments of Puerto
Rico, the U.S. Virgin Islands and Guam to the extent that these obligations are
exempt from California personal income taxes. The Portfolio will not invest more
than 5% of its net assets in the obligations of each of the U.S. Virgin Islands
and Guam, and under normal circumstances the Portfolio will not invest in the
aggregate more than 20% of its assets in 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. Currently, S&P rates Puerto Rico
general obligation debt A, while Moody's rates it Baa1; these ratings have been
in place since 1956 and 1976, respectively. The reliance on nonrecurring
revenues and economic weakness led S&P to change their outlook from stable to
negative. 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
1992, 1993 and 1994. 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 August, 1994 was approximately 14.5%.
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.
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 entered into by a state or local government 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 asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to acquire
property and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. 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 purposes of the Portfolio's 15% limitation on investing 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 ongoing basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
--------------------------------------------------------------------------------
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 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 OF 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 OBJECTIVE WHICH AN INVESTOR CONSIDERED APPROPRIATE AT THE TIME THE
INVESTOR BECAME A SHAREHOLDER IN THE FUND.
--------------------------------------------------------------------------------
ZERO COUPON BONDS. The Portfolio may invest in zero coupon bonds, which are debt
obligations that do not require the periodic payment of interest and are issued
at a significant discount from their face value. Such bonds experience greater
volatility in market value due to changes in interest rates than debt
obligations that provide for regular payments of interest. The Portfolio will
accrue income on such bonds for tax and accounting purposes in accordance with
applicable law, the Fund's proportionate share of which income is distributable
to shareholders. Because no cash is received at the time such income is accrued,
the Portfolio may be required to liquidate other portfolio securities to
generate cash that the Fund may withdraw from the Portfolio to satisfy the
Fund's distribution obligations.
INVERSE FLOATERS. The Portfolio may invest in various types of derivative
municipal securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse floaters").
Derivatives are securities that provide for payments based on or derived from
the performance of an underlying asset, index or other economic benchmark. An
investment in derivative instruments, such as inverse floaters, may involve
greater risk than an investment in a fixed rate bond. Because changes in the
interest rate on the other security or index inversely affect the residual
interest paid on the inverse floater, the value of an inverse floater is
generally more volatile than that of a fixed rate bond. Inverse floaters have
interest rate adjustment formulas which generally reduce or, in the extreme,
eliminate the interest paid to the Portfolio when short-term interest rates
rise, and increase the interest paid to the Portfolio when short-term interest
rates fall. Inverse floaters have varying degrees of liquidity, and the market
for these securities is new and relatively volatile. These securities tend to
underperform the market for fixed rate bonds in a rising interest rate
environment, but tend to outperform the market for fixed rate bonds when
interest rates decline. Shifts in long-term interest rates may alter this
tendency, however. 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.
CREDIT QUALITY -- RISKS. Many California obligations offering the current income
sought by the Portfolio are in the lowest investment grade category (Baa or
BBB), lower categories or may be unrated. As indicated above, the 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 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 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
defaulted obligation, the Portfolio may incur additional expense seeking
recovery of its investment. For a description of municipal obligation ratings,
see the Statement of Additional Information
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.
MARKET CONDITIONS. The management of the Portfolio believes that, in general,
the secondary market for California 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. No established resale market exists for certain of the
California 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 Portfolio's ability to sell or
dispose of such securities. Also, valuation of such obligations may be more
difficult.
NET ASSET VALUE FLUCTUATION. The net asset value 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 existing portfolio security holdings can be
expected to decline. Therefore, an investment in shares of the Fund will not
constitute a complete investment program.
SHORT-TERM TRADING. The Portfolio may sell 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 California obligations or changes in
the investment objectives of investors. Such trading may be expected to increase
portfolio turnover rate 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. The 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 the Portfolio agreed to pay for them. The Portfolio will not
accrue income in respect of a when-issued security prior to its stated delivery
date. The Portfolio will maintain in a segregated account sufficient assets to
cover its outstanding purchase obligations.
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.
FUTURES AND OPTIONS TRANSACTIONS. To hedge against changes in interest rates,
the Portfolio may purchase and sell various kinds of futures contracts, and
purchase and write call and put options on futures contracts. The Portfolio may
also enter into closing purchase and sale transactions with respect to such
contracts and options. The futures contracts may be based on various debt
securities (such as U.S. Government securities), securities indices and other
financial instruments and indices. The Portfolio would engage in futures and
related options transactions for bona fide hedging or non-hedging purposes as
defined in regulations of the Commodity Futures Trading Commission. The
Portfolio will engage in such transactions for non-hedging purposes only in
order to enhance total return by using a futures position as a lower cost
substitute for a securities position that the Portfolio is otherwise authorized
to enter into.
The Portfolio may not purchase or sell futures contracts or purchase or sell
related options, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of margin deposits on the
Portfolio's outstanding positions in futures and related options and the amount
of premiums paid for outstanding positions in options on futures would exceed 5%
of the market value of the Portfolio's net assets. There are no other percentage
limitations on the Portfolio's transactions on future contracts or options on
futures, except that at least 80% of the Portfolio's assets will be invested in
California obligations. These transactions involve brokerage costs, require
margin deposits and, in the case of futures contracts and options requiring the
Portfolio to purchase securities, require the Portfolio to segregate liquid high
grade debt securities in an amount equal to the underlying value of such
contracts and options. In addition, while transactions in futures contracts and
options on futures may reduce certain risks, such transactions themselves
involve (1) liquidity risk that contractual positions cannot be easily closed
out in the event of market changes, (2) correlation risk that changes in the
value of hedging positions may not match the market fluctuations intended to be
hedged (especially given that the only futures contracts currently available to
hedge California obligations are futures on various U.S. Government securities
and on municipal securities indices), (3) market risk that an incorrect
prediction by the Investment Adviser of interest rates may cause the Portfolio
to perform less well than if such positions had not been entered into, and (4)
skills different from those needed to select portfolio securities. Distributions
by the Fund from any net income or gains realized on the Portfolio's
transactions in futures and options on futures will be taxable.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
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THE FUND IS A DIVERSIFIED SERIES OF EATON VANCE INVESTMENT TRUST (THE "TRUST"),
A BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION
OF TRUST DATED OCTOBER 23, 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 Fund) it is known as a "series company". Each share represents an
equal proportionate beneficial interest in the Fund. When issued and
outstanding, the 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. Upon liquidation of the Fund, shareholders are entitled to share
pro rata in the net assets of the Fund available for distribution to
shareholders.
CALIFORNIA TAX FREE PORTFOLIO (THE "PORTFOLIO") IS ORGANIZED AS A TRUST
UNDER THE LAWS OF THE STATE OF NEW YORK AND IS 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.
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 different 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 also 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 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
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. Any such change
of the investment objective of the Fund or the Portfolio 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 all 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 funds investing in the Portfolio may be adversely
affected by the actions of larger funds investing in the Portfolio. For example,
if a large fund withdraws from the Portfolio, the remaining funds 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 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 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 actions 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
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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. 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
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ---------------- ---------- -----------
1 up to $500 million ........................... 0.300% 3.00%
2 $500 million but less than $1 billion ........ 0.275% 2.75%
3 $1 billion but less than $1.5 billion ........ 0.250% 2.50%
4 $1.5 billion but less than $2 billion ........ 0.225% 2.25%
5 $2 billion but less than $3 billion .......... 0.200% 2.00%
6 $3 billion and over .......................... 0.175% 1.75%
As at September 30, 1994, the Portfolio had net assets of $445,131,401. For
the fiscal year ended September 30, 1994, the Portfolio paid BMR advisory fees
equivalent to 0.50% (annualized) of the Portfolio's average daily net assets for
such period.
BMR also furnishes for the use of the Portfolio office space and all
necessary office facilities, equipment and personnel for servicing the
investments of the Portfolio. The Portfolio is responsible for the payment of
all expenses other than those expressly stated to be payable by BMR under the
investment advisory agreement.
Robert B. MacIntosh has acted as the portfolio manager since the Portfolio
commenced operations. Mr. MacIntosh has been a Vice President of Eaton Vance
since 1991 and of BMR since 1992. Prior to joining Eaton Vance, he was a
Portfolio Manager at Fidelity Management & Research Company (1986-1991).
Municipal obligations, including California obligations, are normally traded
on a net basis (without commission) through broker-dealers and banks acting for
their own account. Such firms attempt to profit from such transactions by buying
at the bid price and selling at the higher asked price of the market, and the
difference is customarily referred to as the spread. In selecting firms which
will execute portfolio transactions, BMR judges their professional ability and
quality of service and uses its best efforts to obtain execution at prices which
are advantageous to the Portfolio and at reasonably competitive spreads. Subject
to the foregoing, BMR may consider sales of shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Trust has retained the services of Eaton Vance to act as administrator
of the Fund. 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 the Fund's 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 receives no
compensation. The Trustees 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. Such costs and
expenses to be borne by the Portfolio and the Fund, as the case may be, include,
without limitation; custody and transfer agency fees and expenses, including
those for determining net asset value and keeping accounting books and records;
expenses of pricing and valuation services; the cost of share certificates;
membership dues in investment company organizations; expenses of acquiring,
holding and disposing of securities and other investments; fees and expenses of
registering under the securities laws and the governmental fees; expenses of
reporting to shareholders and investors; proxy statements and other expenses of
shareholders' or investors' meetings; insurance premiums; printing and mailing
expenses; interest, taxes and corporate fees; legal and accounting expenses;
compensation and expenses of Trustees not affiliated with BMR or Eaton Vance;
and investment advisory fees, and, if any, administrative services fees. The
Portfolio and the Fund will also each bear expenses incurred in connection with
litigation in which the Portfolio or the Fund, as the case may be, is a party
and any legal obligation to indemnify its respective officers and Trustees with
respect thereto.
SERVICE PLAN
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In addition to advisory fees and other expenses, the Fund pays service fees
pursuant to a Service Plan (the "Plan") designed to meet the requirements of
Rule 12b-1 under the Investment Company Act of 1940 and the service fee
requirements of the revised sales charge rule of the National Association of
Securities Dealers, Inc. The Plan is further described in the Statement of
Additional Information, and the following is a description of the salient
features of the Plan.
THE PLAN PROVIDES THAT THE FUND MAY MAKE SERVICE FEE PAYMENTS FOR PERSONAL
SERVICES AND/OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS TO THE PRINCIPAL
UNDERWRITER, 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 the Plan by authorizing the Fund to make
service fee payments to the Principal Underwriter and Authorized Firms in
amounts not expected to exceed .25% 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. The Fund expects to
commence accruing service fee payments during the quarter ending June 30, 1995.
VALUING FUND SHARES
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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 substantially all of 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).
Financial service firms ("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 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.
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. California 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. Eaton Vance Corp. owns
77.3% of the outstanding stock of IBT, the Fund's and the Portfolio's custodian.
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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.
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HOW TO BUY FUND SHARES
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SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of the 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. The 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. The Fund may suspend the
offering of shares at any time and may refuse an order for the purchase of
shares.
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, Right of Accumulation, or
various employee benefit plans are available from Authorized Firms or the
Principal Underwriter.
The current sales charges are:
SALES CHARGE SALES CHARGE
AS PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED
Under $100,000 ...................... 4.75% 4.99%
$100,000 but less than $250,000 ..... 3.75 3.90
$250,000 but less than $500,000 ..... 2.75 2.83
$500,000 but less than $1,000,000 ... 2.00 2.04
$1,000,000 or more .................. 0* 0*
*No sales charge is payable at the time of purchase on investments of $1
million or more. A contingent deferred sales charge ("CDSC") of 1% will be
imposed on such investments, as described below, in the event of certain
redemption transactions within 18 months of purchase.
The current dealer commission is:
DEALER COMMISSION
AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE
Under $100,000 ................................................ 5.00%
$100,000 but less than $250,000 ............................... 4.00
$250,000 but less than $500,000 ............................... 3.00
$500,000 but less than $1,000,000 ............................. 2.25
$1,000,000 or more ............................................ 0**
**The Principal Underwriter may pay a commission to Authorized Firms who
initiate and are responsible for purchases of $1 million or more as follows:
1.00% on sales up to $2 million, plus 0.80% on the next $1 million, 0.20% on
the next $2 million and 0.08% on the excess over $5 million.
The Principal Underwriter may at times allow discounts up to the full sales
charge. During periods when the discount includes the full sales charge, such
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 the 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 are expected to sell significant amounts of shares.
An initial investment in the 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 Fund's transfer agent as follows: The Shareholder Services
Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104. The $1,000 minimum initial
investment is waived for Bank Draft Investing accounts, which may be established
with an investment of $50 or more. See "Eaton Vance Shareholder Services".
Shares of the Fund may be sold at net asset value to current and retired
Directors and Trustees of Eaton Vance funds, including the Portfolio; 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 in connection with the
merger of an investment company with the Fund and 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.
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 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 Fund Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Traditional California Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Traditional California Municipals Fund
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, 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
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A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., 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 Fund share 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 The
Shareholder Services Group, Inc. 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 The
Shareholder Services Group, Inc., 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.
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 Fund's 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, 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 by the Fund 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 18 months after the end of the calendar month in which
the purchase was made, a CDSC of 1% will be imposed on such redemption. 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 the 30-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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THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the 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 income tax and California tax
returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
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AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., 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, the shareholder will receive a statement showing
complete details of any transaction and the current share balance in the
account. THE LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE
ADDITIONAL INVESTMENTS BY SENDING A CHECK FOR $50 OR MORE to The Shareholder
Services Group, Inc.
Any questions concerning a shareholder's account or services available may
be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to The Shareholder Services Group, Inc., BOS725, P.O.
Box 1559, Boston, MA 02104 (please provide your name and 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, The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104. The currently effective option will
appear on each confirmation 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 the 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
the 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 BY SENDING A CHECK FOR $50 OR MORE.
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THE EATON VANCE EXCHANGE PRIVILEGE
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Shares of the Fund may 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 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 $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 the 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.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult The Shareholder Services Group, Inc. for
additional information concerning the exchange privilege. Applications and
prospectuses of the 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 similarly exchanged for Fund shares at their
respective net asset values per share, but subject to any restrictions or
qualifications set forth in the current prospectus of any such fund.
Telephone exchanges are accepted by The Shareholder Services Group, Inc.
provided the investor has not disclaimed in writing the use of the privilege. To
effect such exchanges, call The Shareholder Services Group, Inc. 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 The Shareholder
Services Group, Inc. 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 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 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 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 The Shareholder Services Group, Inc., 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 DRAFT INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of $50
or more may be made through the shareholder's checking account via bank draft
each month or quarter. The $1,000 minimum initial investment and small account
redemption policy are waived for these accounts.
STATEMENT OF INTENTION: Purchases of $100,000 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 $100,000 or more. Shares of the Eaton Vance funds mentioned
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.
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 THE FUND, or, provided that the shares
repurchased or redeemed have been held for at least 30 days, in shares of any of
the other funds offered by the Principal Underwriter with an initial sales
charge at net asset value, provided that the reinvestment is effected within 30
days after such repurchase or redemption. 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 whose shares
are to be purchased (or by such fund's transfer agent). The privilege is also
available to holders of shares of the other funds offered with an initial sales
charge by the Principal Underwriter who wish to reinvest such redemption or
repurchase proceeds in shares of the Fund. If a shareholder reinvests redemption
proceeds within the 30 day period the shareholder's account will be credited
with the amount of any CDSC paid on such redeemed shares. A reinvesting
shareholder may realize a gain or loss for Federal tax purposes as a result of
such repurchase or redemption. Special rules may apply to the computation of
gain or loss and to the deduction of loss on a repurchase or redemption followed
by a reinvestment. See "Distributions and Taxes". Shareholders should consult
their tax advisers concerning the tax consequences of reinvestments.
DISTRIBUTIONS AND TAXES
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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 last 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 additional shares of the Fund, will constitute
tax-exempt income to the shareholders for Federal income tax purposes, except
for the proportionate part of the distribution that may be considered taxable
income if the Fund has taxable income during the calendar year. Shareholders
reinvesting the monthly distribution should continue to 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 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.
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 the
Fund or of another fund are subsequently acquired pursuant to the Fund's
reinvestment or exchange privilege. In addition, losses realized on a redemption
of Fund shares may be disallowed under certain "wash sale" rules if within a
period beginning 30 days before and ending 30 days after the date of redemption
other shares of the Fund are acquired. Any disregarded or disallowed amounts
will result in an adjustment to the shareholder's tax basis in some or all of
any other shares acquired.
In order to qualify as a regulated investment company under the Internal
Revenue Code (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 attributable 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 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 (see page 5). 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.
California law provides that dividends paid by the Fund and designated by
the 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 California obligations, provided that at least 50% of
the assets of the 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.
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 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. The
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
calculation assumes the maximum sales charge is deducted from the initial $1,000
purchase order and that all dividends are reinvested at net asset value on the
reinvestment dates during the period. 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 maximum
offering price 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.
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").
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 or the 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 his 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 as 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 account.
<PAGE>
INVESTMENT ADVISER OF
CALIFORNIA TAX FREE PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EV TRADITIONAL CALIFORNIA
MUNICIPALS FUND
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
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV TRADITIONAL CALIFORNIA
MUNICIPALS FUND
24 FEDERAL STREET
BOSTON, MA 02110
T-CAP
EV TRADITIONAL
CALIFORNIA
MUNICIPALS FUND
PROSPECTUS
NOVEMBER 25, 1994
<PAGE>
EATON VANCE MUNICIPALS TRUST
EV CLASSIC CALIFORNIA MUNICIPALS FUND
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 1, 1995
1. Effective September 29, 1995, EV Classic California Municipals Fund was
reorganized and became a series of Eaton Vance Municipals Trust, a business
trust organized under the laws of the Commonwealth of Massachusetts. Prior to
the reorganization, the Fund had been a series of Eaton Vance Investment Trust,
which is also a Massachusetts business trust. Except for the fact that the Fund
is now a series of Eaton Vance Municipals Trust, shares of the Fund represent
the same interest in the Fund's assets, are of the same class, are subject to
the same terms and conditions, fees and expenses and confer the same rights as
when the Fund was a series of Eaton Vance Investment Trust.
2. The following supplements "Investment Adviser and Administrator" in the
Statement of Additional Information:
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.
Robert B. MacIntosh, the Portfolio's portfolio manager, is a Vice
President of Eaton Vance Management and the portfolio manager of
single-state, tax-exempt funds in five states: California, Hawaii,
Massachusetts, Minnesota and New Jersey. He also serves as economic
spokesman for the Eaton Vance organization.
3. The following supplements the yield and distribution rate information under
"Investment Performance" in the Statement of Additional Information:
For the thirty-day period ended March 31, 1995, the yield of the Fund
was 4.36%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.36% would be 6.68%,
assuming a combined Federal and California tax rate of 34.70%. The Fund's
distribution rate (calculated on March 31, 1995 and based on the Fund's monthly
distribution paid March 22, 1995) was 4.98%, and the Fund's effective
distribution rate (calculated on the same date and based on the same monthly
distribution) was 5.10%.
4. The following replaces the tables under "Performance Information" in the
Statement of Additional Information:
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund from December 19, 1985 through March 31, 1995. The total return for the
period prior to the Fund's commencement of operations on December 3, 1993
reflect the Portfolio's total return (or that of its predecessor) adjusted to
reflect any applicable Fund sales charge. Such performance 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.
<PAGE>
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
Value of Invest- Value of Invest-
ment before de- ment after deduct- Total Return before de- Total Return after de-
ducting the con- ing the contin- ducting the contingent ducting the contingent
tingent deferred gent deferred deferred sales charge deferred sales charge
Investment Investment Amount of sales charge sales charge ---------------------- ----------------------
Period Date Investment on 3/31/95 on 3/31/95 Cumulative Annualized Cumulative Annualized
---------- ---------- ---------- ---------------- ------------------ ---------- ---------- ---------- ----------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
10 Years
Ended
3/31/95 12/19/85 $1,000.00 $1,767.53 $1,767.53 76.75% 6.33% 76.75% 6.33%
5 Years
Ended
3/31/95 3/31/90 $1,000.00 $1,336.07 $1,336.07 33.67% 3.17% 33.61% 3.17%
1 Year
Ended
3/31/95* 3/31/94 $1,000.00 $1,048.90 $1,039.00 4.89% 4.89% 3.90% 3.90%
</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.
*If a portion of the Fund's expenses had not been subsidized, the Fund
would have had lower returns.
5. The following supplements "Investment Performance" in the Statement of
Additional Information:
From time to time the Fund may provide investors with information on
municipal bond investing, which may include comparative performance information,
charts and/or illustrations prepared by independent sources (such as Lipper
Analytical Services). 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.
6. Registrant incorporates by reference the unaudited financial information for
the Fund contained in the Fund's shareholder report for the six months ended
March 31, 1995 as previously filed electronically with the Securities and
Exchange Commission (Accession No. 0000950156-95-000347).
THE DATE OF THE ATTACHED STATEMENT OF ADDITIONAL INFORMATION IS
CHANGED TO OCTOBER 1, 1995. ALL REFERENCES IN THE STATEMENT OF ADDITIONAL
INFORMATION TO EATON VANCE INVESTMENT TRUST OR THE TRUST ARE DEFINED TO MEAN
EATON VANCE MUNICIPALS TRUST.
October 1, 1995 C-CASAIS
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1995
EV CLASSIC CALIFORNIA MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
--------------------------------------------------------------------------------
TABLE OF CONTENTS Page
Investment Objective and Policies ..................................... 2
Investment Restrictions ............................................... 14
Trustees and Officers ................................................. 16
Control Persons and Principal Holders of Securities ................... 18
Investment Adviser and Administrator .................................. 18
Custodian ............................................................. 21
Service for Withdrawal ................................................ 21
Determination of Net Asset Value ...................................... 21
Investment Performance ................................................ 22
Taxes ................................................................. 25
Principal Underwriter ................................................. 27
Distribution Plan ..................................................... 28
Portfolio Security Transactions ....................................... 29
Other Information ..................................................... 31
Independent Certified Public Accountants .............................. 32
Tax Equivalent Yield Table ............................................ 33
Financial Statements .................................................. 34
Appendix .............................................................. 59
--------------------------------------------------------------------------------
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 EV CLASSIC CALIFORNIA MUNICIPALS FUND (THE
"FUND") DATED FEBRUARY 1, 1995, 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 EV Classic California Municipals Fund (the
"Fund"), which is a series of Eaton Vance Investment Trust (the "Trust"), is to
provide current income exempt from both the regular Federal income tax and the
California personal income tax. The Fund seeks to meet its investment objective
by investing its assets in the California Tax Free Portfolio (the "Portfolio"),
a separate registered investment company with the same investment objective as
the Fund.
CALIFORNIA OBLIGATIONS
California 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 California 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 California 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. As of the date of this Statement of Additional Information, an
obligation held by the Portfolio was in default. (See Portfolio of Investments
in the Financial Statements included herein).
The yields on California 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, Inc. ("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, California
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 California considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in California 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 California issuers.
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. During
fiscal year 1986-87, State receipts from proceeds of taxes exceeded its
appropriations limit by $1.1 billion, which was returned to taxpayers.
Appropriations subject to limitation were under the State limit by $1.2 billion
for fiscal year 1987-88, $259 million for fiscal year 1988-89 and $1.6 billion
for fiscal year 1989-90. State appropriations are expected to be $4.2 billion
under the limit for fiscal year 1992-93.
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 July 1, 1994, the State had approximately $18.4 billion of general
obligation bonds outstanding, and $5.2 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
$12.6 billion in fiscal year 1990-91 to about $15.9 billion in 1991-92 to
approximately $17.6 billion in 1992-93 to about $18.4 billion in 1993-94. 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 is expected to remain well above the national average through 1994.
The Department of Finance foresees slow recovery from the recession in
California beginning in 1994. Both the California and national economic
recoveries are much weaker than in previous business cycles, and could be harmed
by several factors, including rising interest rates.
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 Governor's
Budget Proposal, as updated in May and June, 1994, recognized that the
accumulated deficit could not be repaid in one year, and proposed a two-year
solution. The budget proposal sets forth revenue and expenditure forecasts and
revenue and expenditure proposals which result in 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 December
1994 Finance Bulletin indicated that General Fund revenues for the first five
months of the 1994-95 fiscal year are $356 million, less than 1% higher than
projected.
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 $640 billion in 1992, 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 suffering its worst recession
since the 1930s, with prospects for recovery slower than for the nation as a
whole. 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.
OTHER CONSIDERATIONS
On December 7, 1994, Orange County, California (the "County"), together with
its pooled investment fund (the "Fund") filed for protection under Chapter 9 of
the Federal Bankruptcy Code, after reports that the Fund had suffered
significant market losses in its investments caused a liquidity crisis for the
Fund and the County. More than 180 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.
Longer term, this financial crisis could have an adverse impact on the
economic recovery that has only recently taken hold in Southern California.
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.
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.
OTHER OBLIGATIONS OF PARTICULAR TYPES OF ISSUERS. The Portfolio may
invest 25% or more of its total assets in California obligations of the same
type. There could be economic, business or political developments which might
affect all California obligations of a similar type. In particular, investments
in certain of the bonds listed above might involve without limitation the
following risks.
California municipal obligations which are assessment bonds may be adversely
affected by a general decline in real estate values or a slowdown in real estate
sales activity. In many cases, such bonds are secured by land which is
undeveloped at the time of issuance but anticipated to be developed within a few
years after issuance. In the event of such reduction or slowdown, such
development may not occur or may be delayed, thereby increasing the risk of a
default on the bonds. Because the special assessments or taxes securing these
bonds are not the personal liability of the owners of the property assessed, the
lien on the property is the only security for the bonds. Moreover, in most cases
the issuer of these bonds is not required to make payments on the bonds in the
event of delinquency in the payment of assessments or taxes, except from
amounts, if any, in a reserve fund established for the bonds.
Certain California long-term lease obligations, though typically payable
from the general fund of the municipality, are subject to "abatement" in the
event the facility being leased is unavailable for beneficial use and occupancy
by the municipality during the term of the lease. Abatement is not a default,
and there may be no remedies available to the holders of the certificates
evidencing the lease obligation in the event abatement occurs. The most common
cases of abatement are failure to complete construction of the facility before
the end of the period during which lease payments have been capitalized and
uninsured casualty losses to the facility (e.g., due to earthquake). In the
event abatement occurs with respect to a lease obligation, lease payments may be
interrupted (if all available insurance proceeds and reserves are exhausted) and
the certificates may not be paid when due.
Several years ago the Richmond Unified School District (the "District")
entered into a lease transaction in which certain existing properties of the
District were sold and leased back in order to obtain funds to cover operating
deficits. Following a fiscal crisis in which the District's finances were taken
over by a State receiver (including a brief period under bankruptcy court
protection), the District failed to make rental payments on this lease,
resulting in a lawsuit by the Trustee for the Certificate of Participation
holders, in which the State was a named defendant (on the grounds that it
controlled the District's finances). One of the defenses raised in answer to
this lawsuit was the invalidity of the original lease transaction. In October,
1992, the California Superior Court of Contra Costa County, in which Richmond is
situated, dismissed a motion filed by the Trustee to force Richmond to start
budgeting payments on the defaulted certificates of participation. One of the
defenses raised in answer to this lawsuit was the invalidity of the original
lease transaction. On December 11, 1992 the judge in the case ruled that default
of the certificates of participation were constitutional. After the State
Legislature enacted certain "bail out" legislation effectively guaranteeing
lease rental payments, refunding certificates were issued and the litigation was
settled.
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 California 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 California 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.
WHEN-ISSUED SECURITIES
New issues of California 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 which 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,
the banks 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
price action of comparable put options. Interest income generated by certain
bonds having put features may not qualify as tax-exempt interest.
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 or for non-hedging purposes, 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.
FUTURES CONTRACTS ON DEBT SECURITIES. A futures contract on a debt security is a
binding contractual commitment which, if held to maturity, will result in an
obligation to make or accept delivery, during a particular month, of securities
having a standardized face value and rate of return. By purchasing futures on
debt securities, the Portfolio will legally obligate itself to accept delivery
of the underlying security and pay the agreed price; by selling futures on debt
securities, it will legally obligate itself to make delivery of the security
against payment of the agreed price. Open futures positions on debt securities
are valued at the most recent settlement price, unless such price does not
reflect the fair value of the contract, in which case the positions will be
valued by or under the direction of the Trustees of the Portfolio.
Positions taken in the futures markets for debt securities are not normally
held to maturity, but are instead liquidated through offsetting transactions
which may result in a profit or a loss. While futures positions on debt
securities taken by the Portfolio will usually be liquidated in this manner, it
may instead make or take delivery of the underlying securities whenever it
appears economically advantageous for the Portfolio to do so. A clearing
corporation associated with the exchange on which futures on debt securities are
traded guarantees that, if still open, the sale or purchase will be performed on
the settlement date.
FUTURES CONTRACTS ON SECURITIES INDICES. Futures contracts on securities or
other indices do not require the physical delivery of securities, but merely
provide for profits and losses resulting from changes in the market value of a
contract to be credited or debited at the close of each trading day to the
respective accounts of the parties to the contract. On the contract's expiration
date a final cash settlement occurs and the future positions is simply closed
out. Changes in the market value of a particular futures contract reflect
changes in the level of the index on which the futures contract is based.
HEDGING STRATEGIES. Hedging by use of futures contracts seeks to establish more
certainly than would otherwise be possible the effective rate of return on
portfolio securities or securities that the Portfolio proposes to acquire. The
Portfolio may, for example, take a "short" position in the futures market by
selling futures contracts in order to hedge against an anticipated rise in
interest rates that would adversely affect the value of the securities held by
the Portfolio. Such futures contracts may include contracts for the future
delivery of debt securities held by the Portfolio or debt securities with
characteristics similar to those of the securities held by the Portfolio. If, in
the opinion of the Investment Adviser, there is a sufficient degree of
correlation between price trends for the securities held by the Portfolio and
futures contracts based on other financial instruments, securities indices or
other indices, the Portfolio may also enter into such futures contracts as part
of its hedging strategy. Although under some circumstances prices of securities
held by the Portfolio may be more or less volatile than prices of such futures
contracts, the Investment Adviser will attempt to estimate the extent of this
difference in volatility based on historical patterns and to compensate for it
by having the Portfolio enter into a greater or lesser number of futures
contracts or by attempting to achieve only a partial hedge against price changes
affecting the securities held by the Portfolio. When hedging of this character
is successful, any depreciation in the value of portfolio securities will be
substantially offset by appreciation in the value of the futures position.
On other occasions, the Portfolio may take a "long" position by purchasing
such futures contracts. This would be done, for example, when the Portfolio
anticipates the subsequent purchase of particular securities when it has the
necessary cash, but expects the prices then available in the securities market
to be less favorable than the prices that are currently available.
OPTIONS ON FUTURES CONTRACTS
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. An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract at a specified
exercise price at any time during the option period. Upon exercise of the
option, the writer of the option is obligated to convey the appropriate futures
position to the holder of the option. If an option is exercised on the last
trading day before the expiration date of the option, a cash settlement will be
made in an amount equal to the difference between the closing price of the
futures contract and the exercise price of the option.
The Portfolio may use options on futures contracts for bona fide hedging
purposes as defined below, or for non-hedging purposes subject to the
limitations imposed by CFTC regulations. If the Portfolio purchases a call (put)
option on a futures contract it benefits from any increase (decrease) in the
value of the futures contract, but is subject to the risk of decrease (increase)
in value of the futures contract. The benefits received are reduced by the
amount of the premium and transaction costs paid by the Portfolio for the
option. If market conditions do not favor the exercise of the option, the
Portfolio's loss is limited to the amount of such premium and transaction costs
paid by the Portfolio for the option.
If the Portfolio writes a call (put) option on a futures contract, the
Portfolio receives a premium but assumes the risk of a rise (decline) in value
in the underlying futures contract. If the option is not exercised, the
Portfolio gains the amount of the premium, which may partially offset
unfavorable changes in the value of securities held or to be acquired for the
Portfolio. If the option is exercised, the Portfolio will incur a loss, which
will be reduced by the amount of the premium it receives. However, depending on
the degree of correlation between changes in the value of its portfolio
securities and changes in the value of futures positions, the Portfolio's losses
from writing options on futures may be partially offset by favorable changes in
the value of portfolio securities or in the cost of securities to be acquired.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Portfolio's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
LIMITATIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio will engage in futures and related options transactions for
bona fide hedging or non-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 used for hedging purposes are
substantially related to price fluctuations in securities held by the Portfolio
or which it expects to purchase. Except as stated below, 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. As an alternative to compliance with the bona fide hedging
definition, a CFTC regulation permits the Portfolio to elect to comply with a
different test, under which the aggregate initial margin and premiums required
to establish non-hedging positions in futures contracts and options on futures
will not exceed 5% of the Portfolio's net asset value after taking into account
unrealized profits and losses on such positions and excluding the in-the-money
amount of such options. 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 the
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 will not:
(1) Purchase any security (other than U.S. Government securities) if such
purchase, at the time thereof, would, with respect to 75% of the Fund's total
assets, cause more than 5% of such assets (taken at market value) to be invested
in the securities of a single issuer; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management investment
company with substantially the same investment objective, policies and
restrictions as the Fund;
(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) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the Fund's
net assets (taken at current value) is held as collateral for such sales at any
one time. (The Fund will make such sales only for the purpose of deferring
realization of gain or loss for Federal income tax purposes);
(4) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities of
such issuer to be held by the Fund; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with substantially the same investment objective, policies and
restrictions as the Fund;
(5) Purchase securities issued by any other open-end investment company or
investment trust; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(6) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer or
Trustee of the Trust or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of such
issuer by the Fund one or more of such persons owns beneficially more than 1/2
of 1% of the 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);
(7) 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, or participate on a joint or a joint and
several basis in any trading account in securities;
(8) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(9) Borrow money or pledge its assets in excess of 1/3 of the value of its
net assets (excluding the amount borrowed) and then only if such borrowing is
incurred as a temporary measure for extraordinary or emergency purposes or to
facilitate the orderly sale of portfolio securities to accommodate redemption
requests; or issue securities other than its shares of beneficial interest,
except as appropriate to evidence indebtedness, including reverse repurchase
agreements, which the Fund is permitted to incur. The Fund will not purchase
securities while outstanding temporary bank borrowings exceed 5% of its total
assets; provided, however, that the Fund may increase its interest in an
open-end management investment company with substantially the same investment
objective, policies and restrictions as the Fund while such borrowings are
outstanding. The deposit of cash, cash equivalents and liquid debt securities in
a segregated account with the Fund's custodian and/or with a broker in
connection with futures contracts or related options transactions and the
purchase of securities on a "when-issued" basis is not deemed to be a pledge;
(10) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(11) Purchase or sell real estate, although it may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate;
(12) Purchase or sell physical commodities or contracts for the purchase
or sale of physical commodities;
(13) Buy investment securities from or sell them to any of its officers or
Trustees, its investment adviser or its underwriter, as principal; however, any
such person or concerns may be employed as a broker upon customary terms; or
(14) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
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 investment restrictions of the Portfolio (or the Portfolio's 80% investment
policy with respect to investing in California obligations), the Trust will hold
a meeting of Fund shareholders and will cast its vote as instructed by the
shareholders.
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 obligation.
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 the approval by the Fund or its other investors. Neither the Fund nor
the Portfolio may invest more than 15% of its net assets (taken at current
value) in the aggregate in restricted securities, securities for which there is
no readily available market, repurchase agreements which have a maturity longer
than seven days, and other illiquid securities; provided, however, that the Fund
may invest without limitation in the Portfolio or in another investment company
with substantially the same investment objective. Neither the Fund or the
Portfolio may purchase call options on securities. The Fund and the Portfolio
may purchase put options on municipal obligations only if, after such purchase,
not more than 5% of its net assets, as measured by the aggregate of the premiums
paid for such options held by it, would be so invested. Neither the Fund nor the
Portfolio intend to invest in reverse repurchase agreements during the current
fiscal year.
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"); 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 (63), 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 (53), 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, III (59), 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 (59), TRUSTEE
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, The Regis Fund, Inc. (mutual fund). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), 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 (64), 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 (51), 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 Eaton Vance and EV, and of BMR since August 11, 1992, and
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 (49), TREASURER*
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), 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 (59), ASSISTANT SECRETARY*
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Fund's
contractual relationship with the administrator, 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.
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, 1994, the Trustees of the Trust and the
Portfolio earned the following compensation in their capacities as Trustees from
the Fund, the Portfolio and the other funds in the Eaton Vance fund complex:
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION COMPENSATION BENEFIT ACCRUED FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FROM FUND COMPLEX FUND COMPLEX<F1>
---- ------------ -------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Donald R. Dwight ...... $42 $3,769 -- 0 -- $132,500
Samuel L. Hayes, III .. 40 3,738 -- 0 -- 140,000
Norton H. Reamer ...... 39 3,654 -- 0 -- 132,500
John L. Thorndike ..... 40 3,781 -- 0 -- 137,500
Jack L. Treynor ....... 42 3,852 -- 0 -- 137,500
---------
<FN>
<F1>The Eaton Vance fund complex consists of 201 registered investment
companies or series thereof.
</TABLE>
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.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 30, 1994, 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 December 30, 1994, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 40.8%, 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. In addition, as of December 30, 1994, Ernest F. Smith and
Doris E. Smith, Trustees U/A dated April 14, 1994, Paso Robles, CA owned
beneficially and of record 33.2% of the outstanding shares of the Fund. To the
knowledge of the Trust, no other person beneficially owns 5% or more of the
Fund's 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 $15 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 $500 million 0.300% 3.00%
2 $500 million but less than $1 billion 0.275% 2.75%
3 $1 billion but less than $1.5 billion 0.250% 2.50%
4 $1.5 billion but less than $2 billion 0.225% 2.25%
5 $2 billion but less than $3 billion 0.200% 2.00%
6 $3 billion and over 0.175% 1.75%
As at September 30, 1994, the Portfolio had net assets of $445,131,401. For
the six month period ended September 30, 1994, the Portfolio paid BMR advisory
fees of $1,141,013 (equivalent to 0.50% (annualized) of the Portfolio's average
daily net assets for such period). To enhance the net income of the Fund during
the six months period ended September 30, 1994, $29,004 of the Fund's operating
expenses were allocated to the Administrator. 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). To
enhance the net income of the Fund during the period from the start of business,
December 3, 1993, to the fiscal year ended March 31, 1994, $2,670 of the Fund's
operating expenses were allocated to the Administrator.
The Investment Advisory Agreement with BMR remains in effect until February
28, 1995. It may be continued indefinitely thereafter so long as such
continuance after February 28, 1995 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. As Administrator, 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.
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 the 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 of 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 December 31, 1994, 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 and O'Connor and Ms. Sanders, who are officers or Trustees 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 and Eaton Vance's wholly-owned subsidiary, Eaton Vance Distributors,
Inc., as Principal Underwriter, will receive its portion of the sales charge on
shares of the Fund sold through Authorized Firms.
Eaton Vance owns all of the stock of Energex Corporation, which is engaged
in oil and gas operations. EVC owns all of the stock of Marblehead Energy Corp.
(which engages in oil and gas operations) and 77.3% of the stock of Investors
Bank & Trust Company, Custodian of the Fund and the Portfolio, which provides
custodial, trustee and other fiduciary services to investors, including
individuals, employee benefit plans, corporations, investment companies, savings
banks and other institutions. 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, 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 (a 77.3% owned subsidiary of EVC) 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. In view of the ownership of EVC in IBT, the
Portfolio is treated as a self-custodian pursuant to Rule 17f-2 under the 1940
Act, and the Portfolio's investments held by IBT as custodian are thus subject
to the additional examinations by the Portfolio's independent certified public
accountants as called for by such Rule. For the six months ended September 30,
1994, the Fund paid IBT $4,455 and for the period from the start of business,
December 3, 1993, to the fiscal year ended March 31, 1994 the Fund made no
payments to IBT. For the fiscal year ended September 30, 1994, the Portfolio
paid IBT $66,016 and for the period of the start of business, May 3, 1993, to
the fiscal year ended March 31, 1994, the Portfolio paid IBT $123,534.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's transfer agent (the "Transfer Agent")
will send to the shareholder regular monthly or quarterly payments of any
designated amount based upon the value of the shares held. The checks will be
drawn from share redemptions and hence, although they are a return of principal,
may give rise to gain or loss for tax purposes. 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 has authorized Bank Draft Investing or is otherwise making regular
purchases of Fund shares. Either 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 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 California 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 California 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. 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, Washington's Birthday, 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
The 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 and, if applicable, the deduction of the contingent
deferred sales charge at the end of the period.
The Fund's 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 the contigent 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 using the tax-exempt yield figure and dividing
by 1 minus the tax rate. For the thirty-day period ended September 30, 1994, the
yield of the Fund was 4.92%. The yield required of a taxable security that would
produce an after-tax yield equivalent to that earned by the Fund of 4.92%
(considering both California and Federal taxes) would be 7.54%, assuming a
combined Federal and California tax rate of 34.70%. 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 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.
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). The Fund's distribution rate
(calculated on September 30, 1994 and based on the Fund's monthly distribution
paid September 22, 1994) was 5.78%, and the Fund's effective distribution rate
(calculated on the same date and based on the same monthly distribution) was
5.94%. 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 tables below indicate the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund covering the life of the Fund from December 3, 1993 through September 30,
1994.
VALUE OF A $1,000 INVESTMENT
VALUE OF TOTAL RETURN
INVESTMENT AMOUNT OF INVESTMENT ------------
INVESTMENT PERIOD DATE INVESTMENT ON 9/30/94 CUMULATIVE ANNUALIZED
---------------- ---------- ---------- ---------- ---------- ----------
Life of the Fund* 12/03/93 $1,000 $948.74** -5.13%** --
PERCENTAGE CHANGES 12/03/93 - 9/30/94
NET ASSET VALUE TO NET ASSET VALUE
WITH ALL DISTRIBUTIONS REINVESTED
-----------------------------------------
FISCAL YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL
----------------- ------ ---------- --------------
9/30/94 -- -5.13%** --
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 3, 1993.
**If a portion of the Fund's expenses had not been subsidized and the
contingent deferred sales charge applicable to shares purchased on or after
January 30, 1995 had been imposed, 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 the 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 the portfolio allocation and holdings
of the Portfolio at a particular date (including ratings assigned by independent
ratings services such as Moody's Investors Service, Inc., Standard & Poor's
Ratings Group and Fitch Investors Service, Inc.) 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.
The Portfolio's diversification by quality ratings as of November 30, 1994,
was:
RATING ASSIGNED BY PERCENT OF
MOODY'S, S&P OR FITCH BOND HOLDINGS
----------- --------
Aaa or AAA 32.2%
Aa or AA 9.6
A 22.2
Baa or BBB 22.5
Ba or BB --
B --
Below B --
Not rated 13.5
----
Total 100.0%
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 Federal income tax brackets.
The following table compares the after-tax yield of an investment in the
Fund yielding a hypothetical 5.5% with the after-tax yield of a certificate of
deposit yielding 3.25%. The tax brackets used in the table are the combined
Federal and California personal income tax brackets: 20.10% for single filers
with taxable income up to $23,350 and joint filers up to $39,000; 34.70% for
single filers with taxable income from $23,351 to $56,550 and joint filers from
$39,001 to $94,250; 37.90% for single filers with taxable income from $56,551 to
$117,950 and joint filers from $94,251 to $143,600; 43.04% for single filers
with taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 46.24% for single and joint filers with taxable income over
$256,500. These brackets are calculated using 1995 Federal tax rates, the
highest 1994 California state rate applicable at the upper portion of the
brackets and assume that California taxes are deducted on the Federal income tax
return. The applicable Federal tax rates within each of the combined brackets
are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. An investor in
the Fund with taxable income within these brackets may be subject to a lower
combined tax rate than the combined rates shown, while an investor who does not
itemize on his or her Federal income tax return may be subject to a higher
combined tax rate. These brackets also do not take into account the phaseout of
personal exemptions and limitation on deductibility of itemized deductions over
certain ranges of income. Investors who are subject to such phaseout or
limitation will have higher combined brackets than indicated above. See your tax
adviser for additional information.
Tax Bracket
20.10% 34.70% 37.90% 43.04% 46.24%
---------------------------------------------
Tax free yield ................ 5.50% 5.50% 5.50% 5.50% 5.50%
Taxable equivalent ............ 6.88 8.42 8.86 9.66 10.23
Certificates of deposit:
Yield ....................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............. 2.60 2.12 2.02 1.85 1.75
The Tax Free Yield Advantage
(43.04% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.85% After-tax yield
5.50% Tax free investment
9.66% Taxable equivalent yield
5.50% Tax free yield
Example:
Two $100,000 investments ...
3.25% CD 5.50 Tax free
Pretax income: $3,250.00 $5,500.00
Tax: (1,398.80) NONE
After-tax income: $1,851.20 $5,500.00
The 1995 combined tax bracket takes into account Federal income tax rates
for 1995 and the highest California State income tax rates for 1994 applicable
to the bracket. Assuming the deductibility of state taxes on the Federal return,
the bracket is 43.04% for single filers with taxable income from $117,951 to
$256,500 and joint filers from $143,601 to $256,500. Actual tax brackets may be
higher due to the phaseout of personal exemptions and limitations on the
deductibility of itemized deductions over certain ranges of income. Your actual
bracket will vary depending on your income, exemptions and deductions. See your
tax adviser for additional information. The chart is based on 3-month bank CDs
(Source: The Wall Street Journal and Eaton Vance Management). Tax free yields
are shown for illustration purposes only and are not meant to imply or predict
any future rate of return for the Fund. See your financial adviser for the
Fund's current yield and actual CD rates.
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
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
continue to qualify each year as a regulated investment company 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, 1994 (see the Notes to the Financial Statements). Because the Fund
invests substantially all of 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 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 regulated investment company 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 regulated investment company.
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 form 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 certification regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in 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.
CALIFORNIA STATE AND LOCAL TAX MATTERS
In any year in which the Fund qualifies as a regulated investment company
under Subchapter M of the Internal Revenue Code and is exempt from Federal
income tax, the Fund also will be exempt from the California corporate income
and franchise tax.
Individual shareholders of the Fund who reside in California will not be
subject to California personal income tax on distributions received from the
Fund to the extent such distributions are attributable to interest on
obligations the interest on which is exempt under either Federal or California
law from taxation by the State of California, provided that at least 50% of the
Portfolio's assets at the close of each quarter of its taxable year is invested
in such obligations. Distributions from the Fund which are attributable to
sources other than those in the preceding sentence will generally be taxable to
such individual shareholders as ordinary income. Distributions of the Fund's net
capital gains (the excess of net long-term capital gain over net short-term
capital loss) are taxable to shareholders as long-term capital gains for
California personal income tax purposes. In addition, distributions other than
exempt-interest dividends are includable in income subject to the California
alternative minimum tax.
Distributions of investment income and long-term and short-term capital
gains from the Fund will not be excluded from taxable income in determining
California corporate taxes for corporate shareholders. However, distributions of
the Fund's net capital gains are treated as long-term capital gains for
California corporate tax purposes. In addition, distributions may be includable
in income subject to the alternative minimum tax. Shares of the Fund will not be
subject to the California property tax.
California tax law resembles Federal tax law in restricting the
deductibility of interest on indebtedness incurred by shareholders to purchase
shares and the allowance of losses realized by a shareholder upon the sale or
redemption of shares.
Shareholders should consult their own tax advisers with respect to the
state, local and 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 ("Authorized Firms") or
investors and other selling literature and of advertising is borne by the
Principal Underwriter. The fees and expenses of qualifying and registering and
maintaining qualifications and registrations of the Fund and its shares under
Federal and state securities laws 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 therefore by the Fund. For the fiscal year ended September 30,
1994, the Fund paid the Principal Underwriter $35.00 for repurchase
transactions.
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.
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.
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 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 theretofore paid to the Principal
Underwriter under 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 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 .25%, 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.) For
the six month period ended September 30, 1994 and the period from the start of
business, December 3, 1993, to the fiscal year ended March 31, 1994, the Fund
accrued sales commission payments under the Plan to the Principal Underwriter
aggregating $9,528 and $3,747, respectively, of which $9,351 and $3,330 was used
by the Principal Underwriter to pay sales commissions to Authorized Firms on
sales of shares of the Fund. As at September 30, 1994 and March 31, 1994 the
outstanding uncovered distribution charges of the Principal Underwriter
calculated under the Plan amounted to approximately $273,000 and $206,000 (which
amount was equivalent to 9.44% and 9.83% of the Fund's net assets on such day).
Because of the NASD Rule limitation on the aggregate amount of sales
commissions and distribution fees paid to the Principal Underwriter during any
fiscal year, a high level of sales of Fund shares during the initial years of
the Fund's operations will 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 the Plan
over an extended period will result in the incurrence and payment of increased
distribution fees under the Plan.
The Plan also authorizes the Fund to make payments of service fees. For the
six month period ended September 30, 1994 and the period from the start of
business, December 3, 1993, to the fiscal year ended March 31, 1994, the Fund
accrued service fee payments under the Plan aggregating $3,109 and $1,220,
respectively, of which $3,098 and $1,116 was paid to the Principal Underwriter.
The Principal Underwriter paid such amount as service fee payments to Authorized
Firms for account maintenance and shareholder services.
The Plan and Distribution Agreement currently remain in effect until April
28, 1995 and may be continued as provided in the Prospectus. Pursuant to Rule
12b-1, the Plan has been approved by the Trust's initial sole shareholder (Eaton
Vance). 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
expected growth of the Fund's assets, and will result 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 California 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 period from April 1, 1994 to the fiscal year ended September 30,
1994 and for the period from the start of business, May 3, 1993, to the fiscal
year ended March 31, 1994, the Portfolio paid no brokerage commissions on
portfolio transactions. During the fiscal years ended March 31, 1993 and 1992,
the Trust paid brokerage commissions of $0 and $122, respectively.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance California Municipals Trust. The Trust changed its
name to Eaton Vance Investment Trust on April 28, 1992. Eaton Vance, pursuant to
its agreement with the Trust, controls the use of the words "Eaton Vance" in the
Fund's name and may use the words "Eaton Vance" in other connections and for
other purposes.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a 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 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 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. The By-Laws also provide that the Trustees shall promptly call a
meeting of shareholders for the purpose of voting upon a question of removal of
a Trustee when requested so to do by the record holders of not less than 10 per
centum of the outstanding shares.
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 interests
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. 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 Securities and Exchange Commission
(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.
<PAGE>
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 1995 regular Federal income
tax rates and California State income tax laws and tax rates applicable for
1994. 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>
A FEDERAL AND CALIFORNIA STATE
TAX-EXEMPT YIELD OF:
COMBINED ------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
<FN>
<F1> Net amount subject to Federal and California personal income tax after
deductions and exemptions.
<F2> The combined tax rates for the tax brackets shown in the left hand columns
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.
Of course, no assurance can be given that EV Classic California Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portoflio 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 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>
EV CLASSIC CALIFORNIA MUNICIPALS FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
September 30, 1994
--------------------------------------------------------------------------------
ASSETS:
Investment in California Tax Free Portfolio, at
value (Note 1A) (identified cost, $3,008,713) $2,840,771
Receivable for Fund shares sold 22,889
Receivable from the Administrator (Note 4) 29,004
Deferred organization expenses (Note 1D) 11,955
----------
Total assets $2,904,619
LIABILITIES:
Dividends payable $ 3,641
Payable for Fund shares redeemed 3,000
Payable to affiliate --
Custodian fee 585
Accrued expenses 3,954
-------
Total liabilities 11,180
----------
NET ASSETS for 318,526 shares of beneficial interest
outstanding $2,893,439
==========
SOURCES OF NET ASSETS:
Paid-in capital $3,122,262
Accumulated net realized loss on investment and
financial futures transactions (computed on the
basis of identified cost) (60,524)
Accumulated distribution in excess of net investment
income (357)
Unrealized depreciation of investments and financial
futures contracts from Portfolio (computed on the
basis of identified cost) (167,942)
------------
Total $2,893,439
==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
($2,893,439 / 318,526 shares of beneficial interest) $9.08
=====
See notes to financial statements
<PAGE>
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
Year Ended Year Ended
September 30, March 31,
1994** 1994*
------------- -------------
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 83,628 $ 29,391
Expenses allocated from Portfolio (7,270) (2,521)
--------- ---------
Net investment income from Portfolio $ 76,358 $ 26,870
--------- ---------
Expenses --
Compensation of Trustees not members of the
Administrator's organization $ 266 $ 100
Custodian fee 4,455 --
Distribution fees (Note 5) 12,637 4,967
Printing and postage 18,290 --
Legal and accounting services 4,882 1,086
Amortization of organization expenses (Note 1D) 1,507 1,376
Miscellaneous 1,552 920
--------- ---------
Total expenses $ 43,589 $ 8,449
Deduct allocation of expenses to the
Administrator (Note 4) 29,004 2,670
--------- ---------
Net expenses $ 14,585 $ 5,779
--------- ---------
Net investment income $ 61,773 $ 21,091
--------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from Portfolio --
Investment transactions (identified cost basis) $ (60,554) $ (4,844)
Financial futures contracts (1,848) 6,722
---------- ----------
Net realized gain (loss) $ (62,402) $ 1,878
Change in unrealized depreciation of investments (842) (167,100)
--------- ---------
Net realized and unrealized loss $ (63,244) $(165,222)
--------- ---------
Net decrease in net assets from operations $ (1,471) $(144,131)
========= =========
*For the period from the start of business, December 3, 1993 to March 31, 1994.
**For the six months ended September 30, 1994 (Note 7).
See notes to financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
Year Ended Year Ended
September 30, March 31,
1994** 1994*
------------- -----------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 61,773 $ 21,091
Net realized gain (loss) on investments (62,402) 1,878
Change in unrealized depreciation
of investments (842) (167,100)
----------- ----------
Net decrease in net assets
from operations $ (1,471) $ (144,131)
---------- ----------
Distributions to shareholders (Note 2) --
From net investment income $ (61,773) $ (21,091)
In excess of net investment income (9,885) (3,747)
----------- -----------
Total distributions to shareholders $ (71,658) $ (24,838)
----------- -----------
Transactions in shares of beneficial
interest (Note 3) --
Proceeds from sales of shares $1,431,747 $3,317,112
Net asset value of shares issued
to shareholders in payment of
distributions declared 37,372 9,644
Cost of shares redeemed (597,281) (1,063,067)
---------- ----------
Increase in net assets from Fund
share transactions $ 871,838 $2,263,689
---------- ----------
Net increase in net assets $ 798,709 $2,094,720
NET ASSETS:
At beginning of period 2,094,730 10
---------- ----------
At end of period (including accumulated
distribution in excess of net investment
income of $357 and $0, respectively) $2,893,439 $2,094,730
========== ==========
*For the period from the start of business, December 3, 1993 to March 31, 1994.
**For the six months ended September 30, 1994 (Note 7).
See notes to financial statements
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Year Ended Year Ended
September 30, March 31,
1994** 1994*
------------- -----------
NET ASSET VALUE, beginning of period $ 9.340 $10.000
------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.227 $ 0.140
Net realized and unrealized loss on
investments (0.224) (0.635)
------- -------
Total income (loss) from operations $ 0.003 $(0.495)
------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.227) $(0.140)
In excess of net investment income (0.036) (0.025)
-------- --------
Total distributions $(0.263) $(0.165)
-------- --------
NET ASSET VALUE, end of period $ 9.080 $ 9.340
======= =======
TOTAL RETURN(2) 0.03% (5.16%)
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period (000 omitted) $ 2,893 $ 2,095
Ratio of net expenses to average net assets(1) 1.73%+ 1.64%+
Ratio of net investment income
to average net assets 4.89%+ 4.17%+
*For the period ended September 30, 1994 and the period from the start of
business, December 3, 1993, to March 31, 1994, the operating expenses of the
Fund reflect an allocation of expenses to 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 $ 0.120 $ 0.123
======= =======
RATIOS (As a percentage of average net assets):
Expenses(1) 4.03%+ 2.15%+
Net investment income 2.59%+ 3.66%+
*For the period from the start of business, December 3, 1993 to March 31, 1994.
**For the six months ended September 30, 1994 (Note 7).
+Computed on an annualized basis.
(1)Includes the Fund's share of California 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.
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Classic California Municipals Fund (the Fund) is a diversified series of
Eaton Vance Investment Trust (the Trust). The Trust is an entity of the type
commonly known as a Massachuetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Fund invests all of its investable assets in interests in the
California Tax Free Portfolio (the Portfolio), a New York Trust, having the same
investment objective as the Fund. The value of the Fund's investment in the
Portfolio reflects the Fund's proportionate interest in the net assets of the
Portfolio (0.64% at September 30, 1994). The performance of the Fund is directly
affected by the performance of the Portfolio. The financial statements of the
Portfolio, including the portfolio of investments, are included elsewhere in
this report and should be read in conjunction with the Fund's financial
statements. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. INVESTMENT VALUATIONS -- Valuation of securities by the Portfolio is
discussed in Note 1 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
B. INCOME -- The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and accrued
expenses of the Fund determined in accordance with generally accepted accounting
principles.
C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable and tax-exempt income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is necessary. At September 30, 1994, the Fund, for
federal income tax purposes had a capital loss carryover of $58,550 which will
reduce the taxable income arising from future net realized gains on investments,
if any, to the extent permitted by the Internal Revenue Code, and thus will
reduce the amount of the distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal income or excise tax.
Such capital loss carryover will expire on September 30, 2002. Dividends paid by
the Fund from net interest on tax-exempt municipal bonds allocated from the
Portfolio are not includable by shareholders as gross income for federal income
tax purposes because the Fund and Portfolio intend to meet certain requirements
of the Internal Revenue Code applicable to regulated investment companies which
will enable the Fund to pay exempt- interest dividends. The portion of such
interest, if any, earned on private activity bonds issued after August 7, 1986,
may be considered a tax preference item to shareholders.
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Fund in connection
with its organization, including registration costs, are being amortized on the
straight-line basis over five years.
E. DISTRIBUTION COSTS -- For book purposes, commissions paid on the sale of
shares and other distribution costs are charged to operations. For tax purposes,
commissions paid are charged to paid-in capital (Notes 5 and 8).
F. OTHER -- Investment transactions are accounted for on a trade date basis.
--------------------------------------------------------------------------------
(2) DISTRIBUTIONS TO SHAREHOLDERS The net income of the Fund is determined daily
and substantially all of the net income so determined is declared as a dividend
to shareholders of record at the time of declaration. In addition, the Fund
declares each day an amount equal to the excess of tax basis net income over
book net income, which amount is reported for financial statement purposes as a
distribution in excess of net investment income. Distributions of allocable
realized capital gains, if any, are made at least annually. Shareholders may
reinvest capital gains distributions in additional shares of the Fund at the net
asset value as of the ex-dividend date. Distributions are paid in the form of
additional shares or, at the election of the shareholder, in cash. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis. Generally accepted accounting principles require that only distributions
in excess of tax basis earnings and profits be reported in the financial
statements as a return of capital. Differences in the recognition or
classification of income between the financial statements and tax earnings and
profits which result in over distributions for financial statement purposes only
are classified as distributions in excess of net investment income or
accumulated net realized gains. Permanent differences between book and tax
accounting are reclassified to paid in capital. During the six month period
ended September 30, 1994 and the period from the start of business, December 3,
1993 to March 31, 1994, $9,528 and $3,747, respectively, was reclassified from
distributions in excess of net investment income to paid in capital, due to the
differences between book and tax accounting for distribution costs being
considered as permanent differences. Net investment income, net realized gains
and net assets were not affected by this reclassification.
--------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
YEAR ENDED
--------------------------------
SEPTEMBER 30, MARCH 31,
1994 1994
------------- -----------
Sales 155,065 333,898
Issued to shareholders electing to
receive payments of distributions
in Fund shares 4,043 990
Redemptions (64,922) (110,549)
------- -------
Net increase 94,186 224,339
====== =======
--------------------------------------------------------------------------------
(4)TRANSACTIONS WITH AFFILIATES
Eaton Vance Management (EVM) serves as the administrator of the Fund, but
receives no compensation. The Portfolio has engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services. See
Note 2 of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report. To enhance the net income of the Fund during the six
month period ended September 30, 1994 and the period from the start of business,
December 3, 1993, to March 31, 1994, $29,004 and $2,670, respectively, of
expenses related to the operation of the Fund were allocated to EVM. Except as
to Trustees of the Fund and the Portfolio who are not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their services to
the Fund out of such investment adviser fee. Investors Bank & Trust Company
(IBT), an affiliate of EVM, serves as custodian of the Fund and the Portfolio.
Pursuant to their respective custodian agreements, IBT receives a fee reduced by
credits which are determined based on the average cash balances the Fund or the
Portfolio maintains with IBT. Certain of the officers and Trustees of the Fund
and Portfolio are officers and directors/trustees of the above organizations
(Note 5).
--------------------------------------------------------------------------------
(5) DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Plan") pursuant
to Rule 12b-1 under the Investment Company Act of 1940. The Plan requires the
Fund to pay the Principal Underwriter, Eaton Vance Distributors, Inc. (EVD),
amounts equal to 1/365th of 0.75% of the Fund's daily net assets, for providing
ongoing distribution services and facilities to the Fund. The Fund will
automatically discontinue payments to EVD during any period in which there are
no outstanding Uncovered Distribution Charges, which are equivalent to the sum
of (i) 6.25% of the aggregate amount received by the Fund for shares sold plus,
(ii) distribution fees calculated by applying the rate of 1% over the prevailing
prime rate to the outstanding balance of Uncovered Distribution Charges of EVD,
reduced by amounts theretofore paid to EVD. The amount payable to EVD with
respect to each day is accrued on such day as a liability of the Fund and,
accordingly, reduces the Fund's net assets. The Fund paid or accrued during the
six month period ended September 30, 1994 and the period from the start of
business, December 3, 1993 to March 31, 1994, $9,528 and $3,747, respectively,
to or payable to EVD representing 0.75% (annualized) of average daily net
assets. At September 30, 1994 and March 31, 1994, the amount of Uncovered
Distribution Charges of EVD calculated under the Plan was approximately $273,000
and $206,000, respectively.
In addition, the Plan permits the Fund to make monthly payments of service fees
to the Principal Underwriter in amounts not expected to exceed 0.25% of the
Fund's average daily net assets for any fiscal year. The Trustees have initially
implemented the Plan by authorizing the Fund to make monthly service fee
payments to the Principal Underwriter in amounts not exceeding 0.25% of the
Fund's average daily net assets for any fiscal year. The Fund paid or accrued
during the six month period ended September 30, 1994 and the period from the
start of business, December 3, 1993 to March 31, 1994, service fees to or
payable to EVD in the amount of $3,109 and $1,220, respectively. EVD makes
monthly service fee payments to Authorized Firms in amounts anticipated to be
equivalent to 0.25%, annualized, of the assets maintained in the Fund by their
customers. Service fee payments are made for personal services and/or the
maintenance of shareholder accounts. Service fees paid to EVD and Authorized
Firms are separate and distinct from the sales commissions and distribution fees
payable by the Fund to EVD, and as such are not subject to automatic
discontinuance when there are no outstanding Uncovered Distribution Charges of
EVD.
Certain officers and Trustees of the Fund and Portfolio are officers or
directors of EVD.
--------------------------------------------------------------------------------
(6) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investments in the Portfolio
aggregated $1,441,124 and $734,467, respectively for the six month period ended
September 30, 1994, and $3,322,851 and $1,063,499, respectively, for the period
from the start of business, December 3, 1993, to March 31, 1994.
--------------------------------------------------------------------------------
(7) CHANGE IN FISCAL YEAR
The Fund changed its fiscal year end from March 31, to September 30, effective
September 30, 1994.
--------------------------------------------------------------------------------
(8) SUBSEQUENT EVENT
A recent Internal Revenue Service ruling requires that sales commissions
paid by the Fund pursuant to its Distribution Plan be expensed for tax purposes
(rather than charged to paid-in-capital as the Fund has done in the past). The
Fund changed its tax accounting practice to conform to the ruling on November
23, 1994. The change will have no effect on the Fund's current yield or total
return.
<PAGE>
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
To the Trustees and Shareholders of
Eaton Vance Investment Trust:
We have audited the accompanying statement of assets and liabilities of EV
Classic California Municipals Fund (one of the series constituting the Eaton
Vance Investment Trust) as of September 30, 1994, and the related statements
of operations, changes in net assets and the financial highlights for the six
months ended September 30, 1994 and the period from the start of business,
December 3, 1993, to March 31, 1994. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of EV Classic
California Municipals Fund series of the Eaton Vance Investment Trust at
September 30, 1994, the results of its operations, changes in its net assets
and its financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 4, 1994
<PAGE>
<TABLE>
CALIFORNIA TAX FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1994
-------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
-------------------------------------------------------------------------------------------------------------------------
Ratings (Unaudited)
---------------------------- Principal
Standard Amount
Moody's & Poor's (000 Omitted) Security Value
-------------------------------------------------------------------------------------------------------------------------
ESCROWED - 17.9%
<C> <C> <C> <S> <C>
NR AAA $ 6,670 Redevelopment Agency of The City of Azusa, Single
Family Mortgage Revenue Refunding Bonds, 1992 Series
A, (Escrowed to Maturity), 6.875%, 10/1/12 $ 7,153,575
NR AAA 3,140 City of Bakersfield, Certificates of Participation
(Bakersfield Assisted Living Center), 0.00%, 4/15/21 494,550
NR NR 130 City of Commerce Joint Powers Financing Authority, 1991
Revenue Bonds, Series A, (Multiple Projects Loan),
8.00%, 3/1/22 150,475
NR AAA 3,255 Redevelopment Agency of the City of Duarte, Single
Family Mortgage Revenue Refunding Bonds, 1992 Series
B, (Escrowed To Maturity), 6.875%, 10/1/11 3,450,300
NR BBB 2,000 City of Rancho Mirage Joint Powers Financing Authority,
Civic Center Revenue Bonds, Series 1991 A, 7.50%,
4/1/17 2,267,500
Aaa AAA 14,285 County of Sacramento, California, Single Family
Mortgage Revenue Bonds (GNMA Mortgage-Backed
Securities Program), Issue A of 1987 (Escrowed To
Maturity), 8.50%, 11/1/16 17,909,819
Aaa AAA 10,000 County of Sacramento, California, Single Family
Mortgage Revenue Bonds (GNMA Mortgage-Backed
Securities Program), Issue A of 1987 (Escrowed to
Maturity), 8.125%, 7/1/16 12,062,500
Aaa AAA 6,000 County of Sacramento, California, Single Family
Mortgage Revenue Bonds (GNMA Mortgage-Backed
Securities Program), Issue A of 1987 (Escrowed to
Maturity), 8.25%, 1/1/21 7,357,500
Aaa AAA 3,000 City and County of San Francisco, CA General Purpose
Sewer Revenue Bonds, Series 1991, Secondary
"Rites", (AMBAC), Variable, 10/1/21 <F3> 3,480,000
NR BBB 1,575 Fontana Public Financing Authority, San Bernardino
County, California, Subordinate Lien Tax Allocation
Revenue Bonds, (North Fontana Redevelopment
Project), 1991 Series A, 7.75%, 12/1/20 1,823,063
NR BBB 2,000 Loma Linda, California Certificates of Participation,
Loma Linda Redevelopment Agency, City Hall, 7.00%,
12/1/15 2,137,500
Aaa AAA 6,400 Port of Oakland, California, Revenue Bonds, Series C,
(BIGI), 0.00%, 11/1/05 3,568,000
NR NR 3,200 Oceanside California Community Development Commission,
Tax Allocation 2nd Lien, 8.40%, 6/1/18 3,456,000
NR NR 3,000 Poway Redevelopment Agency, CA. Paguay Redevelopment
Project, Subordinated Tax Allocation Refunding,
Issue of 1991, 7.75%, 12/15/21 3,476,250
NR BBB+ 1,000 City of Upland, CA Certificates of Participation,
Police Building Construction Revenue Bonds, 8.20%,
8/1/16 1,082,500
NR NR 4,000 Huntington Beach, Public Financing Authority, (Orange
County, California), 1988 Revenue Bonds, Series A,
(Huntington Beach Redevelopment Projects), 8.375%,
5/1/18 4,505,000
NR NR 2,975 Sacramento-Yolo Port District Port Facilities
Improvement and Refunding Revenue Bonds (Sacramento
and Yolo Counties, California) 8.30%, 12/1/03 3,328,281
------------
$ 77,702,813
------------
GENERAL OBLIGATION - 1.1%
Aa A+ $ 6,000 State of California Various Purpose General Obligation
Bonds, 4.75%, 9/1/23 $ 4,477,500
Aa A+ 340 Government of Guam General Obligation Bonds, 1993
Series A, 5.375%, 11/15/13 287,725
------------
$ 4,765,225
------------
HEALTH CARE - 0.8%
NR NR $ 3,330 Banning, California Certificates of Participation (San
Georgonio Pass Convalescent Hospital), 9.50%, 12/1/11 $ 3,463,200
------------
HOSPITALS - 1.0%
NR BBB+ $ 2,700 City of Stockton, California, Health Facilities
Refunding Revenue Bonds (Dameron Hospital
Association), Series 1988, 8.30%, 12/1/14 $ 2,868,750
NR A 1,500 Woodland, California, Hospital Revenue Certificates of
Participation, (Woodland Memorial Hospital), 8.20%,
8/1/15 1,618,125
------------
$ 4,486,875
------------
HOUSING - 4.6%
Aa A+ $ 2,500 California Housing Finance Agency, Home Mortgage
Revenue Bonds, 1987 Series A, 8.20%, 8/1/17 $ 2,615,625
Aa A+ 1,455 California Housing Finance Agency, Home Mortgage
Revenue Bonds, 1988 Series B, 8.60%, 8/1/19 1,527,750
Aa3 NR 60 California Housing Finance Agency, Multifamily
Rehabilitation Bonds, 1983 Series A, 9.875%, 8/1/10 61,575
Aa A+ 2,500 California Housing Finance Agency, Home Mortgage
Revenue Bonds, 1986 Series A, 8.10%, 8/1/16 2,621,875
A1 A+ 2,000 California Housing Finance Agency, Multi-Unit Rental
Housing Revenue Bonds II, 1992 Series B, 6.70%,
8/1/15 2,020,000
Aa A+ 3,835 California Housing Finance Agency, Home Mortgage
Revenue Bonds, 1989 Series D, 7.375%, 8/1/11 3,969,225
Aa A+ 840 California Housing Finance Agency, Home Mortgage
Revenue Bonds, 1991 Series A, 7.375%, 8/1/17 854,700
NR NR 2,000 The Housing Authority of the County of Los Angeles, CA
Multifamily Housing Revenue Bonds (Corporate Fund for
Housing Projects), 1988 Series B, 10.50%, 12/1/29 2,087,500
A NR 845 The Housing Authority of the County of Los Angeles, CA,
Single Family Mortgage Revenue Bonds, 1986 Issue A,
7.875%, 8/1/16 873,519
NR A+ 2,320 City of Oakland, California, Housing Finance Revenue
Bonds, Issue D-1, 7.10%, 1/1/10 2,305,500
NR AAA 980 County of Riverside, California, Single Family Mortgage
Revenue Bonds (GNMA), Issue A of 1991, 6.85%, 10/1/16 1,006,950
------------
$ 19,944,219
------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL - 1.0%
NR BBB+ $ 4,500 Central Valley Financing Authority, CA Cogeneration
Project Revenue Bonds (Carson Ice-GenProject), 1993
Series, 6.20%, 7/1/20 $ 4,072,500
NR NR 4,500 City of Long Beach, California, Industrial Development
Revenue Bonds (Kress Rehabilitation Project), 9.75%,
12/1/16 <F1><F2> 135,000
------------
$ 4,207,500
------------
INSURED - 20.8%
Aaa AAA $ 5,620 California Health Facilities Financing Authority,
Insured Health Facility Refunding Revenue Bonds,
(Catholic Healthcare West), 1994 Series B, 5.00%,
7/1/14 $ 4,650,550
Aaa AAA 4,000 California Health Facilities Financing Authority,
Insured Health Facility Refunding Revenue Bonds,
(Catholic Healthcare West), 1994 Series B, 5.00%,
7/1/21 3,175,000
Aaa AAA 1,125 California Housing Finance Agency, Housing Revenue
Bonds, (MBIA), (AMT), 7.00%, 8/1/23 1,143,281
Aaa AAA 3,300 California Statewide Communities Development Authority,
Motion Picture and Television Fund, Step-Up Recovery
Floaters, (ABMAC), 5.68%, 1/1/24 3,159,750
Aaa AAA 1,680 Castaic Union School District, Los Angeles County,
California, 1993 General Obligation Bonds, Series A,
0.00%, 5/1/11 569,100
Aaa AAA 1,800 Castaic Union School District, Los Angeles County,
California, 1993 General Obligation Bonds, Series A,
0.00%, 5/1/12 571,500
Aaa AAA 4,000 Castaic Union School District, Los Angeles County,
California, 1993 General Obligation Bonds, Series A,
0.00%, 5/1/18 845,000
Aaa AAA 8,785 Culver City Redevelopment Financing Authority 1993 Tax
Allocation Refunding Revenue Bonds 4.60%, 11/1/20 6,544,825
Aaa AAA 5,000 East Bay Municipal Utility District (Alameda and Contra
Costa Counties, California), Water System
Subordinated Revenue Refunding Bonds, Series 1993B-2
"Yield Curve Notes,"
Variable, 6/1/08 <F3> 4,175,000
Aaa AAA 5,350 Fairfield Water Utility Improvement Project Refunding
Bonds, Series 1986 Certificates of Participation,
(FGIC), 0.00%, 4/1/04 3,082,938
Aaa AAA 8,000 Northern California Power Agency, Multiple Capital
Facilities Revenue Bonds, 1992 Series A, (RIBS),
(MBIA), Variable, 9/2/25 <F3> 8,090,000
Aaa AAA 6,500 Redevelopment Agency of the City of Oakland, CA,
Central District Redevelopment Project, Subordinated
Tax Allocation Bonds, Series 1992A, (MBIA), 5.00%,
9/1/21 5,191,875
Aaa AAA 2,000 Oro Loma Sanitary District (Alameda County,
California), Sewer Revenue Bonds of 1991, Series A,
(AMBAC), 8.55%, 10/1/06 2,385,000
Aaa AAA 10,000 Port of Oakland California, Revenue Bonds, Series A,
(AMT), (BIGI), 0.00%, 11/1/19 1,650,000
Aaa AAA 4,390 Poway Redevelopment Agency, CA Paguay Redevelopment
Project, Subordinated Tax Allocation Refunding Bonds,
Indexed Inverse Floating Bonds, Series 1993, (FGIC),
Variable, 12/15/06 <F3> 3,824,788
Aaa AAA 3,000 San Diego County, CA Water Authority, Water Revenue
Certificates of Participation, Residual Interest Tax-
Exempt Securities, (FGIC), Variable, 4/22/09 <F3> 2,737,500
Aaa AAA 10,000 Airports Commission City and County of San Francisco,
California, San Francisco International Airport,
Second Series Refunding Revenue Bonds, Issue 2,
(MBIA), 6.75%, 5/1/13 10,312,500
Aaa AAA 4,000 San Mateo County Transit District, (San Mateo County,
California), Limited Tax Bonds, 1993 Series A,
(MBIA), 8.00%, 6/1/20 4,770,000
Aaa NR 5,650 San Mateo County Transit District, (San Mateo County,
California), Limited Tax Bonds, 1993 Series A,
(MBIA), 0.00%, 6/1/20 1,052,313
Aaa AAA 4,000 Redevelopment Agency of The City of Santa Clara,
Bayshore North Project, 1992 Tax Allocation Refunding
Bonds, (AMBAC), 7.00%, 7/1/10 4,365,000
Aaa AAA 13,985 Certificates of Participation, (1990 Capital Project),
Visalia Unified School District, (MBIA), 0.00%, 12/1/17 2,866,925
Aaa AAA 2,000 Southern California Public Power Authority Power
Project Revenue Refunding Bonds, "Inverse Floaters,"
(FGIC), Variable, 7/1/12 <F3> 1,597,500
Aaa AAA 5,000 Los Angeles County, CA Capital Asset Leasing
Corporation Lease Revenue Bonds (1992 Master
Refunding Project), County of Los Angeles, "Yield
Enhancement Securities," (AMBAC), Variable, 12/1/08 4,956,250
Aaa AAA 2,670 Regents of the University of California, Refunding
Revenue Bonds, (Multiple Purpose Projects), 1993
Series B, (MBIA), 4.75%, 9/1/21 2,022,524
Aaa AAA 8,000 Vallejo Sanitation and Flood Control District, (Solano
County, California), Certificates of Participation
(Financing Projects), Series 1993, (FGIC), 5.00%, 7/
1/19 6,560,000
------------
$ 90,299,119
------------
LEASE REVENUE/CERTIFICATES OF PARTICIPATION - 27.0%
A1 A- $13,110 State Public Works Board of the State of California
Lease Revenue Bonds (The Regents of the University of
California), 1993 Series A, (Various University of
California Projects), 5.00%, 6/1/23 $ 10,143,863
A1 A- 14,275 State Public Works Board of the State of California
Lease Revenue Bonds (The Regents of the University of
California), 1993 Series A, (Various University of
California Projects), 5.50%, 6/1/14 12,419,250
A1 A- 3,000 State Public Works Board of the State of California
Lease Revenue Bonds (The Regents of the University of
California), 1993 Series A, (Various University of
California Projects), 5.50%, 6/1/10 2,681,250
A1 A- 3,500 State Public Works Board of the State of California
Lease Revenue Bonds, (Department of Corrections),
1993 Series D (California State Prison-Susanville),
5.375%, 6/1/18 2,926,875
A1 A- 7,000 State Public Works Board of the State of California
Lease Revenue Bonds (The Regents of the University of
California), 1993 Series B, (Various University of
California Projects), 5.25%, 6/1/20 5,731,250
A1 A- 14,325 State Public Works Board of the State of California
Lease Revenue Bonds (The Regents of the University of
California), 1993 Series B, (Various University of
California Projects), 5.50%, 6/1/19 12,194,156
A1 A- 7,000 State Public Works Board of the State of California
Lease Revenue Bonds, (Department of Corrections),
1993 Series E (California State Prison-Madera County
(II)), 5.50%, 6/1/19 5,941,250
A1 A- 2,690 State Public Works Board of the State of California
Lease Revenue Bonds, (Department of Corrections),
1993 Series E (California State Prison-Madera County
(II)), 5.50%, 6/1/15 2,313,400
Aaa AAA 16,850 California Statewide Communities Development Authority,
Certificates of Participation, The Trustees of the J.
Paul Getty Trust, 5.00%, 10/1/23 13,501,063
Aaa AAA 3,460 California Statewide Communities Development Authority,
Certificates of Participation, The Trustees of the J.
Paul Getty Trust, 5.00%, 10/1/12 2,919,375
Baa1 NR 2,000 Certificates of Participation, City of Duarte,
California, City of Hope National Medical Center,
6.25%, 4/1/23 1,840,000
A BBB+ 2,750 Certificates of Participation (1991 Civic Center
Improvement Project), City of Inglewood, California,
7.00%, 8/1/19 2,760,313
A A 9,060 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 5.50%, 9/1/21 7,599,075
A A 4,585 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 9/1/12 1,358,306
A A 4,865 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/14 1,289,225
A A 4,590 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/15 1,136,025
A A 3,100 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/20 527,000
A A 1,000 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/16 228,750
A A 1,925 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/17 406,656
A A 5,000 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 9/1/17 1,018,750
A A 5,370 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/18 1,060,575
NR NR 7,000 Los Angeles County Capital Asset Leasing Corporation
Certificates of Participation, County of Los Angeles
(Marina del Rey), CA Series A, 6.50%, 7/1/08 6,728,750
NR NR 1,500 Los Angeles County Capital Asset Leasing Corporation
Certificates of Participation, County of Los Angeles
(Marina del Rey), CA Series A, 6.25%, 7/1/03 1,481,250
A1 A 7,915 Certificates of Participation (Multiple Capital
Facilities Project I), County Los Angeles, CA, 7.00%,
6/1/09 8,182,131
Aa AA 2,700 Orange County, CA Water District, Revenue Certificates
of Participation, Series 1993A, 5.00%, 8/15/18 2,224,125
NR A1 2,360 Richmond, CA Joint Powers Financing Authority Revenue
Bonds, 1990 Series B, 7.00%, 5/15/07 2,430,800
Aa A+ 3,000 Sacramento, CA City Financing Authority, Lease Revenue
Refunding Bonds, Series 1993 B, 5.40%, 11/1/20 2,535,000
Baa1 A- 2,375 City of San Luis Obispo, CA Capital Improvement Board
Lease Revenue Bonds, (Capital Improvement Projects),
8.25%, 6/1/06 2,502,656
NR BBB 1,000 Association of Bay Area Governments Revenue Bonds,
Watsonville Mammoth Lakes, California, Certificates
of Participation, Series B 7.875%, 6/1/11 1,051,250
------------
$117,132,369
------------
MISCELLANEOUS - 3.7%
A NR $ 5,445 Association of Bay Area Governments Revenue Bonds, CA
Municipal Financing Pool, 8.05%, 9/1/10<F4> $ 5,866,988
NR NR 6,500 VRDC-IVRC Trust, Series 1993 F, Variable, 6/29/00 <F4> 6,061,250
NR NR 5,000 VRDC-IVRC Trust, Series 1994 C, Variable, 5/13/03 <F3> 4,050,000
------------
$ 15,978,238
------------
SPECIAL TAX REVENUE - 6.5%
NR NR $ 2,190 City of Fairfield Limited Obligation Refunding
Improvement Bonds, Green Valley Road-Mangels
Boulevard Extension Assessment District, (North
Cordelia Improvement District) (Reassessment and
Refunding of 1993) (Solano County, California),
7.375%, 9/2/18 $ 2,266,650
NR NR 1,015 City of Fairfield, CA, Green Valley Road -- Mangels
Boulevard, Extension Assessment District, (North
Cordelia Improvement District), (Series 1990),
8.00%, 9/2/11 1,031,494
NR NR 3,000 Lincoln, CA, Unified School District, Community
Facilities District Number 1, Special Tax, Series
1992A, 7.625%, 9/1/21 3,135,000
Baa NR 15,630 Pleasanton, CA, Joint Powers Financing Authority
Reassessment Revenue Bonds, 1993 Series
A 6.15%, 9/2/12 14,535,900
NR NR 2,750 Series A of 1992 Special Tax Bonds of Community
Facilities District No. 87-5B (Rancho Santa
Margarita) of the County of Orange, CA,
7.50%, 8/15/17 3,152,187
NR NR 3,000 Community Facilities District Number 88-12 of the
County of Riverside, Series 1992 Special Tax Bonds,
7.55%, 9/1/17 3,007,500
NR NR 1,065 California Community Facilities, District 88-4 of the
County of Riverside, CA, Winchester Ranch,
8.20%, 9/1/14 1,054,350
------------
$ 28,183,081
------------
TAX ALLOCATION - 9.9%
NR BBB+ $ 2,500 Community Redevelopment Agency of the City of Buena
Park, Central Business District Redevelopment
Project,Tax Allocation Refunding Bonds, Series 1992A
(County of Orange, California), 7.10%, 9/1/14 $ 2,500,000
NR NR 2,970 City of Commerce, CA Joint Powers Financing Authority,
1991 Revenue Bonds, Series A, (Multiple Projects
Loan), 8.00%, 3/1/22 3,096,225
NR BBB 5,000 County of Contra Costa, CA Public Financing Authority,
1992 Tax Allocation Revenue Bonds, Series A,
(Pleasant Hill, North Richmond, West Pittsburgh and
Oakley Redevelopment Project Areas), 7.10%, 8/1/22 5,006,250
NR BBB 3,910 Fontana Public Financing Authority (San Bernardino
County, California), 1991 Tax Allocation Revenue,
(Downtown Redevelopment Project), 7.00%, 9/1/21 3,841,575
NR BBB 7,220 Fontana Redevelopment Agency, Jurupa Hills
Redevelopment Project Area, Refunding Tax Allocation
Bonds, 1992 Series A, 7.00%, 10/1/14 7,120,725
NR BBB 3,500 Inglewood Redevelopment Agency, (City of Inglewood, Los
Angeles County, California), Century Redevelopment
Project, 1993 Tax Allocation Bonds, Series A, 6.125%,
7/1/23 3,040,625
NR BBB+ 2,500 Redevelopment Agency of the City of Pittsburg,
California, Avenue Community Facilities District No.
1990-1, Subordinated Tax Allocation Revenue Bonds,
7.40%, 8/15/20 2,550,000
NR BBB 600 City of Rancho Mirage, CA Joint Powers Financing
Authority, Civic Center Revenue Bonds, Series 1991A,
7.50%, 4/1/17 636,000
NR BBB+ 3,000 Rialto Redevelopment Agency, Rialto, California
Subareas A and B, Industrial Redevelopment Tax
Allocation Bonds, Series 1993A, 6.00%, 9/1/23 2,643,750
NR BBB 2,500 Redevelopment Agency of the County of Riverside, CA,
Redevelopment Project No. 4, Tax Allocation Bonds,
1991 Series A, 7.50%, 10/1/26 2,568,750
NR BBB 5,605 San Carlos Redevelopment Agency, San Carlos, CA
Redevelopment Project, 1991 Tax Allocation Bonds,
Series A, 7.10%, 9/1/17 5,583,981
NR NR 1,400 Community Development Agency of The City of Simi
Valley, CA 1988 Commercial Mortgage Revenue
Refunding Bonds, (Sycamore Plaza II), 8.20%, 9/1/12 1,421,000
Baa1 BBB+ 3,000 Westminster Redevelopment Agency, Westminster, CA
Commercial Redevelopment, Project No. 1, 1991 Tax
Allocation Bonds, Series A, 7.30%, 8/1/21 3,052,500
------------
$ 43,061,381
------------
TRANSPORTATION - 3.0%
NR BBB $ 1,750 Guam Airport Authority, General Revenue Bonds 1993
Series B, 6.60%, 10/1/10 $ 1,730,313
Aa AA- 6,000 City of Long Beach, CA Harbor Revenue Bonds, Series
1989 A, 7.25%, 5/15/19 6,412,500
A1 A- 1,400 County of Orange, California Airport Revenue Bonds,
Series 1987, 8.125%, 7/1/16 1,513,750
Baa1 BBB+ 1,500 Stockton Port District, San Joaquin County, California,
Port Facilities Improvement Revenue Bonds, Series A
1989, 7.95%, 1/1/05 1,591,875
Baa1 BBB+ 1,500 Stockton Port District, San Joaquin County, California,
Port Facilities Improvement Revenue Bonds, Series A
1989, 8.10%, 1/1/14 1,623,750
------------
$ 12,872,188
------------
UTILITIES - 0.4%
Aa AA- $ 7,070 Southern California Public Power Authority,
Transmission Project Revenue, Subordinate Refunding
Bonds, 0.00%, 7/1/15 $ 1,740,988
------------
WATER AND SEWER - 2.3%
Baa BBB+ $ 6,575 Improvement District M of the Mojave Water Agency, CA
General Obligation Bonds (Morongo Basin Pipeline
Project) Election of 1990, Series 1992 6.60%, 9/1/22 $ 6,369,530
NR BBB 3,190 Certificates of Participation (Rehabilitation Project),
Series 1992, Orange Cove, CA Irrigation District,
6.625%, 2/1/17 3,106,262
Aa AA 2,100 Public Utilities Commission of the City and County of
San Francisco, CA San Francisco, Water Revenue Bonds,
1991 Series A, 0.00%, 11/1/19 420,000
------------
$ 9,895,792
------------
TOTAL INVESTMENTS (identified cost, $443,555,727) $433,732,988
============
<FN>
<F1>Security valued at fair value using methods determined in good faith by or
at the direction of the Trustees.
<F2>Non-income producing security.
<F3>The above designated securities have been issued as inverse floater bonds.
<F4>At September 30, 1994, the market value of securities segregated to cover
margin requirements on open financial futures contracts amounted to
$5,866,988.
</TABLE>
The Portfolio invests primarily in debt securities issued by California
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at September 30, 1994, 20.8% of the securities in the portfolio
of investments are backed by bond insurance of various financial institutions
and financial guaranty assurance agencies. The aggregate percentage by
financial institution ranged from 5.8% to 7.9% of total investments.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
September 30, 1994
--------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A)
(identified cost, $443,555,727) $433,732,988
Cash 968
Receivable for investments sold 15,227,312
Interest receivable 7,850,593
Deferred organization expenses (Note 1D) 20,188
------------
Total assets $456,832,049
LIABILITIES:
Demand note payable (Note 5) $2,051,000
Payable for investments purchased 9,610,518
Payable for daily variation margin on open
financial futures contracts (Note 1E) 26,750
Payable to affiliates --
Custodian fee 5,394
Trustees' fees 4,664
Accrued expenses 2,322
----------
Total liabilities 11,700,648
------------
NET ASSETS applicable to investors' interest
in Portfolio $445,131,401
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $454,477,330
Unrealized depreciation of investments and
financial futures contracts (computed on
the basis of identified cost) (9,345,929)
------------
Total $445,131,401
============
See notes to financial statements
<PAGE>
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
Year Ended
----------------------------------
September 30, March 31,
1994** 1994*
------------- -----------
INVESTMENT INCOME:
Interest income $ 15,258,588 $ 27,592,136
------------- ------------
Expenses --
Investment adviser fee (Note 2) $ 1,141,013 $ 2,149,273
Compensation of Trustees not members of
the Investment Adviser's organization 9,257 20,517
Custodian fee (Note 2) 66,016 123,534
Legal and accounting services 37,203 4,765
Bond pricing 10,841 --
Amortization of organization expense
(Note 1D) 2,820 5,132
Printing and postage 2,327 --
Miscellaneous 45,742 105,817
------------- ------------
Total expenses $ 1,315,219 $ 2,409,038
------------- ------------
Net investment income $ 13,943,369 $ 25,183,098
------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) --
Investment transactions
(identified cost basis) $ (10,433,249) $ 11,001,552
Financial futures contracts (191,417) (25,031)
------------- ------------
Net realized gain (loss)
on investments $ (10,624,666) $ 10,976,521
------------- ------------
Change in unrealized appreciation
(depreciation) --
Investments $ (641,524) $(34,472,972)
Financial futures contracts (300,547) 340,645
------------- ------------
Change in net unrealized
depreciation $ (942,071) $(34,132,327)
------------- ------------
Net realized and unrealized
loss on investments $ (11,566,737) $(23,155,806)
------------- ------------
Net increase in net assets
from operations $ 2,376,632 $ 2,027,292
============= ============
*For the period from the start of business, May 3, 1993 to March 31, 1994.
**For the six months ended September 30, 1994 (Note 7).
See notes to financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
Year Ended
-----------------------------------
September 30, March 31,
1994** 1994*
------------- ----------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 13,943,369 $ 25,183,098
Net realized gain (loss) on
investment transactions (10,624,666) 10,976,521
Change in unrealized depreciation
of investments (942,071) (34,132,327)
------------ ------------
Net increase in net assets
from operations $ 2,376,632 $ 2,027,292
------------ ------------
Capital transactions --
Contributions $ 24,605,354 $553,867,973
Withdrawals (49,109,598) (88,736,272)
------------ ------------
Increase (decrease) in net assets
resulting from capital transactions $(24,504,244) $465,131,701
------------ ------------
Total increase (decrease)
in net assets $(22,127,612) $467,158,993
NET ASSETS:
At beginning of period 467,259,013 100,020
------------ ------------
At end of period $445,131,401 $467,259,013
============ ============
* For the period from the start of business, May 3, 1993 to March 31, 1994.
** For the six months ended September 30, 1994 (Note 7).
-------------------------------------------------------------------------------
SUPPLEMENTARY DATA
-------------------------------------------------------------------------------
Year Ended
-----------------------------------
September 30, March 31,
1994** 1994*
------------- ---------
RATIOS (As a percentage of average
daily net assets):
Expenses 0.57%+ 0.55%+
Net investment income 6.09%+ 5.72%+
PORTFOLIO TURNOVER 40% 91%
+ Computed on an annualized basis.
* For the period from the start of business, May 3, 1993 to March 31, 1994.
** For the six months ended September 30, 1994 (Note 7).
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
California Tax Free Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a diversified open-end investment company which was
organized as a trust under the laws of the State of New York on May 1, 1992. The
Declaration of Trust permits the Trustees to issue interests in the Portfolio.
Investment operations began on May 3, 1993, with the acquisition of investments
with a value of $443,306,944, including unrealized appreciation of $25,728,469,
in exchange for an interest in the Portfolio by one of the Portfolio's
investors. The following is a summary of significant accounting policies of the
Portfolio. The policies are in conformity with generally accepted accounting
principles.
A. INVESTMENT VALUATIONS -- Municipal bonds are normally valued on the basis of
valuations furnished by a pricing service. Taxable obligations, if any, for
which price quotations are readily available are normally valued at the mean
between the latest bid and asked prices. Futures contracts listed on commodity
exchanges are valued at closing settlement prices. Short-term obligations,
maturing in sixty days or less, are valued at amortized cost, which approximates
value. Investments for which valuations or market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees.
B. INCOME -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C. INCOME TAXES -- The Portfolio is treated as a partnership for Federal tax
purposes. No provision is made by the Portfolio for federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since some of the
Portfolio's investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolio, the Portfolio normally must
satisfy the applicable source of income and diversification requirements (under
the Internal Revenue Code) in order for its investors to satisfy them. The
Portfolio will allocate at least annually among its investors each investors'
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. Interest income received by the Portfolio on
investments in municipal bonds, which is excludable from gross income under the
Internal Revenue Code, will retain its status as income exempt from Federal
income tax when allocated to the Portfolio's investors. The portion of such
interest, if any, earned on private activity bonds issued after August 7, 1986
may be considered a tax preference item for investors.
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line basis
over five years.
E. FINANCIAL FUTURES CONTRACTS -- Upon the entering of a financial futures
contract, the Portfolio is required to deposit ("initial margin") either in cash
or securities an amount equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by the Portfolio ("margin maintenance") each day, dependent on the
daily fluctuations in the value of the underlying security, and are recorded for
book purposes as unrealized gains or losses by the Portfolio. The Portfolio's
investment in financial futures contracts is designed only to hedge against
anticipated future changes in interest rates. Should interest rates move
unexpectedly, the Portfolio may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss.
F. OTHER -- Investment transactions are accounted for on a trade date basis.
--------------------------------------------------------------------------------
(2) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES The investment
adviser fee is earned by Boston Management and Research (BMR), a wholly-owned
subsidiary of Eaton Vance Management (EVM), as compensation for management and
investment advisory services rendered to the Portfolio. The fee is based upon a
percentage of average daily net assets plus a percentage of gross income (i.e.,
income other than gains from the sale of securities). For the six month period
ended September 30, 1994 and for the period from the start of business, May 3,
1993 to March 31, 1994, the annualized fee was equivalent to 0.50% and 0.49%,
respectively, of the Portfolio's average daily net assets for such periods and
amounted to $1,141,013 and $2,149,273, respectively. Except as to Trustees of
the Portfolio who are not members of EVM's or BMR's organization, officers and
Trustees receive remuneration for their service to the Portfolio out of such
investment adviser fee. Investors Bank & Trust Company (IBT), an affiliate of
EVM and BMR, serves as custodian of the Portfolio. Pursuant to the custodian
agreement, IBT receives a fee reduced by credits which are determined based on
the average daily cash balances the Portfolio maintains with IBT. Certain of the
officers and Trustees of the Portfolio are officers and directors/trustees of
the above organizations.
-------------------------------------------------------------------------------
(3) INVESTMENTS
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, aggregated $152,125,477 and $167,496,202, respectively,
for the six month period ended September 30, 1994 and $473,482,645 and
$434,621,382, respectively, for the year ended March 31, 1994.
--------------------------------------------------------------------------------
(4) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of investments owned
at September 30, 1994, as computed on a federal income tax basis, were as
follows:
Aggregate cost $443,555,727
============
Gross unrealized depreciation $ 19,459,073
Gross unrealized appreciation 9,636,334
------------
Net unrealized depreciation $ 9,822,739
============
--------------------------------------------------------------------------------
(5) LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR or EVM
in a $120 million unsecured line of credit agreement with a bank. The line of
credit consists of a $20 million committed facility and a $100 million
discretionary facility. Borrowings will be made by the Portfolio solely to
facilitate the handling of unusual and/or unanticipated short-term cash
requirements. Interest is charged to each portfolio or fund based on its
borrowings at an amount above either the bank's adjusted certificate of deposit
rate, a variable adjusted certificate of deposit rate, or a federal funds
effective rate. In addition, a fee computed at an annual rate of 1/4 of 1% on
the $20 million committed facility and on the daily unused portion of the $100
million discretionary facility is allocated among the participating funds and
portfolios at the end of each quarter. As of September 30, 1994 the Portfolio
had an outstanding loan balance of $2,051,000.
--------------------------------------------------------------------------------
(6) FINANCIAL INSTRUMENTS
The Portfolio regularly trades in financial instruments with off-balance sheet
risk in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options and futures contracts and may involve, to a varying degree, elements of
risk in excess of the amounts recognized for financial statement purposes. The
notional or contractual amounts of these instruments represent the investment
the Portfolio has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered. A summary of obligations
under these financial instruments at September 30, 1994 is as follows:
FUTURES CONTRACTS NET UNREALIZED
EXPIRATION DATE CONTRACTS POSITION APPRECIATION
----------------- --------- -------- ---------------
12/94 107 U.S. Treasury Bonds Short $476,810
========
At September 30, 1994 the Portfolio had sufficient cash and/or securities to
cover margin requirements on open futures contracts.
--------------------------------------------------------------------------------
(7) CHANGE IN FISCAL YEAR
The Portfolio changed its fiscal year end from March 31, to September 30,
effective September 30, 1994.
<PAGE>
INDEPENDENT AUDITORS' REPORT
------------------------------------------------------------------------------
To the Trustees and Investors of
California Tax Free Portfolio:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of California Tax Free Portfolio as of
September 30, 1994, and the related statements of operations, the statements
of changes in net assets and the supplementary data for the six months ended
September 30, 1994 and for the period from the start of business, May 3, 1993,
to March 31, 1994. These financial statements and supplementary data are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and supplementary data based on our
audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
supplementary data are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at September 30, 1994, by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and supplementary data present
fairly, in all material respects, the financial position of California Tax
Free Portfolio at September 30, 1994, the results of its operations, the
changes in its net assets and its supplementary data for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 4, 1994
<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.
---------
+ 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>
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 institutons) 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>
INVESTMENT ADVISER OF
CALIFORNIA TAX FREE PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EV CLASSIC
CALIFORNIA MUNICIPALS FUND
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
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS 725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV CLASSIC
CALIFORNIA MUNICIPALS FUND
24 FEDERAL STREET
BOSTON, MA 02110
C-CASAI
[LOGO]
EV CLASSIC
CALIFORNIA MUNICIPALS
FUND
STATEMENT OF
ADDITIONAL
INFORMATION
FEBRUARY 1, 1995
<PAGE>
EATON VANCE MUNICIPAL TRUST
EV MARATHON CALIFORNIA MUNICIPALS FUND
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 1, 1995
1. Effective September 29, 1995, EV Marathon California Municipals Fund was
reorganized and became a series of Eaton Vance Municipals Trust, a business
trust organized under the laws of the Commonwealth of Massachusetts. Prior to
the reorganization, the Fund had been a series of Eaton Vance Investment Trust,
which is also a Massachusetts business trust. Except for the fact that the Fund
is now a series of Eaton Vance Municipals Trust, shares of the Fund represent
the same interest in the Fund's assets, are of the same class, are subject to
the same terms and conditions, fees and expenses and confer the same rights as
when the Fund was a series of Eaton Vance Investment Trust.
2. The following supplements "Investment Adviser and Administrator" in the
Statement of Additional Information:
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.
Robert B. MacIntosh, the Portfolio's portfolio manager, is a Vice
President of Eaton Vance Management and the portfolio manager of
single-state, tax-exempt funds in five states: California, Hawaii,
Massachusetts, Minnesota and New Jersey. He also serves as economic
spokesman for the Eaton Vance organization.
3. The following supplements the yield and distribution rate under "Investment
Performance" in the Statement of Additional Information:
For the thirty-day period ended March 31, 1995, the yield of the Fund
was 4.83%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.83% would be 7.40%,
assuming a combined Federal and California tax rate of 34.70%. The Fund's
distribution rate (calculated on March 31, 1995 and based on the Fund's monthly
distribution paid March 15, 1995) was 5.19%, and the Fund's effective
distribution rate (calculated on the same date and based on the same monthly
distribution) was 5.31%.
4. The following replaces the tables under "Performance Information" in the
Statement of Additional Information:
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 life of the Fund from December 19, 1985 through March 31,
1995.
<PAGE>
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
Value of Invest- Value of Invest-
ment before de- ment after deduct- Total Return before de- Total Return after de-
ducting the con- ing the contin- ducting the contingent ducting the contingent
tingent deferred gent deferred deferred sales charge deferred sales charge
Investment Investment Amount of sales charge sales charge ---------------------- ----------------------
Period Date Investment on 3/31/95 on 3/31/95 Cumulative Annualized Cumulative Annualized
---------- ---------- ---------- ---------------- ------------------ ---------- ---------- ---------- ----------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
10 Years
Ended
3/31/95 12/19/85 $1,000.00 $1,767.37 $1,767.37 76.74% 6.33% 76.74% 6.33%
5 Years
Ended
3/31/95 3/31/90 $1,000.00 $1,335.93 $1,316.91 33.59% 5.96% 31.69% 5.66%
1 Year
Ended
3/31/95 3/31/94 $1,000.00 $1,049.27 $1,000.37 4.93% 4.93% 0.04% 0.04%
</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.
5. The following supplements "Investment Performance" in the Statement of
Additional Information:
From time to time the Fund may provide investors with information on
municipal bond investing, which may include comparative performance information,
charts and/or illustrations prepared by independent sources (such as Lipper
Analytical Services). 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.
6. Registrant incorporates by reference the unaudited financial information for
the Fund contained in the Fund's shareholder report for the six months ended
March 31, 1995 as previously filed electronically with the Securities and
Exchange Commission (Accession No. 0000950156-95-000349).
THE DATE OF THE ATTACHED STATEMENT OF ADDITIONAL INFORMATION IS
CHANGED TO OCTOBER 1, 1995. ALL REFERENCES IN THE STATEMENT OF ADDITIONAL
INFORMATION TO EATON VANCE INVESTMENT TRUST OR THE TRUST ARE DEFINED TO MEAN
EATON VANCE MUNICIPALS TRUST.
October 1, 1995 M-CASAIS
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1995
EV MARATHON CALIFORNIA MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
--------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE
Investment Objective and Policies ......................................... 2
Investment Restrictions ................................................... 14
Trustees and Officers ..................................................... 16
Control Persons and Principal Holders of Securities ....................... 18
Investment Adviser and Administrator ...................................... 18
Custodian ................................................................. 21
Service for Withdrawal .................................................... 21
Determination of Net Asset Value .......................................... 21
Investment Performance .................................................... 22
Taxes ..................................................................... 25
Principal Underwriter ..................................................... 28
Distribution Plan ......................................................... 28
Portfolio Security Transactions ........................................... 29
Other Information ......................................................... 31
Independent Certified Public Accountants .................................. 32
Tax Equivalent Yield Table ................................................ 33
Financial Statements ...................................................... 34
Appendix .................................................................. 59
------------------------------------------------------------------------------
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 EV MARATHON CALIFORNIA MUNICIPALS FUND (THE
"FUND") DATED FEBRUARY 1, 1995, 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 EV Marathon California Municipals Fund (the
"Fund"), which is a series of Eaton Vance Investment Trust (the "Trust"), is to
provide current income exempt from both the regular Federal income tax and the
California personal income tax. The Fund seeks to meet its investment objective
by investing its assets in the California Tax Free Portfolio (the "Portfolio"),
a separate registered investment company with the same investment objective as
the Fund.
CALIFORNIA OBLIGATIONS
California 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 California 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 California 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. As of the date of this Statement of Additional Information, an
obligation held by the Portfolio was in default. (See Portfolio of Investments
in the Financial Statements included herein).
The yields on California 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, Inc. ("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, California
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 California considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in California 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 California issuers.
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. During
fiscal year 1986-87, State receipts from proceeds of taxes exceeded its
appropriations limit by $1.1 billion, which was returned to taxpayers.
Appropriations subject to limitation were under the State limit by $1.2 billion
for fiscal year 1987-88, $259 million for fiscal year 1988-89 and $1.6 billion
for fiscal year 1989-90. State appropriations are expected to be $4.2 billion
under the limit for fiscal year 1992-93.
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 July 1, 1994, the State had approximately $18.4 billion of general
obligation bonds outstanding, and $5.2 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
$12.6 billion in fiscal year 1990-91 to about $15.9 billion in 1991-92 to
approximately $17.6 billion in 1992-93 to about $18.4 billion in 1993-94. 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
is expected to remain well above the national average through 1994. The
Department of Finance foresees slow recovery from the recession in California
beginning in 1994. Both the California and national economic recoveries are much
weaker than in previous business cycles, and could be harmed by several factors,
including rising interest rates.
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 Governor's
Budget Proposal, as updated in May and June, 1994, recognized that the
accumulated deficit could not be repaid in one year, and proposed a two-year
solution. The budget proposal sets forth revenue and expenditure forecasts and
revenue and expenditure proposals which result in 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 December
1994 Finance Bulletin indicated that General Fund revenues for the first five
months of the 1994-95 fiscal year are $356 million, less than 1% higher than
projected.
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 appeal 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 $640 billion in 1992, 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 suffering its worst recession
since the 1930s, with prospects for recovery slower than for the nation as a
whole. 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.
Other Considerations
On December 7, 1994, Orange County, California (the "County"), together with
its pooled investment fund (the "Fund") filed for protection under Chapter 9 of
the Federal Bankruptcy Code, after reports that the Fund had suffered
significant market losses in its investments caused a liquidity crisis for the
Fund and the County. More than 180 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 interst 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 of 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 assurance that these holdings will maintain their current
ratings and/or liquidity in the market.
Although the State of California has no obligation with respect to any
obligations or securities of the County or any of the other participating
entities, under existing legal precedents, the State may be obligated to ensure
that school districts have sufficient funds to operate. Longer term, this
financial crisis could have an adverse impact on the economic recovery that has
only recently taken hold in Southern California.
Longer term, this financial crisis could have an adverse impact on the
economic recovery that has only recently taken hold in Southern California.
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.
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.
Other Obligations of Particular Types of Issuers. The Portfolio may
invest 25% or more of its total assets in California obligations of the same
type. There could be economic, business or political developments which might
affect all California obligations of a similar type. In particular, investments
in certain of the bonds listed above might involve without limitation the
following risks.
California municipal obligations which are assessment bonds may be adversely
affected by a general decline in real estate values or a slowdown in real estate
sales activity. In many cases, such bonds are secured by land which is
undeveloped at the time of issuance but anticipated to be developed within a few
years after issuance. In the event of such reduction or slowdown, such
development may not occur or may be delayed, thereby increasing the risk of a
default on the bonds. Because the special assessments or taxes securing these
bonds are not the personal liability of the owners of the property assessed, the
lien on the property is the only security for the bonds. Moreover, in most cases
the issuer of these bonds is not required to make payments on the bonds in the
event of delinquency in the payment of assessments or taxes, except from
amounts, if any, in a reserve fund established for the bonds.
Certain California long-term lease obligations, though typically payable
from the general fund of the municipality, are subject to "abatement" in the
event the facility being leased is unavailable for beneficial use and occupancy
by the municipality during the term of the lease. Abatement is not a default,
and there may be no remedies available to the holders of the certificates
evidencing the lease obligation in the event abatement occurs. The most common
cases of abatement are failure to complete construction of the facility before
the end of the period during which lease payments have been capitalized and
uninsured casualty losses to the facility (e.g., due to earthquake). In the
event abatement occurs with respect to a lease obligation, lease payments may be
interrupted (if all available insurance proceeds and reserves are exhausted) and
the certificates may not be paid when due.
Several years ago the Richmond Unified School District (the "District")
entered into a lease transaction in which certain existing properties of the
District were sold and leased back in order to obtain funds to cover operating
deficits. Following a fiscal crisis in which the District's finances were taken
over by a State receiver (including a brief period under bankruptcy court
protection), the District failed to make rental payments on this lease,
resulting in a lawsuit by the Trustee for the Certificate of Participation
holders, in which the State was a named defendant (on the grounds that it
controlled the District's finances). One of the defenses raised in answer to
this lawsuit was the invalidity of the original lease transaction. In October,
1992, the California Superior Court of Contra Costa County, in which Richmond is
situated, dismissed a motion filed by the Trustee to force Richmond to start
budgeting payments on the defaulted certificates of participation. One of the
defenses raised in answer to this lawsuit was the invalidity of the original
lease transaction. On December 11, 1992 the judge in the case ruled that default
of the certificates of participation were constitutional. After the State
Legislature enacted certain "bail out" legislation effectively guaranteeing
lease rental payments, refunding certificates were issued and the litigation was
settled.
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 California 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 California 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.
WHEN-ISSUED SECURITIES
New issues of California 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 which 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,
the banks 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
price action of comparable put options. Interest income generated by certain
bonds having put features may not qualify as tax-exempt interest.
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 or for non-hedging purposes, 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.
Futures Contracts on Debt Securities. A futures contract on a debt security is a
binding contractual commitment which, if held to maturity, will result in an
obligation to make or accept delivery, during a particular month, of securities
having a standardized face value and rate of return. By purchasing futures on
debt securities, the Portfolio will legally obligate itself to accept delivery
of the underlying security and pay the agreed price; by selling futures on debt
securities, it will legally obligate itself to make delivery of the security
against payment of the agreed price. Open futures positions on debt securities
are valued at the most recent settlement price, unless such price does not
reflect the fair value of the contract, in which case the positions will be
valued by or under the direction of the Trustees of the Portfolio.
Positions taken in the futures markets for debt securities are not normally
held to maturity, but are instead liquidated through offsetting transactions
which may result in a profit or a loss. While futures positions on debt
securities taken by the Portfolio will usually be liquidated in this manner, it
may instead make or take delivery of the underlying securities whenever it
appears economically advantageous for the Portfolio to do so. A clearing
corporation associated with the exchange on which futures on debt securities are
traded guarantees that, if still open, the sale or purchase will be performed on
the settlement date.
Futures Contracts on Securities Indices. Futures contracts on securities or
other indices do not require the physical delivery of securities, but merely
provide for profits and losses resulting from changes in the market value of a
contract to be credited or debited at the close of each trading day to the
respective accounts of the parties to the contract. On the contract's expiration
date a final cash settlement occurs and the future positions is simply closed
out. Changes in the market value of a particular futures contract reflect
changes in the level of the index on which the futures contract is based.
Hedging Strategies. Hedging by use of futures contracts seeks to establish more
certainly than would otherwise be possible the effective rate of return on
portfolio securities or securities that the Portfolio proposes to acquire. The
Portfolio may, for example, take a "short" position in the futures market by
selling futures contracts in order to hedge against an anticipated rise in
interest rates that would adversely affect the value of the securities held by
the Portfolio. Such futures contracts may include contracts for the future
delivery of debt securities held by the Portfolio or debt securities with
characteristics similar to those of the securities held by the Portfolio. If, in
the opinion of the Investment Adviser, there is a sufficient degree of
correlation between price trends for the securities held by the Portfolio and
futures contracts based on other financial instruments, securities indices or
other indices, the Portfolio may also enter into such futures contracts as part
of its hedging strategy. Although under some circumstances prices of securities
held by the Portfolio may be more or less volatile than prices of such futures
contracts, the Investment Adviser will attempt to estimate the extent of this
difference in volatility based on historical patterns and to compensate for it
by having the Portfolio enter into a greater or lesser number of futures
contracts or by attempting to achieve only a partial hedge against price changes
affecting the securities held by the Portfolio. When hedging of this character
is successful, any depreciation in the value of portfolio securities will be
substantially offset by appreciation in the value of the futures position.
On other occasions, the Portfolio may take a "long" position by purchasing
such futures contracts. This would be done, for example, when the Portfolio
anticipates the subsequent purchase of particular securities when it has the
necessary cash, but expects the prices then available in the securities market
to be less favorable than the prices that are currently available.
OPTIONS ON FUTURES CONTRACTS
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. An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract at a specified
exercise price at any time during the option period. Upon exercise of the
option, the writer of the option is obligated to convey the appropriate futures
position to the holder of the option. If an option is exercised on the last
trading day before the expiration date of the option, a cash settlement will be
made in an amount equal to the difference between the closing price of the
futures contract and the exercise price of the option.
The Portfolio may use options on futures contracts for bona fide hedging
purposes as defined below, or for non-hedging purposes subject to the
limitations imposed by CFTC regulations. If the Portfolio purchases a call (put)
option on a futures contract it benefits from any increase (decrease) in the
value of the futures contract, but is subject to the risk of decrease (increase)
in value of the futures contract. The benefits received are reduced by the
amount of the premium and transaction costs paid by the Portfolio for the
option. If market conditions do not favor the exercise of the option, the
Portfolio's loss is limited to the amount of such premium and transaction costs
paid by the Portfolio for the option.
If the Portfolio writes a call (put) option on a futures contract, the
Portfolio receives a premium but assumes the risk of a rise (decline) in value
in the underlying futures contract. If the option is not exercised, the
Portfolio gains the amount of the premium, which may partially offset
unfavorable changes in the value of securities held or to be acquired for the
Portfolio. If the option is exercised, the Portfolio will incur a loss, which
will be reduced by the amount of the premium it receives. However, depending on
the degree of correlation between changes in the value of its portfolio
securities and changes in the value of futures positions, the Portfolio's losses
from writing options on futures may be partially offset by favorable changes in
the value of portfolio securities or in the cost of securities to be acquired.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Portfolio's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
LIMITATIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio will engage in futures and related options transactions for
bona fide hedging or non-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 used for hedging purposes are
substantially related to price fluctuations in securities held by the Portfolio
or which it expects to purchase. Except as stated below, 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. As an alternative to compliance with the bona fide hedging
definition, a CFTC regulation permits the Portfolio to elect to comply with a
different test, under which the aggregate initial margin and premiums required
to establish non-hedging positions in futures contracts and options on futures
will not exceed 5% of the Portfolio's net asset value after taking into account
unrealized profits and losses on such positions and excluding the in-the-money
amount of such options. 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 the
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 will not:
(1) Purchase any security (other than U.S. Government securities) if such
purchase, at the time thereof, would, with respect to 75% of the Fund's total
assets, cause more than 5% of such assets (taken at market value) to be invested
in the securities of a single issuer; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management investment
company with substantially the same investment objective, policies and
restrictions as the Fund;
(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) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the Fund's
net assets (taken at current value) is held as collateral for such sales at any
one time. (The Fund will make such sales only for the purpose of deferring
realization of gain or loss for Federal income tax purposes);
(4) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities of
such issuer to be held by the Fund; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with substantially the same investment objective, policies and
restrictions as the Fund;
(5) Purchase securities issued by any other open-end investment company or
investment trust; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(6) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer or
Trustee of the Trust or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of such
issuer by the Fund one or more of such persons owns beneficially more than 1/2
of 1% of the 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);
(7) 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, or participate on a joint or a joint and
several basis in any trading account in securities;
(8) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(9) Borrow money or pledge its assets in excess of 1/3 of the value of its
net assets (excluding the amount borrowed) and then only if such borrowing is
incurred as a temporary measure for extraordinary or emergency purposes or to
facilitate the orderly sale of portfolio securities to accommodate redemption
requests; or issue securities other than its shares of beneficial interest,
except as appropriate to evidence indebtedness, including reverse repurchase
agreements, which the Fund is permitted to incur. The Fund will not purchase
securities while outstanding temporary bank borrowings exceed 5% of its total
assets; provided, however, that the Fund may increase its interest in an
open-end management investment company with substantially the same investment
objective, policies and restrictions as the Fund while such borrowings are
outstanding. The deposit of cash, cash equivalents and liquid debt securities in
a segregated account with the Fund's custodian and/or with a broker in
connection with futures contracts or related options transactions and the
purchase of securities on a "when-issued" basis is not deemed to be a pledge;
(10) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(11) Purchase or sell real estate, although it may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate;
(12) Purchase or sell physical commodities or contracts for the purchase
or sale of physical commodities;
(13) Buy investment securities from or sell them to any of its officers or
Trustees, its investment adviser or its underwriter, as principal; however, any
such person or concerns may be employed as a broker upon customary terms; or
(14) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
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 investment restrictions of the Portfolio (or the Portfolio's 80% investment
policy with respect to investing in California obligations), the Trust will hold
a meeting of Fund shareholders and will cast its vote as instructed by the
shareholders.
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 obligation.
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 the approval by the Fund or its other investors. Neither the Fund nor
the Portfolio may invest more than 15% of its net assets (taken at current
value) in the aggregate in restricted securities, securities for which there is
no readily available market, repurchase agreements which have a maturity longer
than seven days, and other illiquid securities; provided, however, that the Fund
may invest without limitation in the Portfolio or in another investment company
with substantially the same investment objective. Neither the Fund or the
Portfolio may purchase call options on securities. The Fund and the Portfolio
may purchase put options on municipal obligations only if, after such purchase,
not more than 5% of its net assets, as measured by the aggregate of the premiums
paid for such options held by it, would be so invested. Neither the Fund nor the
Portfolio intend to invest in reverse repurchase agreements during the current
fiscal year.
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"); 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 (63), 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 (53), 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, III (59), 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 (59), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, The Regis Fund, Inc. (mutual fund). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), 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 (64), 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 (51), 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 Eaton Vance and EV, and of BMR since August 11, 1992, and
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 (49), Treasurer*
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), 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 (59), Assistant Secretary*
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Fund's
contractual relationship with the administrator, 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
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, 1994, the Trustees of the Trust and the
Portfolio earned the following compensation in their capacities as Trustees from
the Fund, the Portfolio and the other funds in the Eaton Vance fund complex:
<TABLE>
<CAPTION>
Aggregate Aggregate Retirement Total Compensation
Compensation Compensation Benefit Accrued from Trust and
Name from Fund from Portfolio from Fund Complex Fund Complex<F1>
<S> <C> <C> <C> <C>
Donald R. Dwight ...... $685 $3,769 -- 0 -- $132,500
Samuel L. Hayes, III .. 662 3,738 -- 0 -- 140,000
Norton H. Reamer ...... 636 3,654 -- 0 -- 132,500
John L. Thorndike ..... 652 3,781 -- 0 -- 137,500
Jack L. Treynor ....... 688 3,852 -- 0 -- 137,500
---------
<FN>
<F1> The Eaton Vance fund complex consists of 201 registered investment companies or series thereof.
</FN>
</TABLE>
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.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 30, 1994, 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
December 30, 1994, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick,
NJ was the record owner of approximately 13.1%, 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. To the knowledge of the Trust, no other person beneficially owns
5% or more of the Fund's 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 $15 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 $500 million 0.300% 3.00%
2 $500 million but less than $1 billion 0.275% 2.75%
3 $1 billion but less than $1.5 billion 0.250% 2.50%
4 $1.5 billion but less than $2 billion 0.225% 2.25%
5 $2 billion but less than $3 billion 0.200% 2.00%
6 $3 billion and over 0.175% 1.75%
As at September 30, 1994, the Portfolio had net assets of $445,131,401. For
the six month period ended September 30, 1994, the Portfolio paid BMR advisory
fees of $1,141,013 (equivalent to 0.50% (annualized) of the Portfolio's average
daily net assets for such period). 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). Prior to May 3, 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 April 1, 1993 to May 3, 1993, the Fund
paid Eaton Vance advisory fees of $193,804 (equivalent to 0.49% (annualized) of
the Fund's average daily net assets for such period). For the fiscal year ended
March 31, 1993, and the six months ended March 31, 1992 the Fund paid Eaton
Vance advisory fees of $2,012,374 and $926,017, respectively (equivalent to
0.51% (annualized) and 0.515% (annualized) of the Fund's average daily net
assets for such periods, respectively).
The Investment Advisory Agreement with BMR remains in effect until February
28, 1995. It may be continued indefinitely thereafter so long as such
continuance after February 28, 1995 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. As Administrator, 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.
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 the 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 of 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 December 31, 1994, 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 and O'Connor and Ms. Sanders, who are officers or Trustees 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 and Eaton Vance's wholly-owned subsidiary, Eaton Vance Distributors,
Inc., as Principal Underwriter, will receive its portion of the sales charge on
shares of the Fund sold through Authorized Firms.
Eaton Vance owns all of the stock of Energex Corporation, which is engaged
in oil and gas operations. EVC owns all of the stock of Marblehead Energy Corp.
(which engages in oil and gas operations) and 77.3% of the stock of Investors
Bank & Trust Company, Custodian of the Fund and the Portfolio, which provides
custodial, trustee and other fiduciary services to investors, including
individuals, employee benefit plans, corporations, investment companies, savings
banks and other institutions. 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, 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 (a 77.3% owned subsidiary of EVC) 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. In view of the ownership of EVC in IBT, the
Portfolio is treated as a self-custodian pursuant to Rule 17f-2 under the 1940
Act, and the Portfolio's investments held by IBT as custodian are thus subject
to the additional examinations by the Portfolio's independent certified public
accountants as called for by such Rule. For the six months ended September 30,
1994 and the fiscal year ended March 31, 1994, the Fund paid IBT $7,496 and
$21,875, respectively. For the fiscal year ended September 30, 1994, the
Portfolio paid IBT $66,016 and for the period of the start of business, May 3,
1993, to the fiscal year ended March 31, 1994, the Portfolio paid IBT $123,534.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's transfer agent (the "Transfer Agent")
will send to the shareholder regular monthly or quarterly payments of any
designated amount based upon the value of the shares held. The checks will be
drawn from share redemptions and hence, although they are a return of principal,
may give rise to gain or loss for tax purposes. 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 has authorized Bank Draft Investing or is otherwise making regular
purchases of Fund shares. Either 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 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 California 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 California 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. 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, Washington's Birthday, 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
The 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 and the deduction of the maximum contingent
deferred sales charge at the end of the period.
The Fund's 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 distributions during the period.
This yield figure does not reflect the deduction of any contingent deferred
sales charges which are imposed upon certain redemptions at the rates set forth
under "How to Redeem Fund Shares" in the prospectus. A taxable-equivalent yield
is computed by using the tax-exempt yield figure and dividing by 1 minus the tax
rate. For the thirty-day period ended September 30, 1994 the yield of the Fund
was 4.94%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.94% (considering both
California and Federal taxes) would be 7.57%, assuming a combined Federal and
California tax rate of 34.70%.
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.
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). The Fund's distribution rate
(calculated on September 30, 1994 and based on the Fund's monthly distribution
paid September 15, 1994) was 5.92%, and the Fund's effective distribution rate
(calculated on the same date and based on the same monthly distribution) was
6.08%.
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund covering the life of the Fund from December 19, 1985 through September 30,
1994 and for the one and five year periods ended September 30, 1994.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING TOTAL RETURN TOTAL RETURN
THE THE BEFORE DEDUCTING THE AFTER DEDUCTING THE
CONTINGENT CONTINGENT CONTINGENT DEFERRED CONTINGENT DEFERRED
DEFERRED DEFERRED SALES CHARGE SALES CHARGE<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F2> ------------------------ ------------------------
PERIOD DATE INVESTMENT ON 9/30/94 ON 9/30/94 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund<F1> 12/19/85 $1,000 $1,685.38 $1,685.38 68.54% 6.12% 68.54% 6.12%
5 Years
Ended
9/30/94 9/30/89 $1,000 $1,310.23 $1,291.42 31.02% 5.55% 29.14% 5.25%
1 Year
Ended
9/30/94 9/30/93 $1,000 $ 945.59 $ 901.52 -5.44% -5.44% -9.85% -9.85%
PERCENTAGE CHANGES 12/19/85 -- 9/30/94
<CAPTION>
NET ASSET VALUE TO NET ASSET VALUE TO NET
NET ASSET VALUE BEFORE DEDUCTING ASSET VALUE AFTER DEDUCTING THE
THE CONTINGENT DEFERRED SALES CHARGE<F2> CONTINGENT DEFERRED SALES CHARGE
FISCAL WITH ALL DISTRIBUTIONS REINVESTED WITH ALL DISTRIBUTIONS REINVESTED
YEAR ---------------------------------------------- ----------------------------------------------
ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----- ------ ---------- -------------- ------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
9/30/86 -- 10.80% -- -- 5.80% --
9/30/87 -2.93% 7.55% 4.17% -7.46% 2.81% 1.57%
9/30/88 10.95% 19.33% 6.55% 5.95% 15.41% 5.28%
9/30/89 7.80% 28.63% 6.88% 2.80% 25.67% 6.23%
9/30/90 3.63% 33.31% 6.19% -1.21% 31.39% 5.87%
9/30/91 11.59% 48.75% 7.11% 6.59% 47.75% 6.98%
9/30/92 7.06% 59.25% 7.10% 2.06% 59.25% 7.10%
9/30/93 11.92% 78.23% 7.70% 6.92% 78.23% 7.70%
9/30/94 -5.44% 68.54% 6.12% -9.85% 68.54% 6.12%
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.
---------
<FN>
<F1> Investment operations began on December 19, 1985.
<F2> No contingent deferred sales charge is imposed on shares purchased more than six years prior to the redemption, shares
acquired through the reinvestment of dividends and distributions and any appreciation in value of other shares in the
account, 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" in the Prospectus.
</FN>
</TABLE>
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 the 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 the portfolio allocation and holdings
of the Portfolio at a particular date (including ratings assigned by independent
ratings services such as Moody's Investors Service, Inc., Standard & Poor's
Ratings Group and Fitch Investors Service, Inc.) 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.
The Portfolio's diversification by quality ratings as of November 30, 1994,
was:
RATING ASSIGNED BY PERCENT OF
MOODY'S, S&P OR FITCH BOND HOLDINGS
--------------------- -------------
Aaa or AAA 32.2%
Aa or AA 9.6
A 22.2
Baa or BBB 22.5
Ba or BB --
B --
Below B --
Not rated 13.5
-----
Total 100.0%
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 Federal income tax brackets.
The following table compares the after-tax yield of an investment in the
Fund yielding a hypothetical 5.5% with the after-tax yield of a certificate of
deposit yielding 3.25%. The tax brackets used in the table are the combined
Federal and California personal income tax brackets: 20.10% for single filers
with taxable income up to $23,350 and joint filers up to $39,000; 34.70% for
single filers with taxable income from $23,351 to $56,550 and joint filers from
$39,001 to $94,250; 37.90% for single filers with taxable income from $56,551 to
$117,950 and joint filers from $94,251 to $143,600; 43.04% for single filers
with taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 46.24% for single and joint filers with taxable income over
$256,500. These brackets are calculated using 1995 Federal tax rates, the
highest 1994 California state rate applicable at the upper portion of the
brackets and assume that California taxes are deducted on the Federal income tax
return. The applicable Federal tax rates within each of the combined brackets
are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. An investor in
the Fund with taxable income within these brackets may be subject to a lower
combined tax rate than the combined rates shown, while an investor who does not
itemize on his or her Federal income tax return may be subject to a higher
combined tax rate. These brackets also do not take into account the phaseout of
personal exemptions and limitation on deductibility of itemized deductions over
certain ranges of income. Investors who are subject to such phaseout or
limitation will have higher combined brackets than indicated above. See your tax
adviser for additional information.
<TABLE>
<CAPTION>
TAX BRACKET
20.10% 34.70% 37.90% 43.04% 46.24%
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................................... 5.50% 5.50% 5.50% 5.50% 5.50%
Taxable equivalent ............................... 6.88 8.42 8.86 9.66 10.23
Certificates of deposit:
Yield .......................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ................................ 2.60 2.12 2.02 1.85 1.75
</TABLE>
The Tax Free Yield Advantage
(43.04% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.85% After-tax yield
5.50% Tax free investment
7.66% Taxable equivalent yield
5.50% Tax free yield
Example:
Two $100,000 investments ...
3.25% CD 5.50 Tax free
Pretax income: $3,250.00 $5,500.00
Tax: (1,398.80) NONE
After-tax income: $1,851.20 $5,500.00
The 1995 combined tax bracket takes into account Federal income tax rates
for 1995 and the highest California State income tax rates for 1994 applicable
to the bracket. Assuming the deductibility of state taxes on the Federal return,
the bracket is 43.04% for single filers with taxable income from $117,951 to
$256,500 and joint filers from $143,601 to $256,500. Actual tax brackets may be
higher due to the phaseout of personal exemptions and limitations on the
deductibility of itemized deductions over certain ranges of income. Your actual
bracket will vary depending on your income, exemptions and deductions. See your
tax adviser for additional information. The chart is based on 3-month bank CDs
(Source: The Wall Street Journal and Eaton Vance Management). Tax free yields
are shown for illustration purposes only and are not meant to imply or predict
any future rate of return for the Fund. See your financial adviser for the
Fund's current yield and actual CD rates.
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
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
continue to qualify each year as a regulated investment company 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, 1994 (see the Notes to the Financial Statements). Because the Fund
invests substantially all of 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 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 regulated investment company 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 regulated investment company.
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.
CALIFORNIA STATE AND LOCAL TAX MATTERS
In any year in which the Fund qualifies as a regulated investment company
under Subchapter M of the Internal Revenue Code and is exempt from Federal
income tax, the Fund also will be exempt from the California corporate income
and franchise tax.
Individual shareholders of the Fund who reside in California will not be
subject to California personal income tax on distributions received from the
Fund to the extent such distributions are attributable to interest on
obligations the interest on which is exempt under either Federal or California
law from taxation by the State of California, provided that at least 50% of the
Portfolio's assets at the close of each quarter of its taxable year is invested
in such obligations. Distributions from the Fund which are attributable to
sources other than those in the preceding sentence will generally be taxable to
such individual shareholders as ordinary income. Distributions of the Fund's net
capital gains (the excess of net long-term capital gain over net short-term
capital loss) are taxable to shareholders as long-term capital gains for
California personal income tax purposes. In addition, distributions other than
exempt-interest dividends are includable in income subject to the California
alternative minimum tax.
Distributions of investment income and long-term and short-term capital
gains from the Fund will not be excluded from taxable income in determining
California corporate taxes for corporate shareholders. However, distributions of
the Fund's net capital gains are treated as long-term capital gains for
California corporate tax purposes. In addition, distributions may be includable
in income subject to the alternative minimum tax. Shares of the Fund will not be
subject to the California property tax.
California tax law resembles Federal tax law in restricting the
deductibility of interest on indebtedness incurred by shareholders to purchase
shares and the allowance of losses realized by a shareholder upon the sale or
redemption of shares.
Shareholders should consult their own tax advisers with respect to the
state, local and 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 ("Authorized Firms") or
investors and other selling literature and of advertising is borne by the
Principal Underwriter. The fees and expenses of qualifying and registering and
maintaining qualifications and registrations of the Fund and its shares under
Federal and state securities laws 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 therefore by the Fund. For the fiscal year ended September 30,
1994, the Fund paid the Principal Underwriter $3,222.50 for repurchase
transactions.
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.
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.
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 the sales commissions and distribution fees and
contingent deferred sales charges paid to the Principal Underwriter. 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 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. For the six month period ended September
30, 1994 and the fiscal year ended March 31, 1994, the Fund made payments to the
Principal Underwriter aggregating $1,700,565 and $3,887,613, respectively, which
amounts were used by the Principal Underwriter to defray sales commissions
aggregating $2,185,862 and $3,704,597, respectively, paid during such periods by
the Principal Underwriter to Authorized Firms on sales of shares of the Fund and
to reduce outstanding uncovered distribution charges. As at September 30, 1994
and March 31, 1994, the outstanding uncovered distribution charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$10,134,000 and $11,357,000, respectively, (which amounts were equivalent to
2.3% and 2.5% of the Fund's net assets on such day). During such periods
contingent deferred sales charges aggregating approximately $728,000 and
$1,135,000, respectively, were imposed on early redeeming shareholders and paid
to the Principal Underwriter, which amounts were also used by the Principal
Underwriter to reduce uncovered distribution charges.
The Plan also authorizes the Fund to make payments of service fees. During
the six month period ended September 30, 1994 and the fiscal year ended March
31, 1994, the Fund accrued service fee payments under the Plan aggregating
$404,860 and $841,670 and made payments to the Principal Underwriter and
Authorized Firms aggregating $393,213 and $737,481, of which $378,630 and
$731,194 was paid to financial service firms and the balance was retained by 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 has been 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 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 California 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 period from April 1, 1994 to the fiscal year ended September 30,
1994 and for the period from the start of business, May 3, 1993, to the fiscal
year ended March 31, 1994, the Portfolio paid no brokerage commissions on
portfolio transactions. During the fiscal years ended March 31, 1993 and 1992,
the Trust paid brokerage commissions of $0 and $122, respectively.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance California Municipals Trust. The Trust changed its
name to Eaton Vance Investment Trust on April 28, 1992. The Fund became a series
of the Trust on April 28, 1992 at which time it changed its name from Eaton
Vance California Municipals Trust to Eaton Vance California Municipals Fund. The
Fund changed its name from Eaton Vance California Municipals Fund to EV Marathon
California Municipals Fund on August 1, 1994. Eaton Vance, pursuant to its
agreement with the Trust, controls the use of the words "Eaton Vance" in the
Fund's name and may use the words "Eaton Vance" in other connections and for
other purposes.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a 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 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 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. The By-Laws also provide that the Trustees shall promptly call a
meeting of shareholders for the purpose of voting upon a question of removal of
a Trustee when requested so to do by the record holders of not less than 10 per
centum of the outstanding shares.
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 interests
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. 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 Securities and Exchange Commission
(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.
<PAGE>
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 1995 regular Federal income
tax rates and California State income tax laws and tax rates applicable for
1994. 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>
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
Yields shown are for illustration purposes only and are not meant to represent the Fund's actual yield.
* Net amount subject to Federal and California 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
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.
Of course, no assurance can be given that EV Marathon California Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portoflio 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 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>
<TABLE>
EV MARATHON CALIFORNIA MUNICIPALS FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
----------------------------------------------------------------------------------------------
September 30, 1994
----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investment in California Tax Free Portfolio, at value (Note 1A)
(identified cost, $449,995,651) $440,832,083
Receivable for Fund shares sold 859,144
------------
Total assets $441,691,227
LIABILITIES:
Dividends payable $1,070,887
Payable for Fund shares redeemed 767,953
Payable to affiliates --
Custodian fee 595
Trustees fees 827
Accrued expenses 260,238
----------
Total liabilities 2,100,500
------------
NET ASSETS for 47,333,919 shares of beneficial interest
outstanding $439,590,727
============
SOURCES OF NET ASSETS:
Paid-in capital $459,021,465
Accumulated net realized loss on investments and financial
futures transactions
(computed on the basis of identified cost) (9,089,508)
Accumulated distributions in excess of net investment income (1,177,662)
Unrealized depreciation of investments and financial
futures contracts from Portfolio
(computed on the basis of identified cost) (9,163,568)
------------
Total $439,590,727
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE (NOTE 6) PER SHARE
($439,590,727 / 47,333,919 shares of beneficial interest) $9.29
=====
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
-----------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED
--------------------------------
SEPTEMBER 30, MARCH 31,
1994* 1994
--------------- ---------------
<S> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income $ -- $ 2,597,742
Interest income allocated from Portfolio 15,155,265 27,562,745
Expenses allocated from Portfolio (1,306,248) (2,406,517)
------------ ------------
Total investment income $ 13,849,017 $ 27,753,970
------------ ------------
Expenses --
Investment adviser fee (Note 4) $ -- $ 193,804
Compensation of Trustees not members of the
Administrator's organization 4,082 3,145
Distribution fees (Note 5) 2,105,425 4,729,283
Custodian fee (Note 4) 7,496 21,875
Transfer and dividend disbursing agent fees 171,383 347,351
Printing and postage 52,266 96,769
Legal and accounting services 11,653 74,092
Registration costs 2,297 19,112
Miscellaneous 26,490 73,588
------------ ------------
Total expenses $ 2,381,092 $ 5,559,019
------------ ------------
Net investment income $ 11,467,925 $ 22,194,951
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) --
Investment transactions (identified cost basis) $ -- $ 286,413
Financial futures contracts -- 68,801
Net realized gain (loss) from Portfolio --
Investment transactions (identified cost basis) (10,371,218) 11,006,396
Financial futures contracts (188,534) (31,753)
------------ ------------
Net realized gain (loss) on investments $(10,559,752) $ 11,329,857
Change in unrealized depreciation of investments (926,810) (31,672,678)
------------ ------------
Net realized and unrealized loss $(11,486,562) $(20,342,821)
------------ ------------
Net increase (decrease) in net assets from
operations $ (18,637) $ 1,852,130
============ ============
*For the six months ended September 30, 1994 (Note 8).
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
---------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, -----------------------------------
1994* 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 11,467,925 $ 22,194,951 $ 20,031,141
Net realized gain (loss) on investments (10,559,752) 11,329,857 (2,482,959)
Change in unrealized appreciation
(depreciation) of investments (926,810) (31,672,678) 23,093,812
------------ ------------ ------------
Net increase (decrease) in net assets
from operations $ (18,637) $ 1,852,130 $ 40,641,994
------------ ------------ ------------
Distributions to shareholders (Note 2) --
From net investment income $(11,467,925) $(22,194,951) $(20,031,141)
In excess of net investment income (1,709,784) (4,240,070) --
From net realized gain on investments -- (7,255,117) (2,367,984)
From paid-in capital -- -- (4,556,468)
------------ ------------ ------------
Total distributions to shareholders $(13,177,709) $(33,690,138) $(26,955,593)
------------ ------------ ------------
Transactions in shares of beneficial
interest (Note 3) --
Proceeds from sales of shares $ 20,853,736 $ 98,716,094 $106,380,655
Net asset value of shares issued to
shareholders in payment of
distributions declared 5,336,955 14,550,970 11,384,672
Cost of shares redeemed (36,817,405) (56,953,570) (55,110,755)
------------ ------------ ------------
Increase (decrease) in net assets
from Fund share transactions $(10,626,714) $ 56,313,494 $ 62,654,572
------------ ------------ ------------
Net increase (decrease) in net
assets $(23,823,060) $ 24,475,486 $ 76,340,973
NET ASSETS:
At beginning of period 463,413,787 438,938,301 362,597,328
------------ ------------ ------------
At end of period (including accumulated
distributions in excess of net
investment income of $1,177,662,
$1,168,443 and $0, respectively) $439,590,727 $463,413,787 $438,938,301
============ ============ ============
*For the six months ended September 30, 1994 (Note 8).
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED MARCH 31, YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, -------------------------------------- ------------------------
1994<F1> 1994 1993 1992<F2> 1991 1990
------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.560 $ 10.200 $ 9.850 $ 10.000 $ 9.570 $ 9.880
-------- -------- -------- -------- -------- --------
INCOME FROM OPERATIONS:
Net investment income $ 0.240 $ 0.480 $ 0.509 $ 0.264 $ 0.533 $ 0.558
Net realized and
unrealized gain
(loss) on investments (0.234) (0.395) 0.524 (0.100) 0.544 (0.203)
-------- -------- -------- -------- -------- --------
Total income from
operations $ 0.006 $ 0.085 $ 1.033 $ 0.164 $ 1.077 $ 0.355
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.240) $ (0.480) $ (0.509) $ (0.264) $ (0.533) $ (0.558)
In excess of net
investment income (0.036) (0.092) -- -- -- --
From net realized gain
on investments -- (0.153) (0.059) -- -- --
From paid-in capital -- -- (0.115) (0.050) (0.114) (0.107)
-------- -------- -------- -------- -------- --------
Total distributions $ (0.276) $ (0.725) $ (0.683) $ (0.314) $ (0.647) $ (0.665)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, end of year $ 9.290 $ 9.560 $ 10.200 $ 9.850 $ 10.000 $ 9.570
======== ======== ======== ======== ======== ========
TOTAL RETURN<F6> 0.06% 0.55% 10.82% 3.29% 11.59% 3.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000 omitted) $439,591 $463,414 $438,938 $362,597 $353,990 $281,723
Ratio of net expenses
to average net assets<F4> 1.63%<F3> 1.67% 1.84% 1.87%<F3> 1.90% 1.95%
Ratio of net investment income
to average net assets 5.06%<F3> 4.64% 5.05% 5.28% 5.42% 5.65%
PORTFOLIO TURNOVER RATE<F5> -- 5% 139% 65% 36% 13%
<FN>
<F1> For the six months ended September 30, 1994 (Note 8).
<F2> For the six months ended March 31, 1992. The Fund changed its fiscal year end from September 30, to March 31,
effective March 31, 1992.
<F3> Computed on an annualized basis.
<F4> Includes the Fund's share of California Tax Free Portfolio's allocated expenses for the period ended
September 30, 1994 and the period from May 3, 1993, to March 31, 1994.
<F5> Portfolio Turnover represents the rate of portfolio activity for the period while the Fund was making
investments directly in securities. The portfolio turnover rate for the period since the Fund transferred
substantially all of its investable assets to the Portfolio is shown in the Portfolio's financial statements
which are included elsewhere in this report.
<F6> 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.
</FN>
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Marathon California Municipals Fund (formerly Eaton Vance California
Municipals Fund) (the Fund) is a diversified series of Eaton Vance Investment
Trust (the Trust). The Trust is an entity of the type commonly known as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. The Fund
invests all of its investable assets in interests in the California Tax Free
Portfolio (the Portfolio), a New York Trust, having the same investment
objective as the Fund. The value of the Fund's investment in the Portfolio
reflects the Fund's proportionate interest in the net assets of the Portfolio
(99.0% at September 30, 1994). The performance of the Fund is directly affected
by the performance of the Portfolio. The financial statements of the Portfolio,
including the portfolio of investments, are included elsewhere in this report
and should be read in conjunction with the Fund's financial statements. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS -- Valuation of securities by the Portfolio is
discussed in Note 1 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
B. INCOME -- The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and accrued
expenses of the Fund determined in accordance with generally accepted accounting
principles. Prior to the Fund's investment in the Portfolio, the Fund held its
investments directly. For investments held directly, interest income was
determined on the basis of interest accrued, adjusted for amortization of
premium or discount when required for federal income tax purposes.
C. FEDERAL TAXES -- The Fund's policy is to comply with
the provisions of the Internal Revenue Code applicable to regulated investment
companies and to distribute to shareholders each year all of its taxable income,
if any, and tax-exempt income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is necessary. At
September 30, 1994, the Fund, for federal income tax purposes had a capital loss
carryover of $11,183,864 which will reduce the taxable income arising from
future net realized gains on investments, if any, to the extent permitted by the
Internal Revenue Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal income or excise tax. Such capital loss carryover will
expire on September 30, 2002. Dividends paid by the Fund from net interest on
tax-exempt municipal bonds allocated from the Portfolio are not includable by
shareholders as gross income for federal income tax purposes because the Fund
and Portfolio intend to meet certain requirements of the Internal Revenue Code
applicable to regulated investment companies which will enable the Fund to pay
exempt- interest dividends. The portion of such interest, if any, earned on
private activity bonds issued after August 7, 1986, may be considered a tax
preference item to shareholders.
D. DISTRIBUTION COSTS -- For book purposes, commissions paid on the sale of
shares and other distribution costs are charged to operations. For tax purposes,
commissions paid are charged to paid-in capital (Notes 5 and 9).
E. OTHER -- Investment transactions are accounted for on a trade date basis.
F. RECLASSIFICATION -- Certain prior year amounts have been reclassified to
conform to the current year presentation.
-------------------------------------------------------------------------------
(2) DISTRIBUTIONS TO SHAREHOLDERS
The net income of the Fund is determined daily, and substantially all of the net
income so determined is declared as a dividend to shareholders of record at the
time of declaration. In addition, the Fund declares each day an amount equal to
the excess of tax basis net income over book net income, which amount is
reported for financial statement purposes as a distribution in excess of net
investment income. Distributions are paid monthly. Distributions of allocated
realized capital gains, if any, are made at least annually. Shareholders may
reinvest capital gain distributions in additional shares of the Fund at the net
asset value as of the ex-dividend date. Distributions are paid in the form of
additional shares or, at the election of the shareholder, in cash. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis. Generally accepted accounting principles require that only distributions
in excess of tax basis earnings and profits be reported in the financial
statements as a return of capital. Differences in the recognition or
classification of income between the financial statements and tax earnings and
profits which result in over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or accumulated
net realized gains. Permanent differences between book and tax accounting are
reclassified to paid-in capital. During the six months ended September 30, 1994,
$1,700,565 was reclassified from distributions in excess of net investment
income to paid in capital, due to differences between book and tax accounting
for distribution costs being considered as permanent differences. Net investment
income, net realized gains and net assets were not affected by this
reclassification.
-------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, --------------------------
1994* 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Sales 2,200,594 9,570,563 10,552,430
Issued to shareholders electing to receive
payments of distributions
in Fund shares 563,552 1,410,063 1,135,375
Redemptions (3,895,080) (5,535,688) (5,476,631)
---------- ---------- ----------
Net increase (decrease) (1,130,934) 5,444,938 6,211,174
========== ========== ==========
*For the six months ended September 30, 1994 (Note 8).
</TABLE>
-------------------------------------------------------------------------------
(4) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Prior to May 3, 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 Management (EVM) as its investment adviser. The investment
adviser fee was earned by EVM as compensation for management and investment
advisory services rendered to the Fund. The fee was based upon a percentage of
average daily net assets plus a percentage of gross income (i.e., income other
than gains from the sale of securities). For the period from April 1, 1993, to
May 3, 1993, the fee was equivalent to 0.49% (annualized) of the Fund's average
net assets for such period and amounted to $193,804. Since May 3, 1993, EVM has
served only as the administrator of the Fund, but receives no compensation. The
Portfolio has engaged Boston Management and Research (BMR), a subsidiary of EVM,
to render investment advisory services. See Note 2 of the Portfolio's Notes to
Financial Statements which are included elsewhere in this report. Except as to
Trustees of the Fund and the Portfolio who are not members of EVM's and BMR's
organization, officers and Trustees receive remuneration for their services to
the Fund out of such investment adviser fee. Investors Bank & Trust Company
(IBT), an affiliate of EVM, serves as custodian of the Fund and the Portfolio.
Pursuant to their respective custodian agreements, IBT receives a fee reduced by
credits which are determined based on the average cash balances the Fund or the
Portfolio maintains with IBT. Certain of the officers and Trustees of the Fund
and Portfolio are officers and directors/trustees of the above organizations
(Note 5).
-------------------------------------------------------------------------------
(5) DISTRIBUTION PLAN The Fund has adopted a distribution plan (the Plan)
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Effective July
7, 1993, the Trustees of the Fund adopted an Amended Distribution Plan which
complies with the revised sales charge rule of The National Association of
Securities Dealers, Inc. (the NASD Rule). Prior to July 7, 1993, annual payments
to the Fund's principal underwriter, Eaton Vance Distributors, Inc. (EVD) were
limited to 1% of average daily net assets. The Amended Plan requires the Fund to
accrue amounts daily to EVD equal to 1/365 of 0.75% of the Fund's daily net
assets, for providing ongoing distribution services and facilities to the Fund.
The Fund will automatically discontinue accruals to EVD during any period in
which there are no outstanding Uncovered Distribution Charges, which are
equivalent to the sum of (i) 5% of the aggregate amount received by the Fund for
shares sold plus, (ii) distribution fees calculated by applying the rate of 1%
over the prevailing prime rate to the outstanding balance of Uncovered
Distribution Charges of EVD, reduced by the aggregate amount of contingent
deferred sales charges (see Note 6) and amounts theretofore paid to EVD. The
amount payable to EVD with respect to each day is accrued on such day as
liability of the Fund and, accordingly, reduces the Fund's net assets. For the
six month period ended September 30, 1994 and for the year ended March 31, 1994,
the Fund paid or accrued $1,700,565 and $3,887,613, respectively, to or payable
to EVD, representing 0.75% and 0.81%, respectively, of average daily net assets.
At September 30, 1994 and March 31, 1994, the amount of Uncovered Distribution
Charges of EVD calculated under the Amended Plan was approximately $10,134,000
and $11,357,000, respectively. In addition, the Plan authorizes the Fund to make
payments of service fees to the Principal Underwriter, Authorized Firms and
other persons in amounts not exceeding 0.25% of the Fund's average daily net
assets for each fiscal year. The Trustees of the Fund have initially implemented
this provision of the 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 0.25% per annum of the Fund's average daily net assets based
on the value of Fund shares sold by such persons and remaining outstanding for
at least one year. Provision for service fees for the six month period ended
September 30, 1994 and year ended March 31, 1994 amounted to $404,860 and
$841,670, respectively. Service fee payments will be 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 the Fund to
EVD and, as such, are not subject to automatic discontinuance where there are no
outstanding Uncovered Distribution Charges of EVD.
Certain officers and Trustees of the Fund and Portfolio are officers or
directors of EVD.
-------------------------------------------------------------------------------
(6) CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge (CDSC) is imposed on any redemption of Fund
shares made within six years of purchase. Generally, the CDSC is based upon the
lower of the net asset value at date of redemption or date of purchase. No
charge is levied on shares acquired by reinvestment of dividends or capital gain
distributions. The CDSC is imposed at declining rates that begin at 5% in the
case of redemptions in the first year and second year after purchase (6% and 5%,
respectively, for shares purchased prior to August 1, 1994), declining a
percentage point each subsequent year. No CDSC is levied on shares which have
been sold to EVM or its affiliates or to their affiliates or to their respective
employees or clients. CDSC charges are paid to EVD to reduce the amount of
Uncovered Distribution Charges calculated under the Fund's Distribution Plan.
CDSC received when no Uncovered Distribution Charges exist will be credited to
the Fund. For the six months ended September 30, 1994, and the year ended March
31, 1994, EVD received approximately $728,000 and $1,135,000, respectively, of
CDSC paid by shareholders.
-------------------------------------------------------------------------------
(7) INVESTMENT TRANSACTIONS
On May 3, 1993, the Fund transferred substantially all of its assets to the
Portfolio in exchange for an interest in the Portfolio. Increases and decreases
in the Fund's investment in the Portfolio aggregated $21,606,707 and
$48,275,092, respectively, for the six month period ended September 30, 1994 and
$102,686,839 and $87,672,773, respectively, for the period from May 3, 1993, to
March 31, 1994. Purchases and sales of investment securities, other than U.S.
government securities and short-term obligations, during the period from April
1, 1993, to May 3, 1993, aggregated $23,571,883 and $23,994,815, respectively.
-------------------------------------------------------------------------------
(8) CHANGES IN FISCAL YEAR
The Fund changed its fiscal year end from March 31, to September 30, effective
September 30, 1994.
-------------------------------------------------------------------------------
(9) SUBSEQUENT EVENT
A recent Internal Revenue Service ruling requires that sales commissions paid by
the Fund pursuant to its Distribution Plan be expensed for tax purposes (rather
than charged to paid-in-capital as the Fund has done in the past). The Fund
changed its tax accounting practice to conform to the ruling on November 16,
1994. The change will have no effect on the Fund's current yield or total
return.
<PAGE>
INDEPENDENT AUDITORS' REPORT
-------------------------------------------------------------------------------
To the Trustees and Shareholders of
Eaton Vance Investment Trust:
We have audited the accompanying statement of assets and liabilities of EV
Marathon California Municipals Fund (formerly Eaton Vance California Municipals
Fund) (one of the series constituting the Eaton Vance Investment Trust) as of
September 30, 1994, and the related statements of operations for the six months
then ended and the year ended March 31, 1994, the statements of changes in net
assets for the six months ended September 30, 1994 and for the years ended March
31, 1994 and 1993 and the financial highlights for the six months ended
September 30, 1994, the years ended March 31, 1994 and 1993, the six months
ended March 31, 1992 and for each of the years in the two year period ended
September 30, 1991. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of EV Marathon
California Municipals Fund series of the Eaton Vance Investment Trust at
September 30, 1994, the results of its operations, the changes in its net assets
and its financial highlights for the respective stated periods, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 4, 1994
<PAGE>
<TABLE>
CALIFORNIA TAX FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1994
-------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
-------------------------------------------------------------------------------------------------------------------------
Ratings (Unaudited)
---------------------------- Principal
Standard Amount
Moody's & Poor's (000 Omitted) Security Value
-------------------------------------------------------------------------------------------------------------------------
ESCROWED - 17.9%
<C> <C> <C> <S> <C>
NR AAA $ 6,670 Redevelopment Agency of The City of Azusa, Single
Family Mortgage Revenue Refunding Bonds, 1992 Series
A, (Escrowed to Maturity), 6.875%, 10/1/12 $ 7,153,575
NR AAA 3,140 City of Bakersfield, Certificates of Participation
(Bakersfield Assisted Living Center), 0.00%, 4/15/21 494,550
NR NR 130 City of Commerce Joint Powers Financing Authority, 1991
Revenue Bonds, Series A, (Multiple Projects Loan),
8.00%, 3/1/22 150,475
NR AAA 3,255 Redevelopment Agency of the City of Duarte, Single
Family Mortgage Revenue Refunding Bonds, 1992 Series
B, (Escrowed To Maturity), 6.875%, 10/1/11 3,450,300
NR BBB 2,000 City of Rancho Mirage Joint Powers Financing Authority,
Civic Center Revenue Bonds, Series 1991 A, 7.50%,
4/1/17 2,267,500
Aaa AAA 14,285 County of Sacramento, California, Single Family
Mortgage Revenue Bonds (GNMA Mortgage-Backed
Securities Program), Issue A of 1987 (Escrowed To
Maturity), 8.50%, 11/1/16 17,909,819
Aaa AAA 10,000 County of Sacramento, California, Single Family
Mortgage Revenue Bonds (GNMA Mortgage-Backed
Securities Program), Issue A of 1987 (Escrowed to
Maturity), 8.125%, 7/1/16 12,062,500
Aaa AAA 6,000 County of Sacramento, California, Single Family
Mortgage Revenue Bonds (GNMA Mortgage-Backed
Securities Program), Issue A of 1987 (Escrowed to
Maturity), 8.25%, 1/1/21 7,357,500
Aaa AAA 3,000 City and County of San Francisco, CA General Purpose
Sewer Revenue Bonds, Series 1991, Secondary
"Rites", (AMBAC), Variable, 10/1/21 <F3> 3,480,000
NR BBB 1,575 Fontana Public Financing Authority, San Bernardino
County, California, Subordinate Lien Tax Allocation
Revenue Bonds, (North Fontana Redevelopment
Project), 1991 Series A, 7.75%, 12/1/20 1,823,063
NR BBB 2,000 Loma Linda, California Certificates of Participation,
Loma Linda Redevelopment Agency, City Hall, 7.00%,
12/1/15 2,137,500
Aaa AAA 6,400 Port of Oakland, California, Revenue Bonds, Series C,
(BIGI), 0.00%, 11/1/05 3,568,000
NR NR 3,200 Oceanside California Community Development Commission,
Tax Allocation 2nd Lien, 8.40%, 6/1/18 3,456,000
NR NR 3,000 Poway Redevelopment Agency, CA. Paguay Redevelopment
Project, Subordinated Tax Allocation Refunding,
Issue of 1991, 7.75%, 12/15/21 3,476,250
NR BBB+ 1,000 City of Upland, CA Certificates of Participation,
Police Building Construction Revenue Bonds, 8.20%,
8/1/16 1,082,500
NR NR 4,000 Huntington Beach, Public Financing Authority, (Orange
County, California), 1988 Revenue Bonds, Series A,
(Huntington Beach Redevelopment Projects), 8.375%,
5/1/18 4,505,000
NR NR 2,975 Sacramento-Yolo Port District Port Facilities
Improvement and Refunding Revenue Bonds (Sacramento
and Yolo Counties, California) 8.30%, 12/1/03 3,328,281
------------
$ 77,702,813
------------
GENERAL OBLIGATION - 1.1%
Aa A+ $ 6,000 State of California Various Purpose General Obligation
Bonds, 4.75%, 9/1/23 $ 4,477,500
Aa A+ 340 Government of Guam General Obligation Bonds, 1993
Series A, 5.375%, 11/15/13 287,725
------------
$ 4,765,225
------------
HEALTH CARE - 0.8%
NR NR $ 3,330 Banning, California Certificates of Participation (San
Georgonio Pass Convalescent Hospital), 9.50%, 12/1/11 $ 3,463,200
------------
HOSPITALS - 1.0%
NR BBB+ $ 2,700 City of Stockton, California, Health Facilities
Refunding Revenue Bonds (Dameron Hospital
Association), Series 1988, 8.30%, 12/1/14 $ 2,868,750
NR A 1,500 Woodland, California, Hospital Revenue Certificates of
Participation, (Woodland Memorial Hospital), 8.20%,
8/1/15 1,618,125
------------
$ 4,486,875
------------
HOUSING - 4.6%
Aa A+ $ 2,500 California Housing Finance Agency, Home Mortgage
Revenue Bonds, 1987 Series A, 8.20%, 8/1/17 $ 2,615,625
Aa A+ 1,455 California Housing Finance Agency, Home Mortgage
Revenue Bonds, 1988 Series B, 8.60%, 8/1/19 1,527,750
Aa3 NR 60 California Housing Finance Agency, Multifamily
Rehabilitation Bonds, 1983 Series A, 9.875%, 8/1/10 61,575
Aa A+ 2,500 California Housing Finance Agency, Home Mortgage
Revenue Bonds, 1986 Series A, 8.10%, 8/1/16 2,621,875
A1 A+ 2,000 California Housing Finance Agency, Multi-Unit Rental
Housing Revenue Bonds II, 1992 Series B, 6.70%,
8/1/15 2,020,000
Aa A+ 3,835 California Housing Finance Agency, Home Mortgage
Revenue Bonds, 1989 Series D, 7.375%, 8/1/11 3,969,225
Aa A+ 840 California Housing Finance Agency, Home Mortgage
Revenue Bonds, 1991 Series A, 7.375%, 8/1/17 854,700
NR NR 2,000 The Housing Authority of the County of Los Angeles, CA
Multifamily Housing Revenue Bonds (Corporate Fund for
Housing Projects), 1988 Series B, 10.50%, 12/1/29 2,087,500
A NR 845 The Housing Authority of the County of Los Angeles, CA,
Single Family Mortgage Revenue Bonds, 1986 Issue A,
7.875%, 8/1/16 873,519
NR A+ 2,320 City of Oakland, California, Housing Finance Revenue
Bonds, Issue D-1, 7.10%, 1/1/10 2,305,500
NR AAA 980 County of Riverside, California, Single Family Mortgage
Revenue Bonds (GNMA), Issue A of 1991, 6.85%, 10/1/16 1,006,950
------------
$ 19,944,219
------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL - 1.0%
NR BBB+ $ 4,500 Central Valley Financing Authority, CA Cogeneration
Project Revenue Bonds (Carson Ice-GenProject), 1993
Series, 6.20%, 7/1/20 $ 4,072,500
NR NR 4,500 City of Long Beach, California, Industrial Development
Revenue Bonds (Kress Rehabilitation Project), 9.75%,
12/1/16 <F1><F2> 135,000
------------
$ 4,207,500
------------
INSURED - 20.8%
Aaa AAA $ 5,620 California Health Facilities Financing Authority,
Insured Health Facility Refunding Revenue Bonds,
(Catholic Healthcare West), 1994 Series B, 5.00%,
7/1/14 $ 4,650,550
Aaa AAA 4,000 California Health Facilities Financing Authority,
Insured Health Facility Refunding Revenue Bonds,
(Catholic Healthcare West), 1994 Series B, 5.00%,
7/1/21 3,175,000
Aaa AAA 1,125 California Housing Finance Agency, Housing Revenue
Bonds, (MBIA), (AMT), 7.00%, 8/1/23 1,143,281
Aaa AAA 3,300 California Statewide Communities Development Authority,
Motion Picture and Television Fund, Step-Up Recovery
Floaters, (ABMAC), 5.68%, 1/1/24 3,159,750
Aaa AAA 1,680 Castaic Union School District, Los Angeles County,
California, 1993 General Obligation Bonds, Series A,
0.00%, 5/1/11 569,100
Aaa AAA 1,800 Castaic Union School District, Los Angeles County,
California, 1993 General Obligation Bonds, Series A,
0.00%, 5/1/12 571,500
Aaa AAA 4,000 Castaic Union School District, Los Angeles County,
California, 1993 General Obligation Bonds, Series A,
0.00%, 5/1/18 845,000
Aaa AAA 8,785 Culver City Redevelopment Financing Authority 1993 Tax
Allocation Refunding Revenue Bonds 4.60%, 11/1/20 6,544,825
Aaa AAA 5,000 East Bay Municipal Utility District (Alameda and Contra
Costa Counties, California), Water System
Subordinated Revenue Refunding Bonds, Series 1993B-2
"Yield Curve Notes,"
Variable, 6/1/08 <F3> 4,175,000
Aaa AAA 5,350 Fairfield Water Utility Improvement Project Refunding
Bonds, Series 1986 Certificates of Participation,
(FGIC), 0.00%, 4/1/04 3,082,938
Aaa AAA 8,000 Northern California Power Agency, Multiple Capital
Facilities Revenue Bonds, 1992 Series A, (RIBS),
(MBIA), Variable, 9/2/25 <F3> 8,090,000
Aaa AAA 6,500 Redevelopment Agency of the City of Oakland, CA,
Central District Redevelopment Project, Subordinated
Tax Allocation Bonds, Series 1992A, (MBIA), 5.00%,
9/1/21 5,191,875
Aaa AAA 2,000 Oro Loma Sanitary District (Alameda County,
California), Sewer Revenue Bonds of 1991, Series A,
(AMBAC), 8.55%, 10/1/06 2,385,000
Aaa AAA 10,000 Port of Oakland California, Revenue Bonds, Series A,
(AMT), (BIGI), 0.00%, 11/1/19 1,650,000
Aaa AAA 4,390 Poway Redevelopment Agency, CA Paguay Redevelopment
Project, Subordinated Tax Allocation Refunding Bonds,
Indexed Inverse Floating Bonds, Series 1993, (FGIC),
Variable, 12/15/06 <F3> 3,824,788
Aaa AAA 3,000 San Diego County, CA Water Authority, Water Revenue
Certificates of Participation, Residual Interest Tax-
Exempt Securities, (FGIC), Variable, 4/22/09 <F3> 2,737,500
Aaa AAA 10,000 Airports Commission City and County of San Francisco,
California, San Francisco International Airport,
Second Series Refunding Revenue Bonds, Issue 2,
(MBIA), 6.75%, 5/1/13 10,312,500
Aaa AAA 4,000 San Mateo County Transit District, (San Mateo County,
California), Limited Tax Bonds, 1993 Series A,
(MBIA), 8.00%, 6/1/20 4,770,000
Aaa NR 5,650 San Mateo County Transit District, (San Mateo County,
California), Limited Tax Bonds, 1993 Series A,
(MBIA), 0.00%, 6/1/20 1,052,313
Aaa AAA 4,000 Redevelopment Agency of The City of Santa Clara,
Bayshore North Project, 1992 Tax Allocation Refunding
Bonds, (AMBAC), 7.00%, 7/1/10 4,365,000
Aaa AAA 13,985 Certificates of Participation, (1990 Capital Project),
Visalia Unified School District, (MBIA), 0.00%, 12/1/17 2,866,925
Aaa AAA 2,000 Southern California Public Power Authority Power
Project Revenue Refunding Bonds, "Inverse Floaters,"
(FGIC), Variable, 7/1/12 <F3> 1,597,500
Aaa AAA 5,000 Los Angeles County, CA Capital Asset Leasing
Corporation Lease Revenue Bonds (1992 Master
Refunding Project), County of Los Angeles, "Yield
Enhancement Securities," (AMBAC), Variable, 12/1/08 4,956,250
Aaa AAA 2,670 Regents of the University of California, Refunding
Revenue Bonds, (Multiple Purpose Projects), 1993
Series B, (MBIA), 4.75%, 9/1/21 2,022,524
Aaa AAA 8,000 Vallejo Sanitation and Flood Control District, (Solano
County, California), Certificates of Participation
(Financing Projects), Series 1993, (FGIC), 5.00%, 7/
1/19 6,560,000
------------
$ 90,299,119
------------
LEASE REVENUE/CERTIFICATES OF PARTICIPATION - 27.0%
A1 A- $13,110 State Public Works Board of the State of California
Lease Revenue Bonds (The Regents of the University of
California), 1993 Series A, (Various University of
California Projects), 5.00%, 6/1/23 $ 10,143,863
A1 A- 14,275 State Public Works Board of the State of California
Lease Revenue Bonds (The Regents of the University of
California), 1993 Series A, (Various University of
California Projects), 5.50%, 6/1/14 12,419,250
A1 A- 3,000 State Public Works Board of the State of California
Lease Revenue Bonds (The Regents of the University of
California), 1993 Series A, (Various University of
California Projects), 5.50%, 6/1/10 2,681,250
A1 A- 3,500 State Public Works Board of the State of California
Lease Revenue Bonds, (Department of Corrections),
1993 Series D (California State Prison-Susanville),
5.375%, 6/1/18 2,926,875
A1 A- 7,000 State Public Works Board of the State of California
Lease Revenue Bonds (The Regents of the University of
California), 1993 Series B, (Various University of
California Projects), 5.25%, 6/1/20 5,731,250
A1 A- 14,325 State Public Works Board of the State of California
Lease Revenue Bonds (The Regents of the University of
California), 1993 Series B, (Various University of
California Projects), 5.50%, 6/1/19 12,194,156
A1 A- 7,000 State Public Works Board of the State of California
Lease Revenue Bonds, (Department of Corrections),
1993 Series E (California State Prison-Madera County
(II)), 5.50%, 6/1/19 5,941,250
A1 A- 2,690 State Public Works Board of the State of California
Lease Revenue Bonds, (Department of Corrections),
1993 Series E (California State Prison-Madera County
(II)), 5.50%, 6/1/15 2,313,400
Aaa AAA 16,850 California Statewide Communities Development Authority,
Certificates of Participation, The Trustees of the J.
Paul Getty Trust, 5.00%, 10/1/23 13,501,063
Aaa AAA 3,460 California Statewide Communities Development Authority,
Certificates of Participation, The Trustees of the J.
Paul Getty Trust, 5.00%, 10/1/12 2,919,375
Baa1 NR 2,000 Certificates of Participation, City of Duarte,
California, City of Hope National Medical Center,
6.25%, 4/1/23 1,840,000
A BBB+ 2,750 Certificates of Participation (1991 Civic Center
Improvement Project), City of Inglewood, California,
7.00%, 8/1/19 2,760,313
A A 9,060 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 5.50%, 9/1/21 7,599,075
A A 4,585 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 9/1/12 1,358,306
A A 4,865 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/14 1,289,225
A A 4,590 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/15 1,136,025
A A 3,100 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/20 527,000
A A 1,000 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/16 228,750
A A 1,925 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/17 406,656
A A 5,000 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 9/1/17 1,018,750
A A 5,370 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/18 1,060,575
NR NR 7,000 Los Angeles County Capital Asset Leasing Corporation
Certificates of Participation, County of Los Angeles
(Marina del Rey), CA Series A, 6.50%, 7/1/08 6,728,750
NR NR 1,500 Los Angeles County Capital Asset Leasing Corporation
Certificates of Participation, County of Los Angeles
(Marina del Rey), CA Series A, 6.25%, 7/1/03 1,481,250
A1 A 7,915 Certificates of Participation (Multiple Capital
Facilities Project I), County Los Angeles, CA, 7.00%,
6/1/09 8,182,131
Aa AA 2,700 Orange County, CA Water District, Revenue Certificates
of Participation, Series 1993A, 5.00%, 8/15/18 2,224,125
NR A1 2,360 Richmond, CA Joint Powers Financing Authority Revenue
Bonds, 1990 Series B, 7.00%, 5/15/07 2,430,800
Aa A+ 3,000 Sacramento, CA City Financing Authority, Lease Revenue
Refunding Bonds, Series 1993 B, 5.40%, 11/1/20 2,535,000
Baa1 A- 2,375 City of San Luis Obispo, CA Capital Improvement Board
Lease Revenue Bonds, (Capital Improvement Projects),
8.25%, 6/1/06 2,502,656
NR BBB 1,000 Association of Bay Area Governments Revenue Bonds,
Watsonville Mammoth Lakes, California, Certificates
of Participation, Series B 7.875%, 6/1/11 1,051,250
------------
$117,132,369
------------
MISCELLANEOUS - 3.7%
A NR $ 5,445 Association of Bay Area Governments Revenue Bonds, CA
Municipal Financing Pool, 8.05%, 9/1/10<F4> $ 5,866,988
NR NR 6,500 VRDC-IVRC Trust, Series 1993 F, Variable, 6/29/00 <F4> 6,061,250
NR NR 5,000 VRDC-IVRC Trust, Series 1994 C, Variable, 5/13/03 <F3> 4,050,000
------------
$ 15,978,238
------------
SPECIAL TAX REVENUE - 6.5%
NR NR $ 2,190 City of Fairfield Limited Obligation Refunding
Improvement Bonds, Green Valley Road-Mangels
Boulevard Extension Assessment District, (North
Cordelia Improvement District) (Reassessment and
Refunding of 1993) (Solano County, California),
7.375%, 9/2/18 $ 2,266,650
NR NR 1,015 City of Fairfield, CA, Green Valley Road -- Mangels
Boulevard, Extension Assessment District, (North
Cordelia Improvement District), (Series 1990),
8.00%, 9/2/11 1,031,494
NR NR 3,000 Lincoln, CA, Unified School District, Community
Facilities District Number 1, Special Tax, Series
1992A, 7.625%, 9/1/21 3,135,000
Baa NR 15,630 Pleasanton, CA, Joint Powers Financing Authority
Reassessment Revenue Bonds, 1993 Series
A 6.15%, 9/2/12 14,535,900
NR NR 2,750 Series A of 1992 Special Tax Bonds of Community
Facilities District No. 87-5B (Rancho Santa
Margarita) of the County of Orange, CA,
7.50%, 8/15/17 3,152,187
NR NR 3,000 Community Facilities District Number 88-12 of the
County of Riverside, Series 1992 Special Tax Bonds,
7.55%, 9/1/17 3,007,500
NR NR 1,065 California Community Facilities, District 88-4 of the
County of Riverside, CA, Winchester Ranch,
8.20%, 9/1/14 1,054,350
------------
$ 28,183,081
------------
TAX ALLOCATION - 9.9%
NR BBB+ $ 2,500 Community Redevelopment Agency of the City of Buena
Park, Central Business District Redevelopment
Project,Tax Allocation Refunding Bonds, Series 1992A
(County of Orange, California), 7.10%, 9/1/14 $ 2,500,000
NR NR 2,970 City of Commerce, CA Joint Powers Financing Authority,
1991 Revenue Bonds, Series A, (Multiple Projects
Loan), 8.00%, 3/1/22 3,096,225
NR BBB 5,000 County of Contra Costa, CA Public Financing Authority,
1992 Tax Allocation Revenue Bonds, Series A,
(Pleasant Hill, North Richmond, West Pittsburgh and
Oakley Redevelopment Project Areas), 7.10%, 8/1/22 5,006,250
NR BBB 3,910 Fontana Public Financing Authority (San Bernardino
County, California), 1991 Tax Allocation Revenue,
(Downtown Redevelopment Project), 7.00%, 9/1/21 3,841,575
NR BBB 7,220 Fontana Redevelopment Agency, Jurupa Hills
Redevelopment Project Area, Refunding Tax Allocation
Bonds, 1992 Series A, 7.00%, 10/1/14 7,120,725
NR BBB 3,500 Inglewood Redevelopment Agency, (City of Inglewood, Los
Angeles County, California), Century Redevelopment
Project, 1993 Tax Allocation Bonds, Series A, 6.125%,
7/1/23 3,040,625
NR BBB+ 2,500 Redevelopment Agency of the City of Pittsburg,
California, Avenue Community Facilities District No.
1990-1, Subordinated Tax Allocation Revenue Bonds,
7.40%, 8/15/20 2,550,000
NR BBB 600 City of Rancho Mirage, CA Joint Powers Financing
Authority, Civic Center Revenue Bonds, Series 1991A,
7.50%, 4/1/17 636,000
NR BBB+ 3,000 Rialto Redevelopment Agency, Rialto, California
Subareas A and B, Industrial Redevelopment Tax
Allocation Bonds, Series 1993A, 6.00%, 9/1/23 2,643,750
NR BBB 2,500 Redevelopment Agency of the County of Riverside, CA,
Redevelopment Project No. 4, Tax Allocation Bonds,
1991 Series A, 7.50%, 10/1/26 2,568,750
NR BBB 5,605 San Carlos Redevelopment Agency, San Carlos, CA
Redevelopment Project, 1991 Tax Allocation Bonds,
Series A, 7.10%, 9/1/17 5,583,981
NR NR 1,400 Community Development Agency of The City of Simi
Valley, CA 1988 Commercial Mortgage Revenue
Refunding Bonds, (Sycamore Plaza II), 8.20%, 9/1/12 1,421,000
Baa1 BBB+ 3,000 Westminster Redevelopment Agency, Westminster, CA
Commercial Redevelopment, Project No. 1, 1991 Tax
Allocation Bonds, Series A, 7.30%, 8/1/21 3,052,500
------------
$ 43,061,381
------------
TRANSPORTATION - 3.0%
NR BBB $ 1,750 Guam Airport Authority, General Revenue Bonds 1993
Series B, 6.60%, 10/1/10 $ 1,730,313
Aa AA- 6,000 City of Long Beach, CA Harbor Revenue Bonds, Series
1989 A, 7.25%, 5/15/19 6,412,500
A1 A- 1,400 County of Orange, California Airport Revenue Bonds,
Series 1987, 8.125%, 7/1/16 1,513,750
Baa1 BBB+ 1,500 Stockton Port District, San Joaquin County, California,
Port Facilities Improvement Revenue Bonds, Series A
1989, 7.95%, 1/1/05 1,591,875
Baa1 BBB+ 1,500 Stockton Port District, San Joaquin County, California,
Port Facilities Improvement Revenue Bonds, Series A
1989, 8.10%, 1/1/14 1,623,750
------------
$ 12,872,188
------------
UTILITIES - 0.4%
Aa AA- $ 7,070 Southern California Public Power Authority,
Transmission Project Revenue, Subordinate Refunding
Bonds, 0.00%, 7/1/15 $ 1,740,988
------------
WATER AND SEWER - 2.3%
Baa BBB+ $ 6,575 Improvement District M of the Mojave Water Agency, CA
General Obligation Bonds (Morongo Basin Pipeline
Project) Election of 1990, Series 1992 6.60%, 9/1/22 $ 6,369,530
NR BBB 3,190 Certificates of Participation (Rehabilitation Project),
Series 1992, Orange Cove, CA Irrigation District,
6.625%, 2/1/17 3,106,262
Aa AA 2,100 Public Utilities Commission of the City and County of
San Francisco, CA San Francisco, Water Revenue Bonds,
1991 Series A, 0.00%, 11/1/19 420,000
------------
$ 9,895,792
------------
TOTAL INVESTMENTS (identified cost, $443,555,727) $433,732,988
============
<FN>
<F1>Security valued at fair value using methods determined in good faith by or
at the direction of the Trustees.
<F2>Non-income producing security.
<F3>The above designated securities have been issued as inverse floater bonds.
<F4>At September 30, 1994, the market value of securities segregated to cover
margin requirements on open financial futures contracts amounted to
$5,866,988.
</TABLE>
The Portfolio invests primarily in debt securities issued by California
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at September 30, 1994, 20.8% of the securities in the portfolio
of investments are backed by bond insurance of various financial institutions
and financial guaranty assurance agencies. The aggregate percentage by
financial institution ranged from 5.8% to 7.9% of total investments.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
September 30, 1994
--------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A)
(identified cost, $443,555,727) $433,732,988
Cash 968
Receivable for investments sold 15,227,312
Interest receivable 7,850,593
Deferred organization expenses (Note 1D) 20,188
------------
Total assets $456,832,049
LIABILITIES:
Demand note payable (Note 5) $2,051,000
Payable for investments purchased 9,610,518
Payable for daily variation margin on open
financial futures contracts (Note 1E) 26,750
Payable to affiliates --
Custodian fee 5,394
Trustees' fees 4,664
Accrued expenses 2,322
----------
Total liabilities 11,700,648
------------
NET ASSETS applicable to investors' interest
in Portfolio $445,131,401
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $454,477,330
Unrealized depreciation of investments and
financial futures contracts (computed on
the basis of identified cost) (9,345,929)
------------
Total $445,131,401
============
See notes to financial statements
<PAGE>
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
Year Ended
----------------------------------
September 30, March 31,
1994** 1994*
------------- -----------
INVESTMENT INCOME:
Interest income $ 15,258,588 $ 27,592,136
------------- ------------
Expenses --
Investment adviser fee (Note 2) $ 1,141,013 $ 2,149,273
Compensation of Trustees not members of
the Investment Adviser's organization 9,257 20,517
Custodian fee (Note 2) 66,016 123,534
Legal and accounting services 37,203 4,765
Bond pricing 10,841 --
Amortization of organization expense
(Note 1D) 2,820 5,132
Printing and postage 2,327 --
Miscellaneous 45,742 105,817
------------- ------------
Total expenses $ 1,315,219 $ 2,409,038
------------- ------------
Net investment income $ 13,943,369 $ 25,183,098
------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) --
Investment transactions
(identified cost basis) $ (10,433,249) $ 11,001,552
Financial futures contracts (191,417) (25,031)
------------- ------------
Net realized gain (loss)
on investments $ (10,624,666) $ 10,976,521
------------- ------------
Change in unrealized appreciation
(depreciation) --
Investments $ (641,524) $(34,472,972)
Financial futures contracts (300,547) 340,645
------------- ------------
Change in net unrealized
depreciation $ (942,071) $(34,132,327)
------------- ------------
Net realized and unrealized
loss on investments $ (11,566,737) $(23,155,806)
------------- ------------
Net increase in net assets
from operations $ 2,376,632 $ 2,027,292
============= ============
*For the period from the start of business, May 3, 1993 to March 31, 1994.
**For the six months ended September 30, 1994 (Note 7).
See notes to financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
Year Ended
-----------------------------------
September 30, March 31,
1994** 1994*
------------- ----------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 13,943,369 $ 25,183,098
Net realized gain (loss) on
investment transactions (10,624,666) 10,976,521
Change in unrealized depreciation
of investments (942,071) (34,132,327)
------------ ------------
Net increase in net assets
from operations $ 2,376,632 $ 2,027,292
------------ ------------
Capital transactions --
Contributions $ 24,605,354 $553,867,973
Withdrawals (49,109,598) (88,736,272)
------------ ------------
Increase (decrease) in net assets
resulting from capital transactions $(24,504,244) $465,131,701
------------ ------------
Total increase (decrease)
in net assets $(22,127,612) $467,158,993
NET ASSETS:
At beginning of period 467,259,013 100,020
------------ ------------
At end of period $445,131,401 $467,259,013
============ ============
* For the period from the start of business, May 3, 1993 to March 31, 1994.
** For the six months ended September 30, 1994 (Note 7).
-------------------------------------------------------------------------------
SUPPLEMENTARY DATA
-------------------------------------------------------------------------------
Year Ended
-----------------------------------
September 30, March 31,
1994** 1994*
------------- ---------
RATIOS (As a percentage of average
daily net assets):
Expenses 0.57%+ 0.55%+
Net investment income 6.09%+ 5.72%+
PORTFOLIO TURNOVER 40% 91%
+ Computed on an annualized basis.
* For the period from the start of business, May 3, 1993 to March 31, 1994.
** For the six months ended September 30, 1994 (Note 7).
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
California Tax Free Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a diversified open-end investment company which was
organized as a trust under the laws of the State of New York on May 1, 1992. The
Declaration of Trust permits the Trustees to issue interests in the Portfolio.
Investment operations began on May 3, 1993, with the acquisition of investments
with a value of $443,306,944, including unrealized appreciation of $25,728,469,
in exchange for an interest in the Portfolio by one of the Portfolio's
investors. The following is a summary of significant accounting policies of the
Portfolio. The policies are in conformity with generally accepted accounting
principles.
A. INVESTMENT VALUATIONS -- Municipal bonds are normally valued on the basis of
valuations furnished by a pricing service. Taxable obligations, if any, for
which price quotations are readily available are normally valued at the mean
between the latest bid and asked prices. Futures contracts listed on commodity
exchanges are valued at closing settlement prices. Short-term obligations,
maturing in sixty days or less, are valued at amortized cost, which approximates
value. Investments for which valuations or market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees.
B. INCOME -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C. INCOME TAXES -- The Portfolio is treated as a partnership for Federal tax
purposes. No provision is made by the Portfolio for federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since some of the
Portfolio's investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolio, the Portfolio normally must
satisfy the applicable source of income and diversification requirements (under
the Internal Revenue Code) in order for its investors to satisfy them. The
Portfolio will allocate at least annually among its investors each investors'
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. Interest income received by the Portfolio on
investments in municipal bonds, which is excludable from gross income under the
Internal Revenue Code, will retain its status as income exempt from Federal
income tax when allocated to the Portfolio's investors. The portion of such
interest, if any, earned on private activity bonds issued after August 7, 1986
may be considered a tax preference item for investors.
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line basis
over five years.
E. FINANCIAL FUTURES CONTRACTS -- Upon the entering of a financial futures
contract, the Portfolio is required to deposit ("initial margin") either in cash
or securities an amount equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by the Portfolio ("margin maintenance") each day, dependent on the
daily fluctuations in the value of the underlying security, and are recorded for
book purposes as unrealized gains or losses by the Portfolio. The Portfolio's
investment in financial futures contracts is designed only to hedge against
anticipated future changes in interest rates. Should interest rates move
unexpectedly, the Portfolio may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss.
F. OTHER -- Investment transactions are accounted for on a trade date basis.
--------------------------------------------------------------------------------
(2) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES The investment
adviser fee is earned by Boston Management and Research (BMR), a wholly-owned
subsidiary of Eaton Vance Management (EVM), as compensation for management and
investment advisory services rendered to the Portfolio. The fee is based upon a
percentage of average daily net assets plus a percentage of gross income (i.e.,
income other than gains from the sale of securities). For the six month period
ended September 30, 1994 and for the period from the start of business, May 3,
1993 to March 31, 1994, the annualized fee was equivalent to 0.50% and 0.49%,
respectively, of the Portfolio's average daily net assets for such periods and
amounted to $1,141,013 and $2,149,273, respectively. Except as to Trustees of
the Portfolio who are not members of EVM's or BMR's organization, officers and
Trustees receive remuneration for their service to the Portfolio out of such
investment adviser fee. Investors Bank & Trust Company (IBT), an affiliate of
EVM and BMR, serves as custodian of the Portfolio. Pursuant to the custodian
agreement, IBT receives a fee reduced by credits which are determined based on
the average daily cash balances the Portfolio maintains with IBT. Certain of the
officers and Trustees of the Portfolio are officers and directors/trustees of
the above organizations.
-------------------------------------------------------------------------------
(3) INVESTMENTS
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, aggregated $152,125,477 and $167,496,202, respectively,
for the six month period ended September 30, 1994 and $473,482,645 and
$434,621,382, respectively, for the year ended March 31, 1994.
--------------------------------------------------------------------------------
(4) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of investments owned
at September 30, 1994, as computed on a federal income tax basis, were as
follows:
Aggregate cost $443,555,727
============
Gross unrealized depreciation $ 19,459,073
Gross unrealized appreciation 9,636,334
------------
Net unrealized depreciation $ 9,822,739
============
--------------------------------------------------------------------------------
(5) LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR or EVM
in a $120 million unsecured line of credit agreement with a bank. The line of
credit consists of a $20 million committed facility and a $100 million
discretionary facility. Borrowings will be made by the Portfolio solely to
facilitate the handling of unusual and/or unanticipated short-term cash
requirements. Interest is charged to each portfolio or fund based on its
borrowings at an amount above either the bank's adjusted certificate of deposit
rate, a variable adjusted certificate of deposit rate, or a federal funds
effective rate. In addition, a fee computed at an annual rate of 1/4 of 1% on
the $20 million committed facility and on the daily unused portion of the $100
million discretionary facility is allocated among the participating funds and
portfolios at the end of each quarter. As of September 30, 1994 the Portfolio
had an outstanding loan balance of $2,051,000.
--------------------------------------------------------------------------------
(6) FINANCIAL INSTRUMENTS
The Portfolio regularly trades in financial instruments with off-balance sheet
risk in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options and futures contracts and may involve, to a varying degree, elements of
risk in excess of the amounts recognized for financial statement purposes. The
notional or contractual amounts of these instruments represent the investment
the Portfolio has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered. A summary of obligations
under these financial instruments at September 30, 1994 is as follows:
FUTURES CONTRACTS NET UNREALIZED
EXPIRATION DATE CONTRACTS POSITION APPRECIATION
----------------- --------- -------- ---------------
12/94 107 U.S. Treasury Bonds Short $476,810
========
At September 30, 1994 the Portfolio had sufficient cash and/or securities to
cover margin requirements on open futures contracts.
--------------------------------------------------------------------------------
(7) CHANGE IN FISCAL YEAR
The Portfolio changed its fiscal year end from March 31, to September 30,
effective September 30, 1994.
<PAGE>
INDEPENDENT AUDITORS' REPORT
------------------------------------------------------------------------------
To the Trustees and Investors of
California Tax Free Portfolio:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of California Tax Free Portfolio as of
September 30, 1994, and the related statements of operations, the statements
of changes in net assets and the supplementary data for the six months ended
September 30, 1994 and for the period from the start of business, May 3, 1993,
to March 31, 1994. These financial statements and supplementary data are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and supplementary data based on our
audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
supplementary data are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at September 30, 1994, by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and supplementary data present
fairly, in all material respects, the financial position of California Tax
Free Portfolio at September 30, 1994, the results of its operations, the
changes in its net assets and its supplementary data for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 4, 1994
<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>
[LOGO]
INVESTMENT ADVISER OF
CALIFORNIA TAX FREE PORTFOLIO EV MARATHON
Boston Management and Research
24 Federal Street CALIFORNIA
Boston, MA 02110
MUNICIPALS FUND
ADMINISTRATOR OF
EV MARATHON CALIFORNIA
MUNICIPALS FUND
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
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS STATEMENT OF
Deloitte & Touche LLP
125 Summer Street ADDITIONAL
Boston, MA 02110
INFORMATION
FEBRUARY 1, 1995
EV MARATHON CALIFORNIA
MUNICIPALS FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
M-CASAI
<PAGE>
EATON VANCE MUNICIPALS TRUST
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION DATED NOVEMBER 25, 1994
1. Effective September 29, 1995, EV Traditional California Municipals Fund was
reorganized and became a series of Eaton Vance Municipals Trust, a business
trust organized under the laws of the Commonwealth of Massachusetts. Prior to
the reorganization, the Fund had been a series of Eaton Vance Investment Trust,
which is also a Massachusetts business trust. Except for the fact that the Fund
is now a series of Eaton Vance Municipals Trust, shares of the Fund represent
the same interest in the Fund's assets, are of the same class, are subject to
the same terms and conditions, fees and expenses and confer the same rights as
when the Fund was a series of Eaton Vance Investment Trust.
2. The following supplements "Investment Adviser and Administrator" in the
Statement of Additional Information:
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.
Robert B. MacIntosh, the Portfolio's portfolio manager, is a Vice
President of Eaton Vance Management and the portfolio manager of
single-state, tax-exempt funds in five states: California, Hawaii,
Massachusetts, Minnesota and New Jersey. He also serves as economic
spokesman for the Eaton Vance organization.
3. The following supplements the yield and distribution rate under "Investment
Performance" in the Statement of Additional Information:
For the thirty-day period ended March 31, 1995, the yield of the Fund
was 5.31%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 5.31% would be 8.12%,
assuming a combined Federal and California tax rate of 34.70%. The Fund's
distribution rate (calculated on March 31, 1995 and based on the Fund's monthly
distribution paid March 31, 1995) was 5.76%, and the Fund's effective
distribution rate (calculated on the same date and based on the same monthly
distribution) was 5.92%.
4. The following replaces the tables under "Performance Information" in the
Statement of Additional Information:
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund from December 19, 1985 through March 31, 1995. The total return for the
period prior to the Fund's commencement of operations on May 27, 1994 reflect
the Portfolio's total return (or that of its predecessor) adjusted to reflect
any applicable Fund sales charge. Such performance has not been adjusted to
reflect the Fund's distribution fees and certain other expenses.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
Total Return before de- Total Return after de-
ducting sales charge ducting sales charge
Investment Investment Amount of Value of Invest- ----------------------- -----------------------
Period Date Investment** ment on 3/31/95 Cumulative Annualized Cumulative Annualized
---------- ---------- ------------ --------------- ---------- ---------- ---------- ----------
<C> <C> <C> <C> <C> <C> <C> <C>
10 Years
Ended
3/31/95 12/19/85 $962.50 $1,740.15 80.79% 6.59% 74.01% 6.15%
5 Years
Ended
3/31/95 3/31/90 $962.50 $1,315.35 36.66% 6.45% 31.54% 5.64%
1 Year
Ended
3/31/95* 3/31/94 $962.50 $1,033.06 7.33% 7.33% 3.31% 3.31%
</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.
*If a portion of the Fund's expenses had not been subsidized, the Fund
would have had lower returns.
**Initial investment less then current maximum sales charge of 3.75%.
5. The following supplements "Investment Performance" in the Statement of
Additional Information:
From time to time the Fund may provide investors with information on
municipal bond investing, which may include comparative performance information,
charts and/or illustrations prepared by independent sources (such as Lipper
Analytical Services). 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.
6. Registrant incorporates by reference the unaudited financial information for
the Fund contained in the Fund's shareholder report for the six months ended
March 31, 1995 as previously filed electronically with the Securities and
Exchange Commission (Accession No. 0000950156-95-000348).
THE DATE OF THE ATTACHED STATEMENT OF ADDITIONAL INFORMATION IS
CHANGED TO OCTOBER 1, 1995. ALL REFERENCES IN THE STATEMENT OF ADDITIONAL
INFORMATION TO EATON VANCE INVESTMENT TRUST OR THE TRUST ARE DEFINED TO MEAN
EATON VANCE MUNICIPALS TRUST.
October 1, 1995 T-CASAIS
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
November 25, 1994
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
------------------------------------------------------------------------------
TABLE OF CONTENTS Page
Investment Objective and Policies ....................... 2
Investment Restrictions ................................. 14
Trustees and Officers ................................... 16
Control Persons and Principal Holders of Securities ..... 17
Investment Adviser and Administrator .................... 18
Custodian ............................................... 20
Service for Withdrawal .................................. 21
Determination of Net Asset Value ........................ 22
Investment Performance .................................. 22
Taxes ................................................... 25
Principal Underwriter ................................... 27
Service Plan ............................................ 28
Portfolio Security Transactions ......................... 29
Other Information ....................................... 31
Independent Certified Public Accountants ................ 32
Tax Equivalent Yield Table .............................. 33
Financial Statements .................................... 34
Appendix ................................................ 58
----------------------------------------------------------------------
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 EV TRADITIONAL CALIFORNIA MUNICIPALS FUND (THE
"FUND") DATED NOVEMBER 25, 1994, 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 EV Traditional California Municipals Fund (the
"Fund"), which is a series of Eaton Vance Investment Trust (the "Trust"), is to
provide current income exempt from both the regular Federal income tax and the
California personal income tax. The Fund seeks to meet its investment objective
by investing its assets in the California Tax Free Portfolio (the "Portfolio"),
a separate registered investment company with the same investment objective as
the Fund.
CALIFORNIA OBLIGATIONS
The term California obligations refers to debt obligations issued by the
State of California and its political subdivisions (for example, counties,
cities, towns, districts and authorities), the interest on which is exempt from
both regular Federal income tax and California personal income tax. 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 California 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, 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 California 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. As of the date of this Statement of Additional Information, an
obligation held by the Portfolio was in default. (See Portfolio of Investments
in the Financial Statements included herein).
The yields on California 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, Inc. ("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, California
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 California considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in California 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 California issuers.
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. During
fiscal year 1986-87, State receipts from proceeds of taxes exceeded its
appropriations limit by $1.1 billion, which was returned to taxpayers.
Appropriations subject to limitation were under the State limit by $1.2 billion
for fiscal year 1987-88, $259 million for fiscal year 1988-89 and $1.6 billion
for fiscal year 1989-90. State appropriations are expected to be $4.2 billion
under the limit for fiscal year 1992-93.
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 July 1, 1994, the State had approximately $18.4 billion of general
obligation bonds outstanding, and $5.2 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
$12.6 billion in fiscal year 1990-91 to about $15.9 billion in 1991-92 to
approximately $17.6 billion in 1992-93 to about $18.4 billion in 1993-94. 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 have continued through the end of 1993. The Department of
Finance projects that non-farm employment levels will be stable in 1994 and show
modest growth in 1995, but pre-recession job levels are not expected to be
reached for several more years. Unemployment is expected to remain well above
the national average through 1994. The Department of Finance foresees slow
recovery from the recession in California beginning in 1994. Both the California
and national economic recoveries are much weaker than in previous business
cycles, and could be harmed by several factors, including rising interest rates.
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 is now expected to be only about $500 million. Thus the
accumulated budget deficit at June 30, 1994 is now estimated by the Department
of Finance to be 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 represents 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, provides for General Fund
expenditures of $38.5 billion, a 6.3% decline from the prior year. Revenues are
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.
As part of the 1993-94 budget, the Governor implemented a plan to repay the
accumulated $2.75 billion deficit in the Economic Uncertainties Fund over 18
months, funding the deficit with external borrowing maturing not later than
December 31, 1994. About $1.6 billion of the deficit is scheduled to be repaid
by June 30, 1994, with the balance paid by December 31, 1994. Taking this
borrowing into account, the Department of Finance projects the Economic
Uncertainties Fund would have a balance of about $600 million at June 30, 1994,
and about $100 million at June 30, 1995.
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 Governor's
Budget Proposal, as updated in May and June, 1994, recognized that the
accumulated deficit could not be repaid in one year, and proposed a two-year
solution. The budget proposal sets forth revenue and expenditure forecasts and
revenue and expenditure proposals which result in 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.
Also included in this figure is a projected receipt of about $360 million from
the Federal Government to reimburse the State's cost of incarcerating
undocumented immigrants. The State will not know how much the Federal Government
will actually provide until the Federal FY 1995 Budget is completed. Completion
of the Federal Budget is expected by October 1994. 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 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.
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.
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 $640 billion in 1992, 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 suffering its worst recession
since the 1930s, with prospects for recovery slower than for the nation as a
whole. After the worst job losses of any post-war recession, employment is
expected to stabilize by late 1993 before net employment starts to increase
slowly. 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. Unemployment is expected to average over 9% through 1993 and 1994. The
State's economy is only expected to pull out of the recession slowly, once the
national recovery has begun. The Department and the Commission project a
stagnant economy in California until 1994. Delay in recovery will exacerbate
shortfalls in State revenues.
OTHER CONSIDERATIONS
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.
OBLIGATIONS OF PUERTO RICO, VIRGIN ISLANDS AND GUAM. To the extent indicated in
the Prospectus, the Portfolio may invest in obligations of the governments 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.
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 average annual unemployment rate for Puerto Rico
declined from 21.4% in fiscal 1985 to 16.5% in fiscal 1992. The seasonally
adjusted unemployment rate for August, 1994 was 14.5%, which is above the
average for the United States, but 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 U.S. budget plan,
several proposals reducing the Section 936 income tax credits were forwarded in
the spring of 1993. Each proposal would require U.S. companies with operations
in Puerto Rico to begin paying taxes on the earnings of the Puerto Rican
divisions. Offsetting this somewhat would be a wage based credit of between 60%
and 95%. There also would be a limit to the amount of passive investment income
that would remain tax-exempt. The specifics of each of the proposals vary but
the estimated revenues generated for the U.S. government would be between $3.4
billion over the next five years for the Senate version and $6.7 billion for the
House version. A joint House-Senate Conference Committee will reconcile these
versions and re-submit a final proposal to the House and Senate for
consideration. The form of this proposal and its ultimate consequences for the
Puerto Rican economy cannot be determined at this time. There can be no
assurances that this or any future proposals will not harm the Puerto Rican
economy, reduce Commonwealth tax collections or possibly lead to a downgrade of
Puerto Rican debt by one of the rating agencies. Should this occur, the market
value of any Puerto Rican obligations held by the Portfolio would decline.
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
will vote on whether they wish to retain their Commonwealth status, become a
state or establish an independent nation. The U.S. Congress would have to ratify
an election of statehood. Should this occur, there could be an adverse impact on
the Puerto Rican economy and/or the tax status of Puerto Rican bonds, which may
be held by the Portfolio. The consequences of a vote for independence are
indeterminable.
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. The preferential tariff treatment the USVI rum industry currently
enjoys could be reduced under the North American Free Trade Agreement. 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. 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. However, 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. Guam is also heavily reliant on tourists,
particularly the Japanese. Unemployment was 3.2% in 1991. There is currently no
rated, unenhanced Guam debt outstanding.
OTHER OBLIGATIONS OF PARTICULAR TYPES OF ISSUERS. The Portfolio may invest 25%
or more of its total assets in California obligations of the same type. There
could be economic, business or political developments which might affect all
California obligations of a similar type. In particular, investments in certain
of the bonds listed above might involve without limitation the following risks.
California municipal obligations which are assessment bonds may be adversely
affected by a general decline in real estate values or a slowdown in real estate
sales activity. In many cases, such bonds are secured by land which is
undeveloped at the time of issuance but anticipated to be developed within a few
years after issuance. In the event of such reduction or slowdown, such
development may not occur or may be delayed, thereby increasing the risk of a
default on the bonds. Because the special assessments or taxes securing these
bonds are not the personal liability of the owners of the property assessed, the
lien on the property is the only security for the bonds. Moreover, in most cases
the issuer of these bonds is not required to make payments on the bonds in the
event of delinquency in the payment of assessments or taxes, except from
amounts, if any, in a reserve fund established for the bonds.
Certain California long-term lease obligations, though typically payable
from the general fund of the municipality, are subject to "abatement" in the
event the facility being leased is unavailable for beneficial use and occupancy
by the municipality during the term of the lease. Abatement is not a default,
and there may be no remedies available to the holders of the certificates
evidencing the lease obligation in the event abatement occurs. The most common
cases of abatement are failure to complete construction of the facility before
the end of the period during which lease payments have been capitalized and
uninsured casualty losses to the facility (e.g., due to earthquake). In the
event abatement occurs with respect to a lease obligation, lease payments may be
interrupted (if all available insurance proceeds and reserves are exhausted) and
the certificates may not be paid when due.
Several years ago the Richmond Unified School District (the "District")
entered into a lease transaction in which certain existing properties of the
District were sold and leased back in order to obtain funds to cover operating
deficits. Following a fiscal crisis in which the District's finances were taken
over by a State receiver (including a brief period under bankruptcy court
protection), the District failed to make rental payments on this lease,
resulting in a lawsuit by the Trustee for the Certificate of Participation
holders, in which the State was a named defendant (on the grounds that it
controlled the District's finances). One of the defenses raised in answer to
this lawsuit was the invalidity of the original lease transaction. In October,
1992, the California Superior Court of Contra Costa County, in which Richmond is
situated, dismissed a motion filed by the Trustee to force Richmond to start
budgeting payments on the defaulted certificates of participation. One of the
defenses raised in answer to this lawsuit was the invalidity of the original
lease transaction. On December 11, 1992 the judge in the case ruled that default
of the certificates of participation were constitutional. After the State
Legislature enacted certain "bail out" legislation effectively guaranteeing
lease rental payments, refunding certificates were issued and the litigation was
settled.
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 California 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 such 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.
WHEN-ISSUED SECURITIES
New issues of California 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 which 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,
the banks 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
price action of comparable put options. Interest income generated by certain
bonds having put features may not qualify as tax-exempt interest.
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 or for non-hedging purposes, 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.
FUTURES CONTRACTS ON DEBT SECURITIES. A futures contract on a debt security is a
binding contractual commitment which, if held to maturity, will result in an
obligation to make or accept delivery, during a particular month, of securities
having a standardized face value and rate of return. By purchasing futures on
debt securities, the Portfolio will legally obligate itself to accept delivery
of the underlying security and pay the agreed price; by selling futures on debt
securities, it will legally obligate itself to make delivery of the security
against payment of the agreed price. Open futures positions on debt securities
are valued at the most recent settlement price, unless such price does not
reflect the fair value of the contract, in which case the positions will be
valued by or under the direction of the Trustees of the Portfolio.
Positions taken in the futures markets for debt securities are not normally
held to maturity, but are instead liquidated through offsetting transactions
which may result in a profit or a loss. While futures positions on debt
securities taken by the Portfolio will usually be liquidated in this manner, it
may instead make or take delivery of the underlying securities whenever it
appears economically advantageous for the Portfolio to do so. A clearing
corporation associated with the exchange on which futures on debt securities are
traded guarantees that, if still open, the sale or purchase will be performed on
the settlement date.
FUTURES CONTRACTS ON SECURITIES INDICES. Futures contracts on securities or
other indices do not require the physical delivery of securities, but merely
provide for profits and losses resulting from changes in the market value of a
contract to be credited or debited at the close of each trading day to the
respective accounts of the parties to the contract. On the contract's expiration
date a final cash settlement occurs and the future positions is simply closed
out. Changes in the market value of a particular futures contract reflect
changes in the level of the index on which the futures contract is based.
HEDGING STRATEGIES. Hedging by use of futures contracts seeks to establish more
certainly than would otherwise be possible the effective rate of return on
portfolio securities or securities that the Portfolio proposes to acquire. The
Portfolio may, for example, take a "short" position in the futures market by
selling futures contracts in order to hedge against an anticipated rise in
interest rates that would adversely affect the value of the securities held by
the Portfolio. Such futures contracts may include contracts for the future
delivery of debt securities held by the Portfolio or debt securities with
characteristics similar to those of the securities held by the Portfolio. If, in
the opinion of the Investment Adviser, there is a sufficient degree of
correlation between price trends for the securities held by the Portfolio and
futures contracts based on other financial instruments, securities indices or
other indices, the Portfolio may also enter into such futures contracts as part
of its hedging strategy. Although under some circumstances prices of securities
held by the Portfolio may be more or less volatile than prices of such futures
contracts, the Investment Adviser will attempt to estimate the extent of this
difference in volatility based on historical patterns and to compensate for it
by having the Portfolio enter into a greater or lesser number of futures
contracts or by attempting to achieve only a partial hedge against price changes
affecting the securities held by the Portfolio. When hedging of this character
is successful, any depreciation in the value of portfolio securities will be
substantially offset by appreciation in the value of the futures position.
On other occasions, the Portfolio may take a "long" position by purchasing
such futures contracts. This would be done, for example, when the Portfolio
anticipates the subsequent purchase of particular securities when it has the
necessary cash, but expects the prices then available in the securities market
to be less favorable than the prices that are currently available.
OPTIONS ON FUTURES CONTRACTS
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. An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract at a specified
exercise price at any time during the option period. Upon exercise of the
option, the writer of the option is obligated to convey the appropriate futures
position to the holder of the option. If an option is exercised on the last
trading day before the expiration date of the option, a cash settlement will be
made in an amount equal to the difference between the closing price of the
futures contract and the exercise price of the option.
The Portfolio may use options on futures contracts for bona fide hedging
purposes as defined below, or for non-hedging purposes subject to the
limitations imposed by CFTC regulations. If the Portfolio purchases a call (put)
option on a futures contract it benefits from any increase (decrease) in the
value of the futures contract, but is subject to the risk of decrease (increase)
in value of the futures contract. The benefits received are reduced by the
amount of the premium and transaction costs paid by the Portfolio for the
option. If market conditions do not favor the exercise of the option, the
Portfolio's loss is limited to the amount of such premium and transaction costs
paid by the Portfolio for the option.
If the Portfolio writes a call (put) option on a futures contract, the
Portfolio receives a premium but assumes the risk of a rise (decline) in value
in the underlying futures contract. If the option is not exercised, the
Portfolio gains the amount of the premium, which may partially offset
unfavorable changes in the value of securities held or to be acquired for the
Portfolio. If the option is exercised, the Portfolio will incur a loss, which
will be reduced by the amount of the premium it receives. However, depending on
the degree of correlation between changes in the value of its portfolio
securities and changes in the value of futures positions, the Portfolio's losses
from writing options on futures may be partially offset by favorable changes in
the value of portfolio securities or in the cost of securities to be acquired.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Portfolio's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
LIMITATIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio will engage in futures and related options transactions for
bona fide hedging or non-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 used for hedging purposes are
substantially related to price fluctuations in securities held by the Portfolio
or which it expects to purchase. Except as stated below, 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. As an alternative to compliance with the bona fide hedging
definition, a CFTC regulation permits the Portfolio to elect to comply with a
different test, under which the aggregate initial margin and premiums required
to establish non-hedging positions in futures contracts and options on futures
will not exceed 5% of the Portfolio's net asset value after taking into account
unrealized profits and losses on such positions and excluding the in-the-money
amount of such options. 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 the
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 will not:
(1) Purchase any security (other than U.S. Government securities) if such
purchase, at the time thereof, would, with respect to 75% of the Fund's total
assets, cause more than 5% of such assets (taken at market value) to be invested
in the securities of a single issuer; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management investment
company with substantially the same investment objective, policies and
restrictions as the Fund;
(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) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the Fund's
net assets (taken at current value) is held as collateral for such sales at any
one time. (The Fund will make such sales only for the purpose of deferring
realization of gain or loss for Federal income tax purposes);
(4) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities of
such issuer to be held by the Fund; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with substantially the same investment objective, policies and
restrictions as the Fund;
(5) Purchase securities issued by any other open-end investment company or
investment trust; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(6) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer or
Trustee of the Trust or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of such
issuer by the Fund one or more of such persons owns beneficially more than 1/2
of 1% of the 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);
(7) 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, or participate on a joint or a joint and
several basis in any trading account in securities;
(8) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(9) Borrow money or pledge its assets in excess of 1/3 of the value of its
net assets (excluding the amount borrowed) and then only if such borrowing is
incurred as a temporary measure for extraordinary or emergency purposes or to
facilitate the orderly sale of portfolio securities to accommodate redemption
requests; or issue securities other than its shares of beneficial interest,
except as appropriate to evidence indebtedness, including reverse repurchase
agreements, which the Fund is permitted to incur. The Fund will not purchase
securities while outstanding temporary bank borrowings exceed 5% of its total
assets; provided, however, that the Fund may increase its interest in an
open-end management investment company with substantially the same investment
objective, policies and restrictions as the Fund while such borrowings are
outstanding. The deposit of cash, cash equivalents and liquid debt securities in
a segregated account with the Fund's custodian and/or with a broker in
connection with futures contracts or related options transactions and the
purchase of securities on a "when-issued" basis is not deemed to be a pledge;
(10) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(11) Purchase or sell real estate, although it may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate;
(12) Purchase or sell physical commodities or contracts for the purchase
or sale of physical commodities;
(13) Buy investment securities from or sell them to any of its officers or
Trustees, its investment adviser or its underwriter, as principal; however, any
such person or concerns may be employed as a broker upon customary terms; or
(14) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
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 investment restrictions of the Portfolio (or the Portfolio's 80% investment
policy with respect to municipal obligations described under "Investment
Policies"), the Trust will hold a meeting of Fund shareholders and will cast its
vote as instructed by the shareholders.
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 obligation.
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 the approval by the Fund or its other investors. Neither the Fund nor
the Portfolio may invest more than 15% of its net assets (taken at current
value) in the aggregate in restricted securities, securities for which there is
no readily available market, repurchase agreements which have a maturity longer
than seven days, and other illiquid securities; provided, however, that the Fund
may invest without limitation in the Portfolio or in another investment company
with substantially the same investment objective. Neither the Fund or the
Portfolio may purchase call options on securities. The Fund and the Portfolio
may purchase put options on municipal obligations only if, after such purchase,
not more than 5% of its net assets, as measured by the aggregate of the premiums
paid for such options held by it, would be so invested. Neither the Fund nor the
Portfolio intend to invest in reverse repurchase agreements during the current
fiscal year.
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"); 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, 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, 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, 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, TRUSTEE
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, The Regis Fund, Inc. (mutual fund). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE, 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, 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, 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, VICE PRESIDENT*
Vice President of Eaton Vance and EV, and of BMR since August 11, 1992, and
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, TREASURER*
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS, 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, ASSISTANT SECRETARY*
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Fund's
contractual relationship with the administrator, 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.
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
other series of the Trust and the Portfolio, respectively. The Trustees of the
Trust, as a group, received no fees from the Fund in their capacities as
Trustees of the Trust for the period from the start of business, May 27, 1994,
to the fiscal year ended September 30, 1994. The Trustees of the Portfolio, as a
group, received aggregate fees of $9,257 and $20,517, respectively from the
Portfolio in their capacities as Trustees of the Portfolio for the period from
April 1, 1994 to the fiscal year ended September 30, 1994 and for the period
from the start of business, May 3, 1993, to the fiscal year ended March 31,
1994. The Trustees also receive additional payments from other investment
companies for which BMR provides investment advisory services or Eaton Vance
provides investment advisory, administrative or management services for serving
in similar capacities.
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.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1994, 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, 1994, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately 31.2%, 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. In addition, Wheat First Securities Inc., Glen Allen, VA owned
beneficially and of record 47.8% of the outstanding shares of the Fund and
Elizabeth Thompson, Healdsburg, CA owned beneficially and of record 9.5% of the
outstanding shares of the Fund. To the knowledge of the Trust, no other person
beneficially owns more than 5% of the Fund's 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 $15 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 $500 million 0.300% 3.00%
2 $500 million but less than $1 billion 0.275% 2.75%
3 $1 billion but less than $1.5 billion 0.250% 2.50%
4 $1.5 billion but less than $2 billion 0.225% 2.25%
5 $2 billion but less than $3 billion 0.200% 2.00%
6 $3 billion and over 0.175% 1.75%
As at September 30, 1994, the Portfolio had net assets of $445,131,401. For
the period from April 1, 1994 to the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $1,141,013 (equivalent to 0.50% (annualized)
of the Portfolio's average daily net assets for such period). 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 Investment Advisory Agreement with BMR remains in effect until February
28, 1995. It may be continued indefinitely thereafter so long as such
continuance after February 28, 1995 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. 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 the period from the start of business, May 27, 1994, to the fiscal
year ended September 30, 1994, $4,429 of the Fund's expenses were allocated to
the Administrator.
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 the 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,
Curtis H. Jones and Benjamin A. Rowland, Jr. The Directors of EVC consist of the
same persons and of 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, 1994, 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 and O'Connor and Ms. Sanders, who are officers or Trustees 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 and Eaton Vance's wholly-owned subsidiary, Eaton Vance Distributors,
Inc., as Principal Underwriter, will receive its portion of the sales charge on
shares of the Fund sold through Authorized Firms.
Eaton Vance owns all of the stock of Energex Corporation, which is engaged
in oil and gas operations. EVC owns all of the stock of Marblehead Energy Corp.
(which engages in oil and gas operations) and 77.3% of the stock of Investors
Bank & Trust Company, Custodian of the Fund and the Portfolio, which provides
custodial, trustee and other fiduciary services to investors, including
individuals, employee benefit plans, corporations, investment companies, savings
banks and other institutions. 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, 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 (a 77.3% owned subsidiary of EVC) 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 Portoflio 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 custody fee for each investment company served by IBT
is based upon a schedule of percentages applied to the aggregate assets of those
investment companies managed by BMR or Eaton Vance, or affiliates thereof for
which IBT serves as custodian, the fees so determined being then allocated among
such investment companies relative to their size. These fees are then reduced by
a credit for cash balances of the particular investment company at the custodian
equal to 75% of the 91-day, U.S. Treasury Bill auction rate applied to the
particular investment company's average daily collected balances for the week.
In addition, each investment company pays a fee based on the number of portfolio
transactions and a fee for bookkeeping and valuation services. In view of the
ownership of EVC in IBT, the Portfolio is treated as a self-custodian pursuant
to Rule 17f-2 under the 1940 Act, and the Portfolio's investments held by IBT as
custodian are thus subject to the additional examinations by the Portfolio's
independent certified public accountants as called for by such Rule. During the
period from the start of business, May 27, 1994, to the fiscal year ended
September 30, 1994, the Fund paid no custody fees to IBT. For the period from
April 1, 1994 to the fiscal year ended September 30, 1994, the Portfolio paid
IBT $66,016 and for the period of the start of business, May 3, 1993, to the
fiscal year ended March 31, 1994, the Portfolio paid IBT $123,534.
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.
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 The Shareholder Services Group, Inc., BOS725, P.O. Box
1559, Boston, MA 02104 at any time. The name of the shareholder and his account
number should accompany each investment.
Bank Draft Investing -- for regular share accumulation. Cash investments of $50
or more may be made through the shareholder's checking account via bank draft
each month or quarter. The $1,000 minimum initial investment and small account
redemption policy are waived for Bank Draft Investing accounts.
Intended Quantity Investment -- Statement of Intention. If it is anticipated
that $100,000 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 Fund's current
prospectus. 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 $80,000 of the Fund, and purchased an additional $20,000 of Fund
shares, the sales charge for the $20,000 purchase would be at the rate of 3.75%
of the offering price (3.90% of the net amount invested) which is the rate
applicable to single transactions of $100,000. 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 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 discount to be made available, at the time of purchase a purchaser
or his 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 Trust's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any designated amount based
upon the value of the shares held. The checks will be drawn from share
redemptions and hence, although they are a return of principal, may give rise to
gain or loss for tax purposes. 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 plus the applicable sales charge) will
have to be deposited with the Transfer Agent. The maintenance of a withdrawal
plan concurrently with purchases of 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 has authorized Bank Draft
Investing or is otherwise making regular purchases of Fund shares. Either 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 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 California 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 California 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. 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, Washington's Birthday, 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
The 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 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.
The Fund's 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
distributions during the period. Yield calculations assume a maximum sales
charge equal to 4.75% of the public offering price. Actual yields may be
affected by variations in sales charges or investments. A taxable-equivalent
yield is computed by using the tax-exempt yield figure and dividing by 1 minus
the tax rate. For the thirty-day period ended September 30, 1994 the yield of
the Fund was 5.68%. The yield required of a taxable security that would produce
an after-tax yield equivalent to that earned by the Fund of 5.68% would be
8.69%, assuming a combined Federal and California tax rate of 34.70%. 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 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 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). The Fund's distribution rate
(calculated on September 30, 1994 and based on the Fund's monthly distribution
paid September 30, 1994) was 5.86%, and the Fund's effective distribution rate
(calculated on the same date and based on the same monthly distribution) was
6.02%. 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 tables below indicate the total return (capital changes plus
reinvestment of all distributions) on a hypo- thetical investment of $1,000 in
the Fund covering the life of the Fund from May 27, 1994 through September 30,
1994.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF VALUE OF INVESTMENT ----------------------- -----------------------
PERIOD DATE INVESTMENT ON 9/30/94 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund<F1> 5/27/94 $952.38<F2> $957.10 0.50%<F3> -- -4.28%<F3> --
PERCENTAGE CHANGES 5/27/94 -- 9/30/94
<CAPTION>
NET ASSET VALUE TO MAXIMUM OFFERING PRICE
NET ASSET VALUE WITH TO NET ASSET VALUE WITH
FISCAL ALL DISTRIBUTIONS REINVESTED ALL DISTRIBUTIONS REINVESTED
YEAR ----------------------------------------- ----------------------------------------
ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
------ ------ ---------- -------------- ------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
9/30/94* -- 0.50%<F3> -- -- -4.28%<F3> --
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.
---------
<FN>
<F1> Investment operations began on May 27, 1994.
<F2> Initial investment less the current maximum sales charge of 4.75%.
<F3> If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
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 the 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 about the portfolio allocation and holdings
of the Portfolio at a particular date (including ratings assigned by independent
ratings services such as Moody's Investors Service, Inc., Standard & Poor's
Ratings Group and Fitch Investors Service, Inc.) 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.
The Portfolio's diversification by quality ratings as of August 31, 1994,
was:
RATING ASSIGNED BY PERCENT OF
MOODY'S, S&P OR FITCH BOND HOLDINGS
--------------------- -------------
Aaa or AAA 38.6%
Aa or AA 6.6
A 22.9
Baa or BBB 18.2
Ba or BB --
B --
Below B --
Not rated 13.7
------
Total 100.0%
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 Federal income tax brackets.
The following table compares the after-tax yield of an investment in the
Fund yielding a hypothetical 6.00% with the after-tax yield of a certificate of
deposit yielding 3.25%. The tax brackets used in the table are the combined
Federal and California personal income tax brackets: 20.10% for single filers
with taxable income up to $22,750 and joint filers up to $38,000; 34.70% for
single filers with taxable income from $22,751 to $55,100 and joint filers from
$38,001 to $91,850; 37.90% for single filers with taxable income from $55,101 to
$115,000 and joint filers from $91,851 to $140,000; 43.04% for single filers
with taxable income from $115,001 to $250,000 and joint filers from $140,001 to
$250,000; and 46.24% for single and joint filers with taxable income over
$250,000. These brackets are calculated using 1994 Federal tax rates, the
highest 1994 California state rate applicable at the upper portion of the
brackets and assume that California taxes are deducted on the Federal income tax
return. The applicable Federal tax rates within each of the combined brackets
are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. An investor in
the Fund with taxable income within these brackets may be subject to a lower
combined tax rate than the combined rates shown, while an investor who does not
itemize on his or her Federal income tax return may be subject to a higher
combined tax rate. These brackets also do not take into account the phaseout of
personal exemptions and limitation on deductibility of itemized deductions over
certain ranges of income. Investors who are subject to such phaseout or
limitation will have higher combined brackets than indicated above. See your tax
adviser for additional information.
<TABLE>
<CAPTION>
TAX BRACKET
20.10% 34.70% 37.90% 43.04% 46.24%
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................................... 6.00% 6.00% 6.00% 6.00% 6.00%
Taxable equivalent ............................... 7.51 9.19 9.66 10.53 11.16
Certificates of deposit:
Yield .......................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ................................ 2.60 2.12 2.02 1.85 1.75
</TABLE>
The Tax Free Yield Advantage
(43.04% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.85% After-tax yield
6.00% Tax free investment
10.52% Taxable equivalent yield
6.00% Tax free yield
Example:
Two $100,000 investments ...
3.25% CD 6.00% Tax free
Pretax income: $3,250.00 $6,000.00
Tax: (1,398.80) NONE
After-tax income: $1,851.20 $6,000.00
<PAGE>
The 1994 combined tax bracket takes into account Federal income tax rates
for 1994 and the highest California State income tax rates for 1994 applicable
to the bracket. Assuming the deductibility of state taxes on the Federal return,
the bracket is 43.04% for single filers with taxable income from $115,001 to
$250,000 and joint filers from $140,001 to $250,000. Actual tax brackets may be
higher due to the phaseout of personal exemptions and limitations on the
deductibility of itemized deductions over certain ranges of income. Your actual
bracket will vary depending on your income, exemptions and deductions. See your
tax adviser for additional information. The chart is based on 3-month bank CDs
(Source: The Wall Street Journal and Eaton Vance Management). Tax free yields
are shown for illustration purposes only and are not meant to imply or predict
any future rate of return for the Fund. See your financial adviser for the
Fund's current yield and actual CD rates.
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
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
continue to qualify each year as a regulated investment company 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, 1994 (see the Notes to the Financial Statements). Because the Fund
invests substantially all of 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 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 regulated investment company 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 regulated investment company.
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.
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.
CALIFORNIA STATE AND LOCAL TAX MATTERS
In any year in which the Fund qualifies as a regulated investment company
under Subchapter M of the Internal Revenue Code and is exempt from Federal
income tax, the Fund also will be exempt from the California corporate income
and franchise tax.
Individual shareholders of the Fund who reside in California will not be
subject to California personal income tax on distributions received from the
Fund to the extent such distributions are attributable to interest on
obligations the interest on which is exempt under either Federal or California
law from taxation by the State of California, provided that at least 50% of the
Portfolio's assets at the close of each quarter of its taxable year is invested
in such obligations. Distributions from the Fund which are attributable to
sources other than those in the preceding sentence will generally be taxable to
such individual shareholders as ordinary income. Distributions of the Fund's net
capital gains (the excess of net long-term capital gain over net short-term
capital loss) are taxable to shareholders as long-term capital gains for
California personal income tax purposes. In addition, distributions other than
exempt-interest dividends are includable in income subject to the California
alternative minimum tax.
Distributions of investment income and long-term and short-term capital
gains from the Fund will not be excluded from taxable income in determining
California corporate taxes for corporate shareholders. However, distributions of
the Fund's net capital gains are treated as long-term capital gains for
California corporate tax purposes. In addition, distributions may be includable
in income subject to the alternative minimum tax. Shares of the Fund will not be
subject to the California property tax.
California tax law resembles Federal tax law in restricting the
deductibility of interest on indebtedness incurred by shareholders to purchase
shares and the allowance of losses realized by a shareholder upon the sale or
redemption of shares.
Shareholders should consult their own tax advisers with respect to the
state, local and 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 financial service firms ("Authorized Firms") which have
agreements with Eaton Vance Distributors, Inc., 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 prospectus. 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 $100,000 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 (see "Services for Accumulation").
Subject to the applicable provisions of the Investment Company Act of 1940,
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 children. 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 financial
service 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 Trust's Board of Trustees
(including a majority of its Trustees who are not interested persons of the
Principal Underwriter or the Fund), 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. 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. See "How to Buy Fund Shares" in the Prospectus
for the discount allowed to Authorized Firms on the sale of Fund shares. The
total sales charges for sale of shares of the Fund for the period from the start
of business, May 27, 1994, to the fiscal year ended September 30, 1994 were
$25,031, all of which was used to pay Authorized Firms.
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 therefore by the Fund. For the period from the start of
business, May 27, 1994, to the fiscal year ended September 30, 1994, the Fund
made no payments to the Principal Underwriter for repurchase transactions.
SERVICE PLAN
In addition to the fees and expenses described herein under "Investment
Adviser and Administrator," 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 Investment Company Act of 1940 and the service fee
requirements of the revised sales charge rule of the National Association of
Securities Dealers, Inc. Pursuant to such Rule, the Plan has been approved by
the Fund's initial sole shareholder (Eaton Vance) and by the Independent
Trustees of the Trust, who have no direct or indirect financial interest in the
Plan and by all of the Trustees of the Trust on behalf of the Fund. (Management
believes service fee payments are not distribution expenses governed by Rule
12b-1, but has chosen to have the Plan approved as if Rule 12b-1 were
applicable.)
The Plan provides that the Fund may make payments of service fees for
personal services and/or the maintenance of shareholder accounts to the
Principal Underwriter, Authorized Firms and other persons in amounts not
exceeding .25% of the Fund's average daily net assets for any fiscal year. The
Trustees have 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 .25% 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. The Fund expects to commence
accruing service fee payments during the quarter ending June 30, 1995.
The Plan remains in effect through and including April 14, 1995, and shall
continue in effect indefinitely thereafter for so long as such continuance is
approved at least annually by the vote of both a majority of (i) the 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 cast in person at a meeting (or meetings) called for the purpose
of voting on this Plan. 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 in the manner described above. The Plan may be terminated at any time by
vote of a majority of the Rule 12-b 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 by a vote of a majority of the outstanding voting securities of
the Fund. 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.
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.
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 California 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 period from April 1, 1994 to the fiscal year ended September 30,
1994 and for the period from the start of business, May 3, 1993, to the fiscal
year ended March 31, 1994, the Portfolio paid no brokerage commissions on
portfolio transactions.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance California Municipals Trust. The Trust changed its
name to Eaton Vance Investment Trust on April 28, 1992. Eaton Vance, pursuant to
its agreement with the Trust, controls the use of the words "Eaton Vance" in the
Fund's name and may use the words "Eaton Vance" in other connections and for
other purposes.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a 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 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. The By-Laws also provide that the Trustees shall promptly call a
meeting of shareholders for the purpose of voting upon a question of removal of
a Trustee when requested so to do by the record holders of not less than 10 per
centum of the outstanding shares.
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 interests
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. 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 Securities and Exchange Commission
(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.
<PAGE>
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
rates and California State income tax laws and tax rates applicable for 1994. 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>
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 $ 22,750 Up to $ 38,000 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 22,751-$ 55,100 $ 38,001-$ 91,850 34.70 6.13 6.89 7.66 8.42 9.19 9.95 10.72
$ 55,101-$115,000 $ 91,851-$140,000 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27
$115,001-$250,000 $140,001-$250,000 43.04 7.02 7.90 8.78 9.66 10.53 11.41 12.29
Over $250,000 Over $250,000 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 tax rates for the tax brackets shown in the left hand columns 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. Yields shown are for illustration purposes
only and are not meant to represent the Fund's actual yield.
</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 $111,800. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with Adjusted Gross Income in excess of $111,800 and joint filers with
Adjusted Gross Income in excess of $167,700. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Of course, no assurance can be given that EV Traditional California Municipals
Fund will achieve any specific tax exempt yield. While it is expected that the
Portoflio 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 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>
------------------------------------------------
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------------------------------------------------
September 30, 1994
-----------------------------------------------------------------------------
ASSETS:
Investment in California Tax Free Portfolio, at
value (Note 1A) (identified cost, $1,472,966) $1,458,547
Receivable for Fund shares sold 1,637,500
Receivable from the Administrator (Note 4) 4,429
Deferred organization expenses (Note 1D) 20,051
----------
Total assets $3,120,527
LIABILITIES:
Dividends payable $ 4,991
Accrued expenses 14,115
-------
Total liabilities 19,106
----------
NET ASSETS for 315,171 shares of beneficial interest
outstanding $3,101,421
==========
SOURCES OF NET ASSETS:
Paid-in capital $3,118,502
Accumulated net realized loss on investment and
financial futures transactions
(computed on the basis of identified cost) (2,512)
Accumulated distribution in excess of net investment
income (150)
Unrealized depreciation of investments and financial
futures contracts from Portfolio
(computed on the basis of identified cost) (14,419)
----------
Total $3,101,421
==========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($3,101,421 / 315,171 shares of beneficial interest) $ 9.84
======
COMPUTATION OF OFFERING PRICE PER SHARE
(100/95.25 of net asset value per share) $10.33
======
On sales of $100,000 or more, the offering price is reduced.
See notes to financial statements
<PAGE>
STATEMENT OF OPERATIONS
------------------------------------------------------------------------------
For the period from the start of business, May 27, 1994, to September 30, 1994
------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 19,695
Expenses allocated from Portfolio (1,701)
--------
Net investment income from Portfolio $ 17,994
Expenses --
Amortization of organization expenses (Note 1D) $ 1,499
Legal and accounting services 500
Registration fees 495
Printing and postage 372
Miscellaneous 1,585
-------
Total expenses $ 4,451
Deduct allocation of expenses to the
Administrator (Note 4) 4,429
-------
Net expenses 22
--------
Net investment income $ 17,972
--------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) from Portfolio --
Investment transactions (identified cost
basis) $(1,477)
Financial futures contracts (1,035)
-------
Net realized loss $ (2,512)
Change in unrealized depreciation on investments (14,419)
--------
Net realized and unrealized loss $(16,931)
--------
Net increase in net assets from operations $ 1,041
========
See notes to financial statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------
For the period from the start of business, May 27, 1994, to September 30, 1994
------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 17,972
Net realized loss on investments (2,512)
Change in unrealized depreciation of investments (14,419)
----------
Net increase in net assets from operations $ 1,041
----------
Distributions to shareholders (Note 2) --
From net investment income $ (17,972)
In excess of net investment income (150)
----------
Total distributions to shareholders $ (18,122)
----------
Transactions in shares of beneficial interest (Note 3) --
Proceeds from sales of shares $3,194,230
Net asset value of shares issued to shareholders in
payment of distributions declared 5,353
Cost of shares redeemed (81,081)
----------
Increase in net assets from Fund share transactions $3,118,502
----------
Net increase in net assets $3,101,421
NET ASSETS:
At beginning of period --
----------
At end of period (including accumulated distributions in
excess of net investment income of $150) $3,101,421
==========
See notes to financial statements
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------
For the period from the start of business, May 27, 1994, to September 30, 1994
------------------------------------------------------------------------------
NET ASSET VALUE, beginning of period $10.000
-------
INCOME FROM OPERATIONS:
Net investment income $ 0.209
Net realized and unrealized loss on investments (0.158)
-------
Total income from operations $ 0.051
-------
LESS DISTRIBUTIONS:
From net investment income $(0.209)
In excess of net investment income (0.002)
-------
Total distributions (0.211)
-------
NET ASSET VALUE, end of period $ 9.840
=======
TOTAL RETURN\2/ 0.50%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period (000 omitted) $ 3,101
Ratio of net expenses to average net assets\1/ 0.54%+
Ratio of net investment income to average net assets 5.60%+
* For the period from the start of business, May 27, 1994, to September 30,
1994, the operating expenses of the Fund reflect an allocation of expenses
to 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 $ 0.158
=======
RATIOS (As a percentage of average net assets):
Expenses\1/ 1.92%+
Net investment income 4.22%+
+ Computed on an annualized basis.
\1/ Includes the Fund's share of California 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.
See notes to financial statements
<PAGE>
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Traditional California Municipals Fund (the Fund) is a diversified series of
Eaton Vance Investment Trust (the Trust). The Trust is an entity of the type
commonly known as a Massachuetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Fund invests all of its investable assets in interests in the
California Tax Free Portfolio (the Portfolio), a New York Trust, having the same
investment objective as the Fund. The value of the Fund's investment in the
Portfolio reflects the Fund's proportionate interest in the net assets of the
Portfolio (0.32% at September 30, 1994). The performance of the Fund is directly
affected by the performance of the Portfolio. The financial statements of the
Portfolio, including the portfolio of investments, are included elsewhere in
this report and should be read in conjunction with the Fund's financial
statements. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. INVESTMENT VALUATIONS -- Valuation of securities by the Portfolio is
discussed in Note 1 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
B. INCOME -- The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and accrued
expenses of the Fund determined in accordance with generally accepted accounting
principles.
C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable and tax-exempt income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is necessary. Dividends paid by the Fund from net
interest on tax-exempt municipal bonds allocated from the Portfolio are not
includable by shareholders as gross income for federal income tax purposes
because the Fund and Portfolio intend to meet certain requirements of the
Internal Revenue Code applicable to regulated investment companies which will
enable the Fund to pay exempt-interest dividends. The portion of such interest,
if any, earned on private activity bonds issued after August 7, 1986, may be
considered a tax preference item to shareholders.
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Fund in connection
with its organization, including registration costs, are being amortized on the
straight- line basis over five years.
E. OTHER -- Investment transactions are accounted for on a trade date basis.
-------------------------------------------------------------------------------
(2) DISTRIBUTIONS TO SHAREHOLDERS
The net income of the Fund is determined daily and substantially all of the net
income so determined is declared as a dividend to shareholders of record at the
time of declaration. Distributions are paid monthly. Distributions of allocable
realized capital gains, if any, are made at least annually. Shareholders may
reinvest capital gains distributions in additional shares of the Fund at the net
asset value as of the ex-dividend date. Distributions are paid in the form of
additional shares or, at the election of the shareholder, in cash. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis. Generally accepted accounting principles require that only distributions
in excess of tax basis earnings and profits be reported in the financial
statements as a return of capital. Differences in the recognition or
classification of income between the financial statements and tax earnings and
profits which result in over distributions for financial statement purposes only
are classified as distributions in excess of net investment income or
accumulated net realized gains. Permanent differences between book and tax
accounting relating to distributions are reclassified to paid in capital.
-------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares for the period from the start of business, May 27,
1994, to September 30, 1994, were as follows:
Sales 322,759
Issued to shareholders electing to receive
payments of distributions in Fund shares 536
Redemptions (8,124)
-------
Net increase 315,171
=======
-------------------------------------------------------------------------------
(4) TRANSACTIONS WITH AFFILIATES
Eaton Vance Management (EVM) serves as the administrator of the Fund, but
receives no compensation. The Portfolio has engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services. See
Note 2 of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report. To enhance the net income of the Fund, $4,429 of
expenses related to the operation of the Fund were allocated to EVM.
Except as to Trustees of the Fund and the Portfolio who are not members of
EVM's or BMR's organization, officers and Trustees receive remuneration for
their services to the Fund out of such investment adviser fee. Eaton Vance
Distributors, Inc. (EVD), a subsidiary of EVM and the Trust's Principal
Underwriter, receives a contingent deferred sales charge (CDSC) on shareholder
redemptions made within 18 months of purchase, where the initial investment in
the Fund was $1 million or more. EVD did not receive any CDSC during the period
ended September 30, 1994. Investors Bank & Trust Company (IBT), an affiliate of
EVM, serves as custodian of the Fund and the Portfolio. Pursuant to their
respective custodian agreements, IBT receives a fee reduced by credits which are
determined based on the average cash balances the Fund or the Portfolio
maintains with IBT. Certain of the officers and Trustees of the Fund and
Portfolio are officers and directors/trustees of the above organizations (Note
5).
-------------------------------------------------------------------------------
(5) SERVICE PLAN
The Fund has adopted a Service Plan (the Plan) designed to meet the requirements
of Rule 12b-1 under the Investment Company Act of 1940 and the service fee
requirements of the sales charge rule of The National Association of Securities
Dealers, Inc. The Plan provides that the Fund may make service fee payments to
the Principal Underwriter, Eaton Vance Distributors, Inc., (EVD) a subsidiary of
Eaton Vance Management, Authorized Firms or other persons in amounts not
exceeding 0.25% of the Fund's average daily net assets for any fiscal year. 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 exceeding 0.25% of the Fund's average daily net assets for any
fiscal year which is attributable to shares sold by such persons and remaining
outstanding for at least one year. Service fee payments are made for personal
services and/or the maintenance of shareholder accounts. No provision for
service fee payments was made for the period ended September 30, 1994.
Certain of the officers and Trustees of the Funds are officers and
directors of EVD.
-------------------------------------------------------------------------------
(6) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio for the period
from the start of business, May 27, 1994, to September 30, 1994 aggregated
$1,557,523 and $100,039, respectively.
<PAGE>
INDEPENDENT AUDITORS' REPORT
-------------------------------------------------------------------------------
To the Trustees and Shareholders of
Eaton Vance Investment Trust:
We have audited the accompanying statement of assets and liabilities of EV
Traditional California Municipals Fund (one of the series constituting the Eaton
Vance Investment Trust) as of September 30, 1994, and the related statements of
operations, changes in net assets and the financial highlights for the period
from the start of business, May 27, 1994, to September 30, 1994. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of EV Traditional
California Municipals Fund series of the Eaton Vance Investment Trust at
September 30, 1994, the results of its operations, changes in its net assets and
its financial highlights for the period from the start of business, May 27,
1994, to September 30, 1994, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 4, 1994
<PAGE>
<TABLE>
CALIFORNIA TAX FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1994
-------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
-------------------------------------------------------------------------------------------------------------------------
Ratings (Unaudited)
---------------------------- Principal
Standard Amount
Moody's & Poor's (000 Omitted) Security Value
-------------------------------------------------------------------------------------------------------------------------
ESCROWED - 17.9%
<C> <C> <C> <S> <C>
NR AAA $ 6,670 Redevelopment Agency of The City of Azusa, Single
Family Mortgage Revenue Refunding Bonds, 1992 Series
A, (Escrowed to Maturity), 6.875%, 10/1/12 $ 7,153,575
NR AAA 3,140 City of Bakersfield, Certificates of Participation
(Bakersfield Assisted Living Center), 0.00%, 4/15/21 494,550
NR NR 130 City of Commerce Joint Powers Financing Authority, 1991
Revenue Bonds, Series A, (Multiple Projects Loan),
8.00%, 3/1/22 150,475
NR AAA 3,255 Redevelopment Agency of the City of Duarte, Single
Family Mortgage Revenue Refunding Bonds, 1992 Series
B, (Escrowed To Maturity), 6.875%, 10/1/11 3,450,300
NR BBB 2,000 City of Rancho Mirage Joint Powers Financing Authority,
Civic Center Revenue Bonds, Series 1991 A, 7.50%,
4/1/17 2,267,500
Aaa AAA 14,285 County of Sacramento, California, Single Family
Mortgage Revenue Bonds (GNMA Mortgage-Backed
Securities Program), Issue A of 1987 (Escrowed To
Maturity), 8.50%, 11/1/16 17,909,819
Aaa AAA 10,000 County of Sacramento, California, Single Family
Mortgage Revenue Bonds (GNMA Mortgage-Backed
Securities Program), Issue A of 1987 (Escrowed to
Maturity), 8.125%, 7/1/16 12,062,500
Aaa AAA 6,000 County of Sacramento, California, Single Family
Mortgage Revenue Bonds (GNMA Mortgage-Backed
Securities Program), Issue A of 1987 (Escrowed to
Maturity), 8.25%, 1/1/21 7,357,500
Aaa AAA 3,000 City and County of San Francisco, CA General Purpose
Sewer Revenue Bonds, Series 1991, Secondary
"Rites", (AMBAC), Variable, 10/1/21 <F3> 3,480,000
NR BBB 1,575 Fontana Public Financing Authority, San Bernardino
County, California, Subordinate Lien Tax Allocation
Revenue Bonds, (North Fontana Redevelopment
Project), 1991 Series A, 7.75%, 12/1/20 1,823,063
NR BBB 2,000 Loma Linda, California Certificates of Participation,
Loma Linda Redevelopment Agency, City Hall, 7.00%,
12/1/15 2,137,500
Aaa AAA 6,400 Port of Oakland, California, Revenue Bonds, Series C,
(BIGI), 0.00%, 11/1/05 3,568,000
NR NR 3,200 Oceanside California Community Development Commission,
Tax Allocation 2nd Lien, 8.40%, 6/1/18 3,456,000
NR NR 3,000 Poway Redevelopment Agency, CA. Paguay Redevelopment
Project, Subordinated Tax Allocation Refunding,
Issue of 1991, 7.75%, 12/15/21 3,476,250
NR BBB+ 1,000 City of Upland, CA Certificates of Participation,
Police Building Construction Revenue Bonds, 8.20%,
8/1/16 1,082,500
NR NR 4,000 Huntington Beach, Public Financing Authority, (Orange
County, California), 1988 Revenue Bonds, Series A,
(Huntington Beach Redevelopment Projects), 8.375%,
5/1/18 4,505,000
NR NR 2,975 Sacramento-Yolo Port District Port Facilities
Improvement and Refunding Revenue Bonds (Sacramento
and Yolo Counties, California) 8.30%, 12/1/03 3,328,281
------------
$ 77,702,813
------------
GENERAL OBLIGATION - 1.1%
Aa A+ $ 6,000 State of California Various Purpose General Obligation
Bonds, 4.75%, 9/1/23 $ 4,477,500
Aa A+ 340 Government of Guam General Obligation Bonds, 1993
Series A, 5.375%, 11/15/13 287,725
------------
$ 4,765,225
------------
HEALTH CARE - 0.8%
NR NR $ 3,330 Banning, California Certificates of Participation (San
Georgonio Pass Convalescent Hospital), 9.50%, 12/1/11 $ 3,463,200
------------
HOSPITALS - 1.0%
NR BBB+ $ 2,700 City of Stockton, California, Health Facilities
Refunding Revenue Bonds (Dameron Hospital
Association), Series 1988, 8.30%, 12/1/14 $ 2,868,750
NR A 1,500 Woodland, California, Hospital Revenue Certificates of
Participation, (Woodland Memorial Hospital), 8.20%,
8/1/15 1,618,125
------------
$ 4,486,875
------------
HOUSING - 4.6%
Aa A+ $ 2,500 California Housing Finance Agency, Home Mortgage
Revenue Bonds, 1987 Series A, 8.20%, 8/1/17 $ 2,615,625
Aa A+ 1,455 California Housing Finance Agency, Home Mortgage
Revenue Bonds, 1988 Series B, 8.60%, 8/1/19 1,527,750
Aa3 NR 60 California Housing Finance Agency, Multifamily
Rehabilitation Bonds, 1983 Series A, 9.875%, 8/1/10 61,575
Aa A+ 2,500 California Housing Finance Agency, Home Mortgage
Revenue Bonds, 1986 Series A, 8.10%, 8/1/16 2,621,875
A1 A+ 2,000 California Housing Finance Agency, Multi-Unit Rental
Housing Revenue Bonds II, 1992 Series B, 6.70%,
8/1/15 2,020,000
Aa A+ 3,835 California Housing Finance Agency, Home Mortgage
Revenue Bonds, 1989 Series D, 7.375%, 8/1/11 3,969,225
Aa A+ 840 California Housing Finance Agency, Home Mortgage
Revenue Bonds, 1991 Series A, 7.375%, 8/1/17 854,700
NR NR 2,000 The Housing Authority of the County of Los Angeles, CA
Multifamily Housing Revenue Bonds (Corporate Fund for
Housing Projects), 1988 Series B, 10.50%, 12/1/29 2,087,500
A NR 845 The Housing Authority of the County of Los Angeles, CA,
Single Family Mortgage Revenue Bonds, 1986 Issue A,
7.875%, 8/1/16 873,519
NR A+ 2,320 City of Oakland, California, Housing Finance Revenue
Bonds, Issue D-1, 7.10%, 1/1/10 2,305,500
NR AAA 980 County of Riverside, California, Single Family Mortgage
Revenue Bonds (GNMA), Issue A of 1991, 6.85%, 10/1/16 1,006,950
------------
$ 19,944,219
------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL - 1.0%
NR BBB+ $ 4,500 Central Valley Financing Authority, CA Cogeneration
Project Revenue Bonds (Carson Ice-GenProject), 1993
Series, 6.20%, 7/1/20 $ 4,072,500
NR NR 4,500 City of Long Beach, California, Industrial Development
Revenue Bonds (Kress Rehabilitation Project), 9.75%,
12/1/16 <F1><F2> 135,000
------------
$ 4,207,500
------------
INSURED - 20.8%
Aaa AAA $ 5,620 California Health Facilities Financing Authority,
Insured Health Facility Refunding Revenue Bonds,
(Catholic Healthcare West), 1994 Series B, 5.00%,
7/1/14 $ 4,650,550
Aaa AAA 4,000 California Health Facilities Financing Authority,
Insured Health Facility Refunding Revenue Bonds,
(Catholic Healthcare West), 1994 Series B, 5.00%,
7/1/21 3,175,000
Aaa AAA 1,125 California Housing Finance Agency, Housing Revenue
Bonds, (MBIA), (AMT), 7.00%, 8/1/23 1,143,281
Aaa AAA 3,300 California Statewide Communities Development Authority,
Motion Picture and Television Fund, Step-Up Recovery
Floaters, (ABMAC), 5.68%, 1/1/24 3,159,750
Aaa AAA 1,680 Castaic Union School District, Los Angeles County,
California, 1993 General Obligation Bonds, Series A,
0.00%, 5/1/11 569,100
Aaa AAA 1,800 Castaic Union School District, Los Angeles County,
California, 1993 General Obligation Bonds, Series A,
0.00%, 5/1/12 571,500
Aaa AAA 4,000 Castaic Union School District, Los Angeles County,
California, 1993 General Obligation Bonds, Series A,
0.00%, 5/1/18 845,000
Aaa AAA 8,785 Culver City Redevelopment Financing Authority 1993 Tax
Allocation Refunding Revenue Bonds 4.60%, 11/1/20 6,544,825
Aaa AAA 5,000 East Bay Municipal Utility District (Alameda and Contra
Costa Counties, California), Water System
Subordinated Revenue Refunding Bonds, Series 1993B-2
"Yield Curve Notes,"
Variable, 6/1/08 <F3> 4,175,000
Aaa AAA 5,350 Fairfield Water Utility Improvement Project Refunding
Bonds, Series 1986 Certificates of Participation,
(FGIC), 0.00%, 4/1/04 3,082,938
Aaa AAA 8,000 Northern California Power Agency, Multiple Capital
Facilities Revenue Bonds, 1992 Series A, (RIBS),
(MBIA), Variable, 9/2/25 <F3> 8,090,000
Aaa AAA 6,500 Redevelopment Agency of the City of Oakland, CA,
Central District Redevelopment Project, Subordinated
Tax Allocation Bonds, Series 1992A, (MBIA), 5.00%,
9/1/21 5,191,875
Aaa AAA 2,000 Oro Loma Sanitary District (Alameda County,
California), Sewer Revenue Bonds of 1991, Series A,
(AMBAC), 8.55%, 10/1/06 2,385,000
Aaa AAA 10,000 Port of Oakland California, Revenue Bonds, Series A,
(AMT), (BIGI), 0.00%, 11/1/19 1,650,000
Aaa AAA 4,390 Poway Redevelopment Agency, CA Paguay Redevelopment
Project, Subordinated Tax Allocation Refunding Bonds,
Indexed Inverse Floating Bonds, Series 1993, (FGIC),
Variable, 12/15/06 <F3> 3,824,788
Aaa AAA 3,000 San Diego County, CA Water Authority, Water Revenue
Certificates of Participation, Residual Interest Tax-
Exempt Securities, (FGIC), Variable, 4/22/09 <F3> 2,737,500
Aaa AAA 10,000 Airports Commission City and County of San Francisco,
California, San Francisco International Airport,
Second Series Refunding Revenue Bonds, Issue 2,
(MBIA), 6.75%, 5/1/13 10,312,500
Aaa AAA 4,000 San Mateo County Transit District, (San Mateo County,
California), Limited Tax Bonds, 1993 Series A,
(MBIA), 8.00%, 6/1/20 4,770,000
Aaa NR 5,650 San Mateo County Transit District, (San Mateo County,
California), Limited Tax Bonds, 1993 Series A,
(MBIA), 0.00%, 6/1/20 1,052,313
Aaa AAA 4,000 Redevelopment Agency of The City of Santa Clara,
Bayshore North Project, 1992 Tax Allocation Refunding
Bonds, (AMBAC), 7.00%, 7/1/10 4,365,000
Aaa AAA 13,985 Certificates of Participation, (1990 Capital Project),
Visalia Unified School District, (MBIA), 0.00%, 12/1/17 2,866,925
Aaa AAA 2,000 Southern California Public Power Authority Power
Project Revenue Refunding Bonds, "Inverse Floaters,"
(FGIC), Variable, 7/1/12 <F3> 1,597,500
Aaa AAA 5,000 Los Angeles County, CA Capital Asset Leasing
Corporation Lease Revenue Bonds (1992 Master
Refunding Project), County of Los Angeles, "Yield
Enhancement Securities," (AMBAC), Variable, 12/1/08 4,956,250
Aaa AAA 2,670 Regents of the University of California, Refunding
Revenue Bonds, (Multiple Purpose Projects), 1993
Series B, (MBIA), 4.75%, 9/1/21 2,022,524
Aaa AAA 8,000 Vallejo Sanitation and Flood Control District, (Solano
County, California), Certificates of Participation
(Financing Projects), Series 1993, (FGIC), 5.00%, 7/
1/19 6,560,000
------------
$ 90,299,119
------------
LEASE REVENUE/CERTIFICATES OF PARTICIPATION - 27.0%
A1 A- $13,110 State Public Works Board of the State of California
Lease Revenue Bonds (The Regents of the University of
California), 1993 Series A, (Various University of
California Projects), 5.00%, 6/1/23 $ 10,143,863
A1 A- 14,275 State Public Works Board of the State of California
Lease Revenue Bonds (The Regents of the University of
California), 1993 Series A, (Various University of
California Projects), 5.50%, 6/1/14 12,419,250
A1 A- 3,000 State Public Works Board of the State of California
Lease Revenue Bonds (The Regents of the University of
California), 1993 Series A, (Various University of
California Projects), 5.50%, 6/1/10 2,681,250
A1 A- 3,500 State Public Works Board of the State of California
Lease Revenue Bonds, (Department of Corrections),
1993 Series D (California State Prison-Susanville),
5.375%, 6/1/18 2,926,875
A1 A- 7,000 State Public Works Board of the State of California
Lease Revenue Bonds (The Regents of the University of
California), 1993 Series B, (Various University of
California Projects), 5.25%, 6/1/20 5,731,250
A1 A- 14,325 State Public Works Board of the State of California
Lease Revenue Bonds (The Regents of the University of
California), 1993 Series B, (Various University of
California Projects), 5.50%, 6/1/19 12,194,156
A1 A- 7,000 State Public Works Board of the State of California
Lease Revenue Bonds, (Department of Corrections),
1993 Series E (California State Prison-Madera County
(II)), 5.50%, 6/1/19 5,941,250
A1 A- 2,690 State Public Works Board of the State of California
Lease Revenue Bonds, (Department of Corrections),
1993 Series E (California State Prison-Madera County
(II)), 5.50%, 6/1/15 2,313,400
Aaa AAA 16,850 California Statewide Communities Development Authority,
Certificates of Participation, The Trustees of the J.
Paul Getty Trust, 5.00%, 10/1/23 13,501,063
Aaa AAA 3,460 California Statewide Communities Development Authority,
Certificates of Participation, The Trustees of the J.
Paul Getty Trust, 5.00%, 10/1/12 2,919,375
Baa1 NR 2,000 Certificates of Participation, City of Duarte,
California, City of Hope National Medical Center,
6.25%, 4/1/23 1,840,000
A BBB+ 2,750 Certificates of Participation (1991 Civic Center
Improvement Project), City of Inglewood, California,
7.00%, 8/1/19 2,760,313
A A 9,060 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 5.50%, 9/1/21 7,599,075
A A 4,585 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 9/1/12 1,358,306
A A 4,865 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/14 1,289,225
A A 4,590 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/15 1,136,025
A A 3,100 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/20 527,000
A A 1,000 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/16 228,750
A A 1,925 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/17 406,656
A A 5,000 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 9/1/17 1,018,750
A A 5,370 Certificates of Participation (1993 Disney Parking
Project), County of Los Angeles, CA, 0.00%, 3/1/18 1,060,575
NR NR 7,000 Los Angeles County Capital Asset Leasing Corporation
Certificates of Participation, County of Los Angeles
(Marina del Rey), CA Series A, 6.50%, 7/1/08 6,728,750
NR NR 1,500 Los Angeles County Capital Asset Leasing Corporation
Certificates of Participation, County of Los Angeles
(Marina del Rey), CA Series A, 6.25%, 7/1/03 1,481,250
A1 A 7,915 Certificates of Participation (Multiple Capital
Facilities Project I), County Los Angeles, CA, 7.00%,
6/1/09 8,182,131
Aa AA 2,700 Orange County, CA Water District, Revenue Certificates
of Participation, Series 1993A, 5.00%, 8/15/18 2,224,125
NR A1 2,360 Richmond, CA Joint Powers Financing Authority Revenue
Bonds, 1990 Series B, 7.00%, 5/15/07 2,430,800
Aa A+ 3,000 Sacramento, CA City Financing Authority, Lease Revenue
Refunding Bonds, Series 1993 B, 5.40%, 11/1/20 2,535,000
Baa1 A- 2,375 City of San Luis Obispo, CA Capital Improvement Board
Lease Revenue Bonds, (Capital Improvement Projects),
8.25%, 6/1/06 2,502,656
NR BBB 1,000 Association of Bay Area Governments Revenue Bonds,
Watsonville Mammoth Lakes, California, Certificates
of Participation, Series B 7.875%, 6/1/11 1,051,250
------------
$117,132,369
------------
MISCELLANEOUS - 3.7%
A NR $ 5,445 Association of Bay Area Governments Revenue Bonds, CA
Municipal Financing Pool, 8.05%, 9/1/10<F4> $ 5,866,988
NR NR 6,500 VRDC-IVRC Trust, Series 1993 F, Variable, 6/29/00 <F4> 6,061,250
NR NR 5,000 VRDC-IVRC Trust, Series 1994 C, Variable, 5/13/03 <F3> 4,050,000
------------
$ 15,978,238
------------
SPECIAL TAX REVENUE - 6.5%
NR NR $ 2,190 City of Fairfield Limited Obligation Refunding
Improvement Bonds, Green Valley Road-Mangels
Boulevard Extension Assessment District, (North
Cordelia Improvement District) (Reassessment and
Refunding of 1993) (Solano County, California),
7.375%, 9/2/18 $ 2,266,650
NR NR 1,015 City of Fairfield, CA, Green Valley Road -- Mangels
Boulevard, Extension Assessment District, (North
Cordelia Improvement District), (Series 1990),
8.00%, 9/2/11 1,031,494
NR NR 3,000 Lincoln, CA, Unified School District, Community
Facilities District Number 1, Special Tax, Series
1992A, 7.625%, 9/1/21 3,135,000
Baa NR 15,630 Pleasanton, CA, Joint Powers Financing Authority
Reassessment Revenue Bonds, 1993 Series
A 6.15%, 9/2/12 14,535,900
NR NR 2,750 Series A of 1992 Special Tax Bonds of Community
Facilities District No. 87-5B (Rancho Santa
Margarita) of the County of Orange, CA,
7.50%, 8/15/17 3,152,187
NR NR 3,000 Community Facilities District Number 88-12 of the
County of Riverside, Series 1992 Special Tax Bonds,
7.55%, 9/1/17 3,007,500
NR NR 1,065 California Community Facilities, District 88-4 of the
County of Riverside, CA, Winchester Ranch,
8.20%, 9/1/14 1,054,350
------------
$ 28,183,081
------------
TAX ALLOCATION - 9.9%
NR BBB+ $ 2,500 Community Redevelopment Agency of the City of Buena
Park, Central Business District Redevelopment
Project,Tax Allocation Refunding Bonds, Series 1992A
(County of Orange, California), 7.10%, 9/1/14 $ 2,500,000
NR NR 2,970 City of Commerce, CA Joint Powers Financing Authority,
1991 Revenue Bonds, Series A, (Multiple Projects
Loan), 8.00%, 3/1/22 3,096,225
NR BBB 5,000 County of Contra Costa, CA Public Financing Authority,
1992 Tax Allocation Revenue Bonds, Series A,
(Pleasant Hill, North Richmond, West Pittsburgh and
Oakley Redevelopment Project Areas), 7.10%, 8/1/22 5,006,250
NR BBB 3,910 Fontana Public Financing Authority (San Bernardino
County, California), 1991 Tax Allocation Revenue,
(Downtown Redevelopment Project), 7.00%, 9/1/21 3,841,575
NR BBB 7,220 Fontana Redevelopment Agency, Jurupa Hills
Redevelopment Project Area, Refunding Tax Allocation
Bonds, 1992 Series A, 7.00%, 10/1/14 7,120,725
NR BBB 3,500 Inglewood Redevelopment Agency, (City of Inglewood, Los
Angeles County, California), Century Redevelopment
Project, 1993 Tax Allocation Bonds, Series A, 6.125%,
7/1/23 3,040,625
NR BBB+ 2,500 Redevelopment Agency of the City of Pittsburg,
California, Avenue Community Facilities District No.
1990-1, Subordinated Tax Allocation Revenue Bonds,
7.40%, 8/15/20 2,550,000
NR BBB 600 City of Rancho Mirage, CA Joint Powers Financing
Authority, Civic Center Revenue Bonds, Series 1991A,
7.50%, 4/1/17 636,000
NR BBB+ 3,000 Rialto Redevelopment Agency, Rialto, California
Subareas A and B, Industrial Redevelopment Tax
Allocation Bonds, Series 1993A, 6.00%, 9/1/23 2,643,750
NR BBB 2,500 Redevelopment Agency of the County of Riverside, CA,
Redevelopment Project No. 4, Tax Allocation Bonds,
1991 Series A, 7.50%, 10/1/26 2,568,750
NR BBB 5,605 San Carlos Redevelopment Agency, San Carlos, CA
Redevelopment Project, 1991 Tax Allocation Bonds,
Series A, 7.10%, 9/1/17 5,583,981
NR NR 1,400 Community Development Agency of The City of Simi
Valley, CA 1988 Commercial Mortgage Revenue
Refunding Bonds, (Sycamore Plaza II), 8.20%, 9/1/12 1,421,000
Baa1 BBB+ 3,000 Westminster Redevelopment Agency, Westminster, CA
Commercial Redevelopment, Project No. 1, 1991 Tax
Allocation Bonds, Series A, 7.30%, 8/1/21 3,052,500
------------
$ 43,061,381
------------
TRANSPORTATION - 3.0%
NR BBB $ 1,750 Guam Airport Authority, General Revenue Bonds 1993
Series B, 6.60%, 10/1/10 $ 1,730,313
Aa AA- 6,000 City of Long Beach, CA Harbor Revenue Bonds, Series
1989 A, 7.25%, 5/15/19 6,412,500
A1 A- 1,400 County of Orange, California Airport Revenue Bonds,
Series 1987, 8.125%, 7/1/16 1,513,750
Baa1 BBB+ 1,500 Stockton Port District, San Joaquin County, California,
Port Facilities Improvement Revenue Bonds, Series A
1989, 7.95%, 1/1/05 1,591,875
Baa1 BBB+ 1,500 Stockton Port District, San Joaquin County, California,
Port Facilities Improvement Revenue Bonds, Series A
1989, 8.10%, 1/1/14 1,623,750
------------
$ 12,872,188
------------
UTILITIES - 0.4%
Aa AA- $ 7,070 Southern California Public Power Authority,
Transmission Project Revenue, Subordinate Refunding
Bonds, 0.00%, 7/1/15 $ 1,740,988
------------
WATER AND SEWER - 2.3%
Baa BBB+ $ 6,575 Improvement District M of the Mojave Water Agency, CA
General Obligation Bonds (Morongo Basin Pipeline
Project) Election of 1990, Series 1992 6.60%, 9/1/22 $ 6,369,530
NR BBB 3,190 Certificates of Participation (Rehabilitation Project),
Series 1992, Orange Cove, CA Irrigation District,
6.625%, 2/1/17 3,106,262
Aa AA 2,100 Public Utilities Commission of the City and County of
San Francisco, CA San Francisco, Water Revenue Bonds,
1991 Series A, 0.00%, 11/1/19 420,000
------------
$ 9,895,792
------------
TOTAL INVESTMENTS (identified cost, $443,555,727) $433,732,988
============
<FN>
<F1>Security valued at fair value using methods determined in good faith by or
at the direction of the Trustees.
<F2>Non-income producing security.
<F3>The above designated securities have been issued as inverse floater bonds.
<F4>At September 30, 1994, the market value of securities segregated to cover
margin requirements on open financial futures contracts amounted to
$5,866,988.
</TABLE>
The Portfolio invests primarily in debt securities issued by California
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at September 30, 1994, 20.8% of the securities in the portfolio
of investments are backed by bond insurance of various financial institutions
and financial guaranty assurance agencies. The aggregate percentage by
financial institution ranged from 5.8% to 7.9% of total investments.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
September 30, 1994
--------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A)
(identified cost, $443,555,727) $433,732,988
Cash 968
Receivable for investments sold 15,227,312
Interest receivable 7,850,593
Deferred organization expenses (Note 1D) 20,188
------------
Total assets $456,832,049
LIABILITIES:
Demand note payable (Note 5) $2,051,000
Payable for investments purchased 9,610,518
Payable for daily variation margin on open
financial futures contracts (Note 1E) 26,750
Payable to affiliates --
Custodian fee 5,394
Trustees' fees 4,664
Accrued expenses 2,322
----------
Total liabilities 11,700,648
------------
NET ASSETS applicable to investors' interest
in Portfolio $445,131,401
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $454,477,330
Unrealized depreciation of investments and
financial futures contracts (computed on
the basis of identified cost) (9,345,929)
------------
Total $445,131,401
============
See notes to financial statements
<PAGE>
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
Year Ended
----------------------------------
September 30, March 31,
1994** 1994*
------------- -----------
INVESTMENT INCOME:
Interest income $ 15,258,588 $ 27,592,136
------------- ------------
Expenses --
Investment adviser fee (Note 2) $ 1,141,013 $ 2,149,273
Compensation of Trustees not members of
the Investment Adviser's organization 9,257 20,517
Custodian fee (Note 2) 66,016 123,534
Legal and accounting services 37,203 4,765
Bond pricing 10,841 --
Amortization of organization expense
(Note 1D) 2,820 5,132
Printing and postage 2,327 --
Miscellaneous 45,742 105,817
------------- ------------
Total expenses $ 1,315,219 $ 2,409,038
------------- ------------
Net investment income $ 13,943,369 $ 25,183,098
------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) --
Investment transactions
(identified cost basis) $ (10,433,249) $ 11,001,552
Financial futures contracts (191,417) (25,031)
------------- ------------
Net realized gain (loss)
on investments $ (10,624,666) $ 10,976,521
------------- ------------
Change in unrealized appreciation
(depreciation) --
Investments $ (641,524) $(34,472,972)
Financial futures contracts (300,547) 340,645
------------- ------------
Change in net unrealized
depreciation $ (942,071) $(34,132,327)
------------- ------------
Net realized and unrealized
loss on investments $ (11,566,737) $(23,155,806)
------------- ------------
Net increase in net assets
from operations $ 2,376,632 $ 2,027,292
============= ============
*For the period from the start of business, May 3, 1993 to March 31, 1994.
**For the six months ended September 30, 1994 (Note 7).
See notes to financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
Year Ended
-----------------------------------
September 30, March 31,
1994** 1994*
------------- ----------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 13,943,369 $ 25,183,098
Net realized gain (loss) on
investment transactions (10,624,666) 10,976,521
Change in unrealized depreciation
of investments (942,071) (34,132,327)
------------ ------------
Net increase in net assets
from operations $ 2,376,632 $ 2,027,292
------------ ------------
Capital transactions --
Contributions $ 24,605,354 $553,867,973
Withdrawals (49,109,598) (88,736,272)
------------ ------------
Increase (decrease) in net assets
resulting from capital transactions $(24,504,244) $465,131,701
------------ ------------
Total increase (decrease)
in net assets $(22,127,612) $467,158,993
NET ASSETS:
At beginning of period 467,259,013 100,020
------------ ------------
At end of period $445,131,401 $467,259,013
============ ============
* For the period from the start of business, May 3, 1993 to March 31, 1994.
** For the six months ended September 30, 1994 (Note 7).
-------------------------------------------------------------------------------
SUPPLEMENTARY DATA
-------------------------------------------------------------------------------
Year Ended
-----------------------------------
September 30, March 31,
1994** 1994*
------------- ---------
RATIOS (As a percentage of average
daily net assets):
Expenses 0.57%+ 0.55%+
Net investment income 6.09%+ 5.72%+
PORTFOLIO TURNOVER 40% 91%
+ Computed on an annualized basis.
* For the period from the start of business, May 3, 1993 to March 31, 1994.
** For the six months ended September 30, 1994 (Note 7).
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
California Tax Free Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a diversified open-end investment company which was
organized as a trust under the laws of the State of New York on May 1, 1992. The
Declaration of Trust permits the Trustees to issue interests in the Portfolio.
Investment operations began on May 3, 1993, with the acquisition of investments
with a value of $443,306,944, including unrealized appreciation of $25,728,469,
in exchange for an interest in the Portfolio by one of the Portfolio's
investors. The following is a summary of significant accounting policies of the
Portfolio. The policies are in conformity with generally accepted accounting
principles.
A. INVESTMENT VALUATIONS -- Municipal bonds are normally valued on the basis of
valuations furnished by a pricing service. Taxable obligations, if any, for
which price quotations are readily available are normally valued at the mean
between the latest bid and asked prices. Futures contracts listed on commodity
exchanges are valued at closing settlement prices. Short-term obligations,
maturing in sixty days or less, are valued at amortized cost, which approximates
value. Investments for which valuations or market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees.
B. INCOME -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C. INCOME TAXES -- The Portfolio is treated as a partnership for Federal tax
purposes. No provision is made by the Portfolio for federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since some of the
Portfolio's investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolio, the Portfolio normally must
satisfy the applicable source of income and diversification requirements (under
the Internal Revenue Code) in order for its investors to satisfy them. The
Portfolio will allocate at least annually among its investors each investors'
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. Interest income received by the Portfolio on
investments in municipal bonds, which is excludable from gross income under the
Internal Revenue Code, will retain its status as income exempt from Federal
income tax when allocated to the Portfolio's investors. The portion of such
interest, if any, earned on private activity bonds issued after August 7, 1986
may be considered a tax preference item for investors.
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line basis
over five years.
E. FINANCIAL FUTURES CONTRACTS -- Upon the entering of a financial futures
contract, the Portfolio is required to deposit ("initial margin") either in cash
or securities an amount equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by the Portfolio ("margin maintenance") each day, dependent on the
daily fluctuations in the value of the underlying security, and are recorded for
book purposes as unrealized gains or losses by the Portfolio. The Portfolio's
investment in financial futures contracts is designed only to hedge against
anticipated future changes in interest rates. Should interest rates move
unexpectedly, the Portfolio may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss.
F. OTHER -- Investment transactions are accounted for on a trade date basis.
--------------------------------------------------------------------------------
(2) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES The investment
adviser fee is earned by Boston Management and Research (BMR), a wholly-owned
subsidiary of Eaton Vance Management (EVM), as compensation for management and
investment advisory services rendered to the Portfolio. The fee is based upon a
percentage of average daily net assets plus a percentage of gross income (i.e.,
income other than gains from the sale of securities). For the six month period
ended September 30, 1994 and for the period from the start of business, May 3,
1993 to March 31, 1994, the annualized fee was equivalent to 0.50% and 0.49%,
respectively, of the Portfolio's average daily net assets for such periods and
amounted to $1,141,013 and $2,149,273, respectively. Except as to Trustees of
the Portfolio who are not members of EVM's or BMR's organization, officers and
Trustees receive remuneration for their service to the Portfolio out of such
investment adviser fee. Investors Bank & Trust Company (IBT), an affiliate of
EVM and BMR, serves as custodian of the Portfolio. Pursuant to the custodian
agreement, IBT receives a fee reduced by credits which are determined based on
the average daily cash balances the Portfolio maintains with IBT. Certain of the
officers and Trustees of the Portfolio are officers and directors/trustees of
the above organizations.
-------------------------------------------------------------------------------
(3) INVESTMENTS
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, aggregated $152,125,477 and $167,496,202, respectively,
for the six month period ended September 30, 1994 and $473,482,645 and
$434,621,382, respectively, for the year ended March 31, 1994.
--------------------------------------------------------------------------------
(4) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of investments owned
at September 30, 1994, as computed on a federal income tax basis, were as
follows:
Aggregate cost $443,555,727
============
Gross unrealized depreciation $ 19,459,073
Gross unrealized appreciation 9,636,334
------------
Net unrealized depreciation $ 9,822,739
============
--------------------------------------------------------------------------------
(5) LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR or EVM
in a $120 million unsecured line of credit agreement with a bank. The line of
credit consists of a $20 million committed facility and a $100 million
discretionary facility. Borrowings will be made by the Portfolio solely to
facilitate the handling of unusual and/or unanticipated short-term cash
requirements. Interest is charged to each portfolio or fund based on its
borrowings at an amount above either the bank's adjusted certificate of deposit
rate, a variable adjusted certificate of deposit rate, or a federal funds
effective rate. In addition, a fee computed at an annual rate of 1/4 of 1% on
the $20 million committed facility and on the daily unused portion of the $100
million discretionary facility is allocated among the participating funds and
portfolios at the end of each quarter. As of September 30, 1994 the Portfolio
had an outstanding loan balance of $2,051,000.
--------------------------------------------------------------------------------
(6) FINANCIAL INSTRUMENTS
The Portfolio regularly trades in financial instruments with off-balance sheet
risk in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options and futures contracts and may involve, to a varying degree, elements of
risk in excess of the amounts recognized for financial statement purposes. The
notional or contractual amounts of these instruments represent the investment
the Portfolio has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered. A summary of obligations
under these financial instruments at September 30, 1994 is as follows:
FUTURES CONTRACTS NET UNREALIZED
EXPIRATION DATE CONTRACTS POSITION APPRECIATION
----------------- --------- -------- ---------------
12/94 107 U.S. Treasury Bonds Short $476,810
========
At September 30, 1994 the Portfolio had sufficient cash and/or securities to
cover margin requirements on open futures contracts.
--------------------------------------------------------------------------------
(7) CHANGE IN FISCAL YEAR
The Portfolio changed its fiscal year end from March 31, to September 30,
effective September 30, 1994.
<PAGE>
INDEPENDENT AUDITORS' REPORT
------------------------------------------------------------------------------
To the Trustees and Investors of
California Tax Free Portfolio:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of California Tax Free Portfolio as of
September 30, 1994, and the related statements of operations, the statements
of changes in net assets and the supplementary data for the six months ended
September 30, 1994 and for the period from the start of business, May 3, 1993,
to March 31, 1994. These financial statements and supplementary data are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and supplementary data based on our
audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
supplementary data are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at September 30, 1994, by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and supplementary data present
fairly, in all material respects, the financial position of California Tax
Free Portfolio at September 30, 1994, the results of its operations, the
changes in its net assets and its supplementary data for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 4, 1994
<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>
INVESTMENT ADVISER OF [LOGO]
CALIFORNIA TAX FREE PORTFOLIO EV TRADITIONAL
Boston Management and Research
24 Federal Street CALIFORNIA
Boston, MA 02110
MUNICIPALS FUND
ADMINISTRATOR OF
EV TRADITIONAL CALIFORNIA
MUNICIPALS FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265 STATEMENT OF
CUSTODIAN ADDITIONAL
Investors Bank & Trust Company
24 Federal Street INFORMATION
Boston, MA 02110
TRANSFER AGENT NOVEMBER 25, 1994
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV TRADITIONAL CALIFORNIA
MUNICIPALS FUND
24 FEDERAL STREET
BOSTON, MA 02110
T-CASAI
<PAGE>
PART C
OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
INCLUDED IN PART A:
For EV Classic California Municipals Fund:
Financial Highlights for the six months ended March 31,
1995 (Unaudited), for the six months ended September 30,
1994 and for the period from the start of business,
December 3, 1993, to March 31, 1994.
For EV Marathon California Municipals Fund:
Financial Highlights for the six months ended March 31,
1995 (Unaudited), for the six months ended September 30,
1994, for the two years ended March 31, 1994, for the six
months ended March 31, 1992, for the five years ended
September 30, 1991 and for the period from the start of
business, December 19, 1985, to September 30, 1986.
For EV Traditional California Municipals Fund:
Financial Highlights for the six months ended March 31,
1995 (Unaudited) and for the period from the start of
business, May 27, 1994, to September 30, 1994.
INCLUDED IN PART B:
INCORPORATED BY REFERENCE TO THE SEMI-ANNUAL REPORTS FOR THE
FUNDS, EACH DATED MARCH 31, 1995, FILED ELECTRONICALLY
PURSUANT TO SECTION 30(B)(2) OF THE INVESTMENT COMPANY ACT
OF 1940
FOR EV CLASSIC CALIFORNIA MUNICIPALS FUND (ACCESSION NO.
0000950156-95-000347)
EV MARATHON CALIFORNIA MUNICIPALS FUND (ACCESSION NO.
0000950156-95- 000349)
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND (ACCESSION NO.
0000950156-95- 000348)
Financial Statements for the above-referenced Funds for the
time periods set forth in each Fund's Semi-Annual Report
are as follows:
Statement(s) of Assets and Liabilities as of March 31,
1995 (Unaudited)
Statement(s) of Operations (Unaudited)
Statement(s) of Changes in Net Assets (Unaudited)
Financial Highlights (Unaudited)
Notes to Financial Statements (Unaudited)
Financial Statements for CALIFORNIA TAX FREE PORTFOLIO are
as follows:
Portfolio of Investments as of March 31, 1995
(Unaudited)
Statement of Assets and Liabilities as of March 31, 1995
(Unaudited)
Statement of Operations for the six months ended March
31, 1995 (Unaudited)
Statements of Changes in Net Assets for the six months
ended March 31, 1995 (Unaudited) and for the six months
ended September 30, 1994
Supplementary Data for the six months ended March 31,
1995 (Unaudited), for the six months ended September
30, 1994 and for the period from the start of business,
May 3, 1993 to March 31, 1994
Notes to Financial Statements (Unaudited)
FOR EV CLASSIC CALIFORNIA MUNICIPALS FUND
EV MARATHON CALIFORNIA MUNICIPALS FUND
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
Financial Statements for the above-referenced Funds for the
time periods set forth in each Fund's Annual Report dated
September 30, 1994 are as follows:
Statement(s) of Assets and Liabilities
Statement(s) of Operations
Statement(s) of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report
Financial Statements for CALIFORNIA TAX FREE PORTFOLIO are
as follows:
Portfolio of Investments as of September 30, 1994
Statement of Assets and Liabilities as of September 30,
1994
Statement of Operations for the six months ended
September 30, 1994 and for the period from the start of
business, May 3, 1993 to March 31, 1994
Statements of Changes in Net Assets for the six months
ended September 30, 1994 and for the period from the
start of business, May 3, 1993 to March 31, 1994
Supplementary Data for the six months ended September
30, 1994 and for the period from the start of business,
May 3, 1993 to March 31, 1994
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 herewith.
(b) Amendment and Restatement of Establishment and Designation
of Series dated June 19, 1995 filed herewith.
(2)(a) By-Laws as amended October 21, 1987 filed herewith.
(b) Amendment to By-Laws of Eaton Vance Municipals Trust dated
December 13, 1993 filed herewith.
(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 herewith.
(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 herewith.
(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 herewith.
(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) Custodian Agreement with Investors Bank & Trust Company
dated October 15, 1992 filed herewith.
(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 herewith.
(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) Not applicable
(11)(a) Consent of Independent Certified Public Accountants for EV
Classic California Municipals Fund filed herewith.
(b) Consent of Independent Certified Public Accountants for EV
Marathon California Municipals Fund filed herewith.
(c) Consent of Independent Certified Public Accountants for EV
Traditional California Municipals Fund 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 herewith.
(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 herewith.
(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
herewith.
(16) Schedules for Computation of Performance Quotations filed
herewith.
(17)(a) Power of Attorney for Eaton Vance Municipals Trust dated
December 29, 1993 filed herewith.
(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 herewith.
(c) Power of Attorney for California Tax Free Portfolio dated
June 19, 1995 filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of beneficial interest as of August 31, 1995
EV Marathon Alabama Tax Free Fund 2,129
EV Classic Alabama Tax Free Fund 77
EV Marathon Arizona Tax Free Fund 3,212
EV Classic Arizona Tax Free Fund 56
EV Marathon Arkansas Tax Free Fund 2,273
EV Classic Arkansas Tax Free Fund 20
EV Marathon California Municipals Fund 8,078
EV Classic California Municipals Fund 39
EV Marathon Colorado Tax Free Fund 1,207
EV Classic Colorado Tax Free Fund 94
EV Marathon Connecticut Tax Free Fund 4,723
EV Classic Connecticut Tax Free Fund 94
EV Marathon Florida Tax Free Fund 14,369
EV Classic Florida Tax Free Fund 65
EV Marathon Georgia Tax Free Fund 3,043
EV Classic Georgia Tax Free Fund 60
EV Marathon Kentucky Tax Free Fund 3,727
EV Classic Kentucky Tax Free Fund 33
EV Marathon Louisiana Tax Free Fund 618
EV Classic Louisiana Tax Free Fund 37
EV Marathon Maryland Tax Free Fund 3,228
EV Classic Maryland Tax Free Fund 46
EV Marathon Massachusetts Tax Free Fund 7,394
EV Classic Massachusetts Tax Free Fund 55
EV Marathon Michigan Tax Free Fund 4,648
EV Classic Michigan Tax Free Fund 56
EV Marathon Minnesota Tax Free Fund 2,738
EV Classic Minnesota Tax Free Fund 85
EV Marathon Mississippi Tax Free Fund 759
EV Classic Mississippi Tax Free Fund 47
EV Marathon Missouri Tax Free Fund 2,821
EV Classic Missouri Tax Free Fund 113
EV Marathon National Municipals Fund 45,365
EV Classic National Municipals Fund 749
EV Marathon New Jersey Tax Free Fund 11,286
EV Classic New Jersey Tax Free Fund 104
EV Marathon New York Tax Free Fund 15,922
EV Classic New York Tax Free Fund 148
EV Marathon North Carolina Tax Free Fund 4,880
EV Classic North Carolina Tax Free Fund 104
EV Marathon Ohio Tax Free Fund 8,028
EV Classic Ohio Tax Free Fund 54
EV Marathon Oregon Tax Free Fund 3,911
EV Classic Oregon Tax Free Fund 53
EV Marathon Pennsylvania Tax Free Fund 14,561
EV Classic Pennsylvania Tax Free Fund 99
EV Marathon Rhode Island Tax Free Fund 843
EV Classic Rhode Island Tax Free Fund 45
EV Marathon South Carolina Tax Free Fund 1,420
EV Classic South Carolina Tax Free Fund 25
EV Marathon Tennessee Tax Free Fund 1,622
EV Classic Tennessee Tax Free Fund 23
EV Marathon Texas Tax Free Fund 464
EV Classic Texas Tax Free Fund 6
EV Marathon Virginia Tax Free Fund 5,215
EV Classic Virginia Tax Free Fund 39
EV Marathon West Virginia Tax Free Fund 1,220
EV Classic West Virginia Tax Free Fund 24
Massachusetts Municipal Bond Portfolio 36
EV Traditional California Municipals Fund 40
EV Traditional Connecticut Tax Free Fund 31
EV Traditional Florida Tax Free Fund 80
EV Traditional National Municipals Fund 548
EV Traditional New Jersey Tax Free Fund 62
EV Traditional New York Tax Free Fund 108
EV Traditional Pennsylvania Tax Free Fund 43
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:
<TABLE>
<S> <C>
EV Classic Alabama Tax Free Fund EV Classic Kansas Tax Free Fund
EV Classic Arizona Tax Free Fund EV Classic Kentucky Tax Free Fund
EV Classic Arkansas Tax Free Fund EV Classic Louisiana Tax Free Fund
EV Classic California Limited Maturity EV Classic Maryland Tax Free Fund
Tax Free Fund EV Classic Massachusetts Limited Maturity
EV Classic California Municipals Fund Tax Free Fund
EV Classic Colorado Tax Free Fund EV Classic Massachusetts Tax Free Fund
EV Classic Connecticut Limited Maturity EV Classic Michigan Limited Maturity
Tax Free Fund Tax Free Fund
EV Classic Connecticut Tax Free Fund EV Classic Michigan Tax Free Fund
EV Classic Florida Insured Tax Free Fund EV Classic Minnesota Tax Free Fund
EV Classic Florida Limited Maturity EV Classic Mississippi Tax Free Fund
Tax Free Fund EV Classic Missouri Tax Free Fund
EV Classic Florida Tax Free Fund EV Classic National Limited Maturity Tax Free Fund
EV Classic Georgia Tax Free Fund EV Classic National Municipals Fund
EV Classic Government Obligations Fund EV Classic New Jersey Limited Maturity
EV Classic Greater China Growth Fund Tax Free Fund
EV Classic Growth Fund EV Classic New Jersey Tax Free Fund
EV Classic Hawaii Tax Free Fund Classic New York Limited Maturity
EV Classic High Income Fund Tax Free Fund
EV Classic Investors Fund EV Classic New York Tax Free Fund
<PAGE>
EV Classic North Carolina Tax Free Fund EV Marathon Michigan Limited Maturity
EV Classic Ohio Limited Maturity Tax Free Fund Tax Free Fund
EV Classic Ohio Tax Free Fund EV Marathon Michigan Tax Free Fund
EV Classic Oregon Tax Free Fund EV Marathon Minnesota Tax Free Fund
EV Classic Pennsylvania Limited Maturity EV Marathon Mississippi Tax Free Fund
Tax Free Fund EV Marathon Missouri Tax Free Fund
EV Classic Pennsylvania Tax Free Fund EV Marathon National Limited Maturity
EV Classic Rhode Island Tax Free Fund Tax Free Fund
EV Classic Senior Floating-Rate Fund EV Marathon National Municipals Fund
EV Classic Strategic Income Fund EV Marathon New Jersey Limited Maturity
EV Classic South Carolina Tax Free Fund Tax Free Fund
EV Classic Special Equities Fund EV Marathon New Jersey Tax Free Fund
EV Classic Stock Fund EV Marathon New York Limited Maturity
EV Classic Tennessee Tax Free Fund Tax Free Fund
EV Classic Texas Tax Free Fund EV Marathon New York Tax Free Fund
EV Classic Total Return Fund EV Marathon North Carolina Limited Maturity
EV Classic Virginia Tax Free Fund Tax Free Fund
EV Classic West Virginia Tax Free Fund EV Marathon North Carolina Tax Free Fund
EV Marathon Alabama Tax Free Fund EV Marathon Ohio Limited Maturity Tax Free Fund
EV Marathon Arizona Limited Maturity EV Marathon Ohio Tax Free Fund
Tax Free Fund EV Marathon Oregon Tax Free Fund
EV Marathon Arizona Tax Free Fund EV Marathon Pennsylvania Limited Maturity
EV Marathon Arkansas Tax Free Fund Tax Free Fund
EV Marathon California Limited Maturity EV Marathon Pennsylvania Tax Free Fund
Tax Free Fund EV Marathon Rhode Island Tax Free Fund
EV Marathon California Municipals Fund EV Marathon Strategic Income Fund
EV Marathon Colorado Tax Free Fund EV Marathon South Carolina Tax Free Fund
EV Marathon Connecticut Limited Maturity EV Marathon Special Equities Fund
Tax Free Fund EV Marathon Stock Fund
EV Marathon Connecticut Tax Free Fund EV Marathon Tennessee Tax Free Fund
EV Marathon Emerging Markets Fund EV Marathon Texas Tax Free Fund
Eaton Vance Equity - Income Trust EV Marathon Total Return Fund
EV Marathon Florida Insured Tax Free Fund EV Marathon Virginia Limited Maturity
EV Marathon Florida Limited Maturity Tax Free Fund
Tax Free Fund EV Marathon Virginia Tax Free Fund
EV Marathon Florida Tax Free Fund EV Marathon West Virginia Tax Free Fund
EV Marathon Georgia Tax Free Fund EV Traditional California Municipals Fund
EV Marathon Gold & Natural Resources Fund EV Traditional Connecticut Tax Free Fund
EV Marathon Government Obligations Fund EV Traditional Emerging Markets Fund
EV Marathon Greater China Growth Fund EV Traditional Florida Insured Tax Free Fund
EV Marathon Greater India Fund EV Traditional Florida Limited Maturity
EV Marathon Growth Fund Tax Free Fund
EV Marathon Hawaii Tax Free Fund EV Traditional Florida Tax Free Fund
EV Marathon High Income Fund EV Traditional Government Obligations Fund
EV Marathon High Yield Municipals Fund EV Traditional Greater China Growth Fund
EV Marathon Information Age Fund EV Traditional Greater India Fund
EV Marathon Investors Fund EV Traditional Growth Fund
EV Marathon Kansas Tax Free Fund EV Traditional High Yield Municipals Fund
EV Marathon Kentucky Tax Free Fund Eaton Vance Income Fund of Boston
EV Marathon Louisiana Tax Free Fund EV Traditional Information Age Fund
EV Marathon Maryland Tax Free Fund EV Traditional Investors Fund
EV Marathon Massachusetts Limited Maturity Eaton Vance Municipal Bond Fund L.P.
Tax Free Fund EV Traditional National Limited Maturity
EV Marathon Massachusetts Tax Free Fund Tax Free Fund
<PAGE>
EV Traditional National Municipals Fund EV Traditional Total Return Fund
EV Traditional New Jersey Tax Free Fund Eaton Vance Cash Management Fund
EV Traditional New York Limited Maturity Eaton Vance Liquid Assets Trust
Tax Free Fund Eaton Vance Money Market Fund
EV Traditional New York Tax Free Fund Eaton Vance Prime Rate Reserves
EV Traditional Pennsylvania Tax Free Fund Eaton Vance Short-Term Treasury Fund
EV Traditional Special Equities Fund Eaton Vance Tax Free Reserves
EV Traditional Stock Fund Massachusetts Municipal Bond Portfolio
</TABLE>
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICE
------------------ WITH PRINCIPAL UNDERWRITER --------------------
BUSINESS ADDRESS -------------------------- 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
William A. Clemmer* Vice President None
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
Gregory B. Norris Vice President None
6 Halidon Court
Palm Beach Gardens, Florida
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
Maureen C. Tallon Vice President None
518 Armistead Drive
Nashville, Tennessee
David M. Thill Vice President None
126 Albert Drive
Lancaster, New York
William T. Toner Vice President None
747 Lilac Drive
Santa Barbara, California
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, 24 Federal Street,
Boston, MA 02110 and 89 South Street, Boston, MA 02111 and its transfer agent,
The Shareholder Services Group, Inc., 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 14th day of September, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) September 14, 1995
------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer September 14, 1995
------------------------------------
JAMES L. O'CONNOR
/s/ DONALD R. DWIGHT Trustee September 14, 1995
------------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee September 14, 1995
------------------------------------
JAMES B. HAWKES
/s/ SAMUEL L. HAYES, III Trustee September 14, 1995
------------------------------------
SAMUEL L. HAYES, III
/s/ NORTON H. REAMER Trustee September 14, 1995
------------------------------------
NORTON H. REAMER
/s/ JOHN L. THORNDIKE Trustee September 14, 1995
------------------------------------
JOHN L. THORNDIKE
/s/ JACK L. TREYNOR Trustee September 14, 1995
------------------------------------
JACK L. TREYNOR
</TABLE>
<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 14th day of September, 1995.
CALIFORNIA TAX FREE PORTFOLIO
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) September 14, 1995
------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer September 14, 1995
------------------------------------
JAMES L. O'CONNOR
/s/ DONALD R. DWIGHT Trustee September 14, 1995
------------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee September 14, 1995
------------------------------------
JAMES B. HAWKES
/s/ SAMUEL L. HAYES, III Trustee September 14, 1995
------------------------------------
SAMUEL L. HAYES, III
/s/ NORTON H. REAMER Trustee September 14, 1995
------------------------------------
NORTON H. REAMER
/s/ JOHN L. THORNDIKE Trustee September 14, 1995
------------------------------------
JOHN L. THORNDIKE
/s/ JACK L. TREYNOR Trustee September 14, 1995
------------------------------------
JACK L. TREYNOR
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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
NUMBERING
EXHIBIT NO. DESCRIPTION SYSTEM
----------- ----------- ----------
<S> <C>
(1)(a) Amended and Restated Declaration of Trust of Eaton Vance Municipals
Trust dated January 11, 1993.
(b) Amendment and Restatement of Establishment and Designation of Series
dated June 19, 1995.
(2)(a) By-Laws as amended October 21, 1987.
(b) Amendment to By-Laws of Eaton Vance Municipals Trust dated December
13, 1993.
(6)(a)(1) Amended Distribution Agreement between Eaton Vance Municipals Trust
(on behalf of its Classic series) and Eaton Vance Distributors, Inc.
(2) Amended Distribution Agreement between Eaton Vance Municipals Trust
(on behalf of its Marathon series) and Eaton Vance Distributors, Inc.
(3) Amended Distribution Agreement between Eaton Vance Municipals Trust
(on behalf of its Traditional series) and Eaton Vance Distributors,
Inc.
(8) Custodian Agreement with Investors Bank & Trust Company dated October
15, 1992.
(9)(a) Amended Administrative Services Agreement between Eaton
Vance Municipals Trust (on behalf of each of its series)
and Eaton Vance Management dated June 19, 1995.
(11)(a) Consent of Independent Certified Public Accountants for EV Classic
California Municipals Fund dated September 14, 1995.
(b) Consent of Independent Certified Public Accountants for EV Marathon
California Municipals Fund dated September 14, 1995.
(c) Consent of Independent Certified Public Accountants for EV Traditional
California Municipals Fund dated September 14, 1995.
(15)(a) Amended Distribution Plan for Eaton Vance Municipals Trust
(on behalf of its Classic series) dated January 27, 1995.
(b) Amended Distribution Plan for Eaton Vance Municipals Trust
(on behalf of its Marathon series) dated June 19, 1995.
(c) Amended Service Plan for Eaton Vance Municipals Trust (on
behalf of its Traditional series) dated June 19, 1995.
(16) Schedules for Computation of Performance Quotations.
(17)(a) Power of Attorney for Eaton Vance Municipals Trust dated December 29,
1993.
(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 Portfolio, 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.
(c) Power of Attorney for California Tax Free Portfolio dated June 19,
1995.
</TABLE>
<PAGE>
EXHIBIT 99.1(a)
AMENDED AND RESTATED DECLARATION OF TRUST
OF
EATON VANCE MUNICIPALS TRUST
Dated: January 11, 1993
AMENDED AND RESTATED DECLARATION OF TRUST, made January 11, 1993 by the
undersigned, James G. Baur, James B. Hawkes, Norton H. Reamer and John L.
Thorndike, being a majority of the Trustees in office on such date (hereinafter
referred to collectively as the "Trustees" and individually as a "Trustee",
which terms shall include any successor Trustees or Trustee and any present
Trustees who are not signatories to this instrument).
WHEREAS, on September 30, 1985, the initial Trustees established a
trust under a Declaration of Trust as heretofore amended and restated for the
investment and reinvestment of funds contributed thereto; and
WHEREAS, a majority of the Trustees desire to amend and restate said
Declaration of Trust pursuant to the provisions thereof;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust established hereunder shall be held and managed under
this Declaration of Trust as so amended and restated for the benefit of the
holders, from time to time, of the shares of beneficial interest issued
hereunder and subject to the provisions set forth below.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the trust created hereby is Eaton Vance
Municipals Trust (the "Trust").
Section 1.2. Definitions. Wherever they are used herein, the following terms
have the following respective meanings:
(a)"Administrator" means the party, other than the Trust, to a contract
described in Section 3.3 hereof.
(b)"By-Laws" means the By-Laws referred to in Section 2.5 hereof, as
from time to time amended.
(c)"Class" means any division or Class of Shares within a Series or
Fund, which Class is or has been established within such Series or Fund in
accordance with the provisions of Article V.
(d)The term "Commission" has the meaning given it in the
1940 Act.
(e)"Custodian" means any person other than the Trust who has custody of
any Trust Property as required by Section 17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
Section 17(f).
(f)"Declaration" means this Declaration of Trust as amended from time
to time. Reference in this Declaration of Trust to "Declaration," "hereof,"
"herein," and "hereunder" shall be deemed to refer to this Declaration rather
than exclusively to the article or section in which such words appear.
(g)"Fund" or "Funds," individually or collectively, means the separate
Series of Shares of the Trust, together with the assets and liabilities
belonging and allocated thereto.
(h)"His" shall include the feminine and neuter, as will as
the masculine, genders.
(i)The term "Interested Person" has the meaning specified in the 1940
Act subject, however, to such exceptions and exemptions as my be granted by the
Commission in any rule, regulation or order.
(j)"Investment Adviser" means the party, other than the Trust, to an
agreement described in Section 3.2 hereof.
(k)The "1940 Act" means the Investment Company Act of 1940 and the
Rules and Regulations thereunder, as amended from time to time.
(l)"Person" means and includes individuals, corporations, partnerships,
trusts, associations, firms, joint ventures and other entities, whether or not
legal entities, as well as governments instrumentalities, and agencies and
political subdivisions thereof, and quasi-governmental agencies and
instrumentalities.
(m)"Principal Underwriter" means the party, other than the Trust, to a
contract described in Section 3.1 hereof.
(n)"Prospectus" means the Prospectus and Statement of Additional
Information included in the Registration Statement of the Trust under the
Securities Act of 1933 as such Prospectus and Statement of Additional
Information may be amended or supplemented and filed with the Commission from
time to time.
(o)"Series" individually or collectively means the separately managed
component(s) of Fund(s) of the Trust (or, if the Trust shall have only one such
component or Fund, then that one) as may be established and designated from time
to time by the Trustees pursuant to Section 5.5 hereof.
(p)"Shareholder" means a record owner of Outstanding Shares. A
Shareholder of Shares of a Series shall be deemed to own a proportionate
undivided beneficial interest in such Series equal to the number of Shares of
such Series of which he is the record owner divided by the total number of
Outstanding Shares of such Series. A Shareholder of Shares of a Class within a
Series shall be deemed to own a proportionate undivided beneficial interest in
such Class equal to the number of Shares of such Class of which he is the record
owner divided by the total number of Outstanding Shares of such Class. As used
herein the term "Shareholder" shall, when applicable to one or more Series of
Funds or to one or more Classes thereof, refer to the record owners of
Outstanding Shares of such Series, Fund or Funds or of such Class or Classes of
Shares.
(q)"Shares" means the equal proportionate units of interest into which
the beneficial interest in the Trust shall be divided from time to time,
including the Shares of any and all Series or of any Class within any Series (as
the context may require) which may be established by the Trustees, and includes
fractions of Shares as well as whole Shares. "Outstanding Shares" means those
Shares shown from time to time on the books of the Trust or its Transfer Agent
as then issued and outstanding, but shall not include Shares which have been
redeemed or repurchased by the Trust and which are at the time held in the
treasury of the Trust.
(r)"Transfer Agent" means any Person other than the Trust who maintains
the Shareholder records of the Trust, such as the list of Shareholders, the
number of Shares credited to each account, and the like.
(s)"Trust" means Eaton Vance Municipals Trust. As used herein the term
Trust shall, when applicable to one or more Series or Funds, refer to such
Series or Funds.
(t)The "Trustees" means the persons who have signed this Declaration,
so long as they shall continue in office in accordance with the terms hereof,
and all other persons who now serve or may from time to time be duly elected,
qualified and serving as Trustees in accordance with the provisions of Article
II hereof and the By-Laws of the Trust, and reference herein to a Trustee or the
Trustees shall refer to such person or persons in this capacity or their
capacities as trustees hereunder.
(u)"Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees including any and all assets of or allocated to any Series
or Class, as the context may require.
(v)Except as such term may be otherwise defined by the Trustees in
connection with any meeting or other action of Shareholders or in conjunction
with the establishment of any Series or Class of Shares, the term "vote" when
used in connection with an action of Shareholders shall include a vote taken at
a meeting of Shareholders or the consent or consents of Shareholders taken
without such a meeting. Except as such term may be otherwise defined by the
Trustees in connection with any meeting or other action of Shareholders or in
conjunction with the establishment of any Series or Class of Shares, the term
"vote of a majority of the outstanding voting securities" as used in Sections
8.2 and 8.4 shall have the same meaning as is assigned to that term in the 1940
Act.
ARTICLE II
TRUSTEES
Section 2.1. Management of the Trust. The business and affairs of the
Trust shall be managed by the Trustees and they shall have all powers and
authority necessary, appropriate or desirable to perform that function. The
number, term of office, manner of election, resignation, filling of vacancies
and procedures with respect to meetings and actions of the Trustees shall be as
prescribed in the By-Laws of the Trust.
Section 2.2. General Powers. The Trustees in all instances shall act as
principals for and on behalf of the Trust and the applicable Series thereof, and
their acts shall bend the Trust and the applicable Series. The Trustees shall
have full power and authority to do any and all acts and to make and execute any
and all contracts and instruments that they may consider necessary, appropriate
or desirable in connection with the management of the Trust. The Trustees shall
not be bound or limited in any way by present or future laws, practices or
customs in regard to trust investments or to other investments which may be made
by fiduciaries, but shall have full authority and power to make any and all
investments which they, in their uncontrolled discretion, shall deem proper to
promote, implement or accomplish the various objectives and interests of the
Trust and of its Series of Shares. The Trustees shall have full power and
authority to adopt such accounting and tax accounting practices as they consider
appropriate for the Trust and for any Series or Class of Shares. The Trustees
shall have exclusive and absolute control over the Trust Property and over the
business of the Trust to the same extent as if the Trustees were the sole owners
of the Trust Property and business in their own right, and with such full powers
of delegation as the Trustees may exercise from time to time. The Trustees shall
have power to conduct the business of the Trust and carry on its operations in
any and all of its branches and maintain offices both within and without the
Commonwealth of Massachusetts, in any and all states of the United States of
America, in the District of Columbia, and in any and all commonwealths,
territories, dependencies, colonies, possessions, agencies of instrumentalities
of the United States of America and of foreign governments, and to do all such
other things as they deem necessary, appropriate or desirable in order to
promote or implement the interests of the Trust or of any Series or Class of
Shares although such things are not herein specifically mentioned. Any
determinations to what is in the interests of the Trust or of any Series or
Class of Shares made by the Trustees in good fait shall be conclusive and
binding upon all Shareholders. In construing the provisions of this Declaration,
the presumption shall be in favor of a grand of plenary power and authority to
the Trustees.
The enumeration of any specific power in this Declaration shall not be
construed as limiting the aforesaid general and plenary powers.
Section 2.3. Investments. The Trustees shall have full power and
authority:
(a)To operate as and carry on the business of an investment company,
and exercise all the powers necessary and appropriate to the conduct of such
operations.
(b)To acquire or buy, and invest Trust Property in, own, hold for
investment or otherwise, and to sell or otherwise dispose of, all types and
kinds of securities including, but not limited to, stocks, profit-sharing
interests or participations and all other contracts for or evidences of equity
interests, bonds, debentures, warrants and rights to purchase securities,
certificates of beneficial interest, bills, notes and all other contracts for or
evidences of indebtedness, money market instruments including bank certificates
of deposit, finance paper, commercial paper, bankers' acceptances and other
obligations, and all other negotiable and non-negotiable securities and
instruments, however named or described, issued by corporations, trusts,
associations or any other Persons, domestic or foreign, or issued or guaranteed
by the United States of America or any agency or instrumentality thereof, by the
government of any foreign country, by any State, territory or possession of the
United States, by any political subdivision or agency or instrumentality of any
State or foreign country, or by any other government or other governmental or
quasi-governmental agency or instrumentality, domestic or foreign; to acquire
and dispose of interests in domestic or foreign loans made by banks and other
financial institutions; to deposit any assets of the Trust in any bank, trust
company or banking institution or retain any such assets in domestic or foreign
cash or currency; to purchase and sell gold and silver bullion, precious or
strategic metals, coins and currency of all countries; to engage in "when
issued" and delayed delivery transactions; to enter into repurchase agreements,
reverse repurchase agreements and firm commitment agreements; to employ all
types and kinds of hedging techniques and investment management strategies; and
to change the investments of the Trust and of each Series.
(c)To acquire (by purchase, subscription or otherwise), to hold, to
trade in and deal in, to acquire any rights or options to purchase or sell, to
sell or otherwise dispose of, to lend and to pledge any Trust Property or any of
the foregoing securities, instruments or investments; to purchase and sell (or
write) options on securities, currency, precious metals and other commodities,
indices, futures contracts and other financial instruments and assets and enter
into closing and other transactions in connection therewith; to enter into all
types of commodities contracts, including without limitation the purchase and
sale of futures contracts on securities, currency, precious metals and other
commodities, indices and other financial instruments and assets; to enter into
forward foreign currency exchange contracts and other foreign exchange and
currency transactions of all types and kinds; to enter into interest rate,
currency and other swap transactions; and to engage in all types and kinds of
hedging and risk management transactions.
(d)To exercise all rights, powers and privileges of ownership or
interest in all securities and other assets included in the Trust Property,
including without limitation the right to vote thereon and otherwise act with
respect thereto; and to do all acts and things for the preservation, protection,
improvement and enhancement in value of all such securities and assets.
(e)To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, lease, develop and dispose of (by sale or otherwise) any type or kind
of property, real or personal, including domestic or foreign currency, and any
right or interest therein.
(f)To borrow money and in this connection issue notes, commercial paper
or other evidence of indebtedness; to secure borrowings by mortgaging, pledging
or otherwise subjecting as security all or any part of the Trust Property; to
endorse, guarantee, or undertake the performance of any obligation or engagement
of any other Person; and to lend all or any part of the Trust Property to other
Persons.
(g)To aid, support or assist by further investment or other action any
Person, any obligation of or interest in which is included in the Trust Property
or in the affairs of which the Trust or any Series has any direct or indirect
interest; to do all acts and things designed to protect, preserve, improve or
enhance the value of such obligation or interest; and to guarantee or become
surety on any or all of the contracts, securities and other obligations of any
such Person.
(h)To carry on any other business in connection with or incidental to
any of the foregoing powers referred to in this Declaration, to do everything
necessary, appropriate or desirable for the accomplishment of any purpose or the
attainment of any object or the furtherance of any power referred to in this
Declaration, either alone or in association with others, and to do every other
act or thing incidental or appurtenant to or arising out of or connected with
such business or purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers,
and shall not be held to limit or restrict in any manner the general and plenary
powers of the Trustees.
Notwithstanding any other provision herein, the Trustees shall have
full power in their discretion, without any requirement of approval by
Shareholders, to invest part or all of the Trust Property (or part or all of the
assets of any Fund), or to dispose of part or all of the Trust Property (or part
or all of the assets of any Fund) and invest the proceeds of such disposition,
in securities issued by one or more other investment companies registered under
the 1940 Act. Any such other investment company may (but need not) be a trust
(formed under the laws of the State of New York or of any other state) which is
classified as a partnership for federal income tax purposes.
Section 2.4. Legal Title. Legal title to all the Trust Property shall
be vested in the Trustees who from time to time shall be in office. The Trustees
may hold any security or other Trust Property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, and may cause
legal title to any security or other Trust Property to be held by or in the name
of one or more of the Trustees, or in the name of the Trust or any Series, or in
the name of a custodian, subcustodian, agent, securities depository, clearing
agency, system for the central handling of securities or other book-entry
system, or in the name of a nominee or nominees of the Trust or a Series, or in
the name of a nominee or nominees of a custodian, subcustodian, agent,
securities depository, clearing agent, system for the central handling of
securities or other book-entry system, or in the name of any other Person as
nominee. The right, title and interest of the Trustees in the Trust Property
shall vest automatically in each Person who may hereafter become a Trustee. Upon
the termination of the term of office, resignation, removal or death of a
Trustee he shall automatically cease to have any right, title or interest in any
of the Trust Property, and the right, title and interest of such Trustee in the
Trust Property shall vest automatically in the remaining Trustees.
Section 2.5. By-Laws. The Trustees shall have full power and authority
to adopt By-Laws providing for the conduct of the business of the Trust and
containing such other provisions as they deem necessary, appropriate or
desirable, and to amend and repeal such By-Laws. Unless the By- Laws
specifically require that Shareholders authorize or approve the amendment or
repeal of a particular provision of the By-Laws, any provision of the By-Laws
may be amended or repealed by the Trustees without Shareholder authorization or
approval.
Section 2.6. Distribution and Repurchase of Shares. The Trustees shall
have full power and authority to issue, sell, repurchase, redeem, retire,
cancel, acquire, hold, resell, reissue, dispose of, transfer, and otherwise deal
in Shares. Shares may be sold for cash or property or other consideration
whenever and in such amounts and manner as the Trustees deem desirable. The
Trustees shall have full power to provide for the distribution of Shares either
through one or more principal underwriters or by the Trust itself, or both. The
Trustees shall have full power and authority to cause the Trust and any Series
and Class of Shares to finance distribution activities in the manner described
in Section 3.7, and to authorize the Trust, on behalf of one or more Series or
Classes of Shares, to adopt or enter into one or more plans or arrangements
whereby multiple Series and Classes of Shares may be issued and sold to various
types of investors.
Section 2.7. Delegation. The Trustees shall have full power and
authority to delegate from time to time to such of their number or to officers,
employees or agents of the Trust or to other Persons the doing of such things
and the execution of such agreements or other instruments either in the name of
the Trust or any Series of the Trust or the names of the Trustees or otherwise
as the Trustees may deem desirable or expedient.
Section 2.8. Collection and Payment. The Trustees shall have full power
and authority to collect all property due to the Trust; to pay all claims,
including taxes, against the Trust or Trust Property; to prosecute, defend,
compromise, settle or abandon any claims relating to the Trust or Trust
Property; to foreclose any security interest securing any obligations, by virtue
of which any property is owed to the Trust; and to enter into releases,
agreements and other instruments.
Section 2.9. Expenses. The Trustees shall have full power and authority
to incur on behalf of the Trust or any Series or Class of Shares and pay any
costs or expenses which the Trustees deem necessary, appropriate, desirable or
incidental to carry out, implement or enhance the business or operations of the
Trust or any Series thereof, and to pay compensation from the funds of the Trust
to themselves as Trustees. The Trustees shall determine the compensation of all
officers, employees and Trustees of the Trust. The Trustees shall have full
power and authority to cause the Trust to charge all or any part of any cost,
expense or expenditure (including without limitation any expense of selling or
distributing Shares) or tax against the principal or capital of the Trust or any
Series or Class of Shares, and to credit all or any part of the profit, income
or receipt (including without limitation any deferred sales charge or fee,
whether contingent or otherwise, paid or payable to the Trust or any Series or
Class of Shares on any redemption or repurchase of Shares) to the principal or
capital of the Trust or any Series or Class of Shares.
Section 2.10. Manner of Acting. Except as otherwise provided herein or
in the By-Laws, the Trustees and committees of the Trustees shall have full
power and authority to act in any manner which they deem necessary, appropriate
or desirable to carry out, implement or enhance the business or operations of
the Trust or any Series thereof.
Section 2.11. Miscellaneous Powers. The Trustees shall have full power
and authority to: (a) distribute to Shareholders all or any part of the earnings
or profits, surplus (including paid-in surplus), capital (including paid-in
capital) or assets of the Trust or of any Series or Class of Shares, the amount
of such distributions and the manner of payment thereof to be solely at the
discretion of the Trustees; (b) employ, engage or contract with such Persons as
the Trustees may deem desirable for the transaction of the business or
operations of the Trust or any Series thereof; (c) enter into or cause the Trust
or any Series thereof to enter into joint ventures, partnerships (whether as
general partner, limited partner or otherwise) and any other combinations or
associations; (d) remove Trustees or fill vacancies in or add to their number,
elect and remove such officers and appoint and terminate such agents or
employees or other Persons as they consider appropriate, and appoint from their
own number, and terminate, any one or more committees which may exercise some or
all of the power and authority of the Trustees as the Trustees may determine;
(e) purchase, and pay for out of Trust Property, insurance policies which may
insure such of the Shareholders, Trustees, officers, employees, agents,
investment advisers, administrators, principal underwriters, distributors or
independent contractors of the Trust as the Trustees deem appropriate against
loss or liability arising by reason of holding any such position or by reason of
any action taken or omitted by any such Person in such capacity, whether or not
constituting negligence, or whether or not the Trust would have the power to
indemnify such Person against such loss or liability; (f) establish pension,
profit-sharing, share purchase, and other retirement, incentive and benefit
plans for any Trustees, officers, employees and agents of the Trust; (g)
indemnify or reimburse any Person with whom the Trust or any Series thereof has
dealings, including without limitation the Investment Adviser, Administrator,
Principal Underwriter, Transfer Agent and financial service firms, to such
extent as the Trustees shall determine; (h) guarantee the indebtedness or
contractual obligations of other Persons; (i) determine and change the fiscal
year of the Trust or any Series thereof and the methods by which its and their
books, accounts and records shall be kept; and (j) adopt a seal for the Trust,
but the absence of such seal shall not impair the validity of any instrument
executed on behalf of the Trust or any Series thereof.
Section 2.12. Litigation. The Trustees shall have full power and
authority, in the name and on behalf of the Trust, to engage in and to
prosecute, defend, compromise, settle, abandon, or adjust by arbitration or
otherwise, any actions, suits, proceedings, disputes, claims and demands
relating to the Trust, and out of the assets of the Trust or any Series thereof
to pay or to satisfy any liabilities, losses, debts, claims or expenses
(including without limitation attorneys' fees) incurred in connection therewith,
including those of litigation, and such power shall include without limitation
the power of the Trustees or any committee thereof, in the exercise of their or
its good faith business judgment, to dismiss or terminate any action, suit,
proceeding, dispute, claim or demand, derivative or otherwise, brought by any
Person, including a Shareholder in his own name or in the name of the Trust or
any Series thereof, whether or not the Trust or any Series thereof or any of the
Trustees may be named individually therein or the subject matter arises by
reason of business for or on behalf of the Trust or any Series thereof.
ARTICLE III
CONTRACTS
Section 3.1. Principal Underwriter. The Trustees may in their
discretion from time to time authorize the Trust to enter into one or more
contracts providing for the sale of the Shares. Pursuant to any such contract
the Trust may either agree to sell the Shares to the other party to the
contractor appoint such other party its sales agent for such Shares. In either
case, any such contract shall be on such terms and conditions as the Trustees
may in their discretion determine; and any such contract may also provide for
the repurchase or sale of Shares by such other party as principal or as agent of
the Trust.
Section 3.2. Investment Adviser. The Trustees may in their discretion
from time to time authorize the Trust to enter into one or more investment
advisory agreements, or, if the Trustees establish multiple Series, separate
investment advisory agreements, with respect to one or more Series whereby the
other party or parties to any such agreements shall undertake to furnish the
Trust or such Series investment advisory and research facilities and services
and such other facilities and services, if any, as the Trustees shall consider
desirable and all upon such terms and conditions as the Trustees may in their
discretion determine. Notwithstanding any provisions of this Declaration, the
Trustees may authorize the Investment Adviser, in its discretion and without any
prior consultation with the Trust, to buy, sell, lend and otherwise trade and
deal in any and all securities, commodity contracts and other investments and
assets of the Trust and of each Series and to engage in and employ all types of
transactions and strategies in connection therewith. Any such action taken
pursuant to such agreement shall be deemed to have been authorized by all of the
Trustees.
The Trustees may also authorize the Trust to employ, or authorize the
Investment Adviser to employ, one or more sub-investment advisers from time to
time to perform such of the acts and services of the Investment Adviser and upon
such terms and conditions as may be agreed upon between the Investment Adviser
and such sub-investment adviser and approved by the Trustees.
Section 3.3. Administrator. The Trustees may in their discretion from
time to time authorize the Trust to enter into an administration agreement or,
if the Trustees establish multiple Series or Classes, separate administration
agreements with respect to one or more Series or Classes, whereby the other
party to such agreement shall undertake to furnish to the Trust or a Series or a
Class thereof with such administrative facilities and services and such other
facilities and services, if any, as the Trustees consider desirable and all upon
such terms and conditions as the Trustees may in their discretion determine.
Section 3.4. Other Service Providers. The Trustees may in their
discretion from time to time authorize the Trust to enter into one or more
agreements with respect to one or more Series or Classes of Shares whereby the
other party or parties to any such agreements will undertake to provide to the
Trust or Series or Class or Shareholders or beneficial owners of Shares such
services as the Trustees consider desirable and all upon such terms and
conditions as the Trustees in their discretion may determine.
Section 3.5. Transfer Agents. The Trustees may in their discretion from
time to time appoint one or more transfer agents for the Trust or any Series
thereof. Any contract with a transfer agent shall be on such terms and
conditions as the Trustees may in their discretion determine.
Section 3.6. Custodian. The Trustees may appoint a bank or trust
company having an aggregate capital, surplus and undivided profits (as shown in
its last published report) of at least $2,000,000 as the principal custodian of
the Trust (the "Custodian") with authority as its agent to hold cash and
securities owned by the Trust and to release and deliver the same upon such
terms and conditions as may be agreed upon between the Trust and the Custodian.
Section 3.7. Plans of Distribution. The Trustees may in their
discretion authorize the Trust, on behalf of one or more Series or Classes of
Shares, to adopt or enter into a plan or plans of distribution and any related
agreements whereby the Trust or Series or Class may finance directly or
indirectly any activity which is primarily intended to result in sales of Shares
or any distribution activity within the meaning of Rule 12b-1 (or successor
rule) under the 1940 Act. Such plan or plans of distribution and any related
agreements may contain such terms and conditions as the Trustees may in their
discretion determine, subject to the requirements of the 1940 Act and any other
applicable rules and regulations.
Section 3.8. Affiliations. The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, creditor, director, officer, partner, trustee or employee of or has
any interest in any Person or any parent or affiliate of any such Person, with
which a contract or agreement of the character described in Sections 3.1, 3.2,
3.3, 3.4, 3.5 or 3.6 above has been or will be made or to which payments have
been or will be made pursuant to a plan or related agreement described in
Section 3.7 above, or that any such Person , or any parent or affiliate thereof,
is a Shareholder of or has an interest in the Trust, or that
(ii) any such Person also has similar contracts, agreements or plans
with other investment companies (including, without limitation, the investment
companies referred to in the last paragraph of Section 2.3) or organizations, or
has other business activities or interests, shall not affect in any way the
validity of any such contract, agreement or plan or disqualify any Shareholder,
Trustee or officer of the Trust from authorizing, voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS
Section 4.1. No Personal Liability of Shareholders, Trustees, Officers
and Employees. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or the acts,
obligations or affairs of the Trust or any Series thereof. All Persons dealing
or contracting with the Trustees as such or with the Trust or any Series thereof
shall have recourse only to the Trust or such Series for the payment of their
claims or for the payment or satisfaction of claims, obligations or liabilities
arising out of such dealings or contracts. No Trustee, officer or employee of
the Trust, whether past, present or future, shall be subject to any personal
liability whatsoever to any such Person, and all such Persons shall look solely
to the Trust Property, or the assets of one or more specific Series of the Trust
if the claim arises from the act, omission or other conduct of such Trustee,
officer or employee with respect to only such Series, for satisfaction of claims
of any nature arising in connection with the affairs of the Trust or such
Series. If any Shareholder, Trustee, officer or employee, as such, of the Trust
or any Series thereof, is made a party to any suit or proceeding to enforce any
such liability of the Trust or any Series thereof, he shall not, on account
thereof, be held to any personal liability.
Section 4.2. Trustee's Good Faith Action; Advice of Others; No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. A Trustee shall not be liable for
errors of judgment or mistakes of fact or law. The Trustees shall not be
responsible or liable in any event for any neglect or wrongdoing of any officer,
agent, employee, consultant, investment adviser or other adviser, administrator,
distributor or principal underwriter, custodian or transfer, dividend
disbursing, shareholder servicing or accounting agent of the Trust, nor shall
any Trustee be responsible for the act or omission of any other Trustee. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration and their duties as Trustees, and shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. In discharging their duties, the Trustees, when
acting in good faith, shall be entitled to rely upon the records, books and
accounts of the Trust and upon reports made to the Trustees by any officer,
employee, agent, consultant, accountant, attorney, investment adviser or other
adviser, principal underwriter, expert, professional firm or independent
contractor. The Trustees as such shall not be required to give any bond or
surety or any other security for the performance of their duties. No provision
of this Declaration shall protect any Trustee or officer of the Trust against
any liability to the Trust or its Shareholders to which he would otherwise be
subject by reason of his own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Section 4.3. Indemnification. The Trustees may provide, whether in the
By-Laws or by contract, vote or other action, for the indemnification by the
Trust or by any Series thereof of the Shareholders, Trustees, officers and
employees of the Trust and of such other Persons as the Trustees in the exercise
of their discretion may deem appropriate or desirable. Any such indemnification
may be mandatory of permissive, and may be insured against by policies
maintained by the Trust.
Section 4.4. No Duty of Investigation. No purchaser, lender or other
Person dealing with the Trustees or any officer, employee or agent of the Trust
or a Series thereof shall be bound to make any inquiry concerning the validity
of any transaction purporting to be made by the Trustees or by said officer,
employee or agent or be liable for the application of money or property paid,
loaned, or delivered to or on the order of the Trustees or of said officer,
employee or agent. Every obligation, contract, instrument, certificate, Share,
other security of the Trust or a Series thereof or undertaking, and every other
act or thing whatsoever executed in connection with the Trust shall be
conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust or a Series thereof. Every written
obligation, contract, instrument, certificate, Share, other security of the
Trust or a Series thereof or undertaking made or issued by the Trustees may
recite that the same is executed or made by them not individually, but as
Trustees under the Declaration, and that the obligations of the Trust or a
Series thereof under any such instrument are not binding upon any of the
Trustees or Shareholders individually, but bind only the Trust Property or the
Trust Property of the applicable Series, and may contain any further recital
which they may deem appropriate, but the omission of any such recital shall not
operate to bind the Trustees or Shareholders individually.
Section 4.5. Reliance on Records and Experts. Each Trustee, officer or
employee of the Trust or a Series thereof shall, in the performance of his
duties, be fully and completely justified and protected with regard to any act
or any failure to act resulting from reliance in good faith upon the records,
books and accounts of the Trust or a Series thereof, upon an opinion or other
advice of legal counsel, or upon reports made or advice given to the Trust or a
Series thereof by any Trustee or any of its officers employees or by the
Investment Adviser, the Administrator, the Custodian, the Principal Underwriter,
Transfer Agent, accountants, appraisers or other experts, advisers, consultants
or professionals selected with reasonable care by the Trustees or officers of
the Trust, regardless of whether the person rendering such report or advice may
also be a Trustee, officer or employee of the Trust.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable Shares of beneficial interest
without par value. The number of such Shares of beneficial interest authorized
hereunder is unlimited, and the number of Shares of each Series or Class thereof
that may be issued hereunder is unlimited. The Trustees shall have the exclusive
authority without the requirement of Shareholder authorization or approval to
establish and designate one or more Series of Shares and one or more Classes
thereof as the Trustees deem necessary, appropriate or desirable. Each Share of
any series shall represent a beneficial interest only in the assets of that
Series. Subject to the provisions of Section 5.5 hereof, the Trustees may also
authorize the creation of additional Series of Shares (the proceeds of which may
be invested in separate and independent investment portfolios) and additional
Classes of Shares within any Series. All Series issued hereunder including,
without limitation, Shares issued in connection with a dividend or distribution
in Shares or a split in Shares, shall be fully paid and nonassessable.
Section 5.2. Rights of Shareholders. The ownership of the Trust
property of every description and the right to conduct any business of the Trust
are vested exclusively in the Trustees, and the Shareholders shall have no
interest therein other than the beneficial interest conferred by their Shares,
and they shall have no right to call for any partition or division of any
property, profits, rights or interests of the Trust or on any Fund nor can they
be called upon to share or assume any losses of the Trust or of any Fund or
suffer an assessment of any kind by virtue of their ownership of Shares. The
Shares shall be personal property giving only the rights specifically set forth
in this Declaration. The Shares shall not entitle the holder to preference,
preemptive, appraisal, conversion or exchange rights, except as the Trustees may
specifically determine with respect to any Series or Class of Shares.
Section 5.3. Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a
Massachusetts business trust. Nothing in this Declaration shall be construed to
make the Shareholders, either by themselves or with the Trustees, partners or
members of a joint stock association.
Section 5.4. Issuance of Shares. The Trustees in their discretion may,
from time to time and without any authorization or vote of the Shareholders,
issue Shares, in addition to the then issued and outstanding Shares and Shares
held in the treasury, to such party or parties and for such amount and type of
consideration, including cash or property, a such time or times and on such
terms as the Trustees may deem appropriate or desirable, except that only Shares
previously contracted to be sold may be issued during any period when the right
of redemption is suspended pursuant to Section 6.9 hereof, and may in such
manner acquire other assets (including the acquisition of assets subject to, and
in connection with the assumption of, liabilities) and businesses. In connection
with any issuance of Shares, the Trustees may issue fractional Shares and
reissue and resell full and fractional Shares held in the treasury. The Trustees
may from time to time divide or combine the Shares of the Trust or, if the
Shares be divided into Series or Classes, of any Series or any Class thereof of
the Trust, into a greater or lesser number without thereby changing the
proportionate beneficial interests in the Trust or in the Trust Property
allocated or belonging to such Series or Class. Contributions to the Trust or
Series thereof may be accepted for, and Shares shall be redeemed as, whole
Shares and/or fractional Shares as the Trustees may in their discretion
determine. The Trustees may authorize the issuance of certificates of beneficial
interest to evidence the ownership of Shares. Shares held in the treasury shall
not be voted nor shall such Shares be entitled to any dividends or other
distributions declared with respect thereto.
Section 5.5. Series and Class Designations. Without limiting the
exclusive authority of the Trustees set forth in Section 5.1 to establish and
designate any further Series, it is hereby confirmed that the Trust consists of
the presently Outstanding Shares of the following Series: Eaton Vance Alabama
Tax Free Fund, Eaton Vance Arizona Tax Free Fund, Eaton Vance Arkansas Tax Free
Fund, Eaton Vance California Tax Free Fund, Eaton Vance Colorado Tax Free Fund,
Eaton Vance Connecticut Tax Free Fund, Eaton Vance Florida Tax Free Fund, Eaton
Vance Georgia Tax Free Fund, Eaton Vance Hawaii Tax Free Fund, Eaton Vance
Kentucky Tax Free Fund, Eaton Vance Louisiana Tax Free Fund, Eaton Vance
Maryland Tax Free Fund, Eaton Vance Massachusetts Tax Free Fund, Eaton Vance
Michigan Tax Free Fund, Eaton Vance Minnesota Tax Free Fund, Eaton Vance
Missouri Tax Free Fund, Eaton Vance National Municipals Fund, Eaton Vance New
Jersey Tax Free Fund, Eaton Vance New York Tax Free Fund, Eaton Vance North
Carolina Tax Free Fund, Eaton Vance North Dakota Tax Free Fund, Eaton Vance Ohio
Tax Free Fund, Eaton Vance Oregon Tax Free Fund, Eaton Vance Pennsylvania Tax
Free Fund, Eaton Vance Puerto Rico Tax Free Fund, Eaton Vance Rhode Island Tax
Free Fund, Eaton Vance South Carolina Tax Free Fund, Eaton Vance Tennessee Tax
Free Fund, Eaton Vance Texas Tax Free Fund, Eaton Vance Virginia Tax Free Fund,
Eaton Vance Washington Tax Free Fund and Eaton Vance West Virginia Tax Free Fund
(the "Existing Series"). Without limiting the exclusive authority of the
Trustees set forth in Section 5.1 to establish and designate any further
Classes, there are hereby established and designated distinct Classes of Shares
of the Existing Series: (none as of the date of this Declaration). The Shares of
the Existing Series and such Classes thereof herein established and designated
and any Shares of any further Series and Classes thereof that may from time to
time be established and designated by the Trustees shall be established and
designated, and the variations in the relative rights and preferences as between
the different Series and Classes shall be fixed and determined, by the Trustees
(unless the Trustees otherwise determine with respect to further Series or
Classes at the time of establishing and designating the same); provided, that
all Shares shall be identical except that there may be variations so fixed and
determined between different Series or Classes thereof as to investment
objective, policies and restrictions, sales charges, purchase prices,
determination of net asset value, assets, liabilities, expenses, costs, charges
and reserves belonging or allocated thereto, the price, terms and manner of
redemption or repurchase, special and relative rights as to dividends and
distributions and on liquidation, conversion rights, exchange rights, and voting
rights. All references to Shares in this Declaration shall be deemed to be
Shares of any or all Series or Classes as the context may require. As to any
Existing Series and Classes, both heretofore and herein established and
designated, and any further division of Shares of the Trust into additional
Series or Classes, the following provisions shall be applicable:
(i)The number of authorized Shares and the number of Shares of each
Series or Class thereof that may be issued shall be unlimited. The Trustees may
classify or reclassify any unissued Shares or any Shares previously issued and
reacquired of any Series or Class into one or more other Series or one or more
other Classes that may be established and designated from time to time. The
Trustees may hold as treasury shares (of the same or some other Series or
Class), reissue for such consideration and on such terms as they may determine,
or cancel any Shares of any Series or Class reacquired by the Trust at their
discretion from time to time.
(ii)All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the rights
of creditors of such Series and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the books of account of the
Trust. In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular Series, the Trustees or their delegate shall
allocate them among any one or more of the Series established and designated
from time to time in such manner and on such basis as the Trustees in their sole
discretion deem fair and equitable. Each such allocation by the Trustees or
their delegate shall be conclusive and binding upon the Shareholders of all
Series for all purposes. No holder of Shares of any Series shall have any claim
on or right to any assets allocated or belonging to any other Series.
(iii)Any general liabilities, expenses, costs, charges or reserves of
the Trust which are not readily identifiable as belonging to any particular
Series shall be allocated and charged by the Trustees or their delegate to and
among any one or more of the Series established and designated from time to time
in such manner and on such basis as the Trustees in their sole discretion deem
fair and equitable. The assets belonging to each particular Series shall be
charged with the liabilities, expenses, costs, charges and reserves of the Trust
so allocated to that Series and all liabilities, expenses, costs, charges and
reserves attributable to that Series which are not readily identifiable as
belonging to any particular Class thereof. Each allocation of liabilities,
expenses, costs, charges and reserves by the Trustees or their delegate shall be
conclusive and binding upon the Shareholders of all Series and Classes for all
purposes. The Trustees shall have full discretion to determine which items are
capital; and each such determination shall be conclusive and binding upon the
Shareholders. The assets of a particular Series of the Trust shall, under no
circumstances, be charged with liabilities, expenses, costs, charges and
reserves attributable to any other Series or Class thereof of the Trust. All
Persons extending credit to, or contracting with or having any claim against a
particular Series of the Trust shall look only to the assets of that particular
series for payment of such credit, contract or claim.
(iv)Dividends and distributions on Shares of a particular Series or
Class may be paid or credited in such manner and with such frequency as the
Trustees may determine, to the holders of Shares of that Series or Class, from
such of the earnings or profits, surplus (including paid-in surplus), capital
(including paid-in capital) or assets belonging to that Series, as the Trustees
may deem appropriate or desirable, after providing for actual and accrued
liabilities, expenses, costs, charges and reserves belonging and allocated to
that Series or Class. Such dividends and distributions may be paid daily or
otherwise pursuant to the offering prospectus relating to the Shares or pursuant
to a standing vote or votes of the Trustees adopted only once or from time to
time or pursuant to other authorization or instruction of the Trustees. All
dividends and distributions on Shares of a particular Series or Class shall be
distributed pro rata to the Shareholders of that Series or Class in proportion
to the number of Shares of that Series or Class held by such Shareholders at the
time of record established for the payment or crediting of such dividends or
distributions.
(v)Each Share of a Series of the Trust shall represent a beneficial
interest in the net assets of such Series. Each holder of Shares of a Series or
Class thereof shall be entitled to receive his pro rata share of distributions
of income and capital gains made with respect to such Series or Class net of
liabilities, expenses, costs, charges and reserves belonging and allocated to
such Series or Class. Upon redemption of his Shares or indemnification for
liabilities incurred by reason of his being or having been a Shareholder of a
Series or Class, such Shareholder shall be paid solely out of the funds and
property of such Series of the Trust. Upon liquidation or termination of a
Series or Class thereof of the Trust, a Shareholder of such Series or Class
thereof shall be entitled to receive a pro rata share of the net assets of such
Series based on the net asset value of his Shares. A Shareholder of a particular
Series of the Trust shall not be entitled to commence or participate in a
derivative or class action on behalf of any other Series or the Shareholders of
any other Series of the Trust.
(vi)On any matter submitted to a vote of Shareholder, the Shares
entitled to vote thereon and the manner in which such Shares shall be voted
shall be as set forth in the By-Laws or proxy materials for the meeting or other
solicitation materials or as otherwise determined by the Trustees, subject to
any applicable requirements of the 1940 Act. The Trustees shall have full power
and authority to call meetings of the Shareholders of a particular Class or
Classes of Shares or of one or more particular Series of Shares, or otherwise
call for the action of such Shareholders on any particular matter.
(vii)Except as otherwise provided in this Article V, the Trustees shall
have full power and authority to determine the designations, preferences,
privileges, sales charges, purchase prices, assets, liabilities, expenses,
costs, charges and reserves belonging or allocated thereto, limitations and
rights, including without limitation voting, dividend, distribution and
liquidation rights, of each Class and Series of Shares. Subject to any
applicable requirements of the 1940 Act, the Trustees shall have the authority
to provide that Shares of one Class shall be automatically converted into Shares
of another Class of the same Series or that the holders of Shares of any Series
or Class shall have the right to convert or exchange such Shares into Shares of
one or more other Series or Classes of Shares, all in accordance with such
requirements, conditions and procedures as may be established by the Trustees.
(viii)The establishment and designation of any Series or Class of
Shares shall be effective upon the execution by a majority of the then Trustees
of an instrument setting forth such establishment and designation and the
relative rights and preferences of such Series or Class, or as otherwise
provided in such instrument. The Trustees may by an instrument subsequently
executed by a majority of their number amend, restate or rescind any prior
instrument relating to the establishment and designation of any such Series or
Class. Each instrument referred to in this paragraph shall have the status of an
amendment to this Declaration in accordance with Section 8.4 hereof, and a copy
of each such instrument shall be filed in accordance with Section 10.2 hereof.
Section 5.6. Assent to Declaration of Trust and By-Laws. Every
Shareholder, by virtue of having become a Shareholder, shall be held to have
expressly assented and agreed to all the terms and provisions of this
Declaration and of the By-Laws of the Trust.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
Section 6.1. Redemption of Shares. (a)Shares of the Trust shall be
redeemable, at such times and in such manner as may be permitted by the Trustees
from time to time. The Trustees shall have full power and authority to vary and
change the right of redemption applicable to the various Series and Classes of
Shares established by the Trustees. Redeemed or repurchased shares may be resold
by the Trust. The Trust may require any shareholder to pay a sales charge to the
Trust, the Principal Underwriter or any other Person designated by the Trustees
upon redemption or repurchase of Shares in such amount and upon such conditions
as shall be determined from time to time by the Trustees.
(b)The Trust shall redeem the Shares of the Trust or any Series or
Class thereof at the price determined as hereinafter set forth, upon the
appropriately verified written application of the record holder thereof (or upon
such other form of request as the Trust may use for the purpose) deposited at
such office or agency as may be designated from time to time for that purpose by
the Trustees. The Trust may from time to time establish additional requirements,
terms, conditions and procedures, not inconsistent with the 1940 Act, relating
to the redemption of Shares.
Section 6.2. Price. Shares shall be redeemed at a price based on their
net asset value determined as set forth in Section 7.1 hereof as of such time as
the Trustees shall prescribe. The amount of any sales charge or redemption fee
payable upon redemption of Shares may be deducted from the proceeds of such
redemption.
Section 6.3. Payment. Payment of the redemption price of Shares thereof
shall be made in cash or in property to the Shareholder at such time and in the
manner, not inconsistent with the 1940 Act, as may be specified from time to
time in the then effective prospectus relating to such shares, subject to the
provisions of Sections 6.4 and 6.9 hereof. Notwithstanding the foregoing, the
Trust or its agent may withhold from such redemption proceeds any amount arising
(i) from a liability of the redeeming Shareholder to the Trust or (ii) in
connection with any federal or state tax withholding requirements.
Section 6.4. Effect of Suspension of Determination of Net Asset Value.
If, pursuant to Section 7.1 hereof, the Trust shall declare a suspension of the
determination of net asset value with respect to Shares of the Trust or of any
Series or Class thereof, the rights of Shareholders (including those who shall
have applied for redemption pursuant to Section 6.1 hereof but who shall not yet
have received payment) to have Shares redeemed and paid for by the Trust or a
Series shall be suspended until the termination of such suspension is declared.
Any record holder who shall have his redemption right so suspended may, during
the period of such suspension, by appropriate written notice at the office or
agency where his application or request for redemption was made, withdraw his
application or request and withdraw any Share certificates on deposit.
Section 6.5. Repurchase by Agreement. The Trust may repurchase Shares
directly, or through the Principal Underwriter or another agent designated for
the purpose, by agreement with the owner thereof at a price not exceeding the
net asset value per share determined as of such time as the Trustees shall
prescribe. The Trust may from time to time establish the requirements, terms,
conditions and procedures relating to such repurchases, and the amount of any
sales charge or repurchase fee payable on any repurchase of Shares may be
deducted from the proceeds of such repurchase.
Section 6.6. Redemption of Shareholder's Interest. The Trustees, in
their sole discretion, may cause the Trust to redeem all of the shares of one or
more Series or Class thereof held by any Shareholder if the value of such Shares
held by such Shareholder is less than the minimum amount established from time
to time by the Trustees.
Section 6.7. Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding. (a)If the Trustees shall, at any time
and in good faith, be of the opinion that direct or indirect ownership of Shares
or other securities of the Trust has or may become concentrated in any Person to
an extent which would disqualify the Trust or any Series of the Trust as a
regulated investment company under the Internal Revenue Code of 1986, then the
Trustees shall have the power by lot or other means deemed equitable by them (i)
to call for redemption by any such Person a number, or principal amount, of
Shares or other securities of the Trust or any Series of the Trust sufficient to
maintain or bring the direct or indirect ownership of Shares or other securities
of the Trust or any Series of the Trust into conformity with the requirements
for such qualification and (ii) to refuse to transfer or issue Shares or other
securities of the Trust or any Series of the Trust to any Person whose
acquisition of the Shares or other securities of the Trust or any Series of the
Trust in question would result in such disqualification. The redemption shall be
effected in the manner provided in Section 6.1 and at the redemption price
referred to in Section 6.2.
(b)The holders of Shares or other securities of the Trust shall upon
demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of shares or other securities of the Trust as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code of 1986, or to comply with the requirements of any other taxing authority.
Section 6.8. Reduction in Number of Outstanding Shares Pursuant to Net
Asset Value Formula. The Trust may also reduce the number of outstanding Shares
of the Trust or of any Series or Class thereof pursuant to the provisions of
Section 7.3.
Section 6.9. Suspension of Right of Redemption. The Trust may declare a
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings, (ii)
during which trading on the New York Stock Exchange is restricted, (iii) during
which an emergency exists as a result of which disposal by the Trust of a Fund
of securities owned by it is not reasonably practicable or it is not reasonable
practicable for the Trust or a Fund fairly to determine the value of its net
assets, or (iv) as the Commission may by order permit for the protection of
security holders of the Trust. Such suspension shall take effect at such time as
the Trust shall specify but not later than the close of business on the business
day next following the declaration of suspension, and thereafter there shall be
no right of redemption or payment on redemption until the Trust shall declare
the suspension at an end, except that the suspension shall terminate in any
event on the first day on which said stock exchange shall have reopened or the
period specified in (ii) or (iii) shall have expired (as to which in the absence
of an official ruling by the Commission, the determination of the Trust shall be
conclusive). In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his application or request for redemption or
receive payment based on the net asset value existing after the termination of
the suspension.
ARTICLE VII
DETERMINATION OF NET ASSET VALUE, NET INCOME AND DISTRIBUTIONS
Section 7.1. Net Asset Value. The net asset value of each outstanding
Share of the Trust or of each Series or Class thereof shall be determined on
such days and at or as of such time or times as the Trustees may determine. Any
reference in this Declaration to the time at which a determination of net asset
value is made shall mean the time as of which the determination is made. The
power and duty to determine net asset value may be delegated by the Trustees
from time to time to the Investment Adviser, the Administrator, the Custodian,
the Transfer Agent or such other Person or Persons as the Trustees may
determine. The value of the assets of the Trust or any Series thereof shall be
determined in a manner authorized by the Trustees. From the total value of said
assets, there shall be deducted all indebtedness, interest, taxes, payable or
accrued, including estimated taxes on unrealized book profits, expenses and
management charges accrued to the appraisal date, amounts determined and
declared as a dividend or distribution and all other items in the nature of
liabilities which shall be deemed appropriate, as incurred by or allocated to
the Trust or any Series or Class thereof. The resulting amount, which shall
represent the total net assets of the Trust or Series or Class thereof, shall be
divided by the number of Shares of the Trust or Series or Class thereof
outstanding at the time and the quotient so obtained shall be deemed to be the
net asset value of the Shares of the Trust or Series or Class thereof. The Trust
may declare a suspension of the determination of net asset value to the extent
permitted by the 1940 Act. It shall not be a violation of any provision of this
Declaration if Shares are sold, redeemed or repurchased by the Trust at a price
other than one based on net asset value if the net asset value is affected by
one or more errors inadvertently made in the pricing of portfolio securities or
other investments or in accruing or allocating income, expenses, reserves or
liabilities. No provision of this Declaration shall be construed to restrict or
affect the right or ability of the Trust to employ or authorize the use of
pricing services, appraisers or any other means, methods, procedures, or
techniques in valuing the assets or calculating the liabilities of the Trust or
any Series or Class thereof.
Section 7.2. Dividends and Distributions. (a)The Trustees may from time
to time distribute ratably among the Shareholders of the Trust or of a Series or
Class thereof such proportion of the net earnings or profits, surplus (including
paid-in surplus), capital (including paid-in capital), or assets of the Trust or
such Series held by the Trustees as they may deem appropriate or desirable. Such
distributions may be made in cash, additional Shares or property (including
without limitation any type of obligations of the Trust or Series or Class or
any assets thereof), and the Trustees may distribute ratably among the
Shareholders of the Trust or Series or Class thereof additional Shares of the
Trust or Series or Class thereof issuable hereunder in such manner, at such
times, and on such terms as the Trustees may deem appropriate or desirable. Such
distributions may be among the Shareholders of the Trust or Series or Class
thereof at the time of declaring a distribution or among the Shareholders of the
Trust or Series or Class thereof at such other date or time or dates or times as
the Trustees shall determine. The Trustees may in their discretion determine
that, solely for the purposes of such distributions, Outstanding Shares shall
exclude Shares for which orders have been placed subsequent to a specified time.
The Trustees may always retain from the earnings or profits such amounts as they
may deem appropriate or desirable to pay the expenses and liabilities of the
Trust or a Series or Class thereof or to meet obligations of the Trust or a
Series or Class thereof, together with such amounts as they may deem desirable
to use in the conduct of its affairs or to retain for future requirements or
extensions of the business or operations of the Trust or such Series. The Trust
may adopt and offer to Shareholders such dividend reinvestment plans, cash
dividend payout plans or other distribution plans as the Trustees may deem
appropriate or desirable. The Trustees may in their discretion determine that an
account administration fee or other similar charge may be deducted directly from
the income and other distributions paid on Shares to a Shareholder's account in
any Series or Class.
(b)The Trustees may prescribe, in their absolute discretion, such bases
and times for determining the amounts for the declaration and payment of
dividends and distributions as they may deem necessary, appropriate or
desirable.
(c)Inasmuch as the computation of net income and gains for federal
income tax purposes may vary from the computation thereof on the books of
account, the above provisions shall be interpreted to give the Trustees full
power and authority in their absolute discretion to distribute for any fiscal
year as dividends and as capital gains distributions, respectively, additional
amounts sufficient to enable the Trust or a Series thereof to avoid or reduce
liability for taxes.
Section 7.3. Constant Net Asset Value; Reduction of Outstanding Shares.
The Trustees may determine to maintain the net asset value per Share of any
Series or Class at a designated constant amount and in connection therewith may
adopt procedures not inconsistent with the 1940 Act for the continuing
declarations of income attributable to that Series or Class as dividends payable
in additional Shares of that Series or Class or in cash or in any combination
thereof and for the handling of any losses attributable to that Series or Class.
Such procedures may provide that, if, for any reason, the income of any such
Series or Class determined at any time is a negative amount, the Trust may with
respect to such Series or Class (i) offset each Shareholder's pro rata share of
such negative amount from the accrued dividend account of such Shareholder, or
(ii) reduce the number of Outstanding Shares of such Series or Class by reducing
the number of Shares in the account of such Shareholder by that number of full
and fractional Shares which represents the amount of such excess negative
income, or (iii) cause to be recorded on the books of the Trust an asset account
in the amount of such negative income, which account may be reduced by the
amount, provided that the same shall thereupon become the property of the Trust
with respect to such Series or Class and shall not be paid to any Shareholder,
of dividends declared thereafter upon the Outstanding Shares of such Series or
Class on the day such negative income is experienced, until such asset account
is reduced to zero, or (iv) combine the methods described in clauses (i), (ii)
and (iii) of this sentence, in order to cause the net asset value per Share of
such Series or Class to remain at a constant amount per Outstanding Share
immediately after such determination and declaration. The Trust may also fail to
declare a dividend out of income for the purpose of causing the net asset value
of any such Share to be increased. The Trustees shall have full discretion to
determine whether any cash or property received shall be treated as income or as
principal and whether any item expense shall be charged to the income or the
principal account, and their determination made in good faith shall be
conclusive upon all Shareholders. In the case of stock dividends or similar
distributions received, the Trustees shall have full discretion to determine, in
the light of the particular circumstances, how much if any of the value thereof
shall be treated as income, the balance, if any, to be treated as principal.
Section 7.4. Power to Modify Foregoing Procedures. Notwithstanding any
provision contained in this Declaration, the Trustees may prescribe, in their
absolute discretion, such other means, methods, procedures or techniques for
determining the per Share net asset value of a Series or Class thereof or the
income of the Series or Class thereof, or for the declaration and payment of
dividends and distributions on any Series or Class of Shares.
ARTICLE VIII
DURATION; TERMINATION OF TRUST OR A
SERIES OR CLASS; MERGERS; AMENDMENTS
Section 8.1. Duration. The Trust shall continue without limitation of
time but subject to the provisions of this Article VIII. The death, declination,
resignation, retirement, removal or incapacity of the Trustees, or any one of
them, shall not operate to terminate or annul the Trust or to revoke any
existing agency or delegation of authority pursuant to the terms of this
Declaration or of the By-Laws.
Section 8.2. Termination of the Trust or a Series or a Class. (a) 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.
Such determination may (but need not) be based on factors or events adversely
affecting the ability of the Trust, such Series or Class to conduct its business
and operations in an economically viable manner. Such factors and events may
include (but are not limited to) the inability of a Series or Class or the Trust
to maintain its assets at an appropriate size, changes in laws or regulations
governing the Series or Class or the Trust or affecting assets of the type in
which such Series or Class or the Trust invests, or political, social, legal or
economic developments or trends having an adverse impact on the business or
operations of such Series or Class or the Trust. Upon the termination of the
Trust or the Series or Class,
(i)The Trust, Series or Class shall carry on no business except for the
purpose of winding up its affairs.
(ii)The Trustees shall proceed to wind up the affairs of the Trust,
Series or Class and all of the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust, Series or Class shall have been
wound up, including the power to fulfill or discharge the contracts of the
Trust, Series or Class, collect its assets, sell, convey, assign, exchange,
transfer or otherwise dispose of all or any part of the remaining Trust Property
or assets allocated or belonging to such Series or Class to one or more persons
at public or private sale for consideration which may consist in whole or in
part of cash, securities or other property of any kind, discharge or pay its
liabilities, and do all other acts appropriate to liquidate its business.
(iii)After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property or the remaining property of the
terminated Series or Class, in cash or in kind or in any combination thereof,
among the Shareholders of the Trust or the Series or Class according to their
respective rights.
(b)After termination of the Trust, Series or Class and distribution to
the Shareholders as herein provided, a majority of the Trustees shall execute
and lodge among the records of the Trust and file with the Massachusetts
Secretary of State an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties with respect to the Trust or the terminated Series or
Class, and rights and interests of all Shareholders of the Trust or the
terminated Series or Class shall thereupon cease.
Section 8.3. Merger, Consolidation or Sale of Assets of a Series. A
particular Series may merge or consolidate with any other corporation,
association, trust or other organization or may sell, lease or exchange all or
substantially all of its property, including its good will, upon such terms and
conditions and for such consideration when and as authorized by the Trustees and
without any authorization, vote or consent of the Shareholders; and any such
merger, consolidation, sale, lease or exchange shall be deemed for all purposes
to have been accomplished under and pursuant to the statutes of the Commonwealth
of Massachusetts. The Trustees may also at any time sell and convert into money
all the assets of a particular Series. Upon making provision for the payment of
all outstanding obligations, taxes, and other liabilities, accrued or
contingent, of the particular Series, the Trustees shall distribute the
remaining assets of such Series among the Shareholders of such Series according
to their respective rights. Upon completion of the distribution of the remaining
proceeds or the remaining assets, the Series shall terminate and the Trustees
shall take the action provided in Section 8.2(b) hereof and they shall thereupon
be discharged from all further liabilities and duties with respect to such
Series, and the rights and interests of all Shareholders of the terminated
Series shall thereupon cease.
Section 8.4. Amendments. The execution of an instrument setting forth
the establishment and designation and the relative rights and preferences of any
Series or Class of Shares (or amending, restating or rescinding any such prior
instrument) in accordance with Section 5.5 hereof shall, without any
authorization, consent or vote of the Shareholders, effect an amendment of this
Declaration. Except as otherwise provided in this Section 8.4, if authorized by
vote of a majority of the outstanding voting securities of the Trust the
financial interests of which are affected by the amendment and which are
entitled to vote thereon (which securities shall, unless otherwise provided by
the Trustees, vote together on such amendment as a single class), the Trustees
may amend this Declaration by an instrument signed by a majority of the Trustees
then in office. No Shareholder not so affected by any such amendment shall be
entitled to vote thereon. The Trustees may (by such an instrument) also amend or
otherwise supplement this Declaration of Trust, without any authorization,
consent or vote of the Shareholders, to change the name of the Trust or any Fund
or to make such other changes as do not have a materially adverse effect on the
financial interests of Shareholders hereunder or if they deem it necessary or
desirable to conform this Declaration to the requirements of applicable federal
or state laws or regulations or the requirements of the Internal Revenue Code of
1986, but the Trustees shall not be liable for failing to do so. Any such
amendment or supplemental Declaration of Trust shall be effective as provided in
the instrument containing its terms or, if there is no provision therein with
respect to effectiveness, upon the signing of such instrument by a majority of
the Trustees then in office. Copies of any amendment or of any supplemental
Declaration of Trust shall be filed as specified in Section 10.2 hereof. Nothing
contained in this Declaration shall permit the amendment of this Declaration to
impair the exemption from personal liability of the Shareholders, Trustees,
officers, employees and agents of the Trust or to permit assessments upon
Shareholders.
Notwithstanding any other provision hereof, until such time as Shares
are issued and sold, this Declaration may be terminated or amended in any
respect by an instrument signed by a majority of the Trustees then in office.
ARTICLE X
MISCELLANEOUS
Section 10.1. Use of the Words "Eaton Vance". Eaton Vance Corp.
(hereinafter referred to as "EVC"), which owns (either directly or through
subsidiaries) all of the capital shares of the Investment Adviser of the Trust
and the Funds (or of the investment adviser of each of the investment companies
referred to in the last paragraph of Section 2.3), has consented to the use by
the Trust and the Funds of the identifying words "Eaton Vance" in the name of
the Trust and in the name of each Fund. Such consent is conditioned upon the
continued employment of EVC or a subsidiary or affiliate of EVC as Investment
Adviser of the Trust and of each such Fund or as the investment adviser of each
of the investment companies referred to in the last paragraph of Section 2.3. As
between the Trust and itself, EVC shall control the use of the name of the Trust
and the name of any Fund insofar as such name contains the identifying words
"Eaton Vance". EVC may from time to time use the identifying words "Eaton Vance"
in other connections and for other purposes, including, without limitation, in
the names of other investment companies, trusts, corporations or businesses
which it may manage, advise, sponsor or own or in which it may have a financial
interest. EVC may require the Trust to cease using the identifying words "Eaton
Vance" in the name of the Trust or any Fund if EVC or a subsidiary or affiliate
of EVC ceases to act as investment adviser of the Trust or such Fund or as the
investment adviser of each of the investment companies referred to in the last
paragraph of Section 2.3.
Section 10.2. Filing of Copies, References, Headings and Counterparts.
The original or a copy of this instrument, of any amendment hereto and of each
declaration of trust supplemental hereto, shall be kept at the office of the
Trust. A copy of this instrument, of any amendment hereto, and of each
supplemental declaration of trust shall be filed with the Massachusetts
Secretary of State and with any other governmental office where such filing may
from time to time be required. Anyone dealing with the Trust may rely on a
certificate by a Trustee or an officer of the Trust as to whether or not any
such amendments or supplemental declarations of trust have been made and as to
any matters in connection with the Trust hereunder, and with the same effect as
if it were the original, may rely on a copy certified by a Trustee or an officer
of the Trust to be a copy of this instrument or of any such amendment hereto or
supplemental declaration of trust.
In this instrument or in any such amendment or supplemental declaration
of trust, references to this instrument, and all expressions such as "herein",
"hereof", and "hereunder", shall be deemed to refer to this instrument as
amended or affected by any such supplemental declaration of trust. Headings are
placed herein for convenience of reference only and in case of any conflict, the
text of this instrument, rather than the headings, shall control. This
instrument may be executed in any number of counterparts each of which shall be
deemed an original, but such counterparts shall constitute one instrument. A
restated Declaration, integrating into a single instrument all of the provisions
of the Declaration which are then in effect and operative, may be executed from
time to time by a majority of the Trustees then in office and filed with the
Massachusetts Secretary of State. A restated Declaration shall, upon execution,
be conclusive evidence of all amendments and supplemental declarations contained
therein and may hereafter be referred to in lieu of the original Declaration and
the various amendments and supplements thereto.
Section 10.3. Applicable Law. The Trust set forth in this instrument is
made in the Commonwealth of Massachusetts, and it is created under and is to be
governed by and construed and administered according to the laws of said
Commonwealth. The Trust shall be of the type commonly called a Massachusetts
business trust, and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust.
Section 10.4. Provisions in Conflict with Law or Regulations. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of legal counsel, that any of such provisions is in
conflict with the 1940 Act, the Internal Revenue code of 1986 or with other
applicable laws and regulations, the conflicting provision shall be deemed never
to have constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provisions in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the undersigned, being a majority of the current
Trustees of the Trust, have executed this instrument this 11th day of January,
1993.
/s/ James G. Baur /s/ Norton H. Reamer
-------------------- ---------------------
James G. Baur Norton H. Reamer
/s/ James B. Hawkes /s/ John L. Thorndike
-------------------- ---------------------
James B. Hawkes John L. Thorndike
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. Boston, Massachusetts
Then personally appeared the above named James G. Baur, James B.
Hawkes, Norton H. Reamer and John L. Thorndike being a majority of the Trustees
then in office, who severally acknowledge the foregoing instrument to be their
free act and deed.
Before me,
/s/ Lynn W. Ostberg
---------------------
My commission expires December 27, 1996
<PAGE>
The names and addresses of all the Trustees of the Trust are as
follows:
James G. Baur Samuel L. Hayes, III
2 King George Drive 345 Nahatan Street
Boxford, MA 01921 Westwood, MA 02090
Donald R. Dwight Norton H. Reamer
10 Pinecroft Rd 70 Circuit Road
Greenwich, CT 06830 Chestnut Hill, MA 02167
James B. Hawkes John L. Thorndike
11 Quincy Park 10 Main Street
Beverly, MA 01915 Dover, MA 02030
Jack L. Treynor
504 Via Almar
Palos Verdes Estates, CA 90274
Trust Address:
24 Federal St
Boston, MA 02110
<PAGE>
EXHIBIT 99.1(b)
EATON VANCE MUNICIPALS TRUST
Amendment and Restatement of
Establishment and Designation of Series of Shares
of Beneficial Interest, Without Par Value
(as amended and restated June 19, 1995)
WHEREAS, the Trustees of Eaton Vance Municipals Trust, a Massachusetts
business trust (the "Trust"), have previously designated separate series (or
"Funds"); and
WHEREAS, the Trustees now desire to further redesignate the series or
Funds pursuant to Section 5.1 of Article V of the Trust's Amended and Restated
Declaration of Trust dated January 11, 1993 (the "Declaration of Trust");
NOW, THEREFORE, the undersigned, being at least a majority of the duly
elected and qualified Trustees presently in office of the Trust, hereby divide
the shares of beneficial interest of the Trust into sixty-six separate series
("Funds"), each Fund to have the following special and relative rights:
1. The Funds shall be designated as follows:
<TABLE>
<S> <C>
EV Marathon Alabama Tax Free Fund EV Marathon Missouri Tax Free Fund
EV Classic Alabama Tax Free Fund EV Classic Missouri Tax Free Fund
EV Marathon Arizona Tax Free Fund EV Marathon National Municipals Fund
EV Classic Arizona Tax Free Fund EV Classic National Municipals Fund
EV Marathon Arkansas Tax Free Fund EV Traditional National Municipals Fund
EV Classic Arkansas Tax Free Fund EV Marathon New Jersey Tax Free Fund
EV Classic California Municipals Fund EV Classic New Jersey Tax Free Fund
EV Marathon California Municipals Fund EV Traditional New Jersey Tax Free Fund
EV Traditional California Municipals Fund EV Marathon New York Tax Free Fund
EV Marathon Colorado Tax Free Fund EV Classic New York Tax Free Fund
EV Classic Colorado Tax Free Fund EV Traditional New York Tax Free Fund
EV Marathon Connecticut Tax Free Fund EV Marathon North Carolina Tax Free Fund
EV Classic Connecticut Tax Free Fund EV Classic North Carolina Tax Free Fund
EV Traditional Connecticut Tax Free Fund EV Marathon Ohio Tax Free Fund
EV Marathon Florida Tax Free Fund EV Classic Ohio Tax Free Fund
EV Classic Florida Tax Free Fund EV Marathon Oregon Tax Free Fund
EV Traditional Florida Tax Free Fund EV Classic Oregon Tax Free Fund
EV Marathon Georgia Tax Free Fund EV Marathon Pennsylvania Tax Free Fund
EV Classic Georgia Tax Free Fund EV Classic Pennsylvania Tax Free Fund
EV Marathon Kentucky Tax Free Fund EV Traditional Pennsylvania Tax Free Fund
EV Classic Kentucky Tax Free Fund EV Marathon Rhode Island Tax Free Fund
EV Marathon Louisiana Tax Free Fund EV Classic Rhode Island Tax Free Fund
EV Classic Louisiana Tax Free Fund EV Marathon South Carolina Tax Free Fund
EV Marathon Maryland Tax Free Fund EV Classic South Carolina Tax Free Fund
EV Classic Maryland Tax Free Fund EV Marathon Tennessee Tax Free Fund
EV Marathon Massachusetts Tax Free Fund EV Classic Tennessee Tax Free Fund
EV Classic Massachusetts Tax Free Fund EV Marathon Texas Tax Free Fund
EV Marathon Michigan Tax Free Fund EV Classic Texas Tax Free Fund
EV Classic Michigan Tax Free Fund EV Marathon Virginia Tax Free Fund
EV Marathon Minnesota Tax Free Fund EV Classic Virginia Tax Free Fund
EV Classic Minnesota Tax Free Fund EV Marathon West Virginia Tax Free Fund
EV Marathon Mississippi Tax Free Fund EV Classic West Virginia Tax Free Fund
EV Classic Mississippi Tax Free Fund Massachusetts Municipal Bond Portfolio
</TABLE>
2. Each Fund shall be authorized to invest in cash, securities,
nstruments and other property as from time to time described in the Trust's
then currently effective registration statements under the Securities Act of
1933 and the Investment Company Act of 1940. Each share of beneficial interest
of each Fund ("share") shall be redeemable, shall be entitled to one vote (or
fraction thereof in respect of a fractional share) on matters on which shares of
that Fund shall be entitled to vote and shall represent a pro rata beneficial
interest in the assets allocated to that Fund, all as provided in the
Declaration of Trust. The proceeds of sales of shares of each Fund, together
with any income and gain thereon, less any diminution or expenses thereof, shall
irrevocably belong to such Fund, unless otherwise required by law. Each share of
a Fund shall be entitled to receive its pro rata share of net assets of that
Fund upon liquidation of that Fund.
3. Shareholders of each Fund shall vote separately as a class to the
extent provided in Rule 18f-2, as from time to time in effect, under the
Investment Company Act of 1940.
4. The assets and liabilities of the Trust shall be allocated among the
above-referenced Funds as set forth in Section 5.5 of Article V of the
Declaration of Trust, except as provided below:
(a) Costs incurred by each Fund in connection with its organization and
start-up, including Federal and state registration and qualification fees and
expenses of the initial public offering of such Fund's shares, shall (if
applicable) be borne by such Fund and deferred and amortized over the five year
period beginning on the date that such Fund commences operations.
(b) Reimbursement required under any expense limitation applicable to
the Trust shall be allocated among those Funds whose expense ratios exceed such
limitation on the basis of the relative expense ratios of such Funds.
(c) The liabilities, expenses, costs, charges and reserves of the Trust
(other than the management and investment advisory fees or the organizational
expenses paid by the Trust) which are not readily identifiable as belonging to
any particular Fund shall be allocated among the Funds on an equitable basis as
determined by the Trustees.
5. The Trustees (including any successor Trustees) shall have the right
at any time and from time to time to reallocate assets and expenses or to change
the designation of any Fund now or hereafter created, or to otherwise change the
special and relative rights of any such Fund, and to terminate any Fund or add
additional Funds as provided in the Declaration of Trust.
6. Any Fund may merge or consolidate with any other corporation,
association, trust or other organization or may sell, lease or exchange all or
substantially all of its property, including its good will, upon such terms and
conditions and for such consideration when and as authorized by the Trustees;
and any such merger, consolidation, sale, lease or exchange shall be deemed for
all purposes to have been accomplished under and pursuant to the statutes of the
Commonwealth of Massachusetts. The Trustees may also at any time sell and
convert into money all the assets of any Fund. Upon making provision for the
payment of all outstanding obligations, taxes and other liabilities, accrued or
contingent, of such Fund, the Trustees shall distribute the remaining assets of
such Fund ratably among the holders of the outstanding shares. Upon completion
of the distribution of the remaining proceeds or the remaining assets as
provided in this paragraph 6, the Fund shall terminate and the Trustees shall be
discharged of any and all further liabilities and duties hereunder with respect
to such Fund and the right, title and interest of all parties with respect to
such Fund shall be cancelled and discharged.
<PAGE>
7. The Declaration of Trust authorizes the Trustees to divide each Fund
and any other series of shares into two or more classes and to fix and determine
the relative rights and preferences as between, and all provisions applicable
to, each of the different classes so established and designated by the Trustees.
The establishment and designation of any class of any Fund or other series of
shares shall be effective upon the execution by a majority of the then Trustees
of an instrument setting forth such establishment and designation and the
relative rights and preferences, and provisions applicable to, such class, or as
otherwise provided in such instrument.
Dated: June 19, 1995
/s/ Donald R. Dwight /s/ Norton H. Reamer
-------------------------------- --------------------------
Donald R. Dwight Norton H. Reamer
/s/ James B. Hawkes /s/ John L. Thorndike
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James B. Hawkes John L. Thorndike
/s/ Samuel L. Hayes III
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Samuel L. Hayes, III Jack L. Treynor
EXHIBIT 99.2(a)
BY-LAWS
OF
EATON VANCE HIGH YIELD MUNICIPALS TRUST
(As Amended October 21, 1987)
ARTICLE I
The Trustees
SECTION 1. Initial Trustees, Election and Term of Office. In the year 1988 on a
date fixed by the Trustees, the shareholders of the Trust shall elect the number
of Trustees to be fixed as provided herein. The initial Trustees named in the
Preamble of the Declaration of Trust dated September 30, 1985, as from time to
time amended (the "Declaration of Trust"), and any additional Trustees appointed
pursuant to Section 4 of this Article I, shall serve as Trustees until the 1988
election and until their successors are elected and qualified. The Trustees
elected at such 1988 election shall serve as Trustees during the lifetime of the
Trust, except as otherwise provided below.
SECTION 2. Number of Trustees. The number of Trustees shall be fixed by the
Trustees, provided, however, that such number shall at no time exceed eighteen.
SECTION 3. Resignation and Removal. Any Trustee may resign his trust by written
instrument signed by him and delivered to the other Trustees, which shall take
effect upon such delivery or upon such later date as is specified therein. Any
Trustee who requests in writing to be retired or who has become incapacitated by
illness or injury may be retired by written instruments signed by a majority of
the other Trustees, specifying the date of his retirement. Any Trustee may be
removed at any time by written instrument, signed by at least two-thirds of the
number of Trustees prior to such removal, specifying the date when such removal
shall become effective.
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 of beneficial
interest of the Trust (the "shares") have declared that he be removed from that
office by a declaration in writing signed by such holders and filed with the
Custodian of the assets of the Trust or by votes cast by such holders in person
or by proxy at a meeting called for the purpose. Solicitation of such a
declaration shall be deemed a solicitation of a proxy within the meaning of
Section 20(a) of the Investment Company Act of 1940 (the "Act").
The Trustees of the Trust shall promptly call a meeting of the shareholders
for the purpose of voting upon a question of removal of any such Trustee or
Trustees when requested in writing so to do by the record holders of not less
than 10 per centum of the outstanding shares.
Whenever ten or more shareholders of record of the Trust who have been such
for at least six months preceding the date of application, and who hold in the
aggregate either shares having a net asset value of at least $25,000 or at least
1 per centum of the outstanding shares, whichever is less, shall apply to the
Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to a request for a meeting of
shareholders pursuant to this Section 3 and accompanied by a form of
communication and request which they wish to transmit, the Trustees shall within
five business days after receipt of such application either
(1) afford to such applicants access to a list of the names and addresses
of all shareholders as recorded on the books of the Trust; or
(2) inform such applicants as to the approximate number of shareholders of
record, and the approximate cost of mailing to them the proposed communication
and form of request.
If the Trustees elect to follow the course specified in subparagraph (2)
above of this Section 3, the Trustees, upon the written request of such
applicants, accompanied by a tender of the material to be mailed and of the
reasonable expenses of mailing, shall, with reasonable promptness, mail such
material to all shareholders of record at their addresses as recorded on the
books, unless within five business days after such tender the Trustees shall
mail to such applicants and file with the Securities and Exchange Commission
(the "Commission"), together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Trustees to the effect that in
their opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion.
After the Commission has had an opportunity for hearing upon the objections
specified in the written statement so filed by the Trustees, the Trustees or
such applicants may demand that the Commission enter an order either sustaining
one or more of such objections or refusing to sustain any of such objections. If
the Commission shall enter an order refusing to sustain any of such objections,
or if, after the entry of an order sustaining one or more of such objections,
the Commission shall find, after notice and opportunity for hearing, that all
objections so sustained have been met, and shall enter an order so declaring,
the Trustees shall mail copies of such material to all shareholders with
reasonable promptness after the entry of such order and the renewal of such
tender.
Until such provisions become null, void, inoperative and removed from these
By-Laws pursuant to the next sentence, the provisions of all but the first
paragraph of this Section 3 may not be amended or repealed without the vote of a
majority of the Trustees and a majority of the outstanding shares of the Trust.
These same provisions shall be deemed null, void, inoperative and removed from
these By-Laws upon the effectiveness of any amendment to the Act which
eliminates them from Section 16 of the Act or the effectiveness of any successor
Federal law governing the operation the Trust which does not contain such
provisions.
SECTION 4. Vacancies. In case of the declination, death, resignation,
retirement, removal, or inability of any of the Trustees, or in case a vacancy
shall, by reason of an increase in number, or for any other reason, exist, the
remaining Trustees shall fill such vacancy by appointing such other person as
they in their discretion shall see fit. Such appointment shall be evidenced by a
written instrument signed by a majority of the Trustees in office whereupon the
appointment shall take effect. Within three months of such appointment the
Trustees shall cause notice of such appointment to be mailed to each shareholder
at his address as recorded on the books of the Trustees. An appointment of a
Trustee may be made by the Trustees then in office and notice thereof mailed to
shareholders as aforesaid in anticipation of a vacancy to occur by reason of
retirement, resignation or increase in number of Trustees effective at a later
date, provided that said appointment shall become effective only at or after the
effective date of said retirement, resignation or increase in number of
Trustees. As soon as any Trustee so appointed shall have accepted this trust,
the trust estate shall vest in the new Trustee or Trustees, together with the
continuing Trustees, without any further act or conveyance, and he shall be
deemed a Trustee hereunder and under the Declaration of Trust. The power of
appointment is subject to the provisions of Section 16(a) of the Act.
Whenever a vacancy among the Trustees shall occur, until such vacancy is
filled, or while any Trustee is absent from the Commonwealth of Massachusetts
or, if not a domiciliary of Massachusetts, is absent from his state of domicile,
or is physically or mentally incapacitated by reason of disease or otherwise,
the other Trustees shall have all the powers hereunder and the certificate of
the other Trustees of such vacancy, absence or incapacity shall be conclusive,
provided, however, that no vacancy shall remain unfilled for a period longer
than six calendar months.
SECTION 5. Temporary Absence of Trustee. Any Trustee may, by power of attorney,
delegate his power for a period not exceeding six months at any one time to any
other Trustee or Trustees, provided that in no case shall less than two Trustees
personally exercise the other powers hereunder except as herein otherwise
expressly provided.
SECTION 6. Effect of Death, Resignation, Removal, Etc. of a Trustee. The death,
declination, resignation, retirement, removal, or incapacity of the Trustees, or
any one of them, shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of the Declaration of Trust or these
By-Laws.
ARTICLE II
Officers and Their Election
SECTION 1. Officers. The officers of the Trust shall be a President, a
Treasurer, a Secretary, and such other officers or agents as the Trustees may
from time to time elect. It shall not be necessary for any Trustee or other
officer to be a holder of shares in the Trust.
SECTION 2. Election of Officers. The Treasurer and Secretary shall be chosen
annually by the Trustees. The President shall be chosen annually by and from the
Trustees.
Except for the offices of President and Secretary, two or more offices may
be held by a single person. The officers shall hold office until their
successors are chosen and qualified.
SECTION 3. Resignations and Removals. Any officer of the Trust may resign by
filing a written resignation with the President or with the Trustees or with the
Secretary, which shall take effect on being so filed or at such time as may
otherwise be specified therein. The Trustees may at any meeting remove an
officer.
ARTICLE III
Powers and Duties of Trustees and Officers
SECTION 1. Trustees. The business and affairs of the Trust shall be managed by
the Trustees, and they shall have all powers necessary and desirable to carry
out that responsibility, so far as such powers are not inconsistent with the
laws of the Commonwealth of Massachusetts, the Declaration of Trust, or these
By-Laws.
SECTION 2. Executive and Other Committees. The Trustees may elect from their own
number an executive committee to consist of not less than three nor more than
five members, which shall have the power and duty to conduct the current and
ordinary business of the Trust, including the purchase and sale of securities,
while the Trustees are not in session, and such other powers and duties as the
Trustees may from time to time delegate to such committee. The Trustees may also
elect from their own number other committees from time to time, the number
composing such committees and the powers conferred upon the same to be
determined by vote of the Trustees.
SECTION 3. Chairman of the Trustees. The Trustees may, but need not, appoint
from among their number a Chairman. When present he shall preside at the
meetings of the shareholders and of the Trustees. He may call meetings of the
Trustees and of any committee thereof whenever he deems it necessary. He shall
be an executive officer of this Trust and shall have, with the President,
general supervision over the business and policies of this Trust, subject to the
limitations imposed upon the President, as provided in Section 4 of this Article
III.
SECTION 4. President. In the absence of the Chairman of the Trustees, the
President shall preside at all meetings of the shareholders. Subject to the
Trustees and to any committees of the Trustees, within their respective spheres,
as provided by the Trustees, he shall at all times exercise a general
supervision and direction over the affairs of the Trust. He shall have the power
to employ attorneys and counsel for the Trust and to employ such subordinate
officers, agents, clerks and employees as he may find necessary to transact the
business of the Trust. He shall also have the power to grant, issue, execute or
sign such powers of attorney, proxies or other documents as may be deemed
advisable or necessary in furtherance of the interests of the Trust. The
President shall have such other powers and duties as, from time to time, may be
conferred upon or assigned to him by the Trustees.
SECTION 5. Treasurer. The Treasurer shall be the principal financial and
accounting officer of the Trust. He shall deliver all funds and securities of
the Trust which may come into his hands to such bank or trust company as the
Trustees shall employ as custodian in accordance with Article VII of the
Declaration of Trust. He shall make annual reports in writing of the business
conditions of the Trust, which reports shall be preserved upon its records, and
he shall furnish such other reports regarding the business and condition as the
Trustees may from time to time require. The Treasurer shall perform such duties
additional to foregoing as the Trustees may from time to time designate.
SECTION 6. Secretary. The Secretary shall record in books kept for the purpose
all votes and proceedings of the Trustees and the shareholders at their
respective meetings. He shall have custody of the seal, if any, of the Trust and
shall perform such duties additional to the foregoing as the Trustees may from
time to time designate.
SECTION 7. Other Officers. Other officers elected by the Trustees shall perform
such duties as the Trustees may from time to time designate.
SECTION 8. Compensation. The Trustees and officers of the Trust may receive such
reasonable compensation from the Trust for the performance of their duties as
the Trustees may from time to time determine.
ARTICLE IV
Meetings of Shareholders
SECTION 1. Meetings. Meetings of the shareholders may be called at any time by
the President, and shall be called by the President or the Secretary at the
request, in writing or by resolution, of a majority of the Trustees, or at the
written request of the holder or holders of ten percent (10%) or more of the
total number of shares of the then issued and outstanding shares of the Trust
entitled to vote at such meeting. Any such request shall state the purposes of
the proposed meeting.
SECTION 2. Place of Meetings. Meetings of the shareholders shall be held at the
principal place of business of the Trust in Boston, Massachusetts, unless a
different place within the United States is designated by the Trustees and
stated as specified in the respective notices or waivers of notice with respect
thereto.
SECTION 3. Notice of Meetings. Notice of all meetings of the shareholders,
stating the time, place and the purposes for which the meetings are called,
shall be given by the Secretary to each shareholder entitled to vote thereat,
and to each shareholder who under the By-Laws is entitled to such notice, by
mailing the same postage paid, addressed to him at his address as it appears
upon the books of the Trust, at least seven (7) days before the time fixed for
the meeting, and the person giving such notice shall make an affidavit with
respect thereto. If any shareholder shall have failed to inform the Trust of his
post office address, no notice need be sent to him. No notice need be given to
any shareholder if a written waiver of notice, executed before or after the
meeting by the shareholder or his attorney thereunto authorized, is filed with
the records of the meeting.
SECTION 4. Quorum. Except as otherwise provided by law, to constitute a quorum
for the transaction of any business at any meeting of shareholders, there must
be present, in person or by proxy, holders of a majority of the total number of
shares of the then issued and outstanding shares of the Trust entitled to vote
at such meeting; provided that if a series of shares is entitled to vote as a
separate series on any matter, then in the case of that matter a quorum shall
consist of the holders of a majority of the total number of shares of the then
issued and outstanding shares of that series entitled to vote at the meeting.
Shares owned directly or indirectly by the Trust, if any, shall not be deemed
outstanding for this purpose.
If a quorum, as above defined, shall not be present for the purpose of any
vote that may properly come before any meeting of shareholders at the time and
place of any meeting, the shareholders present in person or by proxy and
entitled to vote at such meeting on such matter holding a majority of the shares
present and entitled to vote on such matter may by vote adjourn the meeting from
time to time to be held at the same place without further notice than by
announcement to be given at the meeting until a quorum, as above defined,
entitled to vote on such matter, shall be present, whereupon any such matter may
be voted upon at the meeting as though held when originally convened.
SECTION 5. Voting. At each meeting of the shareholders every shareholder of the
Trust shall be entitled to one (1) vote in person or by proxy for each of the
then issued and outstanding shares of the Trust then having voting power in
respect of the matter upon which the vote is to be taken, standing in his name
on the books of the Trust at the time of the closing of the transfer books for
the meeting, or, if the books be not closed for any meeting, on the record date
fixed as provided in Section 4 of Article VI of these By-Laws for determining
the shareholders entitled to vote at such meeting, or if the books be not closed
and no record date be fixed, at the time of the meeting. The record holder of a
fraction of a share shall be entitled in like manner to a corresponding fraction
of a vote. Notwithstanding the foregoing, the Trustees may, in conjunction with
the establishment of any series of shares, establish conditions under which the
several series shall have separate voting rights or no voting rights.
All elections of Trustees shall be conducted in any manner approved at the
meeting of the shareholders at which said election is held, and shall be by
ballot if so requested by any shareholder entitled to vote thereon. The persons
receiving the greatest number of votes shall be deemed and declared elected.
Except as otherwise required by law or by the Declaration of Trust or by these
By-Laws, all matters shall be decided by a majority of the votes cast, as
hereinabove provided, by persons entitled to vote thereon. With respect to the
submission of a management or investment advisory contract or a change in
investment policy to the shareholders for any shareholder approval required by
the Act, such matter shall be deemed to have been effectively acted upon with
respect to any series of shares if the holders of the lesser of
(i) 67 per centum or more of the shares of that series
present or represented at the meeting if the holders of more
than 50 per centum of the outstanding shares of that series
are present or represented by proxy at the meeting or
(ii) more than 50 per centum of the outstanding shares of
that series
vote for the approval of such matter, notwithstanding (a) that such matter has
not been approved by the holders of a majority of the outstanding voting
securities of any other series affected by such matter (as described in rule
18f-2 under the Act) or (b) that such matter has not been approved by the vote
of a majority of the outstanding voting securities of the Trust (as defined in
the Act).
SECTION 6. Proxies. Any shareholder entitled to vote upon any matter at any
meeting of the shareholders may so vote by proxy, but no proxy which is dated
more than six months before the meeting named therein shall be accepted and no
such proxy shall be valid after the final adjournment of such meeting. Every
proxy shall be in writing subscribed by the shareholder or his duly authorized
attorney and shall be dated, but need not be sealed, witnessed or acknowledged.
Proxies shall be delivered to the Secretary or person acting as secretary of the
meeting before being voted. A proxy with respect to shares held in the name of
tow or more persons shall be valid if executed by one of them unless at or prior
to exercise of the proxy Trust receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on behalf
of a shareholder shall be deemed valid unless challenged at or prior to its
exercise.
SECTION 7. Consents. Any action which may be taken by shareholders may be taken
without a meeting if a majority of shareholders entitled to vote on the matter
(or such larger proportion thereof as shall be required by law, the Declaration
of Trust or these By-Laws for approval of such matter) consent to the action in
writing and the written consents are filed with the records of the meetings of
shareholders. Such contents shall be treated for all purposes as a vote taken at
a meeting of shareholders.
ARTICLE V
Trustees Meetings
SECTION 1. Meetings. The Trustees may in their discretion provide for regular or
stated meetings of the Trustees. Meetings of the Trustees other than regular or
stated meetings shall be held whenever called by the Chairman, President or by
any other Trustee at the time being in office. Any or all of the Trustees may
participate in a meeting by means of a conference telephone or similar
communications equipment through which all persons participating in the meeting
can hear each other at the same time, and participation by such means shall
constitute presence in person at a meeting.
SECTION 2. Notices. Notice of regular or stated meetings need not be given.
Notice of the time and place of each meeting other than regular or stated
meetings shall be given by the Secretary or by the Trustee calling the meeting
and shall be mailed to each Trustee at least two (2) days before the meeting, or
shall be telegraphed, cabled, or wirelessed to each Trustee at his business
address or personally delivered to him at least one (1) day before the meeting.
Such notice may, however, be waived by all the Trustees. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. A notice or waiver of notice need not
specify the purpose of any special meeting.
SECTION 3. Consents. Any action required or permitted to be taken at any meeting
of the Trustees may be taken by the Trustees without a meeting if a written
consent thereto is signed by all the Trustees and filed with the records of the
Trustees' meetings. Such consent shall be treated as a vote at a meeting for all
purposes.
SECTION 4. Place of Meetings. The Trustees may hold their meetings
within or without the Commonwealth of Massachusetts.
SECTION 5. Quorum and Manner of Acting. A majority of the Trustees in office
shall be present in person at any regular stated or special meeting of the
Trustees in order to constitute a quorum for the transaction of business at such
meeting and (except as otherwise required by the Declaration of Trust, by these
By-Laws or by statute) the act of a majority of the Trustees present at any such
meeting, at which a quorum is present, shall be the act of the Trustees. In the
absence of quorum, a majority of the Trustees present may adjourn the meeting
from time to time until a quorum shall be present. Notice of any adjourned
meeting need not be given.
ARTICLE VI
Shares of Beneficial Interest
SECTION 1. Certificates for Shares of Beneficial Interest. Certificates for
shares of beneficial interest of any series of shares of the Trust, if issued,
shall be in such form as shall be approved by the Trustees. They shall be signed
by, or in the name of, the Trust by the President and by the Treasurer and may,
but need not be, sealed with seal of the Trust; provided, however, that where
such certificate is signed by a transfer agent or a transfer clerk acting on
behalf of the Trust or a registrar other than a Trustee, officer or employee of
the Trust, the signature of the President or Treasurer and the seal may be
facsimile. In case any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on any such certificate
or certificates, shall cease to be such officer or officers of the Trust whether
because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Trust, such certificate or
certificates may nevertheless be adopted by the Trust and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signatures shall have been used thereon had not
ceased to be such officer or officers of the Trust.
SECTION 2. Transfer of Shares. Transfers of shares of beneficial interest of any
series of shares of the Trust shall be made only on the books of the Trust by
the owner thereof or by his attorney thereunto authorized by a power of attorney
duly executed and filed with the Secretary or a transfer agent, and only upon
the surrender of any certificate or certificates for such shares. The Trust
shall not impose any restrictions upon the transfer of the shares of any series
of the Trust, but this requirement shall not prevent the charging of customary
transfer agent fees.
SECTION 3. Transfer Agent and Registrar; Regulations. The Trust shall, if and
whenever the Trustees shall so determine, maintain one or more transfer offices
or agencies, each in the charge of a transfer agent designated by the Trustees,
where the shares of beneficial interest of the Trust shall be directly
transferable. The Trust shall, if and whenever the Trustees shall so determine,
maintain one or more registry offices, each in the charge of a registrar
designated by the Trustees, where such shares shall be registered, and no
certificate for shares of the Trust in respect of which a transfer agent and/or
registrar shall have been designated shall be valid unless countersigned by such
transfer agent and/or registered by such registrar. The principal transfer agent
may be located within or without the Commonwealth of Massachusetts and shall
have charge of the share transfer books, lists and records, which shall be kept
within or without Massachusetts in an office which shall be deemed to be the
share transfer office of the Trust. The Trustees may also make such additional
rules and regulations as it may deem expedient concerning the issue, transfer
and redemption of certificates for shares of the Trust.
SECTION 4. Closing of Transfer Books and Fixing Record Date. The Trustees may
fix in advance a time which shall be not more than sixty (60) days before the
date of any meeting of shareholders, or the date for the payment of any dividend
or the making of any distribution to shareholders or the last day on which the
consent or dissent of shareholders may be effectively expressed for any purpose,
as the record date for determining the shareholders having the right to notice
of and to vote at such meeting, and any adjournment thereof, or the right to
receive such dividend or distribution or the right to give such consent or
dissent, and in such case only shareholders of record on such record date shall
have such right, notwithstanding any transfer of shares on the books of the
Trust after the record date. The Trustees may, without fixing such record date,
close the transfer books for all or any part of such period for any of the
foregoing purposes.
SECTION 5. Lost, Destroyed or Mutilated Certificates. The holder of any shares
of a series of the Trust shall immediately notify the Trust of any loss,
destruction or mutilation of the certificate therefor, and the Trustees may, in
their discretion, cause new certificate or certificates to be issued to him, in
case of mutilation of the certificate, upon the surrender of the mutilated
certificate, or, in case of loss or destruction of the certificate, upon
satisfactory proof of such loss or destruction and, in any case, if the Trustees
shall so determine, upon the delivery of a bond in such form and in such sum and
with such surety or sureties as the Trustees may direct, to indemnify the Trust
against any claim that may be made against it on account of the alleged loss or
destruction of any such certificate.
SECTION 6. Record Owner of Shares. The Trust shall be entitled to treat the
person in whose name any share of a series of the Trust is registered on the
books of the Trust as the owner thereof, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person.
ARTICLE VII
Fiscal Year
The fiscal year of the Trust shall end on September 30, of each year,
provided, however, that the Trustees may from time to time change the fiscal
year.
ARTICLE VIII
Seal
The Trustees may adopt a seal of the Trust which shall be in such form and
shall have such inscription thereon as the Trustees may from time to time
prescribe.
ARTICLE IX
Inspection of Books
The Trustees shall from time to time determine whether and to what extent,
and at what times and places, and under what conditions and regulations the
accounts and books of the Trust or any of them shall be open to the inspection
of the shareholders; and no shareholder shall have any right of inspecting any
account or book or document of the Trust except as conferred by law or
authorized by the Trustees or by resolution of the shareholders.
ARTICLE X
Custodian
The following provisions shall apply to the employment of a Custodian
pursuant to Article VII of the Declaration of Trust and to any contract entered
into with the Custodian so employed:
(a) The Trustees shall cause to be delivered to the Custodian all
securities owned by the Trust or to which it may become entitled, and
shall order the same to be delivered by the Custodian only in
completion of a sale, exchange, transfer, pledge, loan, or other
disposition thereof, against receipt by the Custodian of the
consideration therefor or a certificate of deposit or a receipt of an
issuer or of its transfer agent, or to a securities depository as
defined in Rule 17f-4 under the Investment Company Act of 1940, as
amended, all as the Trustees may generally or from time to time
require or approve, or to a successor Custodian; and the Trustees
shall cause all funds owned by the Trust or to which it may become
entitled to be paid to the Custodian, and shall order the same
disbursed only for investment against delivery of the securities
acquired, or in payment of expenses, including management
compensation, and liabilities of the Trust, including distributions to
shareholders, or to a successor Custodian.
(b) In case of the resignation, removal or inability to serve of any such
Custodian, the Trustees shall promptly appoint another bank or trust
company meeting the requirements of said Article VII as successor
Custodian. The agreement with the Custodian shall provide that the
retiring Custodian shall, upon receipt of notice of such appointment,
deliver the funds and property of the Trust in its possession to and
only to such successor, and that pending appointment of a successor
Custodian, or a vote of the shareholders to function without a
Custodian, the Custodian shall not deliver funds and property of the
Trust to the Trustees, but may deliver them to a bank or trust company
doing business in Boston, Massachusetts, of its own selection, having
an aggregate capital, surplus and undivided profits, as shown by its
last published report, of not less than $2,000,000, as the property of
the Trust to be held under terms similar to those on which they were
held by the retiring Custodian.
ARTICLE XI
Limitation of Liability and Indemnification
SECTION 1. Limitation of Liability. Provided they have exercised reasonable care
and have acted under the reasonable belief that their actions are in the best
interest of the Trust, the Trustees shall not be responsible for or liable in
any event for neglect or wrongdoing of them or any officer, agent, employee or
investment adviser of the Trust, but nothing contained in the Declaration of
Trust or herein shall protect any 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.
SECTION 2. Indemnification of Trustees and Officers. The Trust shall indemnify
each person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
has been a Trustee, officer, employee or agent of the Trust, or is or has been
serving at the request of the Trust as a Trustee, director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding, provided that:
(a) such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Trust,
(b) with respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful,
(c) unless ordered by a court, indemnification shall be made only as
authorized in the specific case upon a determination that
indemnification of the Trustee, officer, employee or agent is proper
in the circumstances because he has met the applicable standard of
conduct set forth in subparagraphs (a) and (b) above and (e) below,
such determination to be made based upon a review of readily available
facts (as opposed to a full trial-type inquiry) by (i) vote of a
majority of the Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees then in office act on
the matter) or (ii) by independent legal counsel in a written opinion.
(d) in the case of an action or suit by or in the right of the Trust to
procure a judgment in its factor, no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall
have been adjusted to be liable for negligence or misconduct in the
performance of his duty to the Trust unless and only to the extent
that the court in which such action or suit is brought, or a court of
equity in the county in which the Trust has its principal office,
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, he is
fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper, and
(e) no indemnification or other protection shall be made or given to any
Trustee or officer of the Trust against any liability to the Trust or
to its security holders 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.
Expenses (including attorneys' fees) incurred with respect to any claim,
action, suit or proceeding of the character described in the preceding paragraph
shall be paid by the Trust in advance of the final disposition thereof upon
receipt of an undertaking by or on behalf of such person to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the Trust as authorized by this Article, provided that either:
(1) such undertaking is secured by a surety bond or some other appropriate
security provided by the recipient, or the Trust shall be insured
against losses arising out of any such advances; or
(2) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees act on the
matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that
the recipient ultimately will be found entitled to indemnification.
As used in this Section 2, a "Disinterested Trustee" is one who is not (i)
an "Interested Person", as defined in the Act, of the Trust (including anyone
who has been exempted from being an "Interested Person" by any rule, regulation,
or order of the Securities and Exchange Commission), or (ii) involved in the
claim, action, suit or proceeding.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Trust, or with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 3. Indemnification of Shareholders. In case any shareholder or former
shareholder shall be held to be personally liable solely by reason of his being
or having been a shareholder and not because of his acts or omissions or for
some other reason, the shareholder or former shareholder (or his heirs,
executors, administrators or other legal representatives or, in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled out of the Trust estate to be held harmless from and indemnified
against all loss and expense arising from such liability. The Trust shall, upon
request by the shareholder, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. A holder of shares of a series shall be entitled to indemnification
hereunder only out of assets allocated to that series.
ARTICLE XII
Underwriting Arrangements
Any contract entered into for the sale of shares of the Trust pursuant to
Article VIII, Section 2 of the Declaration of Trust shall require the other
party thereto (hereinafter called the "underwriter") whether acting as principal
or as agent to use all reasonable efforts, consistent with the other business of
the underwriter, to secure purchasers for the shares of the Trust.
The underwriter may be granted the right
(a) To purchase as principal, from the Trust, at not less than net asset
value per share, the shares needed, but no more than the shares needed
(except for clerical errors and errors of transmission), to fill
unconditional orders for shares of the Trust received by the
underwriter.
(b) To purchase as principal, from shareholders of the Trust at not less
than net asset value per share (minus any applicable sales charge
payable upon redemption or repurchase of shares) such shares as may be
presented to the Trust, or the transfer agent of the Trust, for
redemption and as may be determined by the underwriter in its sole
discretion.
(c) to resell any such shares purchased at not less than net asset value
per share (minus any applicable sales charge payable upon redemption
or repurchase of shares).
ARTICLE XIII
Report to Shareholders
The Trustees shall at least semi-annually submit to the shareholders a
written financial report of the transactions of the Trust including financial
statements which shall at least annually be certified by independent public
accountants.
ARTICLE XIV
Certain Transactions
SECTION 1. Long and Short Positions. Except as hereinafter provided, no officer
or Trustee and no partner, officer, director or shareholder of the manager or
investment adviser of the Trust or of the underwriter of the Trust, and no
manager or investment adviser or underwriter of the Trust, shall take long or
short positions in the securities issued by the Trust.
(a) The foregoing provision shall not prevent the underwriter from
purchasing shares of the Trust from the Trust if such purchases are
limited (except for reasonable allowances for clerical errors, delays
and errors of transmission and cancellation of orders) to purchases
for the purpose of filling orders for such shares received by the
underwriter, and provided that orders to purchase from the Trust are
entered with the Trust or the Custodian promptly upon receipt by the
underwriter of purchase orders for such shares, unless the underwriter
is otherwise instructed by its customer.
(b) The foregoing provision shall not prevent the underwriter from
purchasing shares of the Trust as agent for the account of the Trust.
(c) The foregoing provision shall not prevent the purchase from the Trust
or from the underwriter of shares issued by the Trust by any officer
or Trustee of the Trust or by any partner, officer, director or
shareholder of the manager or investment adviser of the Trust at the
price available to the public generally at the moment of such purchase
or, to the extent that any such person is a shareholder, at the price
available to shareholders of the Trust generally at the moment of such
purchase, or as described in the current Prospectus of the Trust.
SECTION 2. Loans of Trust Assets. The Trust shall not lend assets of the Trust
to any officer or Trustee of the Trust, or to any partner, officer, director or
shareholder of, or person financially interested in, the manager or investment
adviser of the Trust, or the underwriter of the Trust, or to the manager or
investment adviser of the Trust or to the underwriter of the Trust.
SECTION 3. Miscellaneous. The Trust shall not permit any officer or Trustee, or
any officer or director of the manager or investment adviser or underwriter of
the Trust, to deal for or on behalf of the Trust with himself as principal or
agent, or with any partnership, association or corporation in which he has a
financial interest; provided that the foregoing provisions shall not prevent (i)
officers and Trustees of the Trust from buying, holding or selling shares in the
Trust, or from being partners, officers or directors of or otherwise financially
interested in the manager or investment adviser or underwriter of the Trust;
(ii) purchases or sales of securities or other property by the Trust from or to
an affiliated person or to the manager or investment adviser or underwriter of
the Trust if such transaction is exempt from the applicable provisions of the
Act; (iii) purchases of investments from the portfolio of the Trust or sales of
investments owned by the Trust through a security dealer who is, or one or more
of whose partners, shareholders, officers or directors is, an officer or Trustee
of the Trust, if such transactions are handled in the capacity of broker only
and commissions charged do not exceed customary brokerage charges for such
services; (iv) employment of legal counsel, registrar, transfer agent, dividend
disbursing agent or custodian who is, or has a partner, shareholder, officer or
director who is, an officer or Trustee of the Trust if only customary fees are
charged for services to the Trust; (v) sharing statistical, research, legal and
management expenses and office hire and expenses with any other investment
company in which an officer or Trustee of the Trust is an officer,trustee or
director or otherwise financially interested; or (vi) the purchase for the
portfolio of the Trust of securities issued by an issuer having an officer,
director or security holder who is an officer or Trustee of the Trust or of the
manager or investment adviser of the Trust, unless such purchase would violate
the Trust's investment policies or restrictions.
References to the manager or investment adviser of the Trust contained
in this Article XIV shall also be deemed to refer to any sub-adviser appointed
in accordance with Article VIII, Section 1 of the Declaration of Trust.
ARTICLE XV
Amendments
Except as provided in Section 3 of Article I of these By-Laws for the
portions of such Section 3 referred to therein, these By-Laws may be amended at
any meeting of the Trustees by a vote of a majority of the Trustees then in
office.
**********
<PAGE>
EXHIBIT 99.2(b)
AMENDMENT TO
BY-LAWS
OF
EATON VANCE MUNICIPALS TRUST
December 13, 1993
Pursuant to ARTICLE XV of the BY-LAWS of Eaton Vance Municipals Trust, (the
"Trust") upon vote of a majority of the Trustees of the Trust SECTION 2. of
ARTICLE II of the BY-LAWS of the Trust was amended to read as follows:
SECTION 2. Election of Officers. The President, Treasurer and Secretary shall be
chosen annually by the Trustees.
Except for the offices of President and Secretary, two or more offices
may be held by a single person. The officers shall hold office until their
successors are chosen and qualified.
********************
EXHIBIT 99.6(a)(1)
EATON VANCE MUNICIPALS TRUST
AMENDED DISTRIBUTION AGREEMENT
(CLASSIC FUNDS)
AGREEMENT effective as of January 27, 1995 between EATON VANCE
MUNICIPALS TRUST, a Massachusetts business trust having its principal place of
business in Boston in the Commonwealth of Massachusetts, hereinafter called the
"Trust", on behalf of each of its series listed on Schedule A (the "Funds"), and
EATON VANCE DISTRIBUTORS, INC., a Massachusetts corporation having its principal
place of business in said Boston, hereinafter sometimes called the "Principal
Underwriter".
IN CONSIDERATION of the mutual promises and undertakings herein
contained, the parties hereto agree with respect to each Fund:
1. The Trust grants to the Principal Underwriter the right to purchase
shares of the Fund upon the terms hereinbelow set forth during the term of this
Agreement. While this Agreement is in force, the Principal Underwriter agrees to
use its best efforts to find purchasers for shares of the Fund.
The Principal Underwriter shall have the right to buy from the Fund the
shares needed, but not more than the shares needed (except for clerical errors
and errors of transmission) to fill unconditional orders for shares of the Fund
placed with the Principal Underwriter by financial service firms or investors as
set forth in the current Prospectus relating to shares of the Fund. The price
which the Principal Underwriter shall pay for the shares so purchased shall be
equal to the price paid by investors upon purchasing such shares. The Principal
Underwriter shall notify Investors Bank & Trust Company, Custodian of the Fund
("IBT"), and The Shareholder Services Group, Inc., Transfer Agent of the Fund
("TSSG"), or a successor transfer agent, at the end of each business day, or as
soon thereafter as the orders placed with it have been compiled, of the number
of shares and the prices thereof which the Principal Underwriter is to purchase
as principal for resale. The Principal Underwriter shall take down and pay for
shares ordered from the Fund on or before the eleventh business day (excluding
Saturdays) after the shares have been so ordered.
The right granted to the Principal Underwriter to buy shares from the
Fund shall be exclusive, except that said exclusive right shall not apply to
shares issued in connection with the merger or consolidation of any other
investment company or personal holding company with the Fund or the acquisition
by purchase or otherwise of all (or substantially all) the assets or the
outstanding shares of any such company, by the Fund; nor shall it apply to
shares, if any, issued by the Fund in distribution of income or realized capital
gains of the Fund payable in shares or in cash at the option of the shareholder.
2. The shares may be resold by the Principal Underwriter to or through
financial service firms having agreements with the Principal Underwriter, and to
investors, upon the following terms and conditions.
The public offering price, i.e., the price per share at which the
Principal Underwriter or financial service firm purchasing shares from the
Principal Underwriter may sell shares to the public, shall be equal to the net
asset value at which the Principal Underwriter is to purchase the shares.
The net asset value of shares of the Fund shall be determined by the
Trust or IBT, as the agent of the Fund, as of the close of regular trading on
the New York Stock Exchange on each business day on which said Exchange is open,
or as of such other time on each such business day as may be determined by the
Trustees of the Trust, in accordance with the methodology and procedures for
calculating such net asset value authorized by the Trustees. The Trust may also
cause the net asset value to be determined in substantially the same manner or
estimated in such manner and as of such other time or times as may from time to
time be agreed upon by the Trust and Principal Underwriter. The Trust will
notify the Principal Underwriter each time the net asset value of the Fund's
shares is determined and when such value is so determined it shall be applicable
to transactions as set forth in the current Prospectus and Statement of
Additional Information (hereafter the "Prospectus") relating to the Fund's
shares.
No shares of the Fund shall be sold by the Fund during any period when
the determination of net asset value is suspended pursuant to the Declaration of
Trust, except to the Principal Underwriter, in the manner and upon the terms
above set forth to cover contracts of sale made by the Principal Underwriter
with its customers prior to any such suspension, and except as provided in the
last paragraph of paragraph 1 hereof. The Trust shall also have the right to
suspend the sale of the Fund's shares if in the judgment of the Trust conditions
obtaining at any time render such action advisable. The Principal Underwriter
shall have the right to suspend sales at any time, to refuse to accept or
confirm any order from an investor or financial service firm, or to accept or
confirm any such order in part only, if in the judgment of the Principal
Underwriter such action is in the best interests of the Fund.
3. The Trust agrees that it will, from time to time, but subject to the
necessary approval of the Fund's shareholders, take such steps as may be
necessary to register the Fund's shares under the federal Securities Act of
1933, as amended from time to time, (the "1933 Act"), to the end that there will
be available for sale such number of shares as the Principal Underwriter may
reasonably be expected to sell. The Trust agrees to indemnify and hold harmless
the Principal Underwriter and each person, if any, who controls the Principal
Underwriter within the meaning of Section 15 of the 1933 Act against any loss,
liability, claim, damages or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damages or
expense and reasonable counsel fees incurred in connection therewith), arising
by reason of any person acquiring any shares of the Fund, which may be based
upon the 1933 Act or on any other statute or at common law, on the ground that
the Registration Statement or Prospectus, as from time to time amended and
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon, and in conformity with, information furnished in writing to the
Trust in connection therewith by or on behalf of the Principal Underwriter;
provided, however, that in no case (i) is the indemnity of the Trust in favor of
the Principal Underwriter and any such controlling person to be deemed to
protect such Principal Underwriter or any such controlling person against any
liability to the Trust or the Fund or its security holders to which such
Principal Underwriter or any such controlling person would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement, or (ii) is the Trust or the Fund to
be liable under its indemnity agreement contained in this paragraph with respect
to any claim made against the Principal Underwriter or any such controlling
person unless the Principal Underwriter or any such controlling person, as the
case may be, shall have notified the Trust in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the Principal Underwriter or such
controlling person (or after such Principal Underwriter or such controlling
person shall have received notice of such service on any designated agent), but
failure to notify the Trust of any such claim shall not relieve it from any
liability which the Fund may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph. The Trust shall be entitled to participate, at the expense of the
Fund, in the defense, or, if the Trust so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Trust elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Principal Underwriter or controlling person or persons,
defendant or defendants in the suit. In the event the Trust elects to assume the
defense of any such suit and retains such counsel, the Principal Underwriter or
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them, but, in case
the Trust does not elect to assume the defense of any such suit, the Fund shall
reimburse the Principal Underwriter or controlling person or persons, defendant
or defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Trust agrees promptly to notify the Principal Underwriter
of the commencement of any litigation or proceedings against it or any of its
officers or Trustees in connection with the issuance or sale of any of the
Fund's shares.
4. The Principal Underwriter covenants and agrees that, in selling the
shares of the Fund, it will use its best efforts in all respects duly to conform
with the requirements of all state and federal laws relating to the sale of such
shares, and will indemnify and hold harmless the Trust and each of its Trustees
and officers and each person, if any, who controls the Trust within the meaning
of Section 15 of the 1933 Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense and reasonable counsel fees incurred
in connection therewith), arising by reason of any person acquiring any shares
of the Fund, which may be based upon the 1933 Act or any other statute or at
common law, on account of any wrongful act of the Principal Underwriter or any
of its employees (including any failure to conform with any requirement of any
state or federal law relating to the sale of such shares) or on the ground that
the Registration Statement or Prospectus, as from time to time amended and
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading, insofar as any such statement or omission was
made in reliance upon, and in conformity with information furnished in writing
to the Fund in connection therewith by or on behalf of the Principal
Underwriter, provided, however, that in no case (i) is the indemnity of the
Principal Underwriter in favor of any person indemnified to be deemed to protect
the Fund or any such person against any liability to which the Fund or any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of its or his duties or by reason of its
or his reckless disregard of its obligations and duties under this Agreement, or
(ii) is the Principal Underwriter to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the Fund or
any person indemnified unless the Trust or such person, as the case may be,
shall have notified the Principal Underwriter in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Trust, the Fund or upon such
person (or after the Trust or such person shall have received notice of such
service on any designated agent), but failure to notify the Principal
Underwriter of any such claim shall not relieve it from any liability which it
may have to the Fund or any person against whom such action is brought otherwise
than on account of its indemnity agreement contained in this paragraph. The
Principal Underwriter shall be entitled to participate, at its own expense, in
the defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Principal Underwriter elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Trust, or to its officers or Trustees, or to any controlling
person or persons, defendant or defendants in the suit. In the event that the
Principal Underwriter elects to assume the defense of any such suit and retains
such counsel, the Fund or such officers or Trustees or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them or the Trust, but, in case the
Principal Underwriter does not elect to assume the defense of any such suit, it
shall reimburse the Fund, any such officers and Trustees or controlling person
or persons, defendant or defendants in such suit, for the reasonable fees and
expenses of any counsel retained by them or the Trust. The Principal Underwriter
agrees promptly to notify the Trust of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any of the
Fund's shares.
Neither the Principal Underwriter nor any financial service firm nor
any other person is authorized by the Trust to give any information or to make
any representations, other than those contained in the Registration Statement or
Prospectus filed with the Securities and Exchange Commission (the "Commission")
under the 1933 Act, (as said Registration Statement and Prospectus may be
amended or supplemented from time to time), covering the shares of the Fund.
Neither the Principal Underwriter nor any financial service firm nor any other
person is authorized to act as agent for the Trust or the Fund in connection
with the offering or sale of shares of the Fund to the public or otherwise. All
such sales made by the Principal Underwriter shall be made by it as principal,
for its own account. The Principal Underwriter may, however, act as agent in
connection with the repurchase of shares as provided in paragraph 6 below, or in
connection with "exchanges" between investment companies for which the Principal
Underwriter acts as Principal Underwriter or for which an affiliate of the
Principal Underwriter acts as investment adviser.
5(a). The Fund will pay, or cause to be paid -
(i) all the costs and expenses of the Fund, including fees and
disbursements of its counsel, in connection with the preparation and filing of
any required Registration Statement and/or Prospectus under the 1933 Act, or the
Investment Company Act of 1940, as amended from time to time, (the "1940 Act")
covering its shares and all amendments and supplements thereto, and preparing
and mailing periodic reports to shareholders (including the expense of setting
up in type any such Registration Statement, Prospectus or periodic report);
(ii) the cost of preparing temporary and permanent share
certificates (if any) for shares of the Fund;
(iii) the cost and expenses of delivering to the Principal
Underwriter at its office in Boston, Massachusetts, all shares of the Fund
purchased by it as principal hereunder; and
(iv) all the federal and state (if any) issue and/or transfer
taxes payable upon the issue by or (in the case of treasury shares) transfer
from the Fund to the Principal Underwriter of any and all shares of the Fund
purchased by the Principal Underwriter hereunder.
(b) The Principal Underwriter agrees that, after the Prospectus and
periodic reports have been set up in type, it will bear the expense of printing
and distributing any copies thereof which are to be used in connection with the
offering of shares of the Fund to financial service firms or investors. The
Principal Underwriter further agrees that it will bear the expenses of
preparing, printing and distributing any other literature used by the Principal
Underwriter or furnished by it for use by financial service firms in connection
with the offering of the shares of the Fund for sale to the public and any
expenses of advertising in connection with such offering. The Fund agrees to pay
the expenses of registration and maintaining registration of its shares for sale
under federal and state securities laws, and, if necessary or advisable in
connection therewith, of qualifying the Trust or the Fund as a dealer or broker,
in such states as shall be selected by the Principal Underwriter and the fees
payable to each such state for continuing the qualification therein until the
Principal Underwriter notifies the Trust that it does not wish such
qualification continued.
(c) In addition, the Trust agrees, in accordance with the Fund's
Amended Distribution Plan (the "Plan"), adopted pursuant to Rule 12b-1 under the
1940 Act with respect to shares, to make certain payments as follows. The
Principal Underwriter shall be entitled to be paid by the Fund a sales
commission equal to an amount not exceeding 6.25% of the price received by the
Fund for each sale of shares (excluding reinvestment of dividends and
distributions), such payment to be made in the manner set forth in this
paragraph 5. The Principal Underwriter shall also be entitled to be paid by the
Fund a separate distribution fee (calculated in accordance with paragraph 5(d)),
such payment to be made in the manner set forth and subject to the terms of this
paragraph 5.
(d) The sales commissions and distribution fees referred to in
paragraph 5(c) shall be accrued and paid by the Fund in the following manner.
The Fund shall accrue daily an amount calculated at the rate of .75% per annum
of the daily net assets of the Fund, which net assets shall be computed as
described in paragraph 2. The daily amounts so accrued throughout the month
shall be paid to the Principal Underwriter on the last day of each month. The
amount of such daily accrual, as so calculated, shall first be applied and
charged to all unpaid sales commissions, and the balance, if any, shall then be
applied and charged to all unpaid distribution fees. No amount shall be accrued
with respect to any day on which there exist no outstanding uncovered
distribution charges of the Principal Underwriter. The amount of such uncovered
distribution charges shall be calculated daily. For purposes of this
calculation, distribution charges of the Principal Underwriter shall include (a)
the aggregate of all sales commissions which the Principal Underwriter has been
paid pursuant to this paragraph (d) (and pursuant to paragraph (d) of the
Original Agreement) plus all sales commissions which it is entitled to be paid
pursuant to paragraph 5(c) (and pursuant to paragraph 5(c) of the Original
Agreement) since inception of the Original Agreement through and including the
day next preceding the date of calculation, and (b) an amount equal to the
aggregate of all distribution fees referred to below which the Principal
Underwriter has been paid pursuant to this paragraph (d) (and pursuant to
paragraph (d) of the Original Agreement) plus all such fees which it is entitled
to be paid pursuant to paragraph 5(c) (and pursuant to paragraph 5(c) of the
Original Agreement) since inception of the Original Agreement through and
including the day next preceding the date of calculation. From this sum
(distribution charges) there shall be subtracted (i) the aggregate amount paid
or payable to the Principal Underwriter pursuant to this paragraph (d) (and
pursuant to paragraph (d) of the Original Agreement) since inception of the
Original Agreement through and including the day next preceding the date of
calculation and (ii) the aggregate amount of all contingent deferred sales
charges paid or payable to the Principal Underwriter since inception of the
Original Agreement through and including the day next preceding the date of
calculation. If the result of such subtraction is a positive amount, a
distribution fee [computed at the rate of 1% per annum above the prime rate
(being the base rate on corporate loans posted by at least 75% of the nation's
30 largest banks) then being reported in the Eastern Edition of The Wall Street
Journal or if such prime rate is not so reported such other rate as may be
designated from time to time by vote or other action of a majority of (i) those
Trustees of the Trust who are not "interested persons" of the Trust (as defined
in the 1940 Act) and 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] shall be computed on
such amount and added to such amount, with the resulting sum constituting the
amount of outstanding uncovered distribution charges of the Principal
Underwriter with respect to such day for all purposes of this Agreement. If the
result of such subtraction is a negative amount, there shall exist no
outstanding uncovered distribution charges of the Principal Underwriter with
respect to such day and no amount shall be accrued or paid to the Principal
Underwriter with respect to such day. The aggregate amounts accrued and paid
pursuant to this paragraph (d) during any fiscal year of the Fund shall not
exceed .75% of the average daily net assets of the Fund for such year.
(e) The Principal Underwriter shall be entitled to receive all
contingent deferred sales charges paid or payable with respect to any day on
which there exist outstanding uncovered distribution charges of the Principal
Underwriter. The Fund shall be entitled to receive all remaining contingent
deferred sales charges paid or payable by shareholders with respect to any day
on which there exist no outstanding uncovered distribution charges of the
Principal Underwriter, provided that no such sales charge which would cause the
Fund to exceed the maximum applicable cap imposed thereon by paragraph (2) of
subsection (d) of Section 26 of Article III of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. shall be imposed.
(f) The persons authorized to direct the disposition of monies paid or
payable by the Fund pursuant to the Plan or this Agreement shall be the
President or any Vice President of the Trust. Such persons shall provide to the
Trust's Trustees and the Trustees shall review, at least quarterly, a written
report of the amounts so expended and the purposes for which such expenditures
were made.
(g) In addition to the payments to the Principal Underwriter provided
for in paragraph 5(d), the Fund may make payments of service fees to the
Principal Underwriter, Authorized Firms and other persons. The aggregate of such
payments during any fiscal year of the Fund shall not exceed .25% of the Fund's
average daily net assets for such year.
6. The Trust hereby authorizes the Principal Underwriter to repurchase,
upon the terms and conditions set forth in written instructions given by the
Trust to the Principal Underwriter from time to time, as agent of the Fund and
for its account, such shares of the Fund as may be offered for sale to the Fund
from time to time.
(a) The Principal Underwriter shall notify in writing IBT and TSSG at
the end of each business day, or as soon thereafter as the repurchases in each
pricing period have been compiled, of the number of shares repurchased for the
account of the Fund since the last previous report, together with the prices at
which such repurchases were made, and upon the request of any officer or Trustee
of the Trust shall furnish similar information with respect to all repurchases
made up to the time of the request on any day.
(b) The Trust reserves the right to suspend or revoke the foregoing
authorization at any time; unless otherwise stated, any such suspension or
revocation shall be effective forthwith upon receipt of notice thereof by an
officer of the Principal Underwriter, by telegraph or by written instrument from
an officer of the Trust duly authorized by its Trustees. In the event that the
authorization of the Principal Underwriter is, by the terms of such notice,
suspended for more than twenty-four hours or until further notice, the
authorization given by this paragraph 6 shall not be revived except by action of
a majority of the Trustees of the Trust.
(c) The Principal Underwriter shall have the right to terminate the
operation of this paragraph 6 upon giving to the Trust thirty (30) days' written
notice thereof.
(d) The Trust agrees to authorize and direct IBT to pay, for the
account of the Fund, the purchase price of any shares so repurchased against
delivery of the certificates in proper form for transfer to the Fund or for
cancellation by the Fund.
(e) The Principal Underwriter shall receive no commission in respect of
any repurchase of shares under the foregoing authorization and appointment as
agent, except for any sales commission, distribution fee or contingent deferred
sales charges payable under paragraph 5.
(f) The Trust agrees that the Fund will reimburse the Principal
Underwriter, from time to time on demand, for any reasonable expenses incurred
in connection with the repurchase of shares of the Fund pursuant to this
paragraph 6.
7. If, at any time during the existence of this Agreement, the Trust
shall deem it necessary or advisable in the best interests of the Fund that any
amendment of this Agreement be made in order to comply with the recommendations
or requirements of the Commission or other governmental authority or to obtain
any advantage under Massachusetts or Federal tax laws, and shall notify the
Principal Underwriter of the form of amendment which it deems necessary or
advisable and the reasons therefor, and, if the Principal Underwriter declines
to assent to such amendment, the Trust may terminate this Agreement forthwith by
written notice to the Principal Underwriter. If, at any time during the
existence of its agreement upon request by the Principal Underwriter, the Trust
fails (after a reasonable time) to make any changes in its Declaration of Trust,
as amended, or in its methods of doing business which are necessary in order to
comply with any requirement of Federal law or regulations of the Commission or
of a national securities association of which the Principal Underwriter is or
may be a member, relating to the sale of the shares of the Fund, the Principal
Underwriter may terminate this Agreement forthwith by written notice to the
Trust.
8. The term "net asset value" as used in this Agreement with reference
to the shares of the Fund shall have the same meaning as used in the Declaration
of Trust, as amended, and calculated in the manner referred to in paragraph 2
above.
9(a). The Principal Underwriter is a corporation in the United States
organized under the laws of Massachusetts and holding membership in the National
Association of Securities Dealers, Inc., a securities association registered
under Section 15A of the Securities Exchange Act of 1934, as amended from time
to time, and during the life of this Agreement will continue to be so resident
in the United States, so organized and a member in good standing of said
Association. The Principal Underwriter will comply with the Trust's Declaration
of Trust and By-Laws, and the 1940 Act and the rules promulgated thereunder,
insofar as they are applicable to the Principal Underwriter.
(b) The Principal Underwriter shall maintain in the United States and
preserve therein for such period or periods as the Commission shall prescribe by
rules and regulations applicable to it as Principal Underwriter of an open-end
investment company registered under the 1940 Act such accounts, books and other
documents as are necessary or appropriate to record its transactions with the
Fund. Such accounts, books and other documents shall be subject at any time and
from time to time to such reasonable periodic, special and other examinations by
the Commission or any member or representative thereof as the Commission may
prescribe. The Principal Underwriter shall furnish to the Commission within such
reasonable time as the Commission may prescribe copies of or extracts from such
records which may be prepared without effort, expense or delay as the Commission
may by order require.
10. This Agreement shall continue in force indefinitely until
terminated as in this Agreement above provided, except that:
(a) this Agreement shall remain in effect through and including April
28, 1995 (or, if applicable, the next April 28 which follows the day on which
the Fund has become a party hereto by amendment of Schedule A subsequent to
April 28, 1995), and shall continue in full force and effect indefinitely
thereafter, but only so long as such continuance is specifically approved at
least annually (i) by the vote of a majority of the Rule 12b-1 Trustees cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Fund;
(b) this Agreement may be terminated at any time by vote of a majority
of the Rule 12b-1 Trustees or by vote of a majority of the outstanding voting
securities of the Fund on not more than sixty (60) days' notice to the Principal
Underwriter. The Principal Underwriter shall be entitled to receive all
contingent deferred sales charges paid or payable with respect to any day
subsequent to the termination of this Agreement;
(c) the Principal Underwriter shall have the right to terminate this
Agreement on six (6) months' written notice thereof given in writing to the
Fund;
(d) the Trust shall have the right to terminate this Agreement
forthwith in the event that it shall have been established by a court of
competent jurisdiction that the Principal Underwriter or any director or officer
of the Principal Underwriter has taken any action which results in a breach of
the covenants set out in paragraph 9 hereof; and
(e) additional series of the Trust will become parties hereto upon
approval by the Trustees of the Trust and amendment of Schedule A.
11. In the event of the assignment of this Agreement by the Principal
Underwriter, this Agreement shall automatically terminate.
12. Any notice under this Agreement shall be in writing, addressed and
delivered, or mailed postage paid, to the other party, at such address as such
other party may designate for the receipt of such notices. Until further notice
to the other party, it is agreed that the record address of the Trust and that
of the Principal Underwriter, shall be 24 Federal Street, Boston, Massachusetts
02110.
13. The services of the Principal Underwriter to the Fund hereunder are
not to be deemed to be exclusive, the Principal Underwriter being free to (a)
render similar service to, and to act as principal underwriter in connection
with the distribution of shares of, other series of the Trust or other
investment companies, and (b) engage in other business and activities from time
to time.
14. The terms "vote of a majority of the outstanding voting
securities," "assignment" and "interested persons," when used herein, shall have
the respective meanings specified in the 1940 Act, subject, however, to such
exemptions as may be granted by the Commission by any rule, regulation or order.
15. The Principal Underwriter expressly acknowledges the provision in
the Trust's Declaration of Trust limiting the personal liability of the
shareholders of the Fund or the Trustees of the Trust. The Principal Underwriter
hereby agrees that it shall have recourse to the Trust or the Fund for payment
of claims or obligations as between the Trust or the Fund and the Principal
Underwriter arising out of this Agreement and shall not seek satisfaction from
the shareholders or any shareholder of the Trust or from the Trustees or any
Trustee of the Trust. The Fund shall not be responsible for obligations of any
other series of the Trust.
16. All references in this Agreement to the "Original Agreement" shall
mean the Distribution Agreement referenced on Schedule A hereto between the
Trust on behalf of the Fund and the Principal Underwriter. Such references shall
not be applicable to any additional series of the Trust which becomes a Fund
hereunder by amendment of Schedule A subsequent to January 27, 1995.
17. This Agreement shall amend, replace and be substituted for the
Original Agreement as of the opening of business on January 30, 1995, and this
Agreement shall be effective as of such time. The outstanding uncovered
distribution charges of the Principal Underwriter calculated under the Original
Agreement as of the close of business on January 29, 1995 shall be the
outstanding uncovered distribution charges of the Principal Underwriter
calculated under this Agreement as of the opening of business on January 30,
1995.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
on the 27th day of January, 1995.
EATON VANCE MUNICIPALS TRUST
By /s/ Thomas J. Fetter
--------------------------
President
EATON VANCE DISTRIBUTORS, INC.
By /s/ Wharton P. Whitaker
--------------------------
President
<PAGE>
SCHEDULE A
EATON VANCE MUNICIPALS TRUST
AMENDED DISTRIBUTION AGREEMENT
DATED JANUARY 27, 1995
Name of Fund Inception Date of Original Agreement
------------ ------------------------------------
EV Classic Alabama Tax Free Fund November 29, 1993
EV Classic Arizona Tax Free Fund November 29, 1993
EV Classic Arkansas Tax Free Fund February 1, 1994
EV Classic Colorado Tax Free Fund November 29, 1993
EV Classic Connecticut Tax Free Fund November 29, 1993
EV Classic Florida Tax Free Fund November 22, 1993
EV Classic Georgia Tax Free Fund November 29, 1993
EV Classic Kentucky Tax Free Fund November 29, 1993
EV Classic Louisiana Tax Free Fund February 1, 1994
EV Classic Maryland Tax Free Fund November 29, 1993
EV Classic Massachusetts Tax Free Fund November 29, 1993
EV Classic Michigan Tax Free Fund November 29, 1993
EV Classic Minnesota Tax Free Fund November 29, 1993
EV Classic Mississippi Tax Free Fund November 29, 1993
EV Classic Missouri Tax Free Fund November 29, 1993
EV Classic National Municipals Fund November 22, 1993
EV Classic New Jersey Tax Free Fund November 22, 1993
EV Classic New York Tax Free Fund November 22, 1993
EV Classic North Carolina Tax Free Fund November 29, 1993
EV Classic Ohio Tax Free Fund November 29, 1993
EV Classic Oregon Tax Free Fund November 29, 1993
EV Classic Pennsylvania Tax Free Fund November 22, 1993
EV Classic Rhode Island Tax Free Fund November 29, 1993
EV Classic South Carolina Tax Free Fund February 1, 1994
EV Classic Tennessee Tax Free Fund November 29, 1993
EV Classic Texas Tax Free Fund November 29, 1993
EV Classic Virginia Tax Free Fund November 29, 1993
EV Classic West Virginia Tax Free Fund November 29, 1993
<PAGE>
AMENDED SCHEDULE A
EATON VANCE MUNICIPALS TRUST
AMENDED DISTRIBUTION AGREEMENT
(CLASSIC FUNDS)
EFFECTIVE: SEPTEMBER 29, 1995
Name of Fund Inception Date of Original Agreement
------------ ------------------------------------
EV Classic Alabama Tax Free Fund November 29, 1993
EV Classic Arizona Tax Free Fund November 29, 1993
EV Classic Arkansas Tax Free Fund February 1, 1994
EV Classic California Municipals Fund* November 22, 1993/January 27, 1995
EV Classic Colorado Tax Free Fund November 29, 1993
EV Classic Connecticut Tax Free Fund November 29, 1993
EV Classic Florida Tax Free Fund November 22, 1993
EV Classic Georgia Tax Free Fund November 29, 1993
EV Classic Kentucky Tax Free Fund November 29, 1993
EV Classic Louisiana Tax Free Fund February 1, 1994
EV Classic Maryland Tax Free Fund November 29, 1993
EV Classic Massachusetts Tax Free Fund November 29, 1993
EV Classic Michigan Tax Free Fund November 29, 1993
EV Classic Minnesota Tax Free Fund November 29, 1993
EV Classic Mississippi Tax Free Fund November 29, 1993
EV Classic Missouri Tax Free Fund November 29, 1993
EV Classic National Municipals Fund November 22, 1993
EV Classic New Jersey Tax Free Fund November 22, 1993
EV Classic New York Tax Free Fund November 22, 1993
EV Classic North Carolina Tax Free Fund November 29, 1993
EV Classic Ohio Tax Free Fund November 29, 1993
EV Classic Oregon Tax Free Fund November 29, 1993
EV Classic Pennsylvania Tax Free Fund November 22, 1993
EV Classic Rhode Island Tax Free Fund November 29, 1993
EV Classic South Carolina Tax Free Fund February 1, 1994
EV Classic Tennessee Tax Free Fund November 29, 1993
EV Classic Texas Tax Free Fund November 29, 1993
EV Classic Virginia Tax Free Fund November 29, 1993
EV Classic West Virginia Tax Free Fund November 29, 1993
-------------------
*This fund is a successor in operations to a fund which was reorganized,
effective October 1, 1995, and the outstanding uncovered distribution charges
of the predecessor fund were assumed by the above fund.
<PAGE>
EXHIBIT 99.6(a)(2)
EATON VANCE MUNICIPALS TRUST
AMENDED DISTRIBUTION AGREEMENT
(MARATHON FUNDS)
AGREEMENT effective as of June 19, 1995 between EATON VANCE MUNICIPALS
TRUST, a Massachusetts business trust having its principal place of business in
Boston in the Commonwealth of Massachusetts, hereinafter called the "Trust", on
behalf of each of its series listed on Schedule A (the "Funds"), and EATON VANCE
DISTRIBUTORS, INC., a Massachusetts corporation having its principal place of
business in said Boston, hereinafter sometimes called the "Principal
Underwriter".
IN CONSIDERATION of the mutual promises and undertakings herein
contained, the parties hereto agree with respect to each Fund:
1. The Trust grants to the Principal Underwriter the right to purchase
shares of the Fund upon the terms hereinbelow set forth during the term of this
Agreement. While this Agreement is in force, the Principal Underwriter agrees to
use its best efforts to find purchasers for shares of the Fund.
The Principal Underwriter shall have the right to buy from the Fund the
shares needed, but not more than the shares needed (except for clerical errors
and errors of transmission) to fill unconditional orders for shares of the Fund
placed with the Principal Underwriter by financial service firms or investors as
set forth in the current Prospectus relating to shares of the Fund. The price
which the Principal Underwriter shall pay for the shares so purchased shall be
equal to the price paid by investors upon purchasing such shares. The Principal
Underwriter shall notify Investors Bank & Trust Company, Custodian of the Fund
("IBT"), and The Shareholder Services Group, Inc., Transfer Agent of the Fund
("TSSG"), or a successor transfer agent, at the end of each business day, or as
soon thereafter as the orders placed with it have been compiled, of the number
of shares and the prices thereof which the Principal Underwriter is to purchase
as principal for resale. The Principal Underwriter shall take down and pay for
shares ordered from the Fund on or before the eleventh business day (excluding
Saturdays) after the shares have been so ordered.
The right granted to the Principal Underwriter to buy shares from the
Fund shall be exclusive, except that said exclusive right shall not apply to
shares issued in connection with the merger or consolidation of any other
investment company or personal holding company with the Fund or the acquisition
by purchase or otherwise of all (or substantially all) the assets or the
outstanding shares of any such company, by the Fund; nor shall it apply to
shares, if any, issued by the Fund in distribution of income or realized capital
gains of the Fund payable in shares or in cash at the option of the shareholder.
2. The shares may be resold by the Principal Underwriter to or through
financial service firms having agreements with the Principal Underwriter, and to
investors, upon the following terms and conditions.
The public offering price, i.e., the price per share at which the
Principal Underwriter or financial service firm purchasing shares from the
Principal Underwriter may sell shares to the public, shall be equal to the net
asset value at which the Principal Underwriter is to purchase the shares.
The net asset value of shares of the Fund shall be determined by the
Trust or IBT, as the agent of the Fund, as of the close of regular trading on
the New York Stock Exchange on each business day on which said Exchange is open,
or as of such other time on each such business day as may be determined by the
Trustees of the Trust, in accordance with the methodology and procedures for
calculating such net asset value authorized by the Trustees. The Trust may also
cause the net asset value to be determined in substantially the same manner or
estimated in such manner and as of such other time or times as may from time to
time be agreed upon by the Trust and Principal Underwriter. The Trust will
notify the Principal Underwriter each time the net asset value of the Fund's
shares is determined and when such value is so determined it shall be applicable
to transactions as set forth in the current Prospectus and Statement of
Additional Information (hereafter the "Prospectus") relating to the Fund's
shares.
No shares of the Fund shall be sold by the Fund during any period when
the determination of net asset value is suspended pursuant to the Declaration of
Trust, except to the Principal Underwriter, in the manner and upon the terms
above set forth to cover contracts of sale made by the Principal Underwriter
with its customers prior to any such suspension, and except as provided in the
last paragraph of paragraph 1 hereof. The Trust shall also have the right to
suspend the sale of the Fund's shares if in the judgment of the Trust conditions
obtaining at any time render such action advisable. The Principal Underwriter
shall have the right to suspend sales at any time, to refuse to accept or
confirm any order from an investor or financial service firm, or to accept or
confirm any such order in part only, if in the judgment of the Principal
Underwriter such action is in the best interests of the Fund.
3. The Trust agrees that it will, from time to time, but subject to the
necessary approval of the Fund's shareholders, take such steps as may be
necessary to register the Fund's shares under the federal Securities Act of
1933, as amended from time to time (the "1933 Act"), to the end that there will
be available for sale such number of shares as the Principal Underwriter may
reasonably be expected to sell. The Trust agrees to indemnify and hold harmless
the Principal Underwriter and each person, if any, who controls the Principal
Underwriter within the meaning of Section 15 of the 1933 Act against any loss,
liability, claim, damages or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damages or
expense and reasonable counsel fees incurred in connection therewith), arising
by reason of any person acquiring any shares of the Fund, which may be based
upon the 1933 Act or on any other statute or at common law, on the ground that
the Registration Statement or Prospectus, as from time to time amended and
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon, and in conformity with, information furnished in writing to the
Trust in connection therewith by or on behalf of the Principal Underwriter;
provided, however, that in no case (i) is the indemnity of the Trust in favor of
the Principal Underwriter and any such controlling person to be deemed to
protect such Principal Underwriter or any such controlling person against any
liability to the Trust or the Fund or its security holders to which such
Principal Underwriter or any such controlling person would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement, or (ii) is the Trust or the Fund to
be liable under its indemnity agreement contained in this paragraph with respect
to any claim made against the Principal Underwriter or any such controlling
person unless the Principal Underwriter or any such controlling person, as the
case may be, shall have notified the Trust in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the Principal Underwriter or such
controlling person (or after such Principal Underwriter or such controlling
person shall have received notice of such service on any designated agent), but
failure to notify the Trust of any such claim shall not relieve it from any
liability which the Fund may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph. The Trust shall be entitled to participate, at the expense of the
Fund, in the defense, or, if the Trust so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Trust elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Principal Underwriter or controlling person or persons,
defendant or defendants in the suit. In the event the Trust elects to assume the
defense of any such suit and retains such counsel, the Principal Underwriter or
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them, but, in case
the Trust does not elect to assume the defense of any such suit, the Fund shall
reimburse the Principal Underwriter or controlling person or persons, defendant
or defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Trust agrees promptly to notify the Principal Underwriter
of the commencement of any litigation or proceedings against it or any of its
officers or Trustees in connection with the issuance or sale of any of the
Fund's shares.
4. The Principal Underwriter covenants and agrees that, in selling the
shares of the Fund, it will use its best efforts in all respects duly to conform
with the requirements of all state and federal laws relating to the sale of such
shares, and will indemnify and hold harmless the Trust and each of its Trustees
and officers and each person, if any, who controls the Trust within the meaning
of Section 15 of the 1933 Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense and reasonable counsel fees incurred
in connection therewith), arising by reason of any person acquiring any shares
of the Fund, which may be based upon the 1933 Act or any other statute or at
common law, on account of any wrongful act of the Principal Underwriter or any
of its employees (including any failure to conform with any requirement of any
state or federal law relating to the sale of such shares) or on the ground that
the Registration Statement or Prospectus, as from time to time amended and
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading, insofar as any such statement or omission was
made in reliance upon, and in conformity with information furnished in writing
to the Fund in connection therewith by or on behalf of the Principal
Underwriter, provided, however, that in no case (i) is the indemnity of the
Principal Underwriter in favor of any person indemnified to be deemed to protect
the Fund or any such person against any liability to which the Fund or any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of its or his duties or by reason of its
or his reckless disregard of its obligations and duties under this Agreement, or
(ii) is the Principal Underwriter to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the Fund or
any person indemnified unless the Trust or such person, as the case may be,
shall have notified the Principal Underwriter in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Trust, the Fund or upon such
person (or after the Trust, the Fund or such person shall have received notice
of such service on any designated agent), but failure to notify the Principal
Underwriter of any such claim shall not relieve it from any liability which it
may have to the Fund or any person against whom such action is brought otherwise
than on account of its indemnity agreement contained in this paragraph. The
Principal Underwriter shall be entitled to participate, at its own expense, in
the defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Principal Underwriter elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Trust, or to its officers or Trustees, or to any controlling
person or persons, defendant or defendants in the suit. In the event that the
Principal Underwriter elects to assume the defense of any such suit and retains
such counsel, the Fund or such officers or Trustees or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them or the Trust, but, in case the
Principal Underwriter does not elect to assume the defense of any such suit, it
shall reimburse the Fund, any such officers and Trustees or controlling person
or persons, defendant or defendants in such suit, for the reasonable fees and
expenses of any counsel retained by them or the Trust. The Principal Underwriter
agrees promptly to notify the Trust of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any of the
Fund's shares.
Neither the Principal Underwriter nor any financial service firm nor
any other person is authorized by the Trust to give any information or to make
any representations, other than those contained in the Registration Statement or
Prospectus filed with the Securities and Exchange Commission (the "Commission")
under the 1933 Act, (as said Registration Statement and Prospectus may be
amended or supplemented from time to time), covering the shares of the Fund.
Neither the Principal Underwriter nor any financial service firm nor any other
person is authorized to act as agent for the Trust or the Fund in connection
with the offering or sale of shares of the Fund to the public or otherwise. All
such sales made by the Principal Underwriter shall be made by it as principal,
for its own account. The Principal Underwriter may, however, act as agent in
connection with the repurchase of shares as provided in paragraph 6 below, or in
connection with "exchanges" between investment companies for which the Principal
Underwriter acts as Principal Underwriter or for which an affiliate of the
Principal Underwriter acts as investment adviser.
5(a). The Fund will pay, or cause to be paid -
(i) all the costs and expenses of the Fund, including fees and
disbursements of its counsel, in connection with the preparation and filing of
any required Registration Statement and/or Prospectus under the 1933 Act, or the
Investment Company Act of 1940, as amended from time to time, (the "1940 Act")
covering its shares and all amendments and supplements thereto, and preparing
and mailing periodic reports to shareholders (including the expense of setting
up in type any such Registration Statement, Prospectus or periodic report);
(ii) the cost of preparing temporary and permanent share
certificates (if any) for shares of the Fund;
(iii) the cost and expenses of delivering to the Principal
Underwriter at its office in Boston, Massachusetts, all shares of the Fund
purchased by it as principal hereunder; and
(iv) all the federal and state (if any) issue and/or transfer
taxes payable upon the issue by or (in the case of treasury shares) transfer
from the Fund to the Principal Underwriter of any and all shares of the Fund
purchased by the Principal Underwriter hereunder.
(b) The Principal Underwriter agrees that, after the Prospectus and
periodic reports have been set up in type, it will bear the expense of printing
and distributing any copies thereof which are to be used in connection with the
offering of shares of the Fund to financial service firms or investors. The
Principal Underwriter further agrees that it will bear the expenses of
preparing, printing and distributing any other literature used by the Principal
Underwriter or furnished by it for use by financial service firms in connection
with the offering of the shares of the Fund for sale to the public and any
expenses of advertising in connection with such offering. The Fund agrees to pay
the expenses of registration and maintaining registration of its shares for sale
under federal and state securities laws, and, if necessary or advisable in
connection therewith, of qualifying the Trust or the Fund as a dealer or broker,
in such states as shall be selected by the Principal Underwriter and the fees
payable to each such state for continuing the qualification therein until the
Principal Underwriter notifies the Trust that it does not wish such
qualification continued.
(c) In addition, the Trust agrees, in accordance with the Fund's
Amended Distribution Plan (the "Plan"), adopted pursuant to Rule 12b-1 under the
1940 Act with respect to shares, to make certain payments as follows. The
Principal Underwriter shall be entitled to be paid by the Fund a sales
commission equal to an amount not exceeding 5% of the price received by the Fund
for each sale of shares (excluding reinvestment of dividends and distributions),
such payment to be made in the manner set forth in this paragraph 5. The
Principal Underwriter shall also be entitled to be paid by the Fund a separate
distribution fee (calculated in accordance with paragraph 5(d)), such payment to
be made in the manner set forth and subject to the terms of this paragraph 5.
(d) The sales commissions and distribution fees referred to in
paragraph 5(c) shall be accrued and paid by the Fund in the following manner.
The Fund shall accrue daily an amount calculated at the rate of .75% per annum
of the daily net assets of the Fund, which net assets shall be computed as
described in paragraph 2. The daily amounts so accrued throughout the month
shall be paid to the Principal Underwriter on the last day of each month. The
amount of such daily accrual, as so calculated, shall first be applied and
charged to all unpaid sales commissions, and the balance, if any, shall then be
applied and charged to all unpaid distribution fees. No amount shall be accrued
with respect to any day on which there exist no outstanding uncovered
distribution charges of the Principal Underwriter. The amount of such uncovered
distribution charges shall be calculated daily. For purposes of this
calculation, distribution charges of the Principal Underwriter shall include (a)
the aggregate of all sales commissions which the Principal Underwriter has been
paid pursuant to this paragraph (d) (and pursuant to paragraph (d) of the
Original Agreements) plus all sales commissions which it is entitled to be paid
pursuant to paragraph 5(c) (and pursuant to paragraph 5(c) of the Original
Agreements) since inception of the Original Agreements through and including the
day next preceding the date of calculation, and (b) an amount equal to the
aggregate of all distribution fees referred to below which the Principal
Underwriter has been paid pursuant to this paragraph (d) (and pursuant to
paragraph (d) of the Original Agreements) plus all such fees which it is
entitled to be paid pursuant to paragraph 5(c) (and pursuant to paragraph 5(c)
of the Original Agreements) since inception of the Original Agreements through
and including the day next preceding the date of calculation. From this sum
(distribution charges) there shall be subtracted (i) the aggregate amount paid
or payable to the Principal Underwriter pursuant to this paragraph (d) (and
pursuant to paragraph (d) of the Original Agreements) since inception of the
Original Agreements through and including the day next preceding the date of
calculation and (ii) the aggregate amount of all contingent deferred sales
charges paid or payable to the Principal Underwriter since inception of the
Original Agreements through and including the day next preceding the date of
calculation. If the result of such subtraction is a positive amount, a
distribution fee [computed at the rate of 1% per annum above the prime rate
(being the base rate on corporate loans posted by at least 75% of the nation's
30 largest banks) then being reported in the Eastern Edition of The Wall Street
Journal or if such prime rate is not so reported such other rate as may be
designated from time to time by vote or other action of a majority of (i) those
Trustees of the Trust who are not "interested persons" of the Trust (as defined
in the 1940 Act) and 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] shall be computed on
such amount and added to such amount, with the resulting sum constituting the
amount of outstanding uncovered distribution charges of the Principal
Underwriter with respect to such day for all purposes of this Agreement. If the
result of such subtraction is a negative amount, there shall exist no
outstanding uncovered distribution charges of the Principal Underwriter with
respect to such day and no amount shall be accrued or paid to the Principal
Underwriter with respect to such day. The aggregate amounts accrued and paid
pursuant to this paragraph (d) during any fiscal year of the Fund shall not
exceed .75% of the average daily net assets of the Fund for such year.
(e) The Principal Underwriter shall be entitled to receive all
contingent deferred sales charges paid or payable with respect to any day on
which there exist outstanding uncovered distribution charges of the Principal
Underwriter. The Fund shall be entitled to receive all remaining contingent
deferred sales charges paid or payable by shareholders with respect to any day
on which there exist no outstanding uncovered distribution charges of the
Principal Underwriter, provided that no such sales charge which would cause the
Fund to exceed the maximum applicable cap imposed thereon by paragraph (2) of
subsection (d) of Section 26 of Article III of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. shall be imposed.
(f) The persons authorized to direct the disposition of monies paid or
payable by the Fund pursuant to the Plan or this Agreement shall be the
President or any Vice President of the Trust. Such persons shall provide to the
Trust's Trustees and the Trustees shall review, at least quarterly, a written
report of the amounts so expended and the purposes for which such expenditures
were made.
(g) In addition to the payments to the Principal Underwriter provided
for in paragraph 5(d), the Fund may make payments of service fees to the
Principal Underwriter, Authorized Firms and other persons. The aggregate of such
payments during any fiscal year of the Fund shall not exceed .25% of the Fund's
average daily net assets for such year.
6. The Trust hereby authorizes the Principal Underwriter to repurchase,
upon the terms and conditions set forth in written instructions given by the
Trust to the Principal Underwriter from time to time, as agent of the Fund and
for its account, such shares of the Fund as may be offered for sale to the Fund
from time to time.
(a) The Principal Underwriter shall notify in writing IBT and TSSG at
the end of each business day, or as soon thereafter as the repurchases in each
pricing period have been compiled, of the number of shares repurchased for the
account of the Fund since the last previous report, together with the prices at
which such repurchases were made, and upon the request of any officer or Trustee
of the Trust shall furnish similar information with respect to all repurchases
made up to the time of the request on any day.
(b) The Trust reserves the right to suspend or revoke the foregoing
authorization at any time; unless otherwise stated, any such suspension or
revocation shall be effective forthwith upon receipt of notice thereof by an
officer of the Principal Underwriter, by telegraph or by written instrument from
an officer of the Trust duly authorized by its Trustees. In the event that the
authorization of the Principal Underwriter is, by the terms of such notice,
suspended for more than twenty-four hours or until further notice, the
authorization given by this paragraph 6 shall not be revived except by action of
a majority of the Trustees of the Trust.
(c) The Principal Underwriter shall have the right to terminate the
operation of this paragraph 6 upon giving to the Trust thirty (30) days' written
notice thereof.
(d) The Trust agrees to authorize and direct IBT to pay, for the
account of the Fund, the purchase price of any shares so repurchased against
delivery of the certificates in proper form for transfer to the Fund or for
cancellation by the Fund.
(e) The Principal Underwriter shall receive no commission in respect of
any repurchase of shares under the foregoing authorization and appointment as
agent, except for any sales commission, distribution fee or contingent deferred
sales charges payable under paragraph 5.
(f) The Trust agrees that the Fund will reimburse the Principal
Underwriter, from time to time on demand, for any reasonable expenses incurred
in connection with the repurchase of shares of the Fund pursuant to this
paragraph 6.
7. If, at any time during the existence of this Agreement, the Trust
shall deem it necessary or advisable in the best interests of the Fund that any
amendment of this Agreement be made in order to comply with the recommendations
or requirements of the Commission or other governmental authority or to obtain
any advantage under Massachusetts or federal tax laws, and shall notify the
Principal Underwriter of the form of amendment which it deems necessary or
advisable and the reasons therefor, and, if the Principal Underwriter declines
to assent to such amendment, the Trust may terminate this Agreement forthwith by
written notice to the Principal Underwriter. If, at any time during the
existence of its agreement upon request by the Principal Underwriter, the Trust
fails (after a reasonable time) to make any changes in its Declaration of Trust,
as amended, or in its methods of doing business which are necessary in order to
comply with any requirement of federal law or regulations of the Commission or
of a national securities association of which the Principal Underwriter is or
may be a member, relating to the sale of the shares of the Fund, the Principal
Underwriter may terminate this Agreement forthwith by written notice to the
Trust.
8. The term "net asset value" as used in this Agreement with reference
to the shares of the Fund shall have the same meaning as used in the Declaration
of Trust, as amended, and calculated in the manner referred to in paragraph 2
above.
9(a). The Principal Underwriter is a corporation in the United States
organized under the laws of Massachusetts and holding membership in the National
Association of Securities Dealers, Inc., a securities association registered
under Section 15A of the Securities Exchange Act of 1934, as amended from time
to time, and during the life of this Agreement will continue to be so resident
in the United States, so organized and a member in good standing of said
Association. The Principal Underwriter will comply with the Trust's Declaration
of Trust and By-Laws, and the 1940 Act and the rules promulgated thereunder,
insofar as they are applicable to the Principal Underwriter.
(b) The Principal Underwriter shall maintain in the United States and
preserve therein for such period or periods as the Commission shall prescribe by
rules and regulations applicable to it as Principal Underwriter of an open-end
investment company registered under the 1940 Act such accounts, books and other
documents as are necessary or appropriate to record its transactions with the
Fund. Such accounts, books and other documents shall be subject at any time and
from time to time to such reasonable periodic, special and other examinations by
the Commission or any member or representative thereof as the Commission may
prescribe. The Principal Underwriter shall furnish to the Commission within such
reasonable time as the Commission may prescribe copies of or extracts from such
records which may be prepared without effort, expense or delay as the Commission
may by order require.
10. This Agreement shall continue in force indefinitely until
terminated as in this Agreement above provided, except that:
(a) this Agreement shall remain in effect through and including April
28, 1996 (or, if applicable, the next April 28 which follows the day on which
the Fund has become a party hereto by amendment of Schedule A subsequent to
April 28, 1996), and shall continue in full force and effect indefinitely
thereafter, but only so long as such continuance is specifically approved at
least annually (i) by the vote of a majority of the Rule 12b-1 Trustees cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Fund;
(b) this Agreement may be terminated at any time by vote of a majority
of the Rule 12b-1 Trustees or by vote of a majority of the outstanding voting
securities of the Fund on not more than sixty (60) days' notice to the Principal
Underwriter. The Principal Underwriter shall be entitled to receive all
contingent deferred sales charges paid or payable with respect to any day
subsequent to the termination of this Agreement;
(c) the Principal Underwriter shall have the right to terminate this
Agreement on six (6) months' written notice thereof given in writing to the
Fund;
(d) the Trust shall have the right to terminate this Agreement
forthwith in the event that it shall have been established by a court of
competent jurisdiction that the Principal Underwriter or any director or officer
of the Principal Underwriter has taken any action which results in a breach of
the covenants set out in paragraph 9 hereof; and
(e) additional series of the Trust will become parties hereto upon
approval by the Trustees of the Trust and amendment of Schedule A.
11. In the event of the assignment of this Agreement by the Principal
Underwriter, this Agreement shall automatically terminate.
12. Any notice under this Agreement shall be in writing, addressed and
delivered, or mailed postage paid, to the other party, at such address as such
other party may designate for the receipt of such notices. Until further notice
to the other party, it is agreed that the record address of the Trust and that
of the Principal Underwriter, shall be 24 Federal Street, Boston, Massachusetts
02110.
13. The services of the Principal Underwriter to the Fund hereunder are
not to be deemed to be exclusive, the Principal Underwriter being free to (a)
render similar service to, and to act as principal underwriter in connection
with the distribution of shares of, other series of the Trust or other
investment companies, and (b) engage in other business and activities from time
to time.
14. The terms "vote of a majority of the outstanding voting
securities," "assignment" and "interested persons," when used herein, shall have
the respective meanings specified in the 1940 Act, subject, however, to such
exemptions as may be granted by the Commission by any rule, regulation or order.
15. The Principal Underwriter expressly acknowledges the provision in
the Trust's Declaration of Trust limiting the personal liability of the
shareholders of the Fund or the Trustees of the Trust. The Principal Underwriter
hereby agrees that it shall have recourse to the Trust or the Fund for payment
of claims or obligations as between the Trust or the Fund and the Principal
Underwriter arising out of this Agreement and shall not seek satisfaction from
the shareholders or any shareholder of the Trust or from the Trustees or any
Trustee of the Trust. The Fund shall not be responsible for obligations of any
other series of the Trust.
16. All references in this Agreement to the "Original Agreements" shall
mean the Distribution Agreement referenced on Schedule A hereto between the
Trust on behalf of the Fund and the Principal Underwriter. Such references shall
not be applicable to any additional series of the Trust which becomes a Fund
hereunder by amendment of Schedule A subsequent to the date below.
17. This Agreement shall amend, replace and be substituted for the
Original Agreements as of the opening of business on June 20, 1995, and this
Agreement shall be effective as of such time. The outstanding uncovered
distribution charges of the Principal Underwriter calculated under the Original
Agreements as of the close of business on June 19, 1995 shall be the outstanding
uncovered distribution charges of the Principal Underwriter calculated under
this Agreement as of the opening of business on June 20, 1995.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
on the 19th day June, 1995.
EATON VANCE MUNICIPALS TRUST
By /s/ Thomas J. Fetter
------------------------
President
EATON VANCE DISTRIBUTORS, INC.
By /s/ Wharton P. Whitaker
------------------------
President
<PAGE>
SCHEDULE A
EATON VANCE MUNICIPALS TRUST
AMENDED DISTRIBUTION AGREEMENT
(MARATHON FUNDS)
DATED JUNE 19, 1995
Name of Fund Inception Date of Original Agreements
------------ -------------------------------------
EV Marathon Alabama Tax Free Fund April 24, 1992/July 7, 1993
EV Marathon Arizona Tax Free Fund July 22, 1991/July 7, 1993
EV Marathon Arkansas Tax Free Fund October 1, 1992/July 7, 1993
EV Marathon Colorado Tax Free Fund August 20, 1992/July 7, 1993
EV Marathon Connecticut Tax Free Fund April 24, 1992/July 7, 1993
EV Marathon Florida Tax Free Fund August 20, 1990/July 7, 1993
EV Marathon Georgia Tax Free Fund December 16, 1991/July 7, 1993
EV Marathon Kentucky Tax Free Fund December 16, 1991/July 7, 1993
EV Marathon Louisiana Tax Free Fund October 1, 1992/July 7, 1993
EV Marathon Maryland Tax Free Fund December 16, 1991/July 7, 1993
EV Marathon Massachusetts Tax Free Fund April 15, 1991/July 7, 1993
EV Marathon Michigan Tax Free Fund April 15, 1991/July 7, 1993
EV Marathon Minnesota Tax Free Fund July 22, 1991/July 7, 1993
EV Marathon Mississippi Tax Free Fund June 7, 1993
EV Marathon Missouri Tax Free Fund April 24, 1992/July 7, 1993
EV Marathon National Municipals Fund December 19, 1985/July 7, 1993
EV Marathon New Jersey Tax Free Fund January 7, 1991/July 7, 1993
EV Marathon New York Tax Free Fund August 20, 1990/July 7, 1993
EV Marathon North Carolina Tax Free Fund October 10, 1991/July 7, 1993
EV Marathon Ohio Tax Free Fund April 16, 1991/July 7, 1993
EV Marathon Oregon Tax Free Fund December 16, 1991/July 7, 1993
EV Marathon Pennsylvania Tax Free Fund January 7, 1991/July 7, 1993
EV Marathon Rhode Island Tax Free Fund June 7, 1993
EV Marathon South Carolina Tax Free Fund October 1, 1992/July 7, 1993
EV Marathon Tennessee Tax Free Fund August 20, 1992/July 7, 1993
EV Marathon Texas Tax Free Fund January 31, 1992/July 7, 1993
EV Marathon Virginia Tax Free Fund July 22, 1991/July 7, 1993
EV Marathon West Virginia Tax Free Fund June 7, 1993
<PAGE>
AMENDED SCHEDULE A
EATON VANCE MUNICIPALS TRUST
AMENDED DISTRIBUTION AGREEMENT
(MARATHON FUNDS)
EFFECTIVE: SEPTEMBER 29, 1995
Name of Fund Inception Date of Original Agreements
------------ -------------------------------------
EV Marathon Alabama Tax Free Fund April 24, 1992/July 7, 1993
EV Marathon Arizona Tax Free Fund July 22, 1991/July 7, 1993
EV Marathon Arkansas Tax Free Fund October 1, 1992/July 7, 1993
EV Marathon California Municipals Fund* December 19, 1985/July 7, 1993
EV Marathon Colorado Tax Free Fund August 20, 1992/July 7, 1993
EV Marathon Connecticut Tax Free Fund April 24, 1992/July 7, 1993
EV Marathon Florida Tax Free Fund August 20, 1990/July 7, 1993
EV Marathon Georgia Tax Free Fund December 16, 1991/July 7, 1993
EV Marathon Kentucky Tax Free Fund December 16, 1991/July 7, 1993
EV Marathon Louisiana Tax Free Fund October 1, 1992/July 7, 1993
EV Marathon Maryland Tax Free Fund December 16, 1991/July 7, 1993
EV Marathon Massachusetts Tax Free Fund April 15, 1991/July 7, 1993
EV Marathon Michigan Tax Free Fund April 15, 1991/July 7, 1993
EV Marathon Minnesota Tax Free Fund July 22, 1991/July 7, 1993
EV Marathon Mississippi Tax Free Fund June 7, 1993
EV Marathon Missouri Tax Free Fund April 24, 1992/July 7, 1993
EV Marathon National Municipals Fund December 19, 1985/July 7, 1993
EV Marathon New Jersey Tax Free Fund January 7, 1991/July 7, 1993
EV Marathon New York Tax Free Fund August 20, 1990/July 7, 1993
EV Marathon North Carolina Tax Free Fund October 10, 1991/July 7, 1993
EV Marathon Ohio Tax Free Fund April 16, 1991/July 7, 1993
EV Marathon Oregon Tax Free Fund December 16, 1991/July 7, 1993
EV Marathon Pennsylvania Tax Free Fund January 7, 1991/July 7, 1993
EV Marathon Rhode Island Tax Free Fund June 7, 1993
EV Marathon South Carolina Tax Free Fund October 1, 1992/July 7, 1993
EV Marathon Tennessee Tax Free Fund August 20, 1992/July 7, 1993
EV Marathon Texas Tax Free Fund January 31, 1992/July 7, 1993
EV Marathon Virginia Tax Free Fund July 22, 1991/July 7, 1993
EV Marathon West Virginia Tax Free Fund June 7, 1993
-----------------------
*This fund is a successor in operations to a fund which was reorganized,
effective October 1, 1995, and the outstanding uncovered distribution charges
of the predecessor fund were assumed by the above fund.
<PAGE>
EXHIBIT 99.6(a)(3)
EATON VANCE MUNICIPALS TRUST
AMENDED DISTRIBUTION AGREEMENT
(TRADITIONAL FUNDS)
AGREEMENT effective as of June 19, 1995 between EATON VANCE MUNICIPALS
TRUST, hereinafter called the "Trust", a Massachusetts business trust having its
principal place of business in Boston in the Commonwealth of Massachusetts, on
behalf of each of its series listed on Schedule A (the "Funds") and EATON VANCE
DISTRIBUTORS, INC., a Massachusetts corporation having its principal place of
business in said Boston, hereinafter sometimes called the "Principal
Underwriter".
IN CONSIDERATION of the mutual promises and undertakings herein contained,
the parties hereto agree with respect to each Fund:
1. The Trust grants to the Principal Underwriter the right to purchase
shares of the Fund upon the terms hereinbelow set forth during the term of this
Agreement. While this Agreement is in force, the Principal Underwriter agrees to
use its best efforts to find purchasers for shares of the Fund.
The Principal Underwriter shall have the right to buy from the Fund the
shares needed, but not more than the shares needed (except for clerical errors
and errors of transmission) to fill unconditional orders for shares of the Fund
placed with the Principal Underwriter by financial service firms or investors as
set forth in the current Prospectus relating to shares of the Fund. The price
which the Principal Underwriter shall pay for the shares so purchased shall be
the net asset value used in determining the public offering price on which such
orders were based. The Principal Underwriter shall notify Investors Bank & Trust
Company, Custodian of the Fund ("IBT"), and The Shareholder Services Group,
Inc., Transfer Agent of the Fund, or a successor transfer agent, ("TSSG"), at
the end of each business day, or as soon thereafter as the orders placed with it
have been compiled, of the number of shares and the prices thereof which the
Principal Underwriter is to purchase as principal for resale. The Principal
Underwriter shall take down and pay for shares ordered from the Fund on or
before the eleventh business day (excluding Saturdays) after the shares have
been so ordered.
The right granted to the Principal Underwriter to buy shares from the Fund
shall be exclusive, except that said exclusive right shall not apply to shares
issued in connection with the merger or consolidation of any other investment
company or personal holding company with the Fund or the acquisition by purchase
or otherwise of all (or substantially all) the assets or the outstanding shares
of any such company, by the Fund; nor shall it apply to shares, if any, issued
by the Fund in distribution of income or realized capital gains of the Fund
payable in shares or in cash at the option of the shareholder.
2. The shares may be resold by the Principal Underwriter to or through
financial service firms having agreements with the Principal Underwriter, and to
investors, upon the following terms and conditions.
The public offering price, i.e., the price per share at which the Principal
Underwriter or financial service firm purchasing shares from the Principal
Underwriter may sell shares to the public, shall be the public offering price as
set forth in the current Prospectus relating to said shares, but not to exceed
the net asset value at which the Principal Underwriter is to purchase the
shares, plus a sales charge not to exceed 7.25% of the public offering price
(the net asset value divided by .9275). If the resulting public offering price
does not come out to an even cent, the public offering price shall be adjusted
to the nearer cent.
The Principal Underwriter may also sell shares at the net asset value at
which the Principal Underwriter is to purchase such shares, provided such sales
are not inconsistent with the provisions of Section 22(d) of the Investment
Company Act of 1940, as amended from time to time (the "1940 Act"), and the
rules thereunder, including any applicable exemptive orders or administrative
interpretations or "no-action" positions with respect thereto.
The net asset value of shares of the Fund shall be determined by the Trust
or IBT, as the agent of the Fund, as of the close of regular trading on the New
York Stock Exchange on each business day on which said Exchange is open, or as
of such other time on each such business day as may be determined by the
Trustees of the Trust, in accordance with the methodology and procedures for
calculating such net asset value authorized by the Trustees. The Trust may also
cause the net asset value to be determined in substantially the same manner or
estimated in such manner and as of such other time or times as may from time to
time be agreed upon by the Trust and Principal Underwriter. The Trust will
notify the Principal Underwriter each time the net asset value of the Fund's
shares is determined and when such value is so determined it shall be applicable
to transactions as set forth in the current Prospectus and Statement of
Additional Information (hereafter the "Prospectus") relating to the Fund's
shares.
No shares of the Fund shall be sold by the Fund during any period when the
determination of net asset value is suspended pursuant to the Declaration of
Trust, except to the Principal Underwriter, in the manner and upon the terms
above set forth to cover contracts of sale made by the Principal Underwriter
with its customers prior to any such suspension, and except as provided in the
last paragraph of paragraph 1 hereof. The Trust shall also have the right to
suspend the sale of the Fund's shares if in the judgment of the Trust conditions
obtaining at any time render such action advisable. The Principal Underwriter
shall have the right to suspend sales at any time, to refuse to accept or
confirm any order from an investor or financial service firm, or to accept or
confirm any such order in part only, if in the judgment of the Principal
Underwriter such action is in the best interests of the Fund.
3. The Trust covenants and agrees that it will, from time to time, but
subject to the necessary approval of the Fund's shareholders, take such steps as
may be necessary to register the Fund's shares under the federal Securities Act
of 1933, as amended from time to time (the "1933 Act"), to the end that there
will be available for sale such number of shares as the Principal Underwriter
may reasonably be expected to sell. The Trust covenants and agrees to indemnify
and hold harmless the Principal Underwriter and each person, if any, who
controls the Principal Underwriter within the meaning of Section 15 of the 1933
Act against any loss, liability, claim, damages or expense (including the
reasonable cost of investigating or defending any alleged loss, liability,
claim, damages or expense and reasonable counsel fees incurred in connection
therewith), arising by reason of any person acquiring any shares of the Fund,
which may be based upon the 1933 Act or on any other statute or at common law,
on the ground that the Registration Statement or Prospectus, as from time to
time amended and supplemented, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished in writing to the Trust in connection therewith by or on behalf of the
Principal Underwriter; provided, however, that in no case (i) is the indemnity
of the Trust in favor of the Principal Underwriter and any such controlling
person to be deemed to protect such Principal Underwriter or any such
controlling person against any liability to the Trust or the Fund or its
security holders to which such Principal Underwriter or any such controlling
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under this Agreement, or (ii)
is the Trust or the Fund to be liable under its indemnity agreement contained in
this paragraph with respect to any claim made against the Principal Underwriter
or any such controlling person unless the Principal Underwriter or any such
controlling person, as the case may be, shall have notified the Trust in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the Principal
Underwriter or such controlling person (or after such Principal Underwriter or
such controlling person shall have received notice of such service on any
designated agent), but failure to notify the Trust of any such claim shall not
relieve it from any liability which the Fund may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. The Trust shall be entitled to participate, at the
expense of the Fund, in the defense, or, if the Trust so elects, to assume the
defense of any suit brought to enforce any such liability, but if the Trust
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to the Principal Underwriter or controlling person or
persons, defendant or defendants in the suit. In the event the Trust elects to
assume the defense of any such suit and retains such counsel, the Principal
Underwriter or controlling person or persons, defendant or defendants in the
suit, shall bear the fees and expenses of any additional counsel retained by
them, but, in case the Trust does not elect to assume the defense of any such
suit, the Fund shall reimburse the Principal Underwriter or controlling person
or persons, defendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained by them. The Trust agrees promptly to notify
the Principal Underwriter of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the issuance or
sale of any of the Fund's shares.
4. The Principal Underwriter covenants and agrees that, in selling the
shares of the Fund, it will use its best efforts in all respects duly to conform
with the requirements of all state and federal laws relating to the sale of such
shares, and will indemnify and hold harmless the Trust and each of its Trustees
and officers and each person, if any, who controls the Trust within the meaning
of Section 15 of the 1933 Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense and reasonable counsel fees incurred
in connection therewith), arising by reason of any person acquiring any shares
of the Fund, which may be based upon the 1933 Act or any other statute or at
common law, on account of any wrongful act of the Principal Underwriter or any
of its employees (including any failure to conform with any requirement of any
state or federal law relating to the sale of such shares) or on the ground that
the registration statement or Prospectus, as from time to time amended and
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading, insofar as any such statement or omission was
made in reliance upon, and in conformity with information furnished in writing
to the Trust in connection therewith by or on behalf of the Principal
Underwriter, provided, however, that in no case (i) is the indemnity of the
Principal Underwriter in favor of any person indemnified to be deemed to protect
the Fund or any such person against any liability to which the Fund or any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of its or his duties or by reason of its
or his reckless disregard of its obligations and duties under this Agreement, or
(ii) is the Principal Underwriter to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the Fund or
any person indemnified unless the Trust or such person, as the case may be,
shall have notified the Principal Underwriter in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Trust, the Fund or upon such
person (or after the Trust, the Fund or such person shall have received notice
of such service on any designated agent), but failure to notify the Principal
Underwriter of any such claim shall not relieve it from any liability which it
may have to the Fund or any person against whom such action is brought otherwise
than on account of its indemnity agreement contained in this paragraph. The
Principal Underwriter shall be entitled to participate, at its own expense, in
the defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Principal Underwriter elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Trust, or to its officers or Trustees, or to any controlling
person or persons, defendant or defendants in the suit. In the event that the
Principal Underwriter elects to assume the defense of any such suit and retains
such counsel, the Fund or such officers or Trustees or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them or the Trust, but, in case the
Principal Underwriter does not elect to assume the defense of any such suit, it
shall reimburse the Fund, any such officers and Trustees or controlling person
or persons, defendant or defendants in such suit, for the reasonable fees and
expenses of any counsel retained by them or the Trust. The Principal Underwriter
agrees promptly to notify the Trust of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any of the
Fund's shares.
Neither the Principal Underwriter nor any financial service firm nor any
other person is authorized by the Trust to give any information or to make any
representations, other than those contained in the Registration Statement or
Prospectus filed with the Securities and Exchange Commission (the "Commission")
under the 1933 Act (as said Registration Statement and Prospectus may be amended
or supplemented from time to time), covering the shares of the Fund. Neither the
Principal Underwriter nor any financial service firm nor any other person is
authorized to act as agent for the Trust or the Fund in connection with the
offering or sale of shares of the Fund to the public or otherwise. All such
sales made by the Principal Underwriter shall be made by it as principal, for
its own account. The Principal Underwriter may, however, act as agent in
connection with the repurchase of shares as provided in paragraph 6 below, or in
connection with "exchanges" between investment companies for which the Principal
Underwriter (or an affiliate thereof) acts as principal underwriter or
investment adviser.
5(a). The Fund will pay, or cause to be paid -
(i) all the costs and expenses of the Fund, including fees and
disbursements of its counsel, in connection with the preparation and filing of
any required Registration Statement and/or Prospectus under the 1933 Act, or the
1940 Act, covering its shares and all amendments and supplements thereto, and
preparing and distributing periodic reports to shareholders (including the
expense of setting up in type any such Registration Statement, Prospectus or
periodic report);
(ii) the cost of preparing temporary and permanent share certificates
(if any) for shares of the Fund;
(iii) the cost and expenses of delivering to the Principal Underwriter
at its office in Boston, Massachusetts, all shares of the Fund purchased by it
as principal hereunder;
(iv) all the federal and state (if any) issue and/or transfer taxes
payable upon the issue by or (in the case of treasury shares) transfer from the
Fund to the Principal Underwriter of any and all shares of the Fund purchased by
the Principal Underwriter hereunder;
(v) the fees, costs and expenses of the registration or qualification
of shares of the Fund for sale in the various states, territories or other
jurisdictions (including without limitation the registering or qualifying the
Fund as a broker or dealer or any officer of the Fund as agent or salesman in
any state, territory or other jurisdiction); and
(vi) all payments to be made by the Fund pursuant to any written plan
approved in accordance with Rule 12b-1 under the 1940 Act.
(b) The Principal Underwriter agrees that, after the Prospectus (other than
to existing shareholders of the Fund) and periodic reports have been set up in
type, it will bear the expense of printing and distributing any copies thereof
which are to be used in connection with the offering of shares of the Fund to
financial service firms or investors. The Principal Underwriter further agrees
that it will bear the expenses of preparing, printing and distributing any other
literature used by the Principal Underwriter or furnished by it for use by
financial service firms in connection with the offering of the shares of the
Fund for sale to the public and any expenses of advertising in connection with
such offering.
(c) The Principal Underwriter shall be entitled to receive all contingent
deferred sales charges imposed in accordance with the Prospectus on early
redemptions of Fund shares.
6. The Trust hereby authorizes the Principal Underwriter to repurchase,
upon the terms and conditions set forth in written instructions given by the
Trust to the Principal Underwriter from time to time, as agent of the Fund and
for its account, such shares of the Fund as may be offered for sale to the Fund
from time to time.
(a) The Principal Underwriter shall notify in writing IBT and TSSG, at the
end of each business day, or as soon thereafter as the repurchases in each
pricing period have been compiled, of the number of shares repurchased for the
account of the Fund since the last previous report, together with the prices at
which such repurchases were made, and upon the request of any officer or Trustee
of the Trust shall furnish similar information with respect to all repurchases
made up to the time of the request on any day.
(b) The Trust reserves the right to suspend or revoke the foregoing
authorization at any time; unless otherwise stated, any such suspension or
revocation shall be effective forthwith upon receipt of notice thereof by an
officer of the Principal Underwriter, by telegraph or by written instrument from
an officer of the Trust duly authorized by its Trustees. In the event that the
authorization of the Principal Underwriter is, by the terms of such notice,
suspended for more than twenty-four hours or until further notice, the
authorization given by this paragraph 6 shall not be revived except by action of
a majority of the Trustees of the Trust.
(c) The Principal Underwriter shall have the right to terminate the
operation of this paragraph 6 upon giving to the Trust thirty (30) days' written
notice thereof.
(d) The Trust agrees to authorize and direct IBT, to pay, for the account
of the Fund, the purchase price of any shares so repurchased against delivery of
the certificates in proper form for transfer to the Fund or for cancellation by
the Fund.
(e) The Principal Underwriter shall receive no commission in respect of any
repurchase of shares under the foregoing authorization and appointment as agent.
(f) The Trust agrees that the Fund will reimburse the Principal
Underwriter, from time to time on demand, for any reasonable expenses incurred
in connection with the repurchase of shares of the Fund pursuant to this
paragraph 6.
7. If, at any time during the existence of this Agreement, the Trust shall
deem it necessary or advisable in the best interests of the Fund that any
amendment of this Agreement be made in order to comply with the recommendations
or requirements of the Commission or other governmental authority or to obtain
any advantage under Massachusetts or federal tax laws, and shall notify the
Principal Underwriter of the form of amendment which it deems necessary or
advisable and the reasons therefor, and, if the Principal Underwriter declines
to assent to such amendment, the Trust may terminate this Agreement forthwith by
written notice to the Principal Underwriter. If, at any time during the
existence of this Agreement upon request by the Principal Underwriter, the Trust
fails (after a reasonable time) to make any changes in its Declaration of Trust,
as amended, or in its methods of doing business which are necessary in order to
comply with any requirement of federal law or regulations of the Commission or
of a national securities association of which the Principal Underwriter is or
may be a member, relating to the sale of the shares of the Fund, the Principal
Underwriter may terminate this Agreement forthwith by written notice to the
Trust.
8(a). The Principal Underwriter is a corporation in the United States
organized under the laws of Massachusetts and holding membership in the National
Association of Securities Dealers, Inc., a securities association registered
under Section 15A of the Securities Exchange Act of 1934, as amended from time
to time, and during the life of this Agreement will continue to be so resident
in the United States, so organized and a member in good standing of said
Association. The Principal Underwriter covenants that it and its officers and
directors will comply with the Trust's Declaration of Trust and By-Laws, and the
1940 Act and the rules promulgated thereunder, insofar as they are applicable to
the Principal Underwriter.
(b) The Principal Underwriter shall maintain in the United States and
preserve therein for such period or periods as the Commission shall prescribe by
rules and regulations applicable to it as Principal Underwriter of an open-end
investment company registered under the 1940 Act such accounts, books and other
documents as are necessary or appropriate to record its transactions with the
Fund. Such accounts, books and other documents shall be subject at any time and
from time to time to such reasonable periodic, special and other examinations by
the Commission or any member or representative thereof as the Commission may
prescribe. The Principal Underwriter shall furnish to the Commission within such
reasonable time as the Commission may prescribe copies of or extracts from such
records which may be prepared without effort, expense or delay as the Commission
may by order require.
9. This Agreement shall continue in force indefinitely until terminated as
in this Agreement above provided, except that:
(a) this Agreement shall continue in effect through and including April 28,
1996 (or, if applicable, the next April 28 which follows the day on which the
Fund has become a party hereto by amendment of Schedule A subsequent to April
28, 1996) and shall continue in full force and effect indefinitely thereafter,
but only so long as such continuance is specifically approved at least annually
(i) by the vote of a majority of the Trustees of the Trust who are not
interested persons of the Trust or of the Principal Underwriter cast in person
at a meeting called for the purpose of voting on such approval, and (ii) by the
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Fund;
(b) that either party shall have the right to terminate this Agreement on
six (6) months' written notice thereof given in writing to the other; and
(c) additional series of the Trust will become parties hereto upon approval
by the Trustees of the Trust and amendment of Schedule A.
10. In the event of the assignment of this Agreement by the Principal
Underwriter, this Agreement shall automatically terminate.
11. Any notice under this Agreement shall be in writing, addressed and
delivered, or mailed postage paid, to the other party, at such address as such
other party may designate for the receipt of such notices. Until further notice
to the other party, it is agreed that the record address of the Trust and that
of the Principal Underwriter, shall be 24 Federal Street, Boston, Massachusetts
02110.
12. The services of the Principal Underwriter to the Fund hereunder are not
to be deemed to be exclusive, the Principal Underwriter being free to (a) render
similar services to, and to act as principal underwriter in connection with the
distribution of shares of, other series of the Trust or other investment
companies, and (b) engage in other business and activities from time to time.
13. The terms "vote of a majority of the outstanding voting securities,"
"assignment" and "interested persons," when used herein, shall have the
respective meanings specified in the 1940 Act, subject, however, to such
exemptions as may be granted by the Commission by any rule, regulation or order.
14. The Principal Underwriter expressly acknowledges the provision in the
Trust's Declaration of Trust limiting the personal liability of the shareholders
of the Fund or the Trustees of the Trust. The Principal Underwriter hereby
agrees that it shall have recourse only to the assets of the Fund for payment of
claims or obligations as between the Trust on behalf of the Fund, and the
Principal Underwriter arising out of this Agreement and shall not seek
satisfaction from any shareholders of the Trust or from the Trustees or any
Trustee of the Trust. The Fund shall not be responsible for obligations of any
other series of the Trust.
15. All references in this Agreement to the "Original Agreement" shall mean
the Distribution Agreement referenced on Schedule A hereto between the Trust on
behalf of the Fund and the Principal Underwriter. Such references shall not be
applicable to any additional series of the Trust which becomes a Fund hereunder
by amendment of Schedule A subsequent to the date below.
16. This Agreement shall amend, replace and be substituted for the Original
Agreement as of the opening of business on June 20, 1995, and this Agreement
shall be effective as of such time.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement the
19th day of June, 1995.
EATON VANCE MUNICIPALS TRUST
By /s/ Thomas J. Fetter
------------------------------------
President
EATON VANCE DISTRIBUTORS, INC.
By /s/ H. Day Brigham, Jr.
-------------------------------------
Vice President
<PAGE>
SCHEDULE A
EATON VANCE MUNICIPALS TRUST
AMENDED DISTRIBUTION AGREEMENT
(TRADITIONAL FUNDS)
DATED JUNE 19, 1995
Name of Fund Inception Date of Original Agreement
------------ ------------------------------------
EV Traditional Connecticut Tax Free Fund March 21, 1994
EV Traditional Florida Tax Free Fund March 7, 1994
EV Traditional National Municipals Fund March 7, 1994
EV Traditional New Jersey Tax Free Fund March 21, 1994
EV Traditional New York Tax Free Fund March 7, 1994
EV Traditional Pennsylvania Tax Free Fund March 21, 1994
<PAGE>
AMENDED SCHEDULE A
EATON VANCE MUNICIPALS TRUST
AMENDED DISTRIBUTION AGREEMENT
(TRADITIONAL FUNDS)
EFFECTIVE: SEPTEMBER 29, 1995
Name of Fund Inception Date of Original Agreement
------------ ------------------------------------
EV Traditional California Municipals Fund* April 14, 1994
EV Traditional Connecticut Tax Free Fund March 21, 1994
EV Traditional Florida Tax Free Fund March 7, 1994
EV Traditional National Municipals Fund March 7, 1994
EV Traditional New Jersey Tax Free Fund March 21, 1994
EV Traditional New York Tax Free Fund March 7, 1994
EV Traditional Pennsylvania Tax Free Fund March 21, 1994
-----------------------
*This fund is a successor in operations to a fund which was reorganized,
effective October 1, 1995.
<PAGE>
EXHIBIT 99.8
Eaton Vance Municipals Trust
24 Federal Street
Boston, MA 02110
(617) 482-8260
October 15, 1992
Eaton Vance Municipals Trust hereby adopts and agrees to become a party to the
attached Master Custodian Agreement between the Eaton Vance Group of Funds and
Investors Bank & Trust Company on behalf of the series of the Trust listed on
the attached
Schedule A.
EATON VANCE MUNICIPALS TRUST
BY: /s/ James L. O'Conner
----------------------
Treasurer
Accepted and agreed to:
INVESTORS BANK & TRUST COMPANY
BY: /s/ Henry M. Joyce
-------------------------
Title
<PAGE>
June 7, 1993
Schedule A
EATON VANCE MUNICIPALS TRUST
Eaton Vance Alabama Tax Free Fund
Eaton Vance Arizona Tax Free Fund
Eaton Vance Arkansas Tax Free Fund
Eaton Vance Colorado Tax Free Fund
Eaton Vance Connecticut Tax Free Fund
Eaton Vance Florida Tax Free Fund
Eaton Vance Georgia Tax Free Fund
Eaton Vance Kentucky Tax Free Fund
Eaton Vance Louisiana Tax Free Fund
Eaton Vance Maryland Tax Free Fund
Eaton Vance Massachusetts Tax Free Fund
Eaton Vance Michigan Tax Free Fund
Eaton Vance Minnesota Tax Free Fund
Eaton Vance Mississippi Tax Free Fund
Eaton Vance Missouri Tax Free Fund
Eaton Vance National Municipals Tax Free Fund
Eaton Vance New Jersey Tax Free Fund
Eaton Vance New York Tax Free Fund
Eaton Vance North Carolina Tax Free Fund
Eaton Vance Ohio Tax Free Fund
Eaton Vance Oregon Tax Free Fund
Eaton Vance Pennsylvania Tax Free Fund
Eaton Vance Rhode Island Tax Free Fund
Eaton Vance South Carolina Tax Free Fund
Eaton Vance Tennessee Tax Free Fund
Eaton Vance Texas Tax Free Fund
Eaton Vance Virginia Tax Free Fund
Eaton Vance West Virginia Tax Free Fund
Massachusetts Municipal Bond Portfolio
<PAGE>
March 21, 1994
Schedule A
EATON VANCE MUNICIPALS TRUST
Classic Funds
EV Classic Alabama Tax Free Fund
EV Classic Arizona Tax Free Fund
EV Classic Arkansas Tax Free Fund
EV Classic Colorado Tax Free Fund
EV Classic Connecticut Tax Free Fund
EV Classic Florida Tax Free Fund
EV Classic Georgia Tax Free Fund
EV Classic Kentucky Tax Free Fund
EV Classic Louisiana Tax Free Fund
EV Classic Maryland Tax Free Fund
EV Classic Massachusetts Tax Free Fund
EV Classic Michigan Tax Free Fund
EV Classic Minnesota Tax Free Fund
EV Classic Mississippi Tax Free Fund
EV Classic Missouri Tax Free Fund
EV Classic National Municipals Fund
EV Classic New Jersey Tax Free Fund
EV Classic New York Tax Free Fund
EV Classic North Carolina Tax Free Fund
EV Classic Ohio Tax Free Fund
EV Classic Oregon Tax Free Fund
EV Classic Pennsylvania Tax Free Fund
EV Classic Rhode Island Tax Free Fund
EV Classic South Carolina Tax Free Fund
EV Classic Tennessee Tax Free Fund
EV Classic Texas Tax Free Fund
EV Classic Virginia Tax Free Fund
EV Classic West Virginia Tax Free Fund
Marathon Funds
EV Marathon Alabama Tax Free Fund
EV Marathon Arizona Tax Free Fund
EV Marathon Arkansas Tax Free Fund
EV Marathon Colorado Tax Free Fund
EV Marathon Connecticut Tax Free Fund
EV Marathon Florida Tax Free Fund
EV Marathon Georgia Tax Free Fund
EV Marathon Kentucky Tax Free Fund
EV Marathon Louisiana Tax Free Fund
EV Marathon Maryland Tax Free Fund
EV Marathon Massachusetts Tax Free Fund
EV Marathon Michigan Tax Free Fund
EV Marathon Minnesota Tax Free Fund
EV Marathon Mississippi Tax Free Fund
EV Marathon Missouri Tax Free Fund
EV Marathon National Municipals Fund
EV Marathon New Jersey Tax Free Fund
EV Marathon New York Tax Free Fund
EV Marathon North Carolina Tax Free Fund
EV Marathon Ohio Tax Free Fund
EV Marathon Oregon Tax Free Fund
EV Marathon Pennsylvania Tax Free Fund
EV Marathon Rhode Island Tax Free Fund
EV Marathon South Carolina Tax Free Fund
EV Marathon Tennessee Tax Free Fund
EV Marathon Texas Tax Free Fund
EV Marathon Virginia Tax Free Fund
EV Marathon West Virginia Tax Free Fund
Traditional Funds
EV Traditional Connecticut Tax Free Fund
EV Traditional Florida Tax Free Fund
EV Traditional National Municipal Fund
EV Traditional New Jersey Tax Free Fund
EV Traditional New York Tax Free Fund
EV Traditional Pennsylvania Tax Free Fund
<PAGE>
September 29, 1995
Schedule A
EATON VANCE MUNICIPALS TRUST
Classic Funds
EV Classic Alabama Tax Free Fund
EV Classic Arizona Tax Free Fund
EV Classic Arkansas Tax Free Fund
EV Classic California Municipals Fund
EV Classic Colorado Tax Free Fund
EV Classic Connecticut Tax Free Fund
EV Classic Florida Tax Free Fund
EV Classic Georgia Tax Free Fund
EV Classic Kentucky Tax Free Fund
EV Classic Louisiana Tax Free Fund
EV Classic Maryland Tax Free Fund
EV Classic Massachusetts Tax Free Fund
EV Classic Michigan Tax Free Fund
EV Classic Minnesota Tax Free Fund
EV Classic Mississippi Tax Free Fund
EV Classic Missouri Tax Free Fund
EV Classic National Municipals Fund
EV Classic New Jersey Tax Free Fund
EV Classic New York Tax Free Fund
EV Classic North Carolina Tax Free Fund
EV Classic Ohio Tax Free Fund
EV Classic Oregon Tax Free Fund
EV Classic Pennsylvania Tax Free Fund
EV Classic Rhode Island Tax Free Fund
EV Classic South Carolina Tax Free Fund
EV Classic Tennessee Tax Free Fund
EV Classic Texas Tax Free Fund
EV Classic Virginia Tax Free Fund
EV Classic West Virginia Tax Free Fund
Marathon Funds
EV Marathon Alabama Tax Free Fund
EV Marathon Arizona Tax Free Fund
EV Marathon Arkansas Tax Free Fund
EV Marathon California Municipals Fund
EV Marathon Colorado Tax Free Fund
EV Marathon Connecticut Tax Free Fund
EV Marathon Florida Tax Free Fund
EV Marathon Georgia Tax Free Fund
EV Marathon Kentucky Tax Free Fund
EV Marathon Louisiana Tax Free Fund
EV Marathon Maryland Tax Free Fund
EV Marathon Massachusetts Tax Free Fund
EV Marathon Michigan Tax Free Fund
EV Marathon Minnesota Tax Free Fund
EV Marathon Mississippi Tax Free Fund
EV Marathon Missouri Tax Free Fund
EV Marathon National Municipals Fund
EV Marathon New Jersey Tax Free Fund
EV Marathon New York Tax Free Fund
EV Marathon North Carolina Tax Free Fund
EV Marathon Ohio Tax Free Fund
EV Marathon Oregon Tax Free Fund
EV Marathon Pennsylvania Tax Free Fund
EV Marathon Rhode Island Tax Free Fund
EV Marathon South Carolina Tax Free Fund
EV Marathon Tennessee Tax Free Fund
EV Marathon Texas Tax Free Fund
EV Marathon Virginia Tax Free Fund
EV Marathon West Virginia Tax Free Fund
Traditional Funds
EV Traditional California Municipals Fund
EV Traditional Connecticut Tax Free Fund
EV Traditional Florida Tax Free Fund
EV Traditional National Municipal Fund
EV Traditional New Jersey Tax Free Fund
EV Traditional New York Tax Free Fund
EV Traditional Pennsylvania Tax Free Fund
<PAGE>
MASTER CUSTODIAN AGREEMENT
between
EATON VANCE GROUP OF FUNDS
and
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
1. Definitions........................................................1-3
2. Employment of Custodian and Property to be held by it..............3-4
3. Duties of the Custodian with Respect to
Property of the Fund.................................................4
A. Safekeeping and Holding of Property..............................4
B. Delivery of Securities.........................................4-7
C. Registration of Securities.......................................7
D. Bank Accounts....................................................8
E. Payments for Shares of the Fund..................................8
F. Investment and Availability of Federal Funds.....................8
G. Collections....................................................8-9
H. Payment of Fund Moneys........................................9-11
I. Liability for Payment in Advance of
Receipt of Securities Purchased.................................11
J. Payments for Repurchases of Redemptions
of Shares of the Fund........................................11-12
K. Appointment of Agents by the Custodian..........................12
L. Deposit of Fund Portfolio Securities in Securities Systems...12-14
M. Deposit of Fund Commercial Paper in an Approved Book-Entry
System for Commercial Paper..................................14-16
N. Segregated Account..............................................17
O. Ownership Certificates for Tax Purposes.........................17
P. Proxies.........................................................17
Q. Communications Relating to Fund Portfolio Securities............18
R. Exercise of Rights; Tender Offers..............................18
S. Depository Receipts.............................................19
T. Interest Bearing Call or Time Deposits..........................19
U. Options, Futures Contracts and Foreign Currency Transactions 19-21
V. Actions Permitted Without Express Authority.....................21
4. Duties of Bank with Respect to Books of Account and
Calculations of Net Asset Value.....................................22
5. Records and Miscellaneous Duties....................................22
6. Opinion of Fund`s Independent Public Accountants....................23
7. Compensation and Expenses of Bank...................................23
8. Responsibility of Bank...........................................23-24
9. Persons Having Access to Assets of the Fund.........................24
10. Effective Period, Termination and Amendment; Successor Custodian....25
11. Interpretive and Additional Provisions..............................26
12. Notices.............................................................26
13. Massachusetts Law to Apply..........................................26
14. Adoption of the Agreement by the Fund...............................26
<PAGE>
MASTER CUSTODIAN AGREEMENT
This Agreement is made between each investment company advised by Eaton
Vance Management which has adopted this Agreement in the manner provided herein
and Investors Bank & Trust Company (hereinafter called "Bank", "Custodian" and
"Agent"), a trust company established under the laws of Massachusetts with a
principal place of business in Boston, Massachusetts.
Whereas, each such investment company is registered under the
Investment Company Act of 1940 and has appointed the Bank to act as Custodian of
its property and to perform certain duties as its Agent, as more fully
hereinafter set forth; and
Whereas, the Bank is willing and able to act as each such investment
company's Custodian and Agent, subject to and in accordance with the provisions
hereof;
Now, therefore, in consideration of the premises and of the mutual
covenants and agreements herein contained, each such investment company and the
Bank agree as follows:
1. Definitions
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Fund" shall mean the investment company which has adopted this
Agreement. If the Fund is a Massachusetts business trust, it may in the future
establish and designate other separate and distinct series of shares, each of
which may be called a "portfolio"; in such case, the term "Fund" shall also
refer to each such separate series or portfolio.
(b) "Board" shall mean the board of directors/trustees/managing general
partners/director general partners of the Fund, as the case may be.
(c) "The Depository Trust Company", a clearing agency registered with
the Securities and Exchange Commission under Section 17A of the Securities
Exchange Act of 1934 which acts as a securities depository and which has been
specifically approved as a securities depository for the Fund by the Board.
(d) "Participants Trust Company", a clearing agency registered with the
Securities and Exchange Commission under Section 17A of the Securities Exchange
Act of 1934 which acts as a securities depository and which has been
specifically approved as a securities depository for the Fund by the Board.
(e) "Approved Clearing Agency" shall mean any other domestic clearing
agency registered with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934 which acts as a securities depository but
only if the Custodian has received a certified copy of a vote of the Board
approving such clearing agency as a securities depository for the Fund.
(f) "Federal Book-Entry System" shall mean the book-entry system
referred to in Rule 17f-4(b) under the Investment Company Act of 1940 for United
States and federal agency securities (i.e., as provided in Subpart O of Treasury
Circular No. 300, 31 CFR 306, Subpart B of 31 CFR Part 350, and the book-entry
regulations of federal agencies substantially in the form of Subpart O).
(g) "Approved Foreign Securities Depository" shall mean a foreign
securities depository or clearing agency referred to in rule 17f-4 under the
Investment Company Act of 1940 for foreign securities but only if the Custodian
has received a certified copy of a vote of the Board approving such depository
or clearing agency as a foreign securities depository for the Fund.
(h) "Approved Book-Entry System for Commercial Paper" shall mean a
system maintained by the Custodian or by a subcustodian employed pursuant to
Section 2 hereof for the holding of commercial paper in book-entry form but only
if the Custodian has received a certified copy of a vote of the Board approving
the participation by the Fund in such system.
(i) The Custodian shall be deemed to have received "proper
instructions" in respect of any of the matters referred to in this Agreement
upon receipt of written or facsimile instructions signed by such one or more
person or persons as the Board shall have from time to time authorized to give
the particular class of instructions in question. Electronic instructions for
the purchase and sale of securities which are transmitted by Eaton Vance
Management to the Custodian through the Eaton Vance equity trading system and
the Eaton Vance fixed income trading system shall be deemed to be proper
instructions; the Fund shall cause all such instructions to be confirmed in
writing. Different persons may be authorized to give instructions for different
purposes. A certified copy of a vote of the Board may be received and accepted
by the Custodian as conclusive evidence of the authority of any such person to
act and may be considered as in full force and effect until receipt of written
notice to the contrary. Such instructions may be general or specific in terms
and, where appropriate, may be standing instructions. Unless the vote delegating
authority to any person or persons to give a particular class of instructions
specifically requires that the approval of any person, persons or committee
shall first have been obtained before the Custodian may act on instructions of
that class, the Custodian shall be under no obligation to question the right of
the person or persons giving such instructions in so doing. Oral instructions
will be considered proper instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. The Fund authorizes the Custodian to tape record any and
all telephonic or other oral instructions given to the Custodian. Upon receipt
of a certificate signed by two officers of the Fund as to the authorization by
the President and the Treasurer of the Fund accompanied by a detailed
description of the communication procedures approved by the President and the
Treasurer of the Fund, "proper instructions" may also include communications
effected directly between electromechanical or electronic devices provided that
the President and Treasurer of the Fund and the Custodian are satisfied that
such procedures afford adequate safeguards for the Fund's assets. In performing
its duties generally, and more particularly in connection with the purchase,
sale and exchange of securities made by or for the Fund, the Custodian may take
cognizance of the provisions of the governing documents and registration
statement of the Fund as the same may from time to time be in effect (and votes,
resolutions or proceedings of the shareholders or the Board), but, nevertheless,
except as otherwise expressly provided herein, the Custodian may assume unless
and until notified in writing to the contrary that so-called proper instructions
received by it are not in conflict with or in any way contrary to any provisions
of such governing documents and registration statement, or votes, resolutions or
proceedings of the shareholders or the Board.
2. Employment of Custodian and Property to be Held by It
The Fund hereby appoints and employs the Bank as its Custodian and
Agent in accordance with and subject to the provisions hereof, and the Bank
hereby accepts such appointment and employment. The Fund agrees to deliver to
the Custodian all securities, participation interests, cash and other assets
owned by it, and all payments of income, payments of principal and capital
distributions and adjustments received by it with respect to all securities and
participation interests owned by the Fund from time to time, and the cash
consideration received by it for such new or treasury shares ("Shares") of the
Fund as may be issued or sold from time to time. The Custodian shall not be
responsible for any property of the Fund held by the Fund and not delivered by
the Fund to the Custodian. The Fund will also deliver to the Bank from time to
time copies of its currently effective charter (or declaration of trust or
partnership agreement, as the case may be), by-laws, prospectus, statement of
additional information and distribution agreement with its principal
underwriter, together with such resolutions, votes and other proceedings of the
Fund as may be necessary for or convenient to the Bank in the performance of its
duties hereunder.
The Custodian may from time to time employ one or more subcustodians to
perform such acts and services upon such terms and conditions as shall be
approved from time to time by the Board of Directors. Any such subcustodian so
employed by the Custodian shall be deemed to be the agent of the Custodian, and
the Custodian shall remain primarily responsible for the securities,
participation interests, moneys and other property of the Fund held by such
subcustodian. Any foreign subcustodian shall be a bank or trust company which is
an eligible foreign custodian within the meaning of Rule 17f-5 under the
Investment Company Act of 1940, and the foreign custody arrangements shall be
approved by the Board of Directors and shall be in accordance with and subject
to the provisions of said Rule. For the purposes of this Agreement, any property
of the Fund held by any such subcustodian (domestic or foreign) shall be deemed
to be held by the Custodian under the terms of this Agreement.
3. Duties of the Custodian with Respect to Property of the Fund
A. Safekeeping and Holding of Property The Custodian shall keep
safely all property of the Fund and on behalf of the Fund shall
from time to time receive delivery of Fund property for
safekeeping. The Custodian shall hold, earmark and segregate on
its books and records for the account of the Fund all property of
the Fund, including all securities, participation interests and
other assets of the Fund (1) physically held by the Custodian,
(2) held by any subcustodian referred to in Section 2 hereof or
by any agent referred to in Paragraph K hereof, (3) held by or
maintained in The Depository Trust Company or in Participants
Trust Company or in an Approved Clearing Agency or in the Federal
Book-Entry System or in an Approved Foreign Securities
Depository, each of which from time to time is referred to herein
as a "Securities System", and (4) held by the Custodian or by any
subcustodian referred to in Section 2 hereof and maintained in
any Approved Book-Entry System for Commercial Paper.
B. Delivery of Securities The Custodian shall release and deliver
securities or participation interests owned by the Fund held (or
deemed to be held) by the Custodian or maintained in a Securities
System account or in an Approved Book-Entry System for Commercial
Paper account only upon receipt of proper instructions, which may
be continuing instructions when deemed appropriate by the
parties, and only in the following cases:
1) Upon sale of such securities or participation interests
for the account of the Fund, but only against receipt
of payment therefor; if delivery is made in Boston or
New York City, payment therefor shall be made in
accordance with generally accepted clearing house
procedures or by use of Federal Reserve Wire System
procedures; if delivery is made elsewhere payment
therefor shall be in accordance with the then current
"street delivery" custom or in accordance with such
procedures agreed to in writing from time to time by
the parties hereto; if the sale is effected through a
Securities System, delivery and payment therefor shall
be made in accordance with the provisions of Paragraph
L hereof; if the sale of commercial paper is to be
effected through an Approved Book-Entry System for
Commercial Paper, delivery and payment therefor shall
be made in accordance with the provisions of Paragraph
M hereof; if the securities are to be sold outside the
United States, delivery may be made in accordance with
procedures agreed to in writing from time to time by
the parties hereto; for the purposes of this
subparagraph, the term "sale" shall include the
disposition of a portfolio security (i) upon the
exercise of an option written by the Fund and (ii) upon
the failure by the Fund to make a successful bid with
respect to a portfolio security, the continued holding
of which is contingent upon the making of such a bid;
2) Upon the receipt of payment in connection with any
repurchase agreement or reverse repurchase agreement
relating to such securities and entered into by the
Fund;
3) To the depository agent in connection with tender or
other similar offers for portfolio securities of the
Fund;
4) To the issuer thereof or its agent when such securities
or participation interests are called, redeemed,
retired or otherwise become payable; provided that, in
any such case, the cash or other consideration is to be
delivered to the Custodian or any subcustodian employed
pursuant to Section 2 hereof;
5) To the issuer thereof, or its agent, for transfer into
the name of the Fund or into the name of any nominee of
the Custodian or into the name or nominee name of any
agent appointed pursuant to Paragraph K hereof or into
the name or nominee name of any subcustodian employed
pursuant to Section 2 hereof; or for exchange for a
different number of bonds, certificates or other
evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the
new securities or participation interests are to be
delivered to the Custodian or any subcustodian employed
pursuant to Section 2 hereof;
6) To the broker selling the same for examination in
accordance with the "street delivery" custom; provided
that the Custodian shall adopt such procedures as the
Fund from time to time shall approve to ensure their
prompt return to the Custodian by the broker in the
event the broker elects not to accept them;
7) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization, reorganization
or readjustment of the securities of the Issuer of such
securities, or pursuant to provisions for conversion of
such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and
cash, if any, are to be delivered to the Custodian or
any subcustodian employed pursuant to Section 2 hereof;
8) In the case of warrants, rights or similar securities,
the surrender thereof in connection with the exercise
of such warrants, rights or similar securities, or the
surrender of interim receipts or temporary securities
for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be
delivered to the Custodian or any subcustodian employed
pursuant to Section 2 hereof;
9) For delivery in connection with any loans of securities
made by the Fund (such loans to be made pursuant to the
terms of the Fund's current registration statement),
but only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the
Fund, which may be in the form of cash or obligations
issued by the United States government, its agencies or
instrumentalities; except that in connection with any
securities loans for which collateral is to be credited
to the Custodian's account in the book-entry system
authorized by the U.S. Department of Treasury, the
Custodian will not be held liable or responsible for
the delivery of securities loaned by the Fund prior to
the receipt of such collateral;
10) For delivery as security in connection with any
borrowings by the Fund requiring a pledge or
hypothecation of assets by the Fund (if then permitted
under circumstances described in the current
registration statement of the Fund), provided, that the
securities shall be released only upon payment to the
Custodian of the monies borrowed, except that in cases
where additional collateral is required to secure a
borrowing already made, further securities may be
released for that purpose; upon receipt of proper
instructions, the Custodian may pay any such loan upon
redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or
notes evidencing the loan;
11) When required for delivery in connection with any
redemption or repurchase of Shares of the Fund in
accordance with the provisions of Paragraph J hereof;
12) For delivery in accordance with the provisions of any
agreement between the Custodian (or a subcustodian
employed pursuant to Section 2 hereof) and a
broker-dealer registered under the Securities Exchange
Act of 1934 and, if necessary, the Fund, relating to
compliance with the rules of The Options Clearing
Corporation or of any registered national securities
exchange, or of any similar organization or
organizations, regarding deposit or escrow or other
arrangements in connection with options transactions by
the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian (or a
subcustodian employed pursuant to Section 2 hereof),
and a futures commissions merchant, relating to
compliance with the rules of the Commodity Futures
Trading Commission and/or of any contract market or
commodities exchange or similar organization, regarding
futures margin account deposits or payments in
connection with futures transactions by the Fund;
14) For any other proper corporate purpose, but only upon
receipt of, in addition to proper instructions, a
certified copy of a vote of the Board specifying the
securities to be delivered, setting forth the purpose
for which such delivery is to be made, declaring such
purpose to be proper corporate purpose, and naming the
person or persons to whom delivery of such securities
shall be made.
C. Registration of Securities Securities held by the Custodian
(other than bearer securities) for the account of the Fund shall
be registered in the name of the Fund or in the name of any
nominee of the Fund or of any nominee of the Custodian, or in the
name or nominee name of any agent appointed pursuant to Paragraph
K hereof, or in the name or nominee name of any subcustodian
employed pursuant to Section 2 hereof, or in the name or nominee
name of The Depository Trust Company or Participants Trust
Company or Approved Clearing Agency or Federal Book-Entry System
or Approved Book-Entry System for Commercial Paper; provided,
that securities are held in an account of the Custodian or of
such agent or of such subcustodian containing only assets of the
Fund or only assets held by the Custodian or such agent or such
subcustodian as a custodian or subcustodian or in a fiduciary
capacity for customers. All certificates for securities accepted
by the Custodian or any such agent or subcustodian on behalf of
the Fund shall be in "street" or other good delivery form or
shall be returned to the selling broker or dealer who shall be
advised of the reason thereof.
D. Bank Accounts The Custodian shall open and maintain a separate
bank account or accounts in the name of the Fund, subject only to
draft or order by the Custodian acting in pursuant to the terms
of this Agreement, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or
for the account of the Fund other than cash maintained by the
Fund in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds held
by the Custodian for the Fund may be deposited by it to its
credit as Custodian in the Banking Department of the Custodian or
in such other banks or trust companies as the Custodian may in
its discretion deem necessary or desirable; provided, however,
that every such bank or trust company shall be qualified to act
as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited
with each such bank or trust company shall be approved in writing
by two officers of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be subject to
withdrawal only by the Custodian in that capacity.
E. Payment for Shares of the Fund The Custodian shall make
appropriate arrangements with the Transfer Agent and the
principal underwriter of the Fund to enable the Custodian to make
certain it promptly receives the cash or other consideration due
to the Fund for such new or treasury Shares as may be issued or
sold from time to time by the Fund, in accordance with the
governing documents and offering prospectus and statement of
additional information of the Fund. The Custodian will provide
prompt notification to the Fund of any receipt by it of payments
for Shares of the Fund.
F. Investment and Availability of Federal Funds Upon agreement
between the Fund and the Custodian, the Custodian shall, upon the
receipt of proper instructions, which may be continuing
instructions when deemed appropriate by the parties,
1) invest in such securities and instruments as may be set
forth in such instructions on the same day as received
all federal funds received after a time agreed upon
between the Custodian and the Fund; and
2) make federal funds available to the Fund as of
specified times agreed upon from time to time by the
Fund and the Custodian in the amount of checks received
in payment for Shares of the Fund which are deposited
into the Fund's account.
G. Collections The Custodian shall promptly collect all income and
other payments with respect to registered securities held
hereunder to which the Fund shall be entitled either by law or
pursuant to custom in the securities business, and shall promptly
collect all income and other payments with respect to bearer
securities if, on the date of payment by the issuer, such
securities are held by the Custodian or agent thereof and shall
credit such income, as collected, to the Fund's custodian
account.
The Custodian shall do all things necessary and proper in
connection with such prompt collections and, without limiting the
generality of the foregoing, the Custodian shall
1) Present for payment all coupons and other income items
requiring presentations;
2) Present for payment all securities which may mature or
be called, redeemed, retired or otherwise become
payable;
3) Endorse and deposit for collection, in the name of the
Fund, checks, drafts or other negotiable instruments;
4) Credit income from securities maintained in a
Securities System or in an Approved Book-Entry System
for Commercial Paper at the time funds become available
to the Custodian; in the case of securities maintained
in The Depository Trust Company funds shall be deemed
available to the Fund not later than the opening of
business on the first business day after receipt of
such funds by the Custodian.
The Custodian shall notify the Fund as soon as reasonably
practicable whenever income due on any security is not promptly
collected. In any case in which the Custodian does not receive
any due and unpaid income after it has made demand for the same,
it shall immediately so notify the Fund in writing, enclosing
copies of any demand letter, any written response thereto, and
memoranda of all oral responses thereto and to telephonic
demands, and await instructions from the Fund; the Custodian
shall in no case have any liability for any nonpayment of such
income provided the Custodian meets the standard of care set
forth in Section 8 hereof. The Custodian shall not be obligated
to take legal action for collection unless and until reasonably
indemnified to its satisfaction.
The Custodian shall also receive and collect all stock dividends,
rights and other items of like nature, and deal with the same
pursuant to proper instructions relative thereto.
H. Payment of Fund Moneys Upon receipt of proper instructions, which
may be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out moneys of the Fund in the
following cases only:
1) Upon the purchase of securities, participation
interests, options, futures contracts, forward
contracts and options on futures contracts purchased
for the account of the Fund but only (a) against the
receipt of
(i) such securities registered as provided in
Paragraph C hereof or in proper form for transfer or
(ii) detailed instructions signed by an officer of
the Fund regarding the participation interests to be
purchased or
(iii) written confirmation of the purchase by the
Fund of the options, futures contracts, forward
contracts or options on futures contracts
by the Custodian (or by a subcustodian employed
pursuant to Section 2 hereof or by a clearing
corporation of a national securities exchange of which
the Custodian is a member or by any bank, banking
institution or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940 to act as a custodian
and which has been designated by the Custodian as its
agent for this purpose or by the agent specifically
designated in such instructions as representing the
purchasers of a new issue of privately placed
securities); (b) in the case of a purchase effected
through a Securities System, upon receipt of the
securities by the Securities System in accordance with
the conditions set forth in Paragraph L hereof; (c) in
the case of a purchase of commercial paper effected
through an Approved Book-Entry System for Commercial
Paper, upon receipt of the paper by the Custodian or
subcustodian in accordance with the conditions set
forth in Paragraph M hereof; (d) in the case of
repurchase agreements entered into between the Fund and
another bank or a broker-dealer, against receipt by the
Custodian of the securities underlying the repurchase
agreement either in certificate form or through an
entry crediting the Custodian's segregated,
non-proprietary account at the Federal Reserve Bank of
Boston with such securities along with written evidence
of the agreement by the bank or broker-dealer to
repurchase such securities from the Fund; or (e) with
respect to securities purchased outside of the United
States, in accordance with written procedures agreed to
from time to time in writing by the parties hereto;
2) When required in connection with the conversion,
exchange or surrender of securities owned by the Fund
as set forth in Paragraph B hereof;
3) When required for the redemption or repurchase of
Shares of the Fund in accordance with the provisions of
Paragraph J hereof;
4) For the payment of any expense or liability incurred by
the Fund, including but not limited to the following
payments for the account of the Fund: advisory fees,
distribution plan payments, interest, taxes, management
compensation and expenses, accounting, transfer agent
and legal fees, and other operating expenses of the
Fund whether or not such expenses are to be in whole or
part capitalized or treated as deferred expenses;
5) For the payment of any dividends or other distributions
to holders of Shares declared or authorized by the
Board; and
6) For any other proper corporate purpose, but only upon
receipt of, in addition to proper instructions, a
certified copy of a vote of the Board, specifying the
amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such
purpose to be a proper corporate purpose, and naming
the person or persons to whom such payment is to be
made.
I. Liability for Payment in Advance of Receipt of Securities
Purchased In any and every case where payment for purchase of
securities for the account of the Fund is made by the Custodian
in advance of receipt of the securities purchased in the absence
of specific written instructions signed by two officers of the
Fund to so pay in advance, the Custodian shall be absolutely
liable to the Fund for such securities to the same extent as if
the securities had been received by the Custodian; except that in
the case of a repurchase agreement entered into by the Fund with
a bank which is a member of the Federal Reserve System, the
Custodian may transfer funds to the account of such bank prior to
the receipt of (i) the securities in certificate form subject to
such repurchase agreement or (ii) written evidence that the
securities subject to such repurchase agreement have been
transferred by book-entry into a segregated non-proprietary
account of the Custodian maintained with the Federal Reserve Bank
of Boston or (iii) the safekeeping receipt, provided that such
securities have in fact been so transferred by book-entry and the
written repurchase agreement is received by the Custodian in due
course; and except that if the securities are to be purchased
outside the United States, payment may be made in accordance with
procedures agreed to in writing from time to time by the parties
hereto.
J. Payments for Repurchases or Redemptions of Shares of the Fund
From such funds as may be available for the purpose, but subject
to any applicable votes of the Board and the current redemption
and repurchase procedures of the Fund, the Custodian shall, upon
receipt of written instructions from the Fund or from the Fund's
transfer agent or from the principal underwriter, make funds
and/or portfolio securities available for payment to holders of
Shares who have caused their Shares to be redeemed or repurchased
by the Fund or for the Fund`s account by its transfer agent or
principal underwriter.
The Custodian may maintain a special checking account upon which
special checks may be drawn by shareholders of the Fund holding
Shares for which certificates have not been issued. Such checking
account and such special checks shall be subject to such rules
and regulations as the Custodian and the Fund may from time to
time adopt. The Custodian or the Fund may suspend or terminate
use of such checking account or such special checks (either
generally or for one or more shareholders) at any time. The
Custodian and the Fund shall notify the other immediately of any
such suspension or termination.
K. Appointment of Agents by the Custodian The Custodian may at any
time or times in its discretion appoint (and may at any time
remove) any other bank or trust company (provided such bank or
trust company is itself qualified under the Investment Company
Act of 1940 to act as a custodian or is itself an eligible
foreign custodian within the meaning of Rule 17f-5 under said
Act) as the agent of the Custodian to carry out such of the
duties and functions of the Custodian described in this Section 3
as the Custodian may from time to time direct; provided, however,
that the appointment of any such agent shall not relieve the
Custodian of any of its responsibilities or liabilities
hereunder, and as between the Fund and the Custodian the
Custodian shall be fully responsible for the acts and omissions
of any such agent. For the purposes of this Agreement, any
property of the Fund held by any such agent shall be deemed to be
held by the Custodian hereunder.
L. Deposit of Fund Portfolio Securities in Securities Systems The
Custodian may deposit and/or maintain securities owned by the
Fund
(1) in The Depository Trust Company;
(2) in Participants Trust Company;
(3) in any other Approved Clearing Agency;
(4) in the Federal Book-Entry System; or
(5) in an Approved Foreign Securities Depository
in each case only in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and
regulations, and at all times subject to the following
provisions:
(a) The Custodian may (either directly or through one or
more subcustodians employed pursuant to Section 2 keep securities
of the Fund in a Securities System provided that such securities
are maintained in a non-proprietary account ("Account") of the
Custodian or such subcustodian in the Securities System which
shall not include any assets of the Custodian or such
subcustodian or any other person other than assets held by the
Custodian or such subcustodian as a fiduciary, custodian, or
otherwise for its customers.
(b) The records of the Custodian with respect to securities
of the Fund which are maintained in a Securities System shall
identify by book-entry those securities belonging to the Fund,
and the Custodian shall be fully and completely responsible for
maintaining a recordkeeping system capable of accurately and
currently stating the Fund's holdings maintained in each such
Securities System.
(c) The Custodian shall pay for securities purchased in
book-entry form for the account of the Fund only upon (i) receipt
of notice or advice from the Securities System that such
securities have been transferred to the Account, and (ii) the
making of any entry on the records of the Custodian to reflect
such payment and transfer for the account of the Fund. The
Custodian shall transfer securities sold for the account of the
Fund only upon (i) receipt of notice or advice from the
Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such transfer and payment
for the account of the Fund. Copies of all notices or advices
from the Securities System of transfers of securities for the
account of the Fund shall identify the Fund, be maintained for
the Fund by the Custodian and be promptly provided to the Fund at
its request. The Custodian shall promptly send to the Fund
confirmation of each transfer to or from the account of the Fund
in the form of a written advice or notice of each such
transaction, and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in the
Securities System for the account of the Fund on the next
business day.
(d) The Custodian shall promptly send to the Fund any report
or other communication received or obtained by the Custodian
relating to the Securities System's accounting system, system of
internal accounting controls or procedures for safeguarding
securities deposited in the Securities System; the Custodian
shall promptly send to the Fund any report or other communication
relating to the Custodian's internal accounting controls and
procedures for safeguarding securities deposited in any
Securities System; and the Custodian shall ensure that any agent
appointed pursuant to Paragraph K hereof or any subcustodian
employed pursuant to Section 2 hereof shall promptly send to the
Fund and to the Custodian any report or other communication
relating to such agent's or subcustodian's internal accounting
controls and procedures for safeguarding securities deposited in
any Securities System. The Custodian's books and records relating
to the Fund's participation in each Securities System will at all
times during regular business hours be open to the inspection of
the Fund's authorized officers, employees or agents.
(e) The Custodian shall not act under this Paragraph L in
the absence of receipt of a certificate of an officer of the Fund
that the Board has approved the use of a particular Securities
System; the Custodian shall also obtain appropriate assurance
from the officers of the Fund that the Board has annually
reviewed the continued use by the Fund of each Securities System,
and the Fund shall promptly notify the Custodian if the use of a
Securities System is to be discontinued; at the request of the
Fund, the Custodian will terminate the use of any such Securities
System as promptly as practicable.
(f) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the Fund for
any loss or damage to the Fund resulting from use of the
Securities System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or subcustodians
or of any of its or their employees or from any failure of the
Custodian or any such agent or subcustodian to enforce
effectively such rights as it may have against the Securities
System or any other person; at the election of the Fund, it shall
be entitled to be subrogated to the rights of the Custodian with
respect to any claim against the Securities System or any other
person which the Custodian may have as a consequence of any such
loss or damage if and to the extent that the Fund has not been
made whole for any such loss or damage.
M. Deposit of Fund Commercial Paper in an Approved Book-Entry System
for Commercial Paper Upon receipt of proper instructions with
respect to each issue of direct issue commercial paper purchased
by the Fund, the Custodian may deposit and/or maintain direct
issue commercial paper owned by the Fund in any Approved
Book-Entry System for Commercial Paper, in each case only in
accordance with applicable Securities and Exchange Commission
rules, regulations, and no-action correspondence, and at all
times subject to the following provisions:
(a) The Custodian may (either directly or through one or
more subcustodians employed pursuant to Section 2) keep
commercial paper of the Fund in an Approved Book-Entry System for
Commercial Paper, provided that such paper is issued in book
entry form by the Custodian or subcustodian on behalf of an
issuer with which the Custodian or subcustodian has entered into
a book-entry agreement and provided further that such paper is
maintained in a non-proprietary account ("Account") of the
Custodian or such subcustodian in an Approved Book-Entry System
for Commercial Paper which shall not include any assets of the
Custodian or such subcustodian or any other person other than
assets held by the Custodian or such subcustodian as a fiduciary,
custodian, or otherwise for its customers.
(b) The records of the Custodian with respect to commercial
paper of the Fund which is maintained in an Approved Book-Entry
System for Commercial Paper shall identify by book-entry each
specific issue of commercial paper purchased by the Fund which is
included in the System and shall at all times during regular
business hours be open for inspection by authorized officers,
employees or agents of the Fund. The Custodian shall be fully and
completely responsible for maintaining a recordkeeping system
capable of accurately and currently stating the Fund's holdings
of commercial paper maintained in each such System.
(c) The Custodian shall pay for commercial paper purchased
in book-entry form for the account of the Fund only upon
contemporaneous (i) receipt of notice or advice from the issuer
that such paper has been issued, sold and transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such purchase, payment and transfer for the
account of the Fund. The Custodian shall transfer such commercial
paper which is sold or cancel such commercial paper which is
redeemed for the account of the Fund only upon contemporaneous
(i) receipt of notice or advice that payment for such paper has
been transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such transfer or
redemption and payment for the account of the Fund. Copies of all
notices, advices and confirmations of transfers of commercial
paper for the account of the Fund shall identify the Fund, be
maintained for the Fund by the Custodian and be promptly provided
to the Fund at its request. The Custodian shall promptly send to
the Fund confirmation of each transfer to or from the account of
the Fund in the form of a written advice or notice of each such
transaction, and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in the
System for the account of the Fund on the next business day.
(d) The Custodian shall promptly send to the Fund any report
or other communication received or obtained by the Custodian
relating to each System's accounting system, system of internal
accounting controls or procedures for safeguarding commercial
paper deposited in the System; the Custodian shall promptly send
to the Fund any report or other communication relating to the
Custodian's internal accounting controls and procedures for
safeguarding commercial paper deposited in any Approved
Book-Entry System for Commercial Paper; and the Custodian shall
ensure that any agent appointed pursuant to Paragraph K hereof or
any subcustodian employed pursuant to Section 2 hereof shall
promptly send to the Fund and to the Custodian any report or
other communication relating to such agent's or subcustodian's
internal accounting controls and procedures for safeguarding
securities deposited in any Approved Book-Entry System for
Commercial Paper.
(e) The Custodian shall not act under this Paragraph M in
the absence of receipt of a certificate of an officer of the Fund
that the Board has approved the use of a particular Approved
Book-Entry System for Commercial Paper; the Custodian shall also
obtain appropriate assurance from the officers of the Fund that
the Board has annually reviewed the continued use by the Fund of
each Approved Book-Entry System for Commercial Paper, and the
Fund shall promptly notify the Custodian if the use of an
Approved Book-Entry System for Commercial Paper is to be
discontinued; at the request of the Fund, the Custodian will
terminate the use of any such System as promptly as practicable.
(f) The Custodian (or subcustodian, if the Approved
Book-Entry System for Commercial Paper is maintained by the
subcustodian) shall issue physical commercial paper or promissory
notes whenever requested to do so by the Fund or in the event of
an electronic system failure which impedes issuance, transfer or
custody of direct issue commercial paper by book-entry.
(g) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the Fund for
any loss or damage to the Fund resulting from use of any Approved
Book-Entry System for Commercial Paper by reason of any
negligence, misfeasance or misconduct of the Custodian or any of
its agents or subcustodians or of any of its or their employees
or from any failure of the Custodian or any such agent or
subcustodian to enforce effectively such rights as it may have
against the System, the issuer of the commercial paper or any
other person; at the election of the Fund, it shall be entitled
to be subrogated to the rights of the Custodian with respect to
any claim against the System, the issuer of the commercial paper
or any other person which the Custodian may have as a consequence
of any such loss or damage if and to the extent that the Fund has
not been made whole for any such loss or damage.
N. Segregated Account The Custodian shall upon receipt of proper
instructions establish and maintain a segregated account or
accounts for and on behalf of the Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Paragraph L hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Custodian and any registered
broker-dealer (or any futures commission merchant), relating to
compliance with the rules of the Options Clearing Corporation and
of any registered national securities exchange (or of the
Commodity Futures Trading Commission or of any contract market or
commodities exchange), or of any similar organization or
organizations, regarding escrow or deposit or other arrangements
in connection with transactions by the Fund, (ii) for purposes of
segregating cash or U.S. Government securities in connection with
options purchased, sold or written by the Fund or futures
contracts or options thereon purchased or sold by the Fund, (iii)
for the purposes of compliance by the Fund with the procedures
required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper
purposes, but only, in the case of clause (iv), upon receipt of,
in addition to proper instructions, a certificate signed by two
officers of the Fund, setting forth the purpose such segregated
account and declaring such purpose to be a proper purpose.
O. Ownership Certificates for Tax Purposes The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of
income or other payments with respect to securities of the Fund
held by it and in connection with transfers of securities.
P. Proxies The Custodian shall, with respect to the securities held
by it hereunder, cause to be promptly delivered to the Fund all
forms of proxies and all notices of meetings and any other
notices or announcements or other written information affecting
or relating to the securities, and upon receipt of proper
instructions shall execute and deliver or cause its nominee to
execute and deliver such proxies or other authorizations as may
be required. Neither the Custodian nor its nominee shall vote
upon any of the securities or execute any proxy to vote thereon
or give any consent or take any other action with respect thereto
(except as otherwise herein provided) unless ordered to do so by
proper instructions.
Q. Communications Relating to Fund Portfolio Securities The
Custodian shall deliver promptly to the Fund all written
information (including, without limitation, pendency of call and
maturities of securities and participation interests and
expirations of rights in connection therewith and notices of
exercise of call and put options written by the Fund and the
maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers and other persons relating
to the securities and participation interests being held for the
Fund. With respect to tender or exchange offers, the Custodian
shall deliver promptly to the Fund all written information
received by the Custodian from issuers and other persons relating
to the securities and participation interests whose tender or
exchange is sought and from the party (or his agents) making the
tender or exchange offer.
R. Exercise of Rights; Tender Offers In the case of tender offers,
similar offers to purchase or exercise rights (including, without
limitation, pendency of calls and maturities of securities and
participation interests and expirations of rights in connection
therewith and notices of exercise of call and put options and the
maturity of futures contracts) affecting or relating to
securities and participation interests held by the Custodian
under this Agreement, the Custodian shall have responsibility for
promptly notifying the Fund of all such offers in accordance with
the standard of reasonable care set forth in Section 8 hereof.
For all such offers for which the Custodian is responsible as
provided in this Paragraph R, the Fund shall have responsibility
for providing the Custodian with all necessary instructions in
timely fashion. Upon receipt of proper instructions, the
Custodian shall timely deliver to the issuer or trustee thereof,
or to the agent of either, warrants, puts, calls, rights or
similar securities for the purpose of being exercised or sold
upon proper receipt therefor and upon receipt of assurances
satisfactory to the Custodian that the new securities and cash,
if any, acquired by such action are to be delivered to the
Custodian or any subcustodian employed pursuant to Section 2
hereof. Upon receipt of proper instructions, the Custodian shall
timely deposit securities upon invitations for tenders of
securities upon proper receipt therefor and upon receipt of
assurances satisfactory to the Custodian that the consideration
to be paid or delivered or the tendered securities are to be
returned to the Custodian or subcustodian employed pursuant to
Section 2 hereof. Notwithstanding any provision of this Agreement
to the contrary, the Custodian shall take all necessary action,
unless otherwise directed to the contrary by proper instructions,
to comply with the terms of all mandatory or compulsory
exchanges, calls, tenders, redemptions, or similar rights of
security ownership, and shall thereafter promptly notify the Fund
in writing of such action.
S. Depository Receipts The Custodian shall, upon receipt of proper
instructions, surrender or cause to be surrendered foreign
securities to the depository used by an issuer of American
Depository Receipts or International Depository Receipts
(hereinafter collectively referred to as "ADRs") for such
securities, against a written receipt therefor adequately
describing such securities and written evidence satisfactory to
the Custodian that the depository has acknowledged receipt of
instructions to issue with respect to such securities ADRs in the
name of a nominee of the Custodian or in the name or nominee name
of any subcustodian employed pursuant to Section 2 hereof, for
delivery to the Custodian or such subcustodian at such place as
the Custodian or such subcustodian may from time to time
designate. The Custodian shall, upon receipt of proper
instructions, surrender ADRs to the issuer thereof against a
written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian
that the issuer of the ADRs has acknowledged receipt of
instructions to cause its depository to deliver the securities
underlying such ADRs to the Custodian or to a subcustodian
employed pursuant to Section 2 hereof.
T. Interest Bearing Call or Time Deposits The Custodian shall, upon
receipt of proper instructions, place interest bearing fixed term
and call deposits with the banking department of such banking
institution (other than the Custodian) and in such amounts as the
Fund may designate. Deposits may be denominated in U.S. Dollars
or other currencies. The Custodian shall include in its records
with respect to the assets of the Fund appropriate notation as to
the amount and currency of each such deposit, the accepting
banking institution and other appropriate details and shall
retain such forms of advice or receipt evidencing the deposit, if
any, as may be forwarded to the Custodian by the banking
institution. Such deposits shall be deemed portfolio securities
of the applicable Fund for the purposes of this Agreement, and
the Custodian shall be responsible for the collection of income
from such accounts and the transmission of cash to and from such
accounts.
U. Options, Futures Contracts and Foreign Currency Transactions
1. Options. The Custodians shall, upon receipt of proper
instructions and in accordance with the provisions of any
agreement between the Custodian, any registered
broker-dealer and, if necessary, the Fund, relating to
compliance with the rules of the Options Clearing
Corporation or of any registered national securities
exchange or similar organization or organizations, receive
and retain confirmations or other documents, if any,
evidencing the purchase or writing of an option on a
security or securities index or other financial instrument
or index by the Fund; deposit and maintain in a segregated
account for each Fund separately, either physically or by
book-entry in a Securities System, securities subject to a
covered call option written by the Fund; and release and/or
transfer such securities or other assets only in accordance
with a notice or other communication evidencing the
expiration, termination or exercise of such covered option
furnished by the Options Clearing Corporation, the
securities or options exchange on which such covered option
is traded or such other organization as may be responsible
for handling such options transactions. The Custodian and
the broker-dealer shall be responsible for the sufficiency
of assets held in each Fund's segregated account in
compliance with applicable margin maintenance requirements.
2. Futures Contracts The Custodian shall, upon receipt of
proper instructions, receive and retain confirmations and
other documents, if any, evidencing the purchase or sale of
a futures contract or an option on a futures contract by the
Fund; deposit and maintain in a segregated account, for the
benefit of any futures commission merchant, assets
designated by the Fund as initial, maintenance or variation
"margin" deposits (including mark-to-market payments)
intended to secure the Fund's performance of its obligations
under any futures contracts purchased or sold or any options
on futures contracts written by Fund, in accordance with the
provisions of any agreement or agreements among the Fund,
the Custodian and such futures commission merchant, designed
to comply with the rules of the Commodity Futures Trading
Commission and/or of any contract market or commodities
exchange or similar organization regarding such margin
deposits or payments; and release and/or transfer assets in
such margin accounts only in accordance with any such
agreements or rules. The Custodian and the futures
commission merchant shall be responsible for the sufficiency
of assets held in the segregated account in compliance with
the applicable margin maintenance and mark-to-market payment
requirements.
3. Foreign Exchange Transactions The Custodian shall,
pursuant to proper instructions, enter into or cause a
subcustodian to enter into foreign exchange contracts or
options to purchase and sell foreign currencies for spot and
future delivery on behalf and for the account of the Fund.
Such transactions may be undertaken by the Custodian or
subcustodian with such banking or financial institutions or
other currency brokers, as set forth in proper instructions.
Foreign exchange contracts and options shall be deemed to be
portfolio securities of the Fund; and accordingly, the
responsibility of the Custodian therefor shall be the same
as and no greater than the Custodian's responsibility in
respect of other portfolio securities of the Fund. The
Custodian shall be responsible for the transmittal to and
receipt of cash from the currency broker or banking or
financial institution with which the contract or option is
made, the maintenance of proper records with respect to the
transaction and the maintenance of any segregated account
required in connection with the transaction. The Custodian
shall have no duty with respect to the selection of the
currency brokers or banking or financial institutions with
which the Fund deals or for their failure to comply with the
terms of any contract or option. Without limiting the
foregoing, it is agreed that upon receipt of proper
instructions and insofar as funds are made available to the
Custodian for the purpose, the Custodian may (if determined
necessary by the Custodian to consummate a particular
transaction on behalf and for the account of the Fund) make
free outgoing payments of cash in the form of U.S. dollars
or foreign currency before receiving confirmation of a
foreign exchange contract or confirmation that the
countervalue currency completing the foreign exchange
contact has been delivered or received. The Custodian shall
not be responsible for any costs and interest charges which
may be incurred by the Fund or the Custodian as a result of
the failure or delay of third parties to deliver foreign
exchange; provided that the Custodian shall nevertheless be
held to the standard of care set forth in, and shall be
liable to the Fund in accordance with, the provisions of
Section 8.
V. Actions Permitted Without Express Authority The Custodian may in
its discretion, without express authority from the Fund:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to
its duties under this Agreement, provided, that all
such payments shall be accounted for by the Custodian
to the Treasurer of the Fund;
2) surrender securities in temporary form for securities
in definitive form;
3) endorse for collection, in the name of the Fund,
checks, drafts and other negotiable instruments; and
4) in general, attend to all nondiscretionary details in
connection with the sale, exchange, substitution,
purchase, transfer and other dealings with the
securities and property of the Fund except as otherwise
directed by the Fund.
4. Duties of Bank with Respect to Books of Account and Calculations of
Net Asset Value
The Bank shall as Agent (or as Custodian, as the case may be) keep such
books of account (including records showing the adjusted tax costs of the Fund's
portfolio securities) and render as at the close of business on each day a
detailed statement of the amounts received or paid out and of securities
received or delivered for the account of the Fund during said day and such other
statements, including a daily trial balance and inventory of the Fund's
portfolio securities; and shall furnish such other financial information and
data as from time to time requested by the Treasurer or any executive officer of
the Fund; and shall compute and determine, as of the close of business of the
New York Stock Exchange, or at such other time or times as the Board may
determine, the net asset value of a Share in the Fund, such computation and
determination to be made in accordance with the governing documents of the Fund
and the votes and instructions of the Board at the time in force and applicable,
and promptly notify the Fund and its investment adviser and such other persons
as the Fund may request of the result of such computation and determination. In
computing the net asset value the Custodian may rely upon security quotations
received by telephone or otherwise from sources or pricing services designated
by the Fund by proper instructions, and may further rely upon information
furnished to it by any authorized officer of the Fund relative (a) to
liabilities of the Fund not appearing on its books of account, (b) to the
existence, status and proper treatment of any reserve or reserves, (c) to any
procedures established by the Board regarding the valuation of portfolio
securities, and (d) to the value to be assigned to any bond, note, debenture,
Treasury bill, repurchase agreement, subscription right, security, participation
interests or other asset or property for which market quotations are not readily
available.
5. Records and Miscellaneous Duties
The Bank shall create, maintain and preserve all records relating to
its activities and obligations under this Agreement in such manner as will meet
the obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder,
applicable federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the Fund. All books of account and
records maintained by the Bank in connection with the performance of its duties
under this Agreement shall be the property of the Fund, shall at all times
during the regular business hours of the Bank be open for inspection by
authorized officers, employees or agents of the Fund, and in the event of
termination of this Agreement shall be delivered to the Fund or to such other
person or persons as shall be designated by the Fund. Disposition of any account
or record after any required period of preservation shall be only in accordance
with specific instructions received from the Fund. The Bank shall assist
generally in the preparation of reports to shareholders, to the Securities and
Exchange Commission, including Forms N-SAR and N-1Q, to state "blue sky"
authorities and to others, audits of accounts, and other ministerial matters of
like nature; and, upon request, shall furnish the Fund's auditors with an
attested inventory of securities held with appropriate information as to
securities in transit or in the process of purchase or sale and with such other
information as said auditors may from time to time request. The Custodian shall
also maintain records of all receipts, deliveries and locations of such
securities, together with a current inventory thereof, and shall conduct
periodic verifications (including sampling counts at the Custodian) of
certificates representing bonds and other securities for which it is responsible
under this Agreement in such manner as the Custodian shall determine from time
to time to be advisable in order to verify the accuracy of such inventory. The
Bank shall not disclose or use any books or records it has prepared or
maintained by reason of this Agreement in any manner except as expressly
authorized herein or directed by the Fund, and the Bank shall keep confidential
any information obtained by reason of this Agreement.
6. Opinion of Fund's Independent Public Accountants
The Custodian shall take all reasonable action, as the Fund may from
time to time request, to enable the Fund to obtain from year to year favorable
opinions from the Fund's independent public accountants with respect to its
activities hereunder in connection with the preparation of the Fund's
registration statement and Form N-SAR or other periodic reports to the
Securities and Exchange Commission and with respect to any other requirements of
such Commission.
7. Compensation and Expenses of Bank
The Bank shall be entitled to reasonable compensation for its services
as Custodian and Agent, as agreed upon from time to time between the Fund and
the Bank. The Bank shall be entitled to receive from the Fund on demand
reimbursement for its cash disbursements, expenses and charges, including
counsel fees, in connection with its duties as Custodian and Agent hereunder,
but excluding salaries and usual overhead expenses.
8. Responsibility of Bank
So long as and to the extent that it is in the exercise of reasonable
care, the Bank as Custodian and Agent shall be held harmless in acting upon any
notice, request, consent, certificate or other instrument reasonably believed by
it to be genuine and to be signed by the proper party or parties.
The Bank as Custodian and Agent shall be entitled to rely on and may
act upon advice of counsel (who may be counsel for the Fund) on all matters, and
shall be without liability for any action reasonably taken or omitted pursuant
to such advice.
The Bank as Custodian and Agent shall be held to the exercise of
reasonable care in carrying out the provisions of this Agreement but shall be
liable only for its own negligent or bad faith acts or failures to act.
Notwithstanding the foregoing, nothing contained in this paragraph is intended
to nor shall it be construed to modify the standards of care and responsibility
set forth in Section 2 hereof with respect to subcustodians and in subparagraph
f of Paragraph L of Section 3 hereof with respect to Securities Systems and in
subparagraph g of Paragraph M of Section 3 hereof with respect to an Approved
Book-Entry System for Commercial Paper.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
subcustodians generally in Section 2 hereof, provided that, regardless of
whether assets are maintained in the custody of a foreign banking institution, a
foreign securities depository or a branch of a U.S. bank, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim resulting
from, or caused by, the direction of or authorization by the Fund to maintain
custody of any securities or cash of the Fund in a foreign county including, but
not limited to, losses resulting from nationalization, expropriation, currency
restrictions, acts of war, civil war or terrorism, insurrection, revolution,
military or usurped powers, nuclear fission, fusion or radiation, earthquake,
storm or other disturbance of nature or acts of God.
If the Fund requires the Bank in any capacity to take any action with
respect to securities, which action involves the payment of money or which
action may, in the opinion of the Bank, result in the Bank or its nominee
assigned to the Fund being liable for the payment of money or incurring
liability of some other form, the Fund, as a prerequisite to requiring the
Custodian to take such action, shall provide indemnity to the Custodian in an
amount and form satisfactory to it.
9. Persons Having Access to Assets of the Fund
(i) No trustee, director, general partner, officer, employee or agent
of the Fund shall have physical access to the assets of the Fund held by the
Custodian or be authorized or permitted to withdraw any investments of the Fund,
nor shall the Custodian deliver any assets of the Fund to any such person. No
officer or director, employee or agent of the Custodian who holds any similar
position with the Fund or the investment adviser of the Fund shall have access
to the assets of the Fund.
(ii) Access to assets of the Fund held hereunder shall only be
available to duly authorized officers, employees, representatives or agents of
the Custodian or other persons or entities for whose actions the Custodian shall
be responsible to the extent permitted hereunder, or to the Fund's independent
public accountants in connection with their auditing duties performed on behalf
of the Fund.
(iii) Nothing in this Section 9 shall prohibit any officer, employee or
agent of the Fund or of the investment adviser of the Fund from giving
instructions to the Custodian or executing a certificate so long as it does not
result in delivery of or access to assets of the Fund prohibited by paragraph
(i) of this Section 9.
10. Effective Period, Termination and Amendment; Successor Custodian
This Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; provided, that
the Fund may at any time by action of its Board, (i) substitute another bank or
trust company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Agreement in the event of the
appointment of a conservator or receiver for the Custodian by the Federal
Deposit Insurance Corporation or by the Banking Commissioner of The Commonwealth
of Massachusetts or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction. Upon
termination of the Agreement, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
Unless the holders of a majority of the outstanding Shares of the Fund
vote to have the securities, funds and other properties held hereunder delivered
and paid over to some other bank or trust company, specified in the vote, having
not less than $2,000,000 of aggregate capital, surplus and undivided profits, as
shown by its last published report, and meeting such other qualifications for
custodians set forth in the Investment Company Act of 1940, the Board shall,
forthwith, upon giving or receiving notice of termination of this Agreement,
appoint as successor custodian, a bank or trust company having such
qualifications. The Bank, as Custodian, Agent or otherwise, shall, upon
termination of the Agreement, deliver to such successor custodian, all
securities then held hereunder and all funds or other properties of the Fund
deposited with or held by the Bank hereunder and all books of account and
records kept by the Bank pursuant to this Agreement, and all documents held by
the Bank relative thereto. In the event that no such vote has been adopted by
the shareholders and that no written order designating a successor custodian
shall have been delivered to the Bank on or before the date when such
termination shall become effective, then the Bank shall not deliver the
securities, funds and other properties of the Fund to the Fund but shall have
the right to deliver to a bank or trust company doing business in Boston,
Massachusetts of its own selection, having an aggregate capital, surplus and
undivided profits, as shown by its last published report, of not less than
$2,000,000, all funds, securities and properties of the Fund held by or
deposited with the Bank, and all books of account and records kept by the Bank
pursuant to this Agreement, and all documents held by the Bank relative thereto.
Thereafter such bank or trust company shall be the successor of the Custodian
under this Agreement.
11. Interpretive and Additional Provisions
In connection with the operation of this Agreement, the Custodian and
the Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the governing instruments of the Fund. No interpretive or additional provisions
made as provided in the preceding sentence shall be deemed to be an amendment of
this Agreement.
12. Notices
Notices and other writings delivered or mailed postage prepaid to the
Fund addressed to 24 Federal Street, Boston, Massachusetts 02110, or to such
other address as the Fund may have designated to the Bank, in writing, or to
Investors Bank & Trust Company, 24 Federal Street, Boston, Massachusetts 02110,
shall be deemed to have been properly delivered or given hereunder to the
respective addressees.
13. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
If the Fund is a Massachusetts business trust, the Custodian expressly
acknowledges the provision in the Fund's declaration of Trust limiting the
personal liability of the trustees and shareholders of the Fund; and the
Custodian agrees that it shall have recourse only to the assets of the Fund for
the payment of claims or obligations as between the Custodian and the Fund
arising out of this Agreement, and the Custodian shall not seek satisfaction of
any such claim or obligation from the trustees or shareholders of the Fund.
14. Adoption of the Agreement by the Fund
The Fund represents that its Board has approved this Agreement and has
duly authorized the Fund to adopt this Agreement, such adoption to be evidenced
by a letter agreement between the Fund and the Bank reflecting such adoption,
which letter agreement shall be dated and signed by a duly authorized officer of
the Fund and duly authorized officer of the Bank. This Agreement shall be deemed
to be duly executed and delivered by each of the parties in its name and behalf
by its duly authorized officer as of the date of such letter agreement, and this
Agreement shall be deemed to supersede and terminate, as of the date of such
letter agreement, all prior agreements between the Fund and the Bank relating to
the custody of the Fund's assets.
* * * * *
<PAGE>
EXHIBIT 99.9(a)
EATON VANCE MUNICIPALS TRUST
AMENDED ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made this 19th day of June, 1995, between Eaton Vance Municipals
Trust, a Massachusetts business trust (the "Trust") on behalf of each of its
series listed on Schedule A (the "Funds") and Eaton Vance Management, a
Massachusetts business Trust, (the "Administrator").
IN CONSIDERATION of the mutual promises and undertakings herein contained,
the parties hereto agree with respect to each Fund:
1. Duties of the Administrator. The Trust hereby employs the Administrator
to act as administrator of the Fundand to administer its affairs, subject to
the supervision of the Trustees of the Trust, for the period and on the terms
set forth in this Agreement.
The Administrator hereby accepts such employment, and undertakes to afford
to the Trust the advice and assistance of the Administrator's organization in
the administration of the Fund
and to furnish for the use of the Fund office
space and all necessary office facilities, equipment and personnel for
administering the affairs of the Fund and to pay the salaries and fees of all
officers and Trustees of the Trust who are members of the Administrator's
organization and all personnel of the Administrator performing services relating
to administrative activities. The Administrator shall for all purposes herein be
deemed to be an independent contractor and shall, except as otherwise expressly
provided or authorized, have no authority to act for or represent the Trust in
any way or otherwise be deemed an agent of the Trust.
Notwithstanding the foregoing, the Administrator shall not be deemed to
have assumed any duties with respect to, and shall not be responsible for, the
management of the Fund's assets or the rendering of investment advice and
supervision with respect thereto or the distribution of shares of the Fund, nor
shall the Administrator be deemed to have assumed or have any responsibility
with respect to functions specifically assumed by any transfer agent, custodian
or shareholder servicing agent of the Trust or the Fund. It is intended that the
assets of the Fund will be invested in an interest in a registered open-end
investment company having substantially the same investment objective, policies
and restrictions as the Fund (the "Portfolio"). Boston Management and Research
("BMR"), an affiliate of the Administrator, currently acts as investment adviser
to the Portfolio under an Investment Advisory Agreement between the Portfolio
and BMR.
2. Allocation of Charges and Expenses. The Administrator shall pay the
entire salaries and fees of all of the Trust's Trustees and officers who devote
part or all of their time to the affairs of the Administrator, and the salaries
and fees of such persons shall not be deemed to be expenses incurred by the
Trust for purposes of this Section 2. Except as provided in the foregoing
sentence, the Administrator shall not pay any expenses relating to the Trust or
the Fund including, without implied limitation, (i) expenses of maintaining the
Fund and continuing its existence, (ii) registration of the Trust under the
Investment Company Act of 1940, (iii) commissions, fees and other expenses
connected with the acquisition, disposition and valuation 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 Trust,
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
Adviser'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 Trust to indemnify its Trustees and officers
with respect thereto.
3. Compensation of Administrator. The Board of Trustees of the Trust have
currently determined that, based on the current level of compensation payable to
BMR by the Portfolio under the Portfolio's present Investment Advisory Agreement
with BMR, the Administrator shall receive no compensation from the Trust or the
Fund in respect of the services to be rendered and the facilities to be provided
by the Administrator under this Agreement. If the Trustees determine that the
Trust or Fund, should compensate the Administrator for such services and
facilities, such compensation shall be set forth in a new agreement or in an
amendment to this Agreement to be entered into by the parties hereto.
4. Other Interests. It is understood that Trustees and officers of the
Trust and shareholders of the Fund are or may be or become interested in the
Administrator as trustees, officers, employees, shareholders or otherwise and
that trustees, officers, employees and shareholders of the Administrator are or
may be or become similarly interested in the Fund, and that the Administrator
may be or become interested in the Fund as shareholder or otherwise. It is also
understood that trustees, officers, employees and shareholders of the
Administrator may be or become interested (as directors, trustees, officers,
employees, stockholders or otherwise) in other companies or entities (including,
without limitation, other investment companies) which the Administrator may
organize, sponsor or acquire, or with which it may merge or consolidate, and
which may include the words "Eaton Vance" or "Eaton & Howard" or "Vance Sanders"
or any combination thereof as part of their name, and that the Administrator or
its subsidiaries or affiliates may enter into advisory or management or
administration agreements or other contracts or relationships with such other
companies or entities.
5. Limitation of Liability of the Administrator. The services of the
Administrator to the Trust and the Fund are not to be deemed to be exclusive,
the Administrator being free to render services to others and engage in other
business activities. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of the Administrator, the Administrator shall not be subject to liability to the
Trust or the Fund or to any shareholder of the Fund for any act or omission in
the course of, or connected with, rendering services hereunder or for any losses
which may be sustained in the acquisition, holding or disposition of any
security or other investment.
6. Sub-Administrators. The Administrator may employ one or more sub-
administrators from time to time to perform such of the acts and services of the
Administrator and upon such terms and conditions as may be agreed upon between
the Administrator and such sub- administrators and approved by the Trustees of
the Trust.
7. Duration and Termination of this Agreement. This Agreement shall become
effective upon the date of its execution, and, unless terminated as herein
provided, shall remain in full force and effect through and including February
28, 1996 and shall continue in full force and effect indefinitely thereafter,
but only so long as such continuance after February 28, 1996 is specifically
approved at least annually (i) by the Board of Trustees of the Trust and (ii) by
the vote of a majority of those Trustees of the Trust who are not interested
persons of the Administrator or the Trust.
Either party hereto may, at any time on sixty (60) days' prior written
notice to the other, terminate this Agreement without the payment of any
penalty, by action of Trustees of the Trust or the trustee of the Administrator,
as the case may be, and the Trust may, at any time upon such written notice to
the Administrator, terminate this Agreement by vote of a majority of the
outstanding voting securities of the Fund. This Agreement shall terminate
automatically in the event of its assignment.
8. Amendments of the Agreement. This Agreement may be amended by a writing
signed by both parties hereto, provided that no amendment to this Agreement
shall be effective until approved (i) by the vote of a majority of those
Trustees of the Trust who are not interested persons of the Administrator or the
Trust, and (ii) by vote of the Board of Trustees of the Trust. Additional series
of the Trust, however, will become a Fund hereunder upon approval by the
Trustees of the Trust and amendment of Schedule A.
9. Limitation of Liability. The Fund shall not be responsible for the
obligations of any other series of the Trust. The Administrator expressly
acknowledges the provision in the Declaration of Trust of the Trust limiting the
personal liability of shareholders of the Fund and of the officers and Trustees
of the Trust, and the Administrator hereby agrees that it shall have recourse to
the Trust or the Fund for payment of claims or obligations as between the Trust
or the Fund and the Administrator arising out of this Agreement and shall not
seek satisfaction from the shareholders or any shareholder of the Fund or from
the officers or Trustees of the Trust.
10. Use of the Name "Eaton Vance." The Administrator hereby consents to the
use by the Fund of the name "Eaton Vance" as part of the Fund's name; provided,
however, that such consent shall be conditioned upon the employment of the
Administrator or one of its affiliates as the administrator of the Fund. The
name "Eaton Vance" or any variation thereof may be used from time to time in
other connections and for other purposes by the Administrator and its affiliates
and other investment companies that have obtained consent to the use of the name
"Eaton Vance." The Administrator shall have the right to require the Fund to
cease using the name "Eaton Vance" as part of the Fund's name if the Fund
ceases, for any reason, to employ the Administrator or one of its affiliates as
the Fund's administrator. Future names adopted by the Fund for itself, insofar
as such names include identifying words requiring the consent of the
Administrator, shall be the property of the Administrator and shall be subject
to the same terms and conditions.
11. Certain Definitions. The terms "assignment" and "interested persons"
when used herein shall have the respective meanings specified in the Investment
Company Act of 1940 as now in effect or as hereafter amended subject, however,
to such exemptions as may be granted by the Securities and Exchange Commission
by any rule, regulation or order. The term "vote of a majority of the
outstanding voting securities" shall mean the vote of the lesser of (a) 67 per
centum or more of the shares of the Fund present or represented by proxy at the
meeting if the holders of more than 50 per centum of the outstanding shares of
the Fund are present or represented by proxy at the meeting, or (b) more than
50 per centum of the outstanding shares of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
EATON VANCE MUNICIPALS TRUST EATON VANCE MANAGEMENT
By /s/ Thomas J. Fetter By /s/ William M. Steul
---------------------------- -------------------------
President Vice President and not individually
<PAGE>
SCHEDULE A
EATON VANCE MUNICIPALS TRUST
AMENDED ADMINISTRATIVE SERVICES AGREEMENT
DATED JUNE 19, 1995
<TABLE>
<S> <C>
EV Classic Alabama Tax Free Fund EV Marathon Missouri Tax Free Fund
EV Marathon Alabama Tax Free Fund EV Classic National Municipals Fund
EV Classic Arizona Tax Free Fund EV Marathon National Municipals Fund
EV Marathon Arizona Tax Free Fund EV Traditional National Municipals Fund
EV Classic Arkansas Tax Free Fund EV Classic New Jersey Tax Free Fund
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EV Traditional Connecticut Tax Free Fund EV Classic North Carolina Tax Free Fund
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EV Marathon Florida Tax Free Fund EV Classic Ohio Tax Free Fund
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EV Classic Kentucky Tax Free Fund EV Classic Pennsylvania Tax Free Fund
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EV Marathon Louisiana Tax Free Fund EV Classic Rhode Island Tax Free Fund
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EV Classic Michigan Tax Free Fund EV Marathon Tennessee Tax Free Fund
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EV Marathon Mississippi Tax Free Fund EV Classic West Virginia Tax Free Fund
EV Classic Missouri Tax Free Fund EV Marathon West Virginia Tax Free Fund
Massachusetts Municipal Bond Portfolio
</TABLE>
<PAGE>
AMENDED SCHEDULE A
EATON VANCE MUNICIPALS TRUST
AMENDED ADMINISTRATIVE SERVICES AGREEMENT
EFFECTIVE: SEPTEMBER 29, 1995
<TABLE>
<S> <C>
EV Classic Alabama Tax Free Fund EV Classic Missouri Tax Free Fund
EV Marathon Alabama Tax Free Fund EV Marathon Missouri Tax Free Fund
EV Classic Arizona Tax Free Fund EV Classic National Municipals Fund
EV Marathon Arizona Tax Free Fund EV Marathon National Municipals Fund
EV Classic Arkansas Tax Free Fund EV Traditional National Municipals Fund
EV Marathon Arkansas Tax Free Fund EV Classic New Jersey Tax Free Fund
EV Classic California Municipals Fund* EV Marathon New Jersey Tax Free Fund
EV Marathon California Municipals Fund* EV Traditional New Jersey Tax Free Fund
EV Traditional California Municipals Fund* EV Classic New York Tax Free Fund
EV Classic Colorado Tax Free Fund EV Marathon New York Tax Free Fund
EV Marathon Colorado Tax Free Fund EV Traditional New York Tax Free Fund
EV Classic Connecticut Tax Free Fund EV Classic North Carolina Tax Free Fund
EV Marathon Connecticut Tax Free Fund EV Marathon North Carolina Tax Free Fund
EV Traditional Connecticut Tax Free Fund EV Classic Ohio Tax Free Fund
EV Classic Florida Tax Free Fund EV Marathon Ohio Tax Free Fund
EV Marathon Florida Tax Free Fund EV Classic Oregon Tax Free Fund
EV Traditional Florida Tax Free Fund EV Marathon Oregon Tax Free Fund
EV Classic Georgia Tax Free Fund EV Classic Pennsylvania Tax Free Fund
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EV Marathon Kentucky Tax Free Fund EV Classic Rhode Island Tax Free Fund
EV Classic Louisiana Tax Free Fund EV Marathon Rhode Island Tax Free Fund
EV Marathon Louisiana Tax Free Fund EV Classic South Carolina Tax Free Fund
EV Classic Maryland Tax Free Fund EV Marathon South Carolina Tax Free Fund
EV Marathon Maryland Tax Free Fund EV Classic Tennessee Tax Free Fund
EV Classic Massachusetts Tax Free Fund EV Marathon Tennessee Tax Free Fund
EV Marathon Massachusetts Tax Free Fund EV Classic Texas Tax Free Fund
EV Classic Michigan Tax Free Fund EV Marathon Texas Tax Free Fund
EV Marathon Michigan Tax Free Fund EV Classic Virginia Tax Free Fund
EV Classic Minnesota Tax Free Fund EV Marathon Virginia Tax Free Fund
EV Marathon Minnesota Tax Free Fund EV Classic West Virginia Tax Free Fund
EV Classic Mississippi Tax Free Fund EV Marathon West Virginia Tax Free Fund
EV Marathon Mississippi Tax Free Fund Massachusetts Municipal Bond Portfolio
</TABLE>
--------------------
*This Fund is a successor in operations to a Fund which was reorganized,
effective October 1, 1995.
<PAGE>
EXHIBIT (11)(A)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 55 to the
Registration Statement (1933 Act File No. 33-572) of Eaton Vance Municipals
Trust on behalf of EV Classic California Municipals Fund (the "Fund"), of our
report dated November 4, 1994, on our audit of the financial statements and
financial highlights of the Fund and of our report dated November 4, 1994 on
our audit of the financial statements and supplementary data of California Tax
Free Portfolio which reports are included in the Annual Report to Shareholders
for the year ended September 30, 1994 which is incorporated by reference in
the Statement of Additional Information.
We also consent to the reference to our Firm under the heading "The Fund's
Financial Highlights" in the Prospectus and under the caption "Independent
Certified Public Accountants" in the Statement of Additional Information of the
Registration Statement.
DELOITTE & TOUCHE LLP
September 14, 1995
Boston, Massachusetts
<PAGE>
EXHIBIT (11)(B)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 55 to the
Registration Statement (1933 Act File No. 33-572) of Eaton Vance Municipals
Trust on behalf of EV Marathon California Municipals Fund (the "Fund"), of our
report dated November 4, 1994, on our audit of the financial statements and
financial highlights of the Fund and of our report dated November 4, 1994 on
our audit of the financial statements and supplementary data of California Tax
Free Portfolio which reports are included in the Annual Report to Shareholders
for the year ended September 30, 1994 which is incorporated by reference in
the Statement of Additional Information.
We also consent to the reference to our Firm under the heading "The Fund's
Financial Highlights" in the Prospectus and under the caption "Independent
Certified Public Accountants" in the Statement of Additional Information of the
Registration Statement.
DELOITTE & TOUCHE LLP
September 14, 1995
Boston, Massachusetts
<PAGE>
EXHIBIT (11)(C)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 55 to the
Registration Statement (1933 Act File No. 33-572) of Eaton Vance Municipals
Trust on behalf of EV Traditional California Municipals Fund (the "Fund"), of
our report dated November 4, 1994, on our audit of the financial statements
and financial highlights of the Fund and of our report dated November 4, 1994
on our audit of the financial statements and supplementary data of California
Tax Free Portfolio which reports are included in the Annual Report to
Shareholders for the year ended September 30, 1994 which is incorporated by
reference in the Statement of Additional Information.
We also consent to the reference to our Firm under the heading "The Fund's
Financial Highlights" in the Prospectus and under the caption "Independent
Certified Public Accountants" in the Statement of Additional Information of the
Registration Statement.
DELOITTE & TOUCHE LLP
September 14, 1995
Boston, Massachusetts
EXHIBIT 99.15(a)
EATON VANCE MUNICIPALS TRUST
AMENDED DISTRIBUTION PLAN
(CLASSIC FUNDS)
WHEREAS, Eaton Vance Municipals Trust (the "Trust") engages in business
as an open-end investment company with multiple series and is registered as such
under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Trust adopted a separate Distribution Plan (the "Original
Plan") on behalf of each of its series listed on Schedule A (the "Funds"),
pursuant to which each Fund has made payments in connection with the
distribution of shares of the Fund;
WHEREAS, the Trust employs Eaton Vance Distributors, Inc. to act as
Principal Underwriter (as defined in the Act) of shares of each Fund, but does
not intend to remunerate the Principal Underwriter unless and until the
Principal Underwriter sells shares of the Fund;
WHEREAS, each Fund will pay the Principal Underwriter sales commissions
and distribution fees only in connection with the sale of shares of the Fund;
WHEREAS, each Fund intends to pay service fees as contemplated in
subsections (b) and (d) of Section 26 of Article III of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (the "NASD
Rules");
WHEREAS, the Trustees of the Trust have determined that it is desirable
to amend and replace the Original Plan with this Amended Distribution Plan on
behalf of the Funds listed on Schedule A; and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that adoption of this Amended Distribution Plan will
benefit each Fund and its shareholders.
NOW, THEREFORE, the Trust hereby adopts this Amended Distribution Plan
(this "Plan") on behalf of each Fund in accordance with Rule 12b-1 under the Act
and containing the following terms and conditions:
1. The Fund will pay sales commissions and distribution fees to the
Principal Underwriter only after and as a result of the sales of shares of the
Fund. The Principal Underwriter will provide the Fund with such distribution
services and facilities as the Trust may from time to time consider necessary to
accomplish the sale of shares of the Fund. It is understood that the Principal
Underwriter may pay such sales commissions and make such other payments to
Authorized Firms and other persons as it considers appropriate to encourage
distribution of such shares.
2. On each sale of Fund shares (excluding reinvestment of dividends and
distributions), the Fund shall pay the Principal Underwriter a sales commission
in an amount not exceeding 6.25% of the price received by the Fund therefor,
such payment to be made in the manner set forth and subject to the terms of this
Plan. The amount of the sales commission shall be established from time to time
by vote or other action of a majority of (i) those Trustees of the Trust who are
not "interested persons" (as defined in the Act) of the Trust and have no direct
or indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Trustees") and (ii) all of the Trustees then in
office. The Fund shall also pay the Principal Underwriter a separate
distribution fee (calculated in accordance with Section 3), such payment to be
made in the manner set forth and subject to the terms of this Plan.
3. The sales commissions and distribution fees referred to in Section 2
shall be accrued and paid by the Fund in the following manner. The Fund shall
accrue daily an amount calculated at the rate of .75% per annum of the daily net
assets of the Fund, which net assets shall be computed in accordance with the
governing documents of the Trust and applicable votes and determinations of the
Trustees of the Trust. The daily amounts so accrued throughout the month shall
be paid to the Principal Underwriter on the last day of each month. The amount
of such daily accrual, as so calculated, shall first be applied and charged to
all unpaid sales commissions, and the balance, if any, shall then be applied and
charged to all unpaid distribution fees. No amount shall be accrued with respect
to any day on which there exist no outstanding uncovered distribution charges of
the Principal Underwriter. The amount of such uncovered distribution charges
shall be calculated daily. For purposes of this calculation, distribution
charges of the Principal Underwriter shall include (a) the aggregate of all
sales commissions which the Principal Underwriter has been paid pursuant to this
Section 3 (and pursuant to Section 3 of the Original Plan) plus all sales
commissions which it is entitled to be paid pursuant to Section 2 (and pursuant
to Section 2 of the Original Plan) since inception of the Original Plan through
and including the day next preceding the date of calculation, and (b) an amount
equal to the aggregate of all distribution fees referred to below which the
Principal Underwriter has been paid pursuant to this Section 3 (and pursuant to
Section 3 of the Original Plan) plus all such fees which it is entitled to be
paid pursuant to Section 2 (and pursuant to Section 2 of the Original Plan)
since inception of the Original Plan through and including the day next
preceding the date of calculation. From this sum (distribution charges) there
shall be subtracted (i) the aggregate amount paid or payable to the Principal
Underwriter pursuant to this Section 3 (and pursuant to Section 3 of the
Original Plan) since inception of the Original Plan through and including the
day next preceding the date of calculation and (ii) the aggregate amount of all
contingent deferred sales charges paid or payable to the Principal Underwriter
since inception of the Original Plan through and including the day next
preceding the date of calculation. If the result of such subtraction is a
positive amount, a distribution fee [computed at the rate of 1% per annum above
the prime rate (being the base rate on corporate loans posted by at least 75% of
the nation's 30 largest banks) then being reported in the Eastern Edition of The
Wall Street Journal or if such prime rate is not so reported such other rate as
may be designated from time to time by vote or other action of a majority of (i)
the Rule 12b-1 Trustees and (ii) all of the Trustees then in office] shall be
computed on such amount and added to such amount, with the resulting sum
constituting the amount of outstanding uncovered distribution charges of the
Principal Underwriter with respect to such day for all purposes of this Plan. If
the result of such subtraction is a negative amount, there shall exist no
outstanding uncovered distribution charges of the Principal Underwriter with
respect to such day and no amount shall be accrued or paid to the Principal
Underwriter with respect to such day. The aggregate amounts accrued and paid
pursuant to this Section 3 during any fiscal year of the Fund shall not exceed
.75% of the average daily net assets of the Fund for such year.
4. The Principal Underwriter shall be entitled to receive all
contingent deferred sales charges paid or payable with respect to any day on
which there exist outstanding uncovered distribution charges of the Principal
Underwriter. The Fund shall be entitled to receive all remaining contingent
deferred sales charges paid or payable by shareholders with respect to any day
on which there exist no outstanding uncovered distribution charges of the
Principal Underwriter, provided that no such sales charge which would cause the
Fund to exceed the maximum applicable cap imposed thereon by paragraph (2) of
subsection (d) of Section 26 of Article III of the NASD Rules shall be imposed.
5. The Fund may make payments of service fees to the Principal
Underwriter, Authorized Firms and other persons. The aggregate of such payments
during any fiscal year of the Fund shall not exceed .25% of the Fund's average
daily net assets for such year. Appropriate adjustment of service fee payments
shall be made whenever necessary to ensure that no such payment shall cause the
Fund to exceed the applicable maximum cap imposed thereon by paragraph (5) of
subsection (d) of Section 26 of Article III of the NASD Rules.
6. This Plan shall not take effect until after it has been approved by
both a majority of (i) 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.
7. Any agreements between the Trust on behalf of the Fund and any
person relating to this Plan shall be in writing and shall not take effect until
approved in the manner provided for Trustee approval of this Plan in Section 6.
8. This Plan shall continue in effect through and including April 28,
1995 (or, if applicable, the next April 28 which follows the day on which the
Fund has become a Fund hereunder by amendment of Schedule A subsequent to April
28, 1995), and shall continue in effect indefinitely thereafter, but only for so
long as such continuance after April 28, 1995 (or, if applicable, said next
April 28) is specifically approved at least annually in the manner provided for
Trustee approval of this Plan in Section 6.
9. The persons authorized to direct the disposition of monies paid or
payable by the Fund pursuant to this Plan or any related agreement made on
behalf of the Fund shall be the President or any Vice President of the Trust.
Such persons shall provide to the Trustees of the Trust and the Trustees shall
review, at least quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made.
10. This Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Trustees, or by vote of a majority of the outstanding voting
securities of the Fund. The Principal Underwriter shall also be entitled to
receive all contingent deferred sales charges paid or payable with respect to
any day subsequent to termination of this Plan on which there exist outstanding
uncovered distribution charges of the Principal Underwriter.
11. This Plan may not be amended to increase materially the payments to
be made by the Fund as provided in Sections 2, 3 and 5 unless such amendment is
approved by a vote of at least a majority of the outstanding voting securities
of the Fund. In addition, all material amendments to this Plan shall be approved
in the manner provided for Trustee approval of this Plan in Section 6.
Additional series of the Trust will be governed hereby upon approval by the
Trustees of the Trust and amendment of Schedule A. All references in this Plan
to the "Original Plan" shall not be applicable to any such additional series of
the Trust which becomes a Fund hereunder by amendment of Schedule A subsequent
to January 27, 1995.
12. While this Plan is in effect, the selection and nomination of the
Rule 12b-1 Trustees shall be committed to the discretion of the Rule 12b-1
Trustees.
13. The Trust shall preserve copies of this Plan and any related
agreements made by the Trust on behalf of the Fund and all reports made pursuant
to Section 9, for a period of not less than six years from the date of this
Plan, or of the agreements or of such report, as the case may be, the first two
years in an easily accessible place.
14. Consistent with the limitation of shareholder, officer and Trustee
liability as set forth in the Trust's Declaration of Trust, any obligations
assumed by the Fund pursuant to this Plan shall be limited in all cases to the
assets of the Fund and no person shall seek satisfaction thereof from the
shareholders of the Trust, officers or Trustees of the Trust or any other series
of the Trust.
15. When used in this Plan, the term "service fees" shall have the same
meaning as such term has in subsections (b) and (d) of Section 26 of Article III
of the NASD Rules. When used in this Plan, the term "vote of a majority of the
outstanding voting securities of the Fund" shall mean the vote of the lesser of
(a) 67 per centum or more of the shares of the Fund present or represented by
proxy at the meeting if the holders of more than 50 per centum of the
outstanding shares of the Fund are present or represented by proxy at the
meeting, or (b) more than 50 per centum of the outstanding shares of the Fund.
16. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or regulation of the Securities and Exchange
Commission or otherwise, the remainder of this Plan shall not be affected
thereby.
17. This Plan shall amend, replace and be substituted for the Current
Plan as of the opening of business on January 30, 1995 and this Plan shall be
effective as of such time. The outstanding uncovered distribution charges of the
Principal Underwriter calculated under the Current Plan as of the close of
business on January 29, 1995 shall be the outstanding uncovered distribution
charges of the Principal Underwriter calculated under this Plan as of the
opening of business on January 30, 1995.
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this Plan on behalf of each
Fund listed on Schedule A on the 27th day of January, 1995.
EATON VANCE MUNICIPALS TRUST
BY /s/ Thomas J. Fetter
-----------------------
President
Attest:
/s/ Thomas Otis
-------------------
Secretary
<PAGE>
SCHEDULE A
EATON VANCE MUNICIPALS TRUST
AMENDED DISTRIBUTION PLAN
DATED JANUARY 27, 1995
Name of Fund Inception Date of Original Plan
------------ -------------------------------
EV Classic Alabama Tax Free Fund November 29, 1993
EV Classic Arizona Tax Free Fund November 29, 1993
EV Classic Arkansas Tax Free Fund February 1, 1994
EV Classic Colorado Tax Free Fund November 29, 1993
EV Classic Connecticut Tax Free Fund November 29, 1993
EV Classic Florida Tax Free Fund November 22, 1993
EV Classic Georgia Tax Free Fund November 29, 1993
EV Classic Kentucky Tax Free Fund November 29, 1993
EV Classic Louisiana Tax Free Fund February 1, 1994
EV Classic Maryland Tax Free Fund November 29, 1993
EV Classic Massachusetts Tax Free Fund November 29, 1993
EV Classic Michigan Tax Free Fund November 29, 1993
EV Classic Minnesota Tax Free Fund November 29, 1993
EV Classic Mississippi Tax Free Fund November 29, 1993
EV Classic Missouri Tax Free Fund November 29, 1993
EV Classic National Municipals Fund November 22, 1993
EV Classic New Jersey Tax Free Fund November 22, 1993
EV Classic New York Tax Free Fund November 22, 1993
EV Classic North Carolina Tax Free Fund November 29, 1993
EV Classic Ohio Tax Free Fund November 29, 1993
EV Classic Oregon Tax Free Fund November 29, 1993
EV Classic Pennsylvania Tax Free Fund November 22, 1993
EV Classic Rhode Island Tax Free Fund November 29, 1993
EV Classic South Carolina Tax Free Fund February 1, 1994
EV Classic Tennessee Tax Free Fund November 29, 1993
EV Classic Texas Tax Free Fund November 29, 1993
EV Classic Virginia Tax Free Fund November 29, 1993
EV Classic West Virginia Tax Free Fund November 29, 1993
<PAGE>
AMENDED SCHEDULE A
EATON VANCE MUNICIPALS TRUST
AMENDED DISTRIBUTION PLAN
(CLASSIC FUNDS)
EFFECTIVE: SEPTEMBER 29, 1995
Name of Fund Inception Date of Original Plan
------------ -------------------------------
EV Classic Alabama Tax Free Fund November 29, 1993
EV Classic Arizona Tax Free Fund November 29, 1993
EV Classic Arkansas Tax Free Fund February 1, 1994
EV Classic California Municipals Fund* November 22, 1993
EV Classic Colorado Tax Free Fund November 29, 1993
EV Classic Connecticut Tax Free Fund November 29, 1993
EV Classic Florida Tax Free Fund November 22, 1993
EV Classic Georgia Tax Free Fund November 29, 1993
EV Classic Kentucky Tax Free Fund November 29, 1993
EV Classic Louisiana Tax Free Fund February 1, 1994
EV Classic Maryland Tax Free Fund November 29, 1993
EV Classic Massachusetts Tax Free Fund November 29, 1993
EV Classic Michigan Tax Free Fund November 29, 1993
EV Classic Minnesota Tax Free Fund November 29, 1993
EV Classic Mississippi Tax Free Fund November 29, 1993
EV Classic Missouri Tax Free Fund November 29, 1993
EV Classic National Municipals Fund November 22, 1993
EV Classic New Jersey Tax Free Fund November 22, 1993
EV Classic New York Tax Free Fund November 22, 1993
EV Classic North Carolina Tax Free Fund November 29, 1993
EV Classic Ohio Tax Free Fund November 29, 1993
EV Classic Oregon Tax Free Fund November 29, 1993
EV Classic Pennsylvania Tax Free Fund November 22, 1993
EV Classic Rhode Island Tax Free Fund November 29, 1993
EV Classic South Carolina Tax Free Fund February 1, 1994
EV Classic Tennessee Tax Free Fund November 29, 1993
EV Classic Texas Tax Free Fund November 29, 1993
EV Classic Virginia Tax Free Fund November 29, 1993
EV Classic West Virginia Tax Free Fund November 29, 1993
--------------------
*This fund is a successor in operations to a fund which was reorganized,
effective October 1, 1995, and the outstanding uncovered distribution charges
of the predecessor fund were assumed by the above fund.
<PAGE>
EXHIBIT 99.15(b)
EATON VANCE MUNICIPALS TRUST
AMENDED DISTRIBUTION PLAN
(MARATHON FUNDS)
WHEREAS, Eaton Vance Municipals Trust (the "Trust") engages in business as
an open-end investment company with multiple series and is registered as such
under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Trust adopted separate Distribution Plans (the "Original
Plans") on behalf of each of its series listed on Schedule A (the "Funds"),
pursuant to which each Fund has made payments in connection with the
distribution of shares of the Fund;
WHEREAS, the Trust employs Eaton Vance Distributors, Inc. to act as
Principal Underwriter (as defined in the Act) of shares of each Fund, but does
not intend to remunerate the Principal Underwriter unless and until the
Principal Underwriter sells shares of the Fund;
WHEREAS, each Fund will pay the Principal Underwriter sales commissions
and distribution fees only in connection with the sale of shares of the Fund;
WHEREAS, each Fund intends to pay service fees as contemplated in
subsections (b) and (d) of Section 26 of Article III of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (the "NASD
Rules");
WHEREAS, the Trustees of the Trust have determined that it is desirable to
amend and replace the Original Plans with this Amended Distribution Plan on
behalf of the Funds listed on Schedule A; and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that adoption of this Amended Distribution Plan will
benefit each Fund and its shareholders.
NOW, THEREFORE, the Trust hereby adopts this Amended Distribution Plan
(this "Plan") on behalf of each Fund in accordance with Rule 12b-1 under the Act
and containing the following terms and conditions:
1. The Fund will pay sales commissions and distribution fees to the
Principal Underwriter only after and as a result of the sales of shares of the
Fund. The Principal Underwriter will provide the Fund with such distribution
services and facilities as the Trust may from time to time consider necessary to
accomplish the sale of shares of the Fund. It is understood that the Principal
Underwriter may pay such sales commissions and make such other payments to
Authorized Firms and other persons as it considers appropriate to encourage
distribution of such shares.
2. On each sale of Fund shares (excluding reinvestment of dividends and
distributions), the Fund shall pay the Principal Underwriter a sales commission
in an amount not exceeding 5% of the price received by the Fund therefor, such
payment to be made in the manner set forth and subject to the terms of this
Plan. The amount of the sales commission shall be established from time to time
by vote or other action of a majority of (i) those Trustees of the Trust who are
not "interested persons" (as defined in the Act) of the Trust and have no direct
or indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Trustees") and (ii) all of the Trustees then in
office. The Fund shall also pay the Principal Underwriter a separate
distribution fee (calculated in accordance with Section 3), such payment to be
made in the manner set forth and subject to the terms of this Plan.
3. The sales commissions and distribution fees referred to in Section 2
shall be accrued and paid by the Fund in the following manner. The Fund shall
accrue daily an amount calculated at the rate of .75% per annum of the daily net
assets of the Fund, which net assets shall be computed in accordance with the
governing documents of the Trust and applicable votes and determinations of the
Trustees of the Trust. The daily amounts so accrued throughout the month shall
be paid to the Principal Underwriter on the last day of each month. The amount
of such daily accrual, as so calculated, shall first be applied and charged to
all unpaid sales commissions, and the balance, if any, shall then be applied and
charged to all unpaid distribution fees. No amount shall be accrued with respect
to any day on which there exist no outstanding uncovered distribution charges of
the Principal Underwriter. The amount of such uncovered distribution charges
shall be calculated daily. For purposes of this calculation, distribution
charges of the Principal Underwriter shall include (a) the aggregate of all
sales commissions which the Principal Underwriter has been paid pursuant to this
Section 3 (and pursuant to Section 3 of the Original Plans) plus all sales
commissions which it is entitled to be paid pursuant to Section 2 (and pursuant
to Section 2 of the Original Plans) since inception of the Original Plans
through and including the day next preceding the date of calculation, and (b) an
amount equal to the aggregate of all distribution fees referred to below which
the Principal Underwriter has been paid pursuant to this Section 3 (and pursuant
to Section 3 of the Original Plans) plus all such fees which it is entitled to
be paid pursuant to Section 2 (and pursuant to Section 2 of the Original Plans)
since inception of the Original Plans through and including the day next
preceding the date of calculation. From this sum (distribution charges) there
shall be subtracted (i) the aggregate amount paid or payable to the Principal
Underwriter pursuant to this Section 3 (and pursuant to Section 3 of the
Original Plans) since inception of the Original Plans through and including the
day next preceding the date of calculation and (ii) the aggregate amount of all
contingent deferred sales charges paid or payable to the Principal Underwriter
since inception of the Original Plans through and including the day next
preceding the date of calculation. If the result of such subtraction is a
positive amount, a distribution fee [computed at the rate of 1% per annum above
the prime rate (being the base rate on corporate loans posted by at least 75% of
the nation's 30 largest banks) then being reported in the Eastern Edition of The
Wall Street Journal or if such prime rate is not so reported such other rate as
may be designated from time to time by vote or other action of a majority of (i)
the Rule 12b-1 Trustees and (ii) all of the Trustees then in office] shall be
computed on such amount and added to such amount, with the resulting sum
constituting the amount of outstanding uncovered distribution charges of the
Principal Underwriter with respect to such day for all purposes of this Plan. If
the result of such subtraction is a negative amount, there shall exist no
outstanding uncovered distribution charges of the Principal Underwriter with
respect to such day and no amount shall be accrued or paid to the Principal
Underwriter with respect to such day. The aggregate amounts accrued and paid
pursuant to this Section 3 during any fiscal year of the Fund shall not exceed
.75% of the average daily net assets of the Fund for such year.
4. The Principal Underwriter shall be entitled to receive all contingent
deferred sales charges paid or payable with respect to any day on which there
exist outstanding uncovered distribution charges of the Principal Underwriter.
The Fund shall be entitled to receive all remaining contingent deferred sales
charges paid or payable by shareholders with respect to any day on which there
exist no outstanding uncovered distribution charges of the Principal
Underwriter, provided that no such sales charge which would cause the Fund to
exceed the maximum applicable cap imposed thereon by paragraph (2) of subsection
(d) of Section 26 of Article III of the NASD Rules shall be imposed.
5. The Fund may make payments of service fees to the Principal Underwriter,
Authorized Firms and other persons. The aggregate of such payments during any
fiscal year of the Fund shall not exceed .25% of the Fund's average daily net
assets for such year. Appropriate adjustment of service fee payments shall be
made whenever necessary to ensure that no such payment shall cause the Fund to
exceed the applicable maximum cap imposed thereon by paragraph (5) of subsection
(d) of Section 26 of Article III of the NASD Rules.
6. This Plan shall not take effect until after it has been approved by both
a majority of (i) 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.
7. Any agreements between the Trust on behalf of the Fund and any person
relating to this Plan shall be in writing and shall not take effect until
approved in the manner provided for Trustee approval of this Plan in Section 6.
8. This Plan shall continue in effect through and including April 28, 1996
(or, if applicable, the next April 28 which follows the day on which the Fund
has become a Fund hereunder by amendment of Schedule A subsequent to April 28,
1996), and shall continue in effect indefinitely thereafter, but only for so
long as such continuance after April 28, 1996 (or, if applicable, said next
April 28) is specifically approved at least annually in the manner provided for
Trustee approval of this Plan in Section 6.
9. The persons authorized to direct the disposition of monies paid or
payable by the Fund pursuant to this Plan or any related agreement made on
behalf of the Fund shall be the President or any Vice President of the Trust.
Such persons shall provide to the Trustees of the Trust and the Trustees shall
review, at least quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made.
10. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Trustees, or by vote of a majority of the outstanding voting
securities of the Fund. The Principal Underwriter shall also be entitled to
receive all contingent deferred sales charges paid or payable with respect to
any day subsequent to termination of this Plan on which there exist outstanding
uncovered distribution charges of the Principal Underwriter.
11. This Plan may not be amended to increase materially the payments to be
made by the Fund as provided in Sections 2, 3 and 5 unless such amendment is
approved by a vote of at least a majority of the outstanding voting securities
of the Fund. In addition, all material amendments to this Plan shall be approved
in the manner provided for Trustee approval of this Plan in Section 6.
Additional series of the Trust will be governed hereby upon approval by the
Trustees of the Trust and amendment of Schedule A. All references in this Plan
to the "Original Plans" shall not be applicable to any such additional series of
the Trust which becomes a Fund hereunder by amendment of Schedule A subsequent
to the date below. With respect to such series, this Plan shall, prior to the
initial accrual or payment of any amount hereunder, be approved by a vote of at
least a majority of the outstanding voting securities of the Fund.
12. While this Plan is in effect, the selection and nomination of the Rule
12b-1 Trustees shall be committed to the discretion of the Rule 12b-1 Trustees.
13. The Trust shall preserve copies of this Plan and any related agreements
made by the Trust on behalf of the Fund and all reports made pursuant to Section
9, for a period of not less than six years from the date of this Plan, or of the
agreements or of such report, as the case may be, the first two years in an
easily accessible place.
14. Consistent with the limitation of shareholder, officer and Trustee
liability as set forth in the Trust's Declaration of Trust, any obligations
assumed by the Fund pursuant to this Plan shall be limited in all cases to the
assets of the Fund and no person shall seek satisfaction thereof from the
shareholders of the Fund, officers or Trustees of the Trust or any other series
of the Trust.
15. When used in this Plan, the term "service fees" shall have the same
meaning as such term has in subsections (b) and (d) of Section 26 of Article III
of the NASD Rules. When used in this Plan, the term "vote of a majority of the
outstanding voting securities of the Fund" shall mean the vote of the lesser of
(a) 67 per centum or more of the shares of the Fund present or represented by
proxy at the meeting if the holders of more than 50 per centum of the
outstanding shares of the Fund are present or represented by proxy at the
meeting, or (b) more than 50 per centum of the outstanding shares of the Fund.
16. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or regulation of the Securities and Exchange Commission
or otherwise, the remainder of this Plan shall not be affected thereby.
17. This Plan shall amend, replace and be substituted for the Original
Plans as of the opening of business on June 20, 1995 and this Plan shall be
effective as of such time. The outstanding uncovered distribution charges of the
Principal Underwriter calculated under the Original Plans as of the close of
business on June 19, 1995 shall be the outstanding uncovered distribution
charges of the Principal Underwriter calculated under this Plan as of the
opening of business on June 20, 1995.
ADOPTED JUNE 19, 1995
* * *
<PAGE>
SCHEDULE A
EATON VANCE MUNICIPALS TRUST
AMENDED DISTRIBUTION PLAN
(MARATHON FUNDS)
DATED JUNE 19, 1995
Name of Fund Inception Date of Original Plans
------------ --------------------------------
EV Marathon Alabama Tax Free Fund April 24, 1992/July 7, 1993
EV Marathon Arizona Tax Free Fund July 22, 1991/July 7, 1993
EV Marathon Arkansas Tax Free Fund October 1, 1992/July 7, 1993
EV Marathon Colorado Tax Free Fund August 20, 1992/July 7, 1993
EV Marathon Connecticut Tax Free Fund April 24, 1992/July 7, 1993
EV Marathon Florida Tax Free Fund August 20, 1990/July 7, 1993
EV Marathon Georgia Tax Free Fund December 16, 1991/July 7, 1993
EV Marathon Kentucky Tax Free Fund December 16, 1991/July 7, 1993
EV Marathon Louisiana Tax Free Fund October 1, 1992/July 7, 1993
EV Marathon Maryland Tax Free Fund December 16, 1991/July 7, 1993
EV Marathon Massachusetts Tax Free Fund April 15, 1991/July 7, 1993
EV Marathon Michigan Tax Free Fund April 15, 1991/July 7, 1993
EV Marathon Minnesota Tax Free Fund July 22, 1991/July 7, 1993
EV Marathon Mississippi Tax Free Fund June 7, 1993
EV Marathon Missouri Tax Free Fund April 24, 1992/July 7, 1993
EV Marathon National Municipals Fund December 19, 1985/July 7, 1993
EV Marathon New Jersey Tax Free Fund January 7, 1991/July 7, 1993
EV Marathon New York Tax Free Fund August 20, 1990/July 7, 1993
EV Marathon North Carolina Tax Free Fund October 10, 1991/July 7, 1993
EV Marathon Ohio Tax Free Fund April 16, 1991/July 7, 1993
EV Marathon Oregon Tax Free Fund December 16, 1991/July 7, 1993
EV Marathon Pennsylvania Tax Free Fund January 7, 1991/July 7, 1993
EV Marathon Rhode Island Tax Free Fund June 7, 1993
EV Marathon South Carolina Tax Free Fund October 1, 1992/July 7, 1993
EV Marathon Tennessee Tax Free Fund August 20, 1992/July 7, 1993
EV Marathon Texas Tax Free Fund January 31, 1992/July 7, 1993
EV Marathon Virginia Tax Free Fund July 22, 1991/July 7, 1993
EV Marathon West Virginia Tax Free Fund June 7, 1993
<PAGE>
AMENDED SCHEDULE A
EATON VANCE MUNICIPALS TRUST
AMENDED DISTRIBUTION PLAN
(MARATHON FUNDS)
EFFECTIVE: SEPTEMBER 29, 1995
Name of Fund Inception Date of Original Plans
------------ --------------------------------
EV Marathon Alabama Tax Free Fund April 24, 1992/July 7, 1993
EV Marathon Arizona Tax Free Fund July 22, 1991/July 7, 1993
EV Marathon Arkansas Tax Free Fund October 1, 1992/July 7, 1993
EV Marathon California Municipals Fund* December 19, 1985/July 7, 1993
EV Marathon Colorado Tax Free Fund August 20, 1992/July 7, 1993
EV Marathon Connecticut Tax Free Fund April 24, 1992/July 7, 1993
EV Marathon Florida Tax Free Fund August 20, 1990/July 7, 1993
EV Marathon Georgia Tax Free Fund December 16, 1991/July 7, 1993
EV Marathon Kentucky Tax Free Fund December 16, 1991/July 7, 1993
EV Marathon Louisiana Tax Free Fund October 1, 1992/July 7, 1993
EV Marathon Maryland Tax Free Fund December 16, 1991/July 7, 1993
EV Marathon Massachusetts Tax Free Fund April 15, 1991/July 7, 1993
EV Marathon Michigan Tax Free Fund April 15, 1991/July 7, 1993
EV Marathon Minnesota Tax Free Fund July 22, 1991/July 7, 1993
EV Marathon Mississippi Tax Free Fund June 7, 1993
EV Marathon Missouri Tax Free Fund April 24, 1992/July 7, 1993
EV Marathon National Municipals Fund December 19, 1985/July 7, 1993
EV Marathon New Jersey Tax Free Fund January 7, 1991/July 7, 1993
EV Marathon New York Tax Free Fund August 20, 1990/July 7, 1993
EV Marathon North Carolina Tax Free Fund October 10, 1991/July 7, 1993
EV Marathon Ohio Tax Free Fund April 16, 1991/July 7, 1993
EV Marathon Oregon Tax Free Fund December 16, 1991/July 7, 1993
EV Marathon Pennsylvania Tax Free Fund January 7, 1991/July 7, 1993
EV Marathon Rhode Island Tax Free Fund June 7, 1993
EV Marathon South Carolina Tax Free Fund October 1, 1992/July 7, 1993
EV Marathon Tennessee Tax Free Fund August 20, 1992/July 7, 1993
EV Marathon Texas Tax Free Fund January 31, 1992/July 7, 1993
EV Marathon Virginia Tax Free Fund July 22, 1991/July 7, 1993
EV Marathon West Virginia Tax Free Fund June 7, 1993
-----------------------
*This fund is a successor in operations to a fund which was reorganized,
effective October 1, 1995, and the outstanding uncovered distribution charges of
the predecessor fund were assumed by the above fund.
<PAGE>
EXHIBIT 99.15(c)
EATON VANCE MUNICIPALS TRUST
AMENDED SERVICE PLAN
(Traditional Funds)
WHEREAS, Eaton Vance Municipals Trust (the "Trust") engages in business as
an open-end management investment company with multiple series and is registered
as such under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Trust adopted separate Service Plans (the "Original Plans") on
behalf of each of its series listed on Schedule A (the "Funds"), pursuant to
which each Fund has made payments in connection with the distribution of shares
of the Fund;
WHEREAS, the Trust desires to adopt this Amended Service Plan pursuant to
which each Fund intends to pay service fees as contemplated in subsections (b)
and (d) of Section 26 of Article III of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. (the "NASD Rules");
WHEREAS, the Trust employs Eaton Vance Distributors, Inc. to act as
Principal Underwriter (as defined in the Act) of Fund shares;
WHEREAS, the Trustees of the Trust have determined that it is desirable to
amend and replace the Original Plans with this Amended Service Plan on behalf of
the Funds listed on Schedule A; and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that adoption of this Amended Service Plan will benefit
each Fund and its shareholders.
NOW, THEREFORE, the Trust hereby adopts this Amended Service Plan (the
"Plan") on behalf of each Fund in accordance with Rule 12b-1 under the Act and
containing the following terms and conditions:
1. The Fund may make payments of service fees to the Principal Underwriter,
Authorized Firms and other persons. The aggregate of such payments during any
fiscal year of the Fund shall not exceed .25% of the Fund's average daily net
assets for such year. Appropriate adjustment of service fee payments shall be
made whenever necessary to ensure that no such payment shall cause the Fund to
exceed the applicable maximum cap imposed thereon by paragraph (5) of subsection
(d) of Section 26 of Article III of the NASD Rules.
2. This Plan shall not take effect until after it has been approved by both
a majority of (i) those Trustees of the Trust who are not "interested persons"
of the Trust (as defined in the Act) and have no direct or indirect financial
interest in the operations of this 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.
3. Any agreements between the Trust on behalf of the Fund and any person
relating to this Plan shall be in writing and shall not take effect until
approved in the manner provided for Trustee approval of this Plan in Section 2.
4. This Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for Trustee
approval of this Plan in Section 2.
5. The persons authorized to direct the disposition of monies paid or
payable by the Fund pursuant to this Plan or any related agreement made on
behalf of the Fund shall be the President or any Vice President of the Trust.
One or more of such persons shall provide to the Trustees of the Trust and the
Trustees shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
6. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Trustees, or by vote of a majority of the outstanding voting
securities of the Fund.
7. This Plan may not be amended to increase materially the payments to be
made by the Fund as provided in Section 1 unless such amendment, if required by
law, is approved by a vote of at least a majority of the outstanding voting
securities of the Fund. In addition, all material amendments to this Plan shall
be approved in the manner provided for in Section 2. Additional series of the
Trust will become a Fund hereunder upon approval by the Trustees of the Trust
and amendment of Schedule A with respect to such series.
8. While this Plan is in effect, the selection and nomination of the Rule
12b-1 Trustees shall be committed to the discretion of the Rule 12b-1 Trustees.
9. The Trust shall preserve copies of this Plan and any related agreements
made by the Trust on behalf of the Fund and all reports made pursuant to Section
5, for a period of not less than six years from the date of this Plan, or of the
agreements or of such report, as the case may be, the first two years in an
easily accessible place.
10. Consistent with the limitation of shareholder, officer and Trustee
liability as set forth in the Trust's Declaration of Trust, any obligations
assumed by the Fund pursuant to this Plan shall be limited in all cases to the
assets of the Fund and no person shall seek satisfaction thereof from the
shareholders of the Trust, officers or Trustees of the Trust or any other series
of the Trust.
11. When used in this Plan, the term "service fees" shall have the same
meaning as such term has in subsections (b) and (d) of Section 26 of Article III
of the NASD Rules. When used in this Plan, the term "vote of a majority of the
outstanding voting securities" shall mean the vote of the lesser of (a) 67 per
centum or more of the shares of the Fund present or represented by proxy at the
meeting if the holders of more than 50 per centum of the outstanding shares of
the Fund are present or represented by proxy at the meeting, or (b) more than 50
per centum of the outstanding shares of the Fund.
12. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or regulation of the Securities and Exchange Commission
or otherwise, the remainder of this Plan shall not be affected thereby.
13. This Plan shall amend, replace and be substituted for the Original
Plans as of the opening of business on June 20, 1995 and this Plan shall be
effective as of such time.
ADOPTED JUNE 19, 1995
* * *
<PAGE>
SCHEDULE A
EATON VANCE MUNICIPALS TRUST
AMENDED SERVICE PLAN
(TRADITIONAL FUNDS)
DATED JUNE 19, 1995
Name of Fund Inception Date of Original Plan
------------ -------------------------------
EV Traditional Connecticut Tax Free Fund March 21, 1994
EV Traditional Florida Tax Free Fund March 7, 1994
EV Traditional National Municipals Fund March 7, 1994
EV Traditional New Jersey Tax Free Fund March 21, 1994
EV Traditional New York Tax Free Fund March 7, 1994
EV Traditional Pennsylvania Tax Free Fund March 21, 1994
<PAGE>
AMENDED SCHEDULE A
EATON VANCE MUNICIPALS TRUST
AMENDED SERVICE PLAN
(TRADITIONAL FUNDS)
EFFECTIVE: SEPTEMBER 29, 1995
Name of Fund Inception Date of Original Plan
------------ --------------------------------
EV Traditional California Municipals Fund* April 14, 1994
EV Traditional Connecticut Tax Free Fund March 21, 1994
EV Traditional Florida Tax Free Fund March 7, 1994
EV Traditional National Municipals Fund March 7, 1994
EV Traditional New Jersey Tax Free Fund March 21, 1994
EV Traditional New York Tax Free Fund March 7, 1994
EV Traditional Pennsylvania Tax Free Fund March 21, 1994
-------------------
*This fund is a successor in operations to a fund which was reorganized,
effective October 1, 1995.
<PAGE>
Exhibit 16
EV CLASSIC CALIFORNIA MUNICIPALS FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 3/31/95:
Interest Income Earned: $15,187
Plus Dividend Income Earned:
----------
Equal Gross Income: $15,187
Minus Expenses: $4,892
----------
Equal Net Investment Income: $10,295
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 309,192
----------
Equal Net Investment Income Earned Per Share: $0.0333
Net Asset Value Per Share 3/31/95: $9.25
30 Day Yield*: 4.36%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.32%
Divided by one minus a tax rate of 34.70%: 0.6530
----------
Equal Tax Equivalent Yield***: 6.68%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0333/$9.25)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and California tax rate of 34.70%
<PAGE>
Exhibit 16
EV CLASSIC CALIFORNIA MUNICIPALS FUND
CALCULATION OF YIELD
For the 30 days ended 3/31/95:
Interest Income Earned: $15,187
Plus Dividend Income Earned:
----------
Equal Gross Income: $15,187
Minus Expenses: $4,892
----------
Equal Net Investment Income: $10,295
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 309,192
----------
Equal Net Investment Income Earned Per Share: $0.0333
Maximum Offering Price Per Share 3/31/95: $9.25
30 Day Yield*: 4.36%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0333/$9.25)+1)-1]
<PAGE>
<TABLE>
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 life of the Fund from December 19, 1985 through March 31, 1995 and for the 1 and 5 year periods
ended March 31, 1995.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT AMOUNT OF BEFORE CDSC AFTER CDSC EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT ON 03/31/95 ON 03/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/19/85 $1,000.00 $1,767.53 $1,767.53 76.75% 6.33% 76.75% 6.33%
5 YEARS ENDED
03/31/95 03/31/90 $1,000.00 $1,336.07 $1,336.07 33.61% 3.17% 33.61% 3.17%
1 YEAR ENDED
03/31/95 03/31/94 $1,000.00 $1,048.90 $1,039.00 4.89% 4.89% 3.90% 3.90%
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 03/31/95 was 4.98% and was calculated by annualizing the most recent dividend
distribution ($0.035364392) and dividing the result by the current maximum offering price ($9.25).
The effective distribution rate as of 03/31/95 was 5.10% and was calculated by dividing the distribtion rate by the compounding
period (365/28), 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:
(365/28)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/28))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON CALIFORNIA MUNICIPALS FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 3/31/95:
Interest Income Earned: $2,242,210
Plus Dividend Income Earned:
----------
Equal Gross Income: $2,242,210
Minus Expenses: $570,328
----------
Equal Net Investment Income: $1,671,882
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 44,831,920
----------
Equal Net Investment Income Earned Per Share: $0.0373
Net Asset Value Per Share 3/31/95: $9.35
30 Day Yield*: 4.83%
Divided by One minus the Tax Rate of 31%: 0.69
-----------
Equal Tax Equivalent Yield **: 7.00%
Divided by one minus a tax rate of 34.70%: 0.6530
----------
Equal Tax Equivalent Yield***: 7.39%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0373/$9.35)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and California tax rate of 34.70%
<PAGE>
Exhibit 16
EV MARATHON CALIFORNIA MUNICIPALS FUND
CALCULATION OF YIELD
For the 30 days ended 3/31/95:
Interest Income Earned: $2,242,210
Plus Dividend Income Earned:
----------
Equal Gross Income: $2,242,210
Minus Expenses: $570,328
----------
Equal Net Investment Income: $1,671,882
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 44,831,920
----------
Equal Net Investment Income Earned Per Share: $0.0373
Maximum Offering Price Per Share 3/31/95: $9.35
30 Day Yield*: 4.83%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0373/$9.35)+1)-1]
<PAGE>
<TABLE>
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 life of the Fund from December 19, 1985 through March 31, 1995 and for the 1 and 5 year periods
ended March 31, 1995.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT AMOUNT OF BEFORE CDSC AFTER CDSC EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT ON 03/31/95 ON 03/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/19/85 $1,000.00 $1,767.37 $1,767.53 76.74% 6.33% 76.74% 6.33%
5 YEARS ENDED
03/31/95 03/31/90 $1,000.00 $1,335.93 $1,316.91 33.59% 5.96% 31.69% 5.66%
1 YEAR ENDED
03/31/95 03/31/94 $1,000.00 $1,049.27 $1,000.37 4.93% 4.93% 0.04% 0.04%
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 03/31/95 was 5.19% and was calculated by annualizing the most recent dividend
distribution ($0.037205504) and dividing the result by the current maximum offering price ($9.35).
The effective distribution rate as of 03/31/95 was 5.31% and was calculated by dividing the distribtion rate by the compounding
period (365/28), 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:
(365/28)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/28))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 3/31/95:
Interest Income Earned: $18,768
Plus Dividend Income Earned:
----------
Equal Gross Income: $18,768
Minus Expenses: $2,715
----------
Equal Net Investment Income: $16,053
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 349,508
----------
Equal Net Investment Income Earned Per Share: $0.0459
Net Asset Value Per Share 3/31/95: $10.50
30 Day Yield*: 5.31%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 7.69%
Divided by one minus a tax rate of 34.70%: 0.6530
----------
Equal Tax Equivalent Yield***: 8.12%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0459/$10.5)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and California tax rate of 34.70%
<PAGE>
Exhibit 16
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
CALCULATION OF YIELD
For the 30 days ended 3/31/95:
Interest Income Earned: $18,768
Plus Dividend Income Earned:
----------
Equal Gross Income: $18,768
Minus Expenses: $2,715
----------
Equal Net Investment Income: $16,053
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 349,508
----------
Equal Net Investment Income Earned Per Share: $0.0459
Maximum Offering Price Per Share 3/31/95: $10.50
30 Day Yield*: 5.31%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0459/$10.5)+1)-1]
<PAGE>
<TABLE>
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 life of the Fund from December 19, 1985 through March 31, 1995 and for the 1 and 5 year periods
ended March 31, 1995.
<CAPTION>
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 03/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/19/85 $962.50 $1,740.15 80.79% 6.59% 74.01% 6.15%
5 YEARS ENDED
03/31/95 03/31/90 $962.50 $1,315.35 36.66% 6.45% 31.54% 5.64%
1 YEAR ENDED
03/31/95 03/31/94 $962.50 $1,033.06 7.33% 7.33% 3.31% 3.31%
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
the maximum initial sales charge of 3.75%.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 03/31/95 was 5.76% and was calculated by annualizing the most recent dividend
distribution ($0.051383585) dividing the result by the current maximum offering price ($10.50).
The effective distribution rate as of 03/31/95 was 5.92% 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
</TABLE>
EXHIBIT 99.17(a)
POWER OF ATTORNEY
We, the undersigned officers and Trustees of Eaton Vance Municipals
Trust, a Massachusetts business trust, do hereby severally constitute and
appoint H. Day Brigham, Jr., Thomas J. Fetter and Thomas Otis, or any of them,
to be true, sufficient and lawful attorneys, or attorney for each of us, to sign
for each of us, in the name of each of us in the capacities indicated below, any
and all amendments (including post-effective amendments) to the Registration
Statement on Form N-1A filed by Eaton Vance Municipals Trust with the Securities
and Exchange Commission in respect of shares of beneficial interest and other
documents and papers relating thereto.
IN WITNESS WHEREOF we have hereunto set our hands on the dates set
opposite our respective signatures.
Signature Title Date
--------- ----- ----
President (Chief
/s/ Thomas J. Fetter Executive Officer) December 29, 1993
---------------------------
Thomas J. Fetter
Treasurer and Principal
/s/ James L. O'Connor Financial and Accounting December 29, 1993
--------------------------- Officer
James L. O'Connor
/s/ Donald R. Dwight Trustee December 29, 1993
---------------------------
Donald R. Dwight
/s/ James B. Hawkes Trustee December 29, 1993
---------------------------
James B. Hawkes
/s/ Samuel L. Hayes III Trustee December 29, 1993
---------------------------
Samuel L. Hayes, III
/s/ Norton H. Reamer Trustee December 29, 1993
---------------------------
Norton H. Reamer
/s/ John L. Thorndike Trustee December 29, 1993
---------------------------
John L. Thorndike
/s/ Jack L. Treynor Trustee December 29, 1993
---------------------------
Jack L. Treynor
EXHIBIT 99.17(b)
POWER OF ATTORNEY
We, the undersigned officers and Trustees of 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 Portfolio, 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, each a New York trust, do
hereby severally constitute and appoint H. Day Brigham, Jr., Thomas J. Fetter
and Thomas Otis, or any of them, to be true, sufficient and lawful attorneys, or
attorney for each of us, to sign for each of us, in the name of each of us in
the capacities indicated below, any and all amendments (including post-effective
amendments) to the Registration Statement on Form N-1A filed by Eaton Vance
Municipals Trust on behalf of any existing or proposed series with the
Securities and Exchange Commission in respect of shares of beneficial interest
and other documents and papers relating thereto.
IN WITNESS WHEREOF we have hereunto set our hands on the dates set
opposite our respective signatures.
Name Capacity Date
---- -------- ----
/s/ Donald R. Dwight Trustee December 29, 1993
---------------------------
Donald R. Dwight
/s/ James B. Hawkes Trustee December 29, 1993
---------------------------
James B. Hawkes
/s/ Samuel L. Hayes III Trustee December 29, 1993
Samuel L. Hayes, III
/s/ Norton H. Reamer Trustee December 29, 1993
---------------------------
Norton H. Reamer
/s/ John L. Thorndike Trustee December 29, 1993
---------------------------
John L. Thorndike
/s/ Jack L. Treynor Trustee December 29, 1993
---------------------------
Jack L. Treynor
President (Chief
/s/ Thomas J. Fetter Executive Officer) December 29, 1993
---------------------------
Thomas J. Fetter
Treasurer and Principal
/s/ James L. O'Connor Financial and Accounting December 29, 1993
--------------------------- Officer
James L. O'Connor
EXHIBIT 99.17(c)
POWER OF ATTORNEY
We, the undersigned officers and Trustees of California Tax Free
Portfolio, a New York trust, do hereby severally constitute and appoint H. Day
Brigham, Jr., James B. Hawkes and Thomas Otis, or any of them, to be true,
sufficient and lawful attorneys, or attorney for each of us, to sign for each of
us, in the name of each of us in the capacities indicted below, any and all
amendments (including post-effective amendments) to the Registration Statement
on Form N-1A filed by Eaton Vance Municipals Trust with the Securities and
Exchange Commission in respect of shares of beneficial interest and other
documents and papers relating thereto.
IN WITNESS WHEREOF we have hereunto set our hands on the dates set
opposite our respective signatures.
Signature Title Date
--------- ----- ----
/s/ Thomas J. Fetter President June 19, 1995
---------------------------
Thomas J. Fetter
/s/ Donald R. Dwight Trustee June 19, 1995
---------------------------
Donald R. Dwight
/s/ James B. Hawkes Trustee June 19, 1995
---------------------------
James B. Hawkes
/s/ Samuel L. Hayes, III Trustee June 19, 1995
---------------------------
Samuel L. Hayes, III
/s/ Norton H. Reamer Trustee June 19, 1995
---------------------------
Norton H. Reamer
/s/ John L. Thorndike Trustee June 19, 1995
---------------------------
John L. Thorndike
/s/ Jack L. Treynor Trustee June 19, 1995
---------------------------
Jack L. Treynor
Treasurer and Principal
/s/ James L. O'Connor Financial and Accounting June 19, 1995
--------------------------- Officer
James L. O'Connor
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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